# EDGAR Filing Document

**Accession Number:** 0001390777
**File Stem:** 0001193125-23-055117
**Filing Date:** 2023-3
**Character Count:** 487538
**Document Hash:** c82efa5c3c6d8673c21bb42d57afbce9
**Contains OCR:** False
**Source Format:** 

## Filing Content

## Filing Summary
**0001193125-23-055117.hdr.sgml**: 20230301

**ACCESSION NUMBER**: 0001193125-23-055117

**CONFORMED SUBMISSION TYPE**: ARS

**PUBLIC DOCUMENT COUNT**: 1

**CONFORMED PERIOD OF REPORT**: 20221231

**FILED AS OF DATE**: 20230301

**DATE AS OF CHANGE**: 20230301

**EFFECTIVENESS DATE**: 20230301

**FILER**: 

**COMPANY DATA:**
- **COMPANY CONFORMED NAME:** Bank of New York Mellon Corp
- **CENTRAL INDEX KEY:** 0001390777
- **STANDARD INDUSTRIAL CLASSIFICATION:** STATE COMMERCIAL BANKS [6022]
- **IRS NUMBER:** 132614959
- **STATE OF INCORPORATION:** DE
- **FISCAL YEAR END:** 1231

**FILING VALUES:**
- **FORM TYPE:** ARS
- **SEC ACT:** 1934 Act
- **SEC FILE NUMBER:** 001-35651
- **FILM NUMBER:** 23689685

**BUSINESS ADDRESS:**
- **STREET 1:** 240 GREENWICH STREET
- **CITY:** NEW YORK
- **STATE:** NY
- **ZIP:** 10286
- **BUSINESS PHONE:** 212-495-1784

**MAIL ADDRESS:**
- **STREET 1:** 240 GREENWICH STREET
- **CITY:** NEW YORK
- **STATE:** NY
- **ZIP:** 10286

**FORMER COMPANY:**
- **FORMER CONFORMED NAME:** Bank of New York Mellon CORP
- **DATE OF NAME CHANGE:** 20070221

### Attached PDF Documents

**Attachment 1:** `d410581dars.pdf`

# ONWARD TO OPPORTUNITY

ANNUAL REPORT 2022

BNY MELLON

Robin Vince,
President and
Chief Executive Officer

![img-0.jpeg](img-0.jpeg)

# DEAR FELLOW SHAREHOLDERS,

I'm writing my first letter to you six months into my tenure as CEO of BNY Mellon.

It's an honor to be leading this institution, with its rich history and pivotal role in global markets.

BNY MELLON

i

## Global reach and scale

**$44T**

Assets under custody
and/or administration1

**$5.5T**

Average triparty
balances3

**$1.8T**

Assets under
management2

**$2.5T**

Average daily U.S. dollar
payment value3

**$10T**

Average daily
clearance value3

**$270B**

Wealth Management
client assets4

## Leading market positions

**#1**

Global custodian5

**#1**

Provider of global
collateral services7

**TOP 10**

Global asset manager10

**#1**

Global provider of
issuer services6

**#1**

Clearing firm for broker-dealers
and Top 3 Registered Investment
Advisor custodian8

**TOP 10**

U.S. private bank11

**#1**

Provider of clearing and settlement
for U.S. government securities

**TOP 5**

Global U.S. dollar
payments clearer9

1 As of December 31, 2022. Consists of assets under custody and/or administration ("AUC/A"), primarily from the Asset Servicing business and, to a lesser extent, the Clearance and Collateral Management, Issuer Services, Pershing and Wealth Management businesses. Includes the AUC/A of CIBC Mellon Global Securities Services Company ("CIBC Mellon"), a joint venture with the Canadian Imperial Bank of Commerce, of $1.5 trillion at December 31, 2022.

2 As of December 31, 2022. Excludes assets managed outside of the Investment and Wealth Management business segment.

3 Average for the quarter ended December 31, 2022.

4 As of December 31, 2022. Includes assets under management and AUC/A in the Wealth Management line of business.

5 Ranking based on latest available peer group company filings. Peer group included in ranking analysis: State Street, JPMorgan Chase, Citigroup, BNP Paribas, HSBC, Northern Trust and RBC.

6 Full-year 2022 figures by deal volume and count referenced herein include long-term program and stand-alone bond issuance in markets where BNY Mellon actively participates and for which public trustee and/or paying agent data is available. Sources include: Refinitiv, Dealogic, Asset-Backed Alert and Concept ABS. Transactions are credited based on trustee/paying agent appointments, depending on the product and market in question. Depository Receipts ranking as of December 31, 2022. Ranked #1 based on market share sourced from

BNY Mellon internal analysis.

7 Finadium market analysis as of fourth quarter 2022.

8 LaRoche Research Partners, "Clearing Firm Customer Composition 2022," based on number of broker-dealer clients. Registered Investment Advisor rankings sourced from "Cerulli Report, U.S. IRA Marketplace 2022," Cerulli Associates.

9 The Clearing House. Based on CHIPS volumes for the year ended December 31, 2022.

10 Pensions & Investments, June 6, 2022. Ranked by total worldwide assets under management as of December 31, 2021.

11 Based on company filings and The Cerulli Report, 2022. Ranked by Wealth Management assets under management as of December 31, 2022.

II

ANNUAL REPORT 2022

We are proud of the trust clients and the industry place in us, although I've never thought of BNY Mellon as a typical "trust" bank. We touch around 20% of the world's investable assets and hold many industry-leading positions across our broader set of complementary businesses. These synergistic businesses give us an end-to-end view of the investment lifecycle, allowing us to act as a single point of contact for clients looking to create, trade, hold, manage, service, distribute or restructure investments. We see ourselves as a comprehensive platform for the financial markets of the world, a responsibility we take very seriously.

Since joining the firm, I've met with hundreds of clients and thousands of employees around the world to understand how they perceive our challenges and opportunities. I've also met with our regulators, other stakeholders and many of you. I'll share a few of my observations.

First and foremost, it's clear that our clients - including many of the world's leading financial institutions, asset managers and governments - trust us deeply with some of the most sensitive aspects of their businesses. They value our at-scale platform, which allows them to operate more efficiently and focus on the core competencies that drive their growth.

## Breadth of our client franchise

**93%**

of Fortune 100 companies

**89%**

of the Top 100 investment managers worldwide

**94%**

of the Top 50 U.S. life/health insurance companies

**97%**

of the Top 100 banks worldwide

Sources: Fortune 100: For 2022, Fortune, Time Inc. ©2022; Investment Managers: Pensions & Investments, worldwide assets under management as of December 31, 2021; P&I Crain Communications Inc. ©2022; Life and Health Insurance Companies: A.M. Best total admitted assets as of July 2022; A.M. Best Company, Inc. ©2022; Banks: S&P Global, total assets as of December 31, 2021; ©2022 S&P Global; client penetration assessment based on positive 2022 revenue with client company or parent/holding company.

It's also clear we have a collaborative and intensely client-focused culture, which we find special and differentiating. Our employees take real pride in delivering for our clients and the company.

In addition, resilience is essential to who we are. The strength and stability of our platform present a differentiated value proposition to the market that may not be fully appreciated. Clients can look to us for our demonstrated ability to operate through times of crisis, as well as a strong, well-capitalized and lower credit-risk balance sheet. These are important attributes, especially in turbulent markets and challenging environments like those we faced in 2022.

Despite these positives, let me be clear - our firm has not fully lived up to the promise afforded to us by our history, culture and client relationships. Among other external factors, deferred decisions, resulting in part from a lack of consistent execution over the past decade, have held our performance back. Today, we see real potential to materially improve the company's operating model and drive profitable growth.

With this as a starting point, I'll offer a candid assessment of the past and an early vision for the future. Recognizing that more work remains for us as a management team, I believe we are on solid footing to begin our next chapter.

BNY MELLON

III

# LOOKING BACK

Over the past decade, we made progress across a variety of strategic initiatives that have strengthened our leading position at the intersection of trust and innovation.

At the same time, we missed out on opportunities to deliver a stronger commercial proposition to the market. As a result, our track record for revenue and pre-tax income growth has not met our expectations.

![img-1.jpeg](img-1.jpeg)

IV

ANNUAL REPORT 2022

**First, I’ll touch on what we have done well:**

**Resilience**

As a key service provider to the U.S. government that plays an integral role in global markets, resilience is both a responsibility we take seriously and an attribute we see as highly commercial.

For these reasons, we have invested significantly in our infrastructure to provide a strong foundation from a security, resiliency and scalability perspective, enabling us to provide continuity of service to clients through the COVID-19 pandemic and the extraordinary moves we saw more recently with several government debt markets and volume surges. Our enhanced contingent capabilities support this solid foundation, which is continually tested against various stress scenarios. A few examples:

- We have systematically reviewed and moved over 90% of our distributed applications onto new, modern infrastructure.
- We’ve rationalized our data-center footprint into a limited but resilient set of state-of-the-art data centers, each hosting our global applications.
- We leverage our sophisticated Cyber, Technology and Operations Center that deploys advanced monitoring, artificial intelligence and machine learning for detection and rapid response, helping to protect clients and their assets.

Importantly, we know we are not done - nor will we ever be done - so we have embedded an approach for continual improvement of our systems in support of global market stability.

**Sales momentum**

The depth and longevity of our client relationships is a powerful advantage. More recently, we’ve elevated client dialogue while maintaining a strong focus on service quality, which has translated into higher-value deals and net new asset generation that better reflect the strength of our platform.

**Innovation**

Part of what attracted me to BNY Mellon a little over two years ago was its track record as a frequent first mover, tracing back to the company’s founding. In the past decade alone, BNY Mellon was the first bank to make a real-time payment in the United States using The Clearing House’s network, the first to offer real-time e-billing in the U.S. and, most recently, the first global systemically important bank to provide custody of digital assets.

BNY MELLON

V

**While we’ve succeeded in many areas, we’ve also missed opportunities and fallen short of investors’ and our own expectations in others. Three interrelated examples come to mind:**

### Deepening relationships across our platform

One resounding message I hear from clients is that they want to do more business with us. Making this easier for them presents a meaningful growth opportunity on which we have yet to properly capitalize. As the beginning of that new journey, we have launched 1BNY Mellon, a program that aims to generate new business across different products from existing client relationships. We have also drawn into the core of our firm some businesses that previously operated separately. While this is a start, there is more opportunity here. We must do a better job connecting the dots internally and externally, and we will.

### Profitable new business growth

While sales momentum has picked up in recent years, that business has too often come at relatively low margins, with pricing concessions and deals structured in bespoke, complex ways that underestimate operating costs or do not lend themselves to scale. An honest reckoning of the past tells us that sometimes, we have had insufficient focus on margin and re-engineering. Going forward, we must do a better job of focusing crisply on the bottom line and the true cost to serve.

### Long-term financial performance

Over the past decade, excluding notable items, our revenue and pre-tax income have grown by low single digits annually.$^{1}$ Additionally, over this period, we incurred over $2 billion of net charges related to notable items, which impacted our reported results. More recently, our expenses excluding notable items have grown by more than 5% in both 2021 and 2022 - 5% and 13%, respectively, on a reported basis - a rate of growth we consider too high.$^{2}$ We are therefore increasing our focus on expense accountability and driving meaningful operational efficiency while also focusing on profitable new business in 2023 and beyond.

$^{1}$ Compound annual growth rate. See page XX for reconciliation of these non-GAAP measures. On a reported basis, revenue grew by 1%, and pre-tax income was flat.

$^{2}$ See “Supplemental Information: Explanation of GAAP and non-GAAP financial measures,” beginning on page 104, for the reconciliations.

VI

ANNUAL REPORT 2022

# 2022 FINANCIAL PERFORMANCE

Acknowledging that the prior decade's financial performance has been underwhelming, we delivered solid results in 2022 against the backdrop of a complex operating environment. We ultimately reported EPS of $2.90, revenue of $16.4 billion and return on common equity (ROE) of 7%. Adjusting for the impact of notable items, EPS increased by 8%, to $4.59 on $16.9 billion of revenue, which was up 6% year-over-year, and return on tangible common equity (ROTCE) was a very healthy 21%.1 Fees were up 1% excluding notable items, or flat on a reported basis, despite significant headwinds from both markets and a stronger U.S. dollar.1

Growth benefited from lower money market fee waivers and we drove incremental business with new and existing clients, saw organic growth in assets under custody and/or administration (AUC/A) and net inflows into assets under management (AUM).

Across our diversified portfolio of businesses, we saw healthy underlying growth in our Securities Services and Market and Wealth Services segments while our Investment and Wealth Management segment felt the strain of a continued decline in global market values and client de-risking. Firmwide, we continuously positioned ourselves to derive meaningful benefit from the upward move in interest rates.

## STRONG CAPITAL AND LIQUIDITY POSITION

Over the course of the year, we returned $1.3 billion of capital to shareholders, primarily through our quarterly cash dividends on common stock, which we increased by 9%, to $0.37 per share beginning in the third quarter. The sharp move upward in interest rates this past year impacted our ability to return capital through common stock buybacks, but we ended 2022 in a position of capital and liquidity strength.

Our Tier 1 leverage ratio of 5.8% and Common Equity Tier 1 ratio of 11.2% were higher and flat, respectively, versus year-ago levels, and comfortably above regulatory requirements and our more stringent management targets. Our liquidity coverage ratio ended the year at 118%, up from 109% a year ago. And over the course of 2022, we meaningfully reduced the duration and improved the risk and liquidity profile of our securities portfolio while keeping over 60% of the book designated as available-for-sale, which we viewed as a more prudent approach given the environment. Together, we expect these actions will provide us with ample flexibility as we move through 2023 to adjust to changing market and interest rate conditions, and to return a healthy amount of capital to our shareholders this year.

1 See 'Supplemental Information: Explanation of GAAP and non-GAAP financial measures,' beginning on page 104, for the reconciliations.

BNY MELLON

VII

# SECURITIES SERVICES

Our Securities Services segment includes our Asset Servicing, Corporate Trust and Depositary Receipts businesses. We enjoy industry-leading positions across most of the segments in which these businesses operate.

Revenues were up 11% in 2022, reflecting the benefit from higher interest rates as well as healthy underlying growth. Asset Servicing growth came from existing clients and higher-value sales wins, with particular strength in ETFs and Alternatives. In Issuer Services, the businesses mitigated stiff headwinds from lower issuance volumes in Corporate Trust, and managed the exceptionally complex landscape resulting from sanctions on Russia and our decision to cease new banking business in the country.

Although we were pleased with our revenue momentum, our pre-tax margin of 21% for this business in 2022 remains too low for some of the reasons mentioned above. We are executing against a multiyear plan to achieve our target of 30%-plus pre-tax margin in this business over the medium term. It will come from a combination of higher interest rates, driving “profitable” growth and becoming meaningfully more efficient across our operations: consolidating and integrating technology platforms, better standardizing middle-office and data offerings, digitizing engagement with clients and automating onboarding.

# MARKET AND WEALTH SERVICES

Our Market and Wealth Services segment includes our industry-leading Pershing and Clearance and Collateral Management businesses, and our scaled Treasury Services business. This segment enables us to drive multi-business solutions and equips us as a premier market infrastructure provider, distinguishing us in the marketplace from our closest peers.

Revenues were up 11% in 2022, with all three businesses growing at 10%-plus. Despite a difficult environment for the wealth market, Pershing brought in net new assets of over $120 billion, reflecting healthy 5% growth. Treasury Services added new business across strategic payment solutions and liquidity products, and drove higher payment volumes while also generating strong initial traction as we built our Digital Payments and related FX and Trade businesses. Clearance and Collateral Management revenue primarily grew on the back of higher U.S. government clearance volumes, driven by continued demand for U.S. Treasury securities due to elevated volatility amid evolving monetary policy. The business also continued to drive client migration and balances to our triparty platform, which reached a record for our business of $5.5 trillion in the second half of 2022.

In this segment, pre-tax income improved by 10%, and pre-tax margin remained a healthy 44%.

VIII

ANNUAL REPORT 2022

# INVESTMENT AND WEALTH MANAGEMENT

The impact of weaker markets and a stronger U.S. dollar had a material impact on this business segment, comprising Investment Management - one of the world’s largest asset managers - and Wealth Management - which ranks among the top 10 private banks in the United States. This was felt both directly and indirectly, as the uncertain environment caused some investors to rebalance and maintain liquidity, ultimately moving their investments into lower-fee, risk-off solutions. As a result, revenues declined by 12% and the business essentially broke even with a pre-tax margin of 1%, though it was 24% after adjusting for notable items, primarily a goodwill impairment.$^{1}$

Despite these lower financial results, both Investment Management and Wealth Management made progress against our strategic priorities and performed well in areas under our control. In Investment Management, our differentiated, specialist investment firms displayed resilience, and performance was solid, improving from the prior year, with about two-thirds of our top 30 strategies ranked in the top two quartiles versus peers.$^{2}$ AUM flows were positive, and the business impressively navigated significant turbulence in the U.K. gilt (government securities) market. In Wealth Management, investment performance also remained solid, and the business acquired more clients, particularly with ultra-high-net-worth and family-office segments, while continuing to deepen existing relationships through our expanded banking offering.

1 See “Supplemental Information: Explanation of GAAP and non-GAAP financial measures,” beginning on page 104, for the reconciliations.

2 Rankings are relative to their respective Morningstar peer categories on a three-year basis.

BNY MELLON

IX

# LOOKING FORWARD

In 2023, a sense of purpose, execution and efficiency will be key to driving long-term profitable growth and improved pre-tax margins for our company.

![img-0.jpeg](img-0.jpeg)

X

ANNUAL REPORT 2022

Here are some of the key questions on my mind as we consider the future:

## How do we become more effective at delivering the whole firm to our clients?

We recognize a need to better connect the dots for our clients around the world, so they can leverage the combined strength and interconnectedness of our platform to focus on alpha generation. Through 1BNY Mellon, our focus is on training and incentivizing our people to collaborate across the firm and developing deliberate approaches to multiproduct solutions. We’ve mobilized cross-business sales teams around specific client segments to facilitate opportunities, and we’ve established cross-functional market leadership teams to increase client penetration.

## How can we make better use of our vast amount of data?

With $48 trillion in data assets, we have access to one of the world’s most expansive data sets.$^{1}$ Each day, we track trading activity for around $15 trillion in global equity assets and $30 trillion in fixed-income securities. The richness of our data enables us to translate unique insights for our clients into opportunities and risks. Moving forward, we see potential to better use our data-centric platform to inform client decision-making.

Each day, we track trading activity for around

**$15 TRILLION**

in global equity assets and

**$30 TRILLION**

in fixed-income securities

$^{1}$ Data is as of December 31, 2022 unless otherwise noted.

BNY MELLON

XI

## What does it take to truly transform our operating model toward more efficiency?

Our company operations are not as streamlined as they need to be. Like other large institutions, we have certain legacy processes and redundant systems overdue for a refresh. For example, we have multiple custody, loan and deposit platforms, and we operate numerous different call centers. Recognizing opportunities to digitize and automate, we launched an initiative in 2022 through which we solicited more than 1,500 ideas from those who see items ripe for improvement most clearly and closely - our people. Beyond formal measures, we're also encouraging a culture shift to think more commercially and question the status quo, which has the additional key benefit of improving the client experience.

## Are we making the right investments in our future?

We have identified and begun shifting investment toward calculated growth opportunities while simultaneously continuing to invest in capabilities that support our resilience. Our long-term growth initiatives have clear and specific targets that we expect the teams to hit over the course of the year. While some investments may not see profitable growth in the very short term, we believe early developments in the infrastructure of the future will secure our position as an industry leader. We are being disciplined in the number of investments we take on, with an eye on our ambition and what we can achieve, while also staying grounded to a sensible expense spend. In 2022, we made progress across the various initiatives that follow, and we will continue these in 2023.

XII

ANNUAL REPORT 2022

# WEALTH TECHNOLOGY

There's a productivity problem in the wealth advisory industry, presenting a growth opportunity for firms that can solve it. Just one year after launching Pershing X, our proprietary advisory solution that aims to transform the marketplace, we released a preliminary version to select clients. This is a testament to our ability to execute on a tight timeline. We have set our sights high for 2023, with a broader rollout expected later this year.

# REIMAGINING OF COLLATERAL

Three years ago, we announced the Future of Collateral, an initiative to enhance our capabilities to meet the increasingly complex demands of clients. Following investments in state-of-the-art technology, our collateral platform is more resilient, supports harmonization, and helps clients to optimize, mobilize, and connect collateral around the world. Our enhanced capabilities, together with the complementary services we deliver with leading fintechs, will benefit our clients and should create opportunities in the years to come.

# FASTER PAYMENTS

We see real-time payments as enabling a more efficient, transparent and frictionless future for clients, while also saving them money and reducing the financial industry's carbon footprint. As the first bank to execute a real-time payment in the United States using The Clearing House's network, BNY Mellon is positioned to help institutions and people around the world make payments instantly and take ownership of their finances. We enjoy a relatively unconflicted position in the U.S. payment industry, without attachment to interchange fees or the bricks and mortar that can inhibit self-disruption. We also see possibilities in the growth of request-for-payment technology for consumers, and we intend to continue making investments in this space.

# BLOCKCHAIN AND TOKENIZED ASSETS

Our teams consider the broader opportunity that exists across blockchain technology and tokenized assets as a potential way to make financial markets faster, more efficient and more resilient. Uncertainty in the cryptoasset space only further highlights the need for trusted, regulated providers in this ecosystem. We went live with our Digital Asset Custody platform for select institutional clients in the United States in October 2022, the first global systemically important bank to do so. This is a starting point in what we see as a decades-long journey for blockchain and tokenization.

BNY MELLON

XIII

## Do we have the right talent, culture and incentives to accomplish our ambitious goals?

Our potential as a company depends on cultivating a high-performing and diverse culture. We are focused on empowering employees to act as owners of their individual roles and shareholders of the company as a whole. We recently initiated an equity grant program called “BK Shares” so that almost all employees now own BNY Mellon stock, helping align the firm with our vision. We also took a closer look at annual compensation to commensurately reward the people who consistently deliver commercial success, while ensuring the appropriate shape of our workforce for the road ahead. These changes allow us to run the organization more efficiently and reinvest in new benefits programs and emerging talent - and we expect to break our record for college recruitment in 2023.

## How can we leverage our role in global financial markets and our resources to make a positive impact on society?

Not only is helping more people access wealth-generating opportunities and benefit from our capabilities the right thing to do; it’s also a commercial endeavor. Uplifting historically underserved communities and finding opportunities for collaboration with specialized market players benefits the long-term health of our company and the broader society around us. Over the past year, we were proud of the impact we made on our communities and intend to expand these initiatives in 2023.

![img-1.jpeg](img-1.jpeg)

See our client stories

XIV

ANNUAL REPORT 2022

## EXPORTING CAPABILITIES

![img-2.jpeg](img-2.jpeg)

### Market access for communities

Our scale and significance place us in a privileged position, but also grant us the responsibility of helping the financial system work better for everyone. From Treasury Services to Clearance and Collateral Management to Pershing, we can export our industry-leading positions and global capabilities to communities around the world through strategic alliances with other financial firms. We are proud to work with South Carolina-based Optus Bank to expand its capacity, market reach and community reinvestment opportunities with BNY Mellon products, services and infrastructure. In the months ahead, we intend to share more about collaborations like this that bring our suite of services to communities far removed from major centers of capital, doing our part to democratize quality financial services to an increasing number of market participants.

## INCREASING INCLUSION

![img-3.jpeg](img-3.jpeg)

### Collaborations with diverse businesses

Our commitment to improving diversity and inclusion extends to the markets in which we operate. We were fortunate to work with joint lead bookrunners Loop Capital Markets, Ramirez & Co. and Siebert Williams Shank - all clients that also happen to be minority-owned investment firms - on a bond issuance in the second quarter of 2022. In November, eight veteran-owned broker-dealers participated in an offering of senior bank notes. In 2023, we plan to continue making proactive and deliberate efforts to include more communities in successful commercial outcomes.

## SUPPORTING TALENT

![img-4.jpeg](img-4.jpeg)

### BOLD initiative benefiting Howard University

Speaking further to our focus on recruiting high-performance talent, we began an exciting collaboration with Howard University, one of the leading historically Black colleges and universities in the United States, with the launch of the Black Opportunity for Learning and Development (BOLD) share class of the Dreyfus Government Cash Management fund. The program helps translate our clients’ liquidity solution investments through BOLD$^{SM}$ to supporting Howard University’s Graduation Retention Access to Continued Excellence (GRACE) Grant, which aids in removing financial obligations and improving graduation rates for at-need students. According to Howard University, to date, recipients saw an average 15% increase in retention and an average four-year graduation rate of 78%, a 32% increase compared with students who did not receive these funds.

BNY MELLON

XV

“While I’m conscious of the work that remains, I strongly believe in our long-term potential.

Over the near term, executing with surgical precision and urgency will be critical to our success.”

XVI

ANNUAL REPORT 2022

# IN CONCLUSION

Given our prominent position in global markets, our businesses are naturally sensitive to valuation and activity levels to varying degrees.

I'm encouraged by the positive long-term developments we are seeing in the U.S. economy around self-sufficiency, ranging from improved energy independence to chip development, and excited about the innovations and new technologies underpinning blockchain and tokenization that will offer benefits to the financial system and broader economy. At the same time, geopolitical strains, uncertainty around inflationary policy and the path of interest rates, as well as liquidity concerns, are likely to continue to temper the near-term global outlook.

Acknowledging that these uncertainties will carry some challenges, it's important to underscore a renewed sense of optimism running through our company. We see opportunities in these trends and, more broadly, we recognize opportunities to do more across our extensive suite of products and services for our clients.

While I'm conscious of the work that remains, I strongly believe in our long-term potential.

Over the near term, executing with surgical precision and urgency will be critical to our success.

We have a highly engaged Board supporting us and appropriately challenging our strategy, plans and execution. Transparency will remain a constant theme with our management team, and we intend to bring all stakeholders along on our transformation journey with regular updates demonstrating our progress and frank assessments of the work that remains.

I'll conclude where I began:
BNY Mellon has a great deal of potential, and I feel privileged to be in the position to lead us toward our future opportunities. I'm proud of our people, grateful for our clients and for all of you as our investors. On behalf of our company, I am excited for what comes next.

# ONWARD,

Robin Vince, President and
Chief Executive Officer

BNY MELLON

XVII

# FINANCIAL HIGHLIGHTS

The Bank of New York Mellon Corporation (and its subsidiaries)
(dollars in millions, except per common share amounts or unless otherwise noted)

|  | 2022 | 2021 |
| --- | --- | --- |
| SELECTED INCOME STATEMENT INFORMATION |  |  |
| Fee and other revenue | $12,873 | $13,313 |
| Net interest revenue | 3,504 | 2,618 |
| Total revenue | 16,377 | 15,931 |
| Provision for credit losses | 39 | (231) |
| Total noninterest expense | 13,010 | 11,514 |
| Income before income taxes | 3,328 | 4,648 |
| Net income applicable to common shareholders of The Bank of New York Mellon Corporation | $2,362 | $3,552 |
| Earnings per common share - diluted | $2.90 | $4.14 |
| Cash dividends per common share | $1.42 | $1.30 |
| FINANCIAL RATIOS |  |  |
| Pre-tax operating margin | 20% | 29% |
| Return on common equity | 6.5% | 8.9% |
| Return on tangible common equity - non-GAAP (a) | 13.4% | 17.1% |
| NON-GAAP MEASURES, EXCLUDING NOTABLE ITEMS (b) |  |  |
| Adjusted total revenue | $16,888 | $15,918 |
| Adjusted total noninterest expense | 11,981 | 11,385 |
| Adjusted earnings per common share - diluted | 4.59 | 4.24 |
| Adjusted pre-tax operating margin | 29% | 30% |
| Adjusted return on common equity | 10.3 | 9.2 |
| Adjusted return on tangible common equity (a) | 21.0 | 17.6 |
| KEY METRICS AT DECEMBER 31 |  |  |
| Assets under custody and/or administration (“AUC/A”) (in trillions) (c) | $44.3 | $46.7 |
| Assets under management (in billions) (d) | $1,836 | $2,434 |
| BALANCE SHEET AT DECEMBER 31 |  |  |
| Total assets | $405,783 | $444,438 |
| Total deposits | 278,970 | 319,694 |
| Total The Bank of New York Mellon Corporation common shareholders’ equity | 35,896 | 38,196 |
| CAPITAL RATIOS AT DECEMBER 31 |  |  |
| Consolidated regulatory capital ratios: |  |  |
| Common Equity Tier 1 (“CET1”) ratio (e) | 11.2% | 11.2% |
| Tier 1 capital ratio (e) | 14.1 | 14.0 |
| Total capital ratio (e) | 14.9 | 14.9 |
| Tier 1 leverage ratio | 5.8 | 5.5 |
| Supplementary leverage ratio | 6.8 | 6.6 |
| MARKET INFORMATION AT DECEMBER 31 |  |  |
| Closing stock price per common share | $45.52 | $58.08 |
| Market capitalization | $36,800 | $46,705 |
| Common shares outstanding (in thousands) | 808,445 | 804,145 |

(a) Return on tangible common equity, a non-GAAP measure, excludes goodwill and intangible assets, net of deferred tax liabilities. See “Supplemental information: Explanation of GAAP and non-GAAP financial measures” beginning on page 104 for a reconciliation.

(b) Adjusted measures exclude notable items. See “Supplemental Information: Explanation of GAAP and non-GAAP financial measures,” beginning on page 104.

(c) 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 Global Securities Services Company, a joint venture.

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

(e) For our CET1, Tier 1 capital and Total capital ratios, our effective capital ratios under U.S. capital rules are the lower of the ratios as calculated under the Standardized and Advanced Approaches, which for Dec. 31, 2022 was the Advanced Approaches, and for Dec. 31, 2021 was the Standardized Approach.

BNY MELLON

XIX

# SUPPLEMENTAL INFORMATION

## Explanation of GAAP and non-GAAP financial measures

We have included in this letter to shareholders certain non-GAAP measures of total revenue and total pre-tax income. We believe that these measures provide useful information to investors for evaluating the underlying performance of our business.

### TOTAL REVENUE AND PRE-TAX INCOME RECONCILIATION

*(dollars in millions)*

|  | 2022 | 2012 | 2022 vs. 2012 (CAGR) |
| --- | --- | --- | --- |
| Total revenue - GAAP | $16,377 | $14,610 | 1% |
| Impact of notable items 1 | (511) | - |  |
| Adjusted total revenue - non-GAAP | $16,888 | $14,610 | 1% |
| Total pre-tax income - GAAP | $3,328 | $3,357 | - |
| Impact of notable items 1 | (1,540) | (575) |  |
| Adjusted total pre-tax income - non-GAAP | $4,868 | $3,932 | 2% |

$^{1}$ Notable items impacting total revenue in 2022 include the net loss from repositioning the securities portfolio, the accelerated amortization of deferred costs for depositary receipts services related to Russia and net gains on disposals. Notable items impacting total pre-tax income in 2022 also include the goodwill impairment, severance expense and litigation reserves. Notable items impacting total pre-tax income in 2012 include merger and integration charges, litigation reserves, restructuring charges and a charge related to investment management funds, net of incentives.

XX

ANNUAL REPORT 2022

# FINANCIAL SECTION

# **THE BANK OF NEW YORK MELLON CORPORATION**
**2022 Annual Report**
**Table of Contents**

|  | Page |  | Page |
| --- | --- | --- | --- |
| Financial Summary | 2 | Financial Statements: |  |
| Management's Discussion and Analysis of Financial Condition and Results of Operations: |  | Consolidated Income Statement | 116 |
| Results of Operations: |  | Consolidated Comprehensive Income Statement | 118 |
| General | 3 | Consolidated Balance Sheet | 119 |
| Overview | 3 | Consolidated Statement of Cash Flows | 120 |
| Key 2022 events | 3 | Consolidated Statement of Changes in Equity | 121 |
| Summary of financial highlights | 4 | Notes to Consolidated Financial Statements: |  |
| Fee and other revenue | 6 | Note 1 - Summary of significant accounting and reporting policies | 123 |
| Net interest revenue | 9 | Note 2 - Accounting changes and new accounting guidance | 135 |
| Noninterest expense | 12 | Note 3 - Acquisitions and dispositions | 135 |
| Income taxes | 12 | Note 4 - Securities | 136 |
| Review of business segments | 13 | Note 5 - Loans and asset quality | 141 |
| International operations | 21 | Note 6 - Leasing | 146 |
| Critical accounting estimates | 23 | Note 7 - Goodwill and intangible assets | 148 |
| Consolidated balance sheet review | 27 | Note 8 - Other assets | 150 |
| Liquidity and dividends | 36 | Note 9 - Deposits | 151 |
| Capital | 40 | Note 10 - Contract revenue | 151 |
| Trading activities and risk management | 45 | Note 11 - Net interest revenue | 153 |
| Asset/liability management | 47 | Note 12 - Income taxes | 154 |
| Risk Management | 49 | Note 13 - Long-term debt | 155 |
| Supervision and Regulation | 56 | Note 14 - Variable interest entities | 155 |
| Other Matters | 73 | Note 15 - Shareholders' equity | 156 |
| Risk Factors | 74 | Note 16 - Other comprehensive income (loss) | 160 |
| Recent Accounting Developments | 103 | Note 17 - Stock-based compensation | 161 |
| Supplemental Information (unaudited): |  | Note 18 - Employee benefit plans | 162 |
| Explanation of GAAP and Non-GAAP financial measures (unaudited) | 104 | Note 19 - Company financial information (Parent Corporation) | 168 |
| Rate/volume analysis (unaudited) | 109 | Note 20 - Fair value measurement | 171 |
| Forward-looking Statements | 110 | Note 21 - Fair value option | 179 |
| Glossary | 112 | Note 22 - Commitments and contingent liabilities | 180 |
| Report of Management on Internal Control Over Financial Reporting | 113 | Note 23 - Derivative instruments | 185 |
| Report of Independent Registered Public Accounting Firm | 114 | Note 24 - Business segments | 191 |
|  |  | Note 25 - International operations | 194 |
|  |  | Note 26 - Supplemental information to the Consolidated Statement of Cash Flows | 195 |
|  |  | Report of Independent Registered Public Accounting Firm | 196 |
|  |  | Directors, Executive Committee and Other Executive Officers | 201 |
|  |  | Performance Graph | 202 |

# The Bank of New York Mellon Corporation (and its subsidiaries)

## Financial Summary

| (dollars in millions, except per share amounts and unless otherwise noted) | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Selected income statement information: |  |  |  |
| Fee and other revenue | $12,873 | $13,313 | $12,831 |
| Net interest revenue | 3,504 | 2,618 | 2,977 |
| Total revenue | 16,377 | 15,931 | 15,808 |
| Provision for credit losses | 39 | (231) | 336 |
| Noninterest expense | 13,010 | 11,514 | 11,004 |
| Income before income taxes | 3,328 | 4,648 | 4,468 |
| Provision for income taxes | 768 | 877 | 842 |
| Net income | 2,560 | 3,771 | 3,626 |
| Net loss (income) attributable to noncontrolling interests related to consolidated investment management funds | 13 | (12) | (9) |
| Preferred stock dividends | (211) | (207) | (194) |
| Net income applicable to common shareholders of The Bank of New York Mellon Corporation | $2,362 | $3,552 | $3,423 |
| Earnings per share applicable to common shareholders of The Bank of New York Mellon Corporation: |  |  |  |
| Basic | $2.91 | $4.17 | $3.84 |
| Diluted | $2.90 | $4.14 | $3.83 |
| Average common shares and equivalents outstanding (in thousands): |  |  |  |
| Basic | 811,068 | 851,905 | 890,839 |
| Diluted | 814,795 | 856,359 | 892,514 |
| At Dec. 31 |  |  |  |
| Assets under custody and/or administration (“AUC/A”) (in trillions) (a) | $44.3 | $46.7 | $41.1 |
| Assets under management (“AUM”) (in billions) (b) | 1,836 | 2,434 | 2,211 |
| Selected ratios: |  |  |  |
| Return on common equity | 6.5% | 8.9% | 8.7% |
| Return on tangible common equity - Non-GAAP (c) | 13.4 | 17.1 | 17.0 |
| Pre-tax operating margin | 20 | 29 | 28 |
| Net interest margin | 0.97 | 0.68 | 0.84 |
| Cash dividends per common share | $1.42 | $1.30 | $1.24 |
| Common dividend payout ratio | 49% | 32% | 33% |
| Common dividend yield | 3.1% | 2.2% | 2.9% |
| At Dec. 31 |  |  |  |
| Closing stock price per common share | $45.52 | $58.08 | $42.44 |
| Market capitalization | $36,800 | $46,705 | $37,634 |
| Book value per common share | $44.40 | $47.50 | $46.53 |
| Tangible book value per common share - Non-GAAP (c) | $23.11 | $24.31 | $25.44 |
| Full-time employees | 51,700 | 49,100 | 48,500 |
| Common shares outstanding (in thousands) | 808,445 | 804,145 | 886,764 |
| Regulatory capital ratios (d) |  |  |  |
| Common Equity Tier 1 (“CET1”) ratio | 11.2% | 11.2% | 13.1% |
| Tier 1 capital ratio | 14.1 | 14.0 | 15.8 |
| Total capital ratio | 14.9 | 14.9 | 16.7 |
| Tier 1 leverage ratio | 5.8 | 5.5 | 6.3 |
| Supplementary leverage ratio (“SLR”) (e) | 6.8 | 6.6 | 8.6 |

(a) 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 Global Securities Services Company (“CIBC Mellon”), a joint venture with the Canadian Imperial Bank of Commerce, of $1.5 trillion at Dec. 31, 2022, $1.7 trillion at Dec. 31, 2021 and $1.5 trillion at Dec. 31, 2020.

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

(c) Return on tangible common equity and tangible book value per common share, both Non-GAAP measures, exclude goodwill and intangible assets, net of deferred tax liabilities. See “Supplemental Information - Explanation of GAAP and Non-GAAP financial measures” beginning on page 104 for the reconciliation of these Non-GAAP measures.

(d) For our CET1, Tier 1 and Total capital ratios, our effective capital ratios under U.S. capital rules are the lower of the ratios as calculated under the Standardized and Advanced Approaches. For additional information on our regulatory capital ratios, see “Capital” beginning on page 40.

(e) The consolidated SLR at Dec. 31, 2020 reflects the temporary exclusion of U.S. Treasury securities from total leverage exposure which increased our consolidated SLR by 72 basis points. The temporary exclusion ceased to apply beginning April 1, 2021.

2 BNY Mellon

# Management's Discussion and Analysis of Financial Condition and Results of Operations

# Results of Operations

# General

In this Annual Report, references to “our,” “we,” “us,” “BNY Mellon,” the “Company” and similar terms refer to The Bank of New York Mellon Corporation and its consolidated subsidiaries. The term “Parent” refers to The Bank of New York Mellon Corporation but not its subsidiaries.

The following should be read in conjunction with the Consolidated Financial Statements included in this report. BNY Mellon’s actual results of future operations may differ from those estimated or anticipated in certain forward-looking statements contained herein due to the factors described under the headings “Forward-looking Statements” and “Risk Factors,” both of which investors should read.

Certain business terms used in this Annual Report are defined in the Glossary.

This Annual Report generally discusses 2022 and 2021 items and comparisons between 2022 and 2021. Discussions of 2020 items and comparisons between 2021 and 2020 that are not included in this Annual Report can be found in our 2021 Annual Report, which was filed as an exhibit to our Form 10-K for the year ended Dec. 31, 2021.

# 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.

![img-0.jpeg](img-0.jpeg)

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

BNY Mellon 3

## Results of Operations (continued)

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.

4 BNY Mellon

## Results of Operations (continued)

- 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.

BNY Mellon 5

## Results of Operations (continued)

### Fee and other revenue

| Fee and other revenue | 2022 | 2021 | 2020 | 2022 vs. 2021 | 2021 vs. 2020 |
| --- | --- | --- | --- | --- | --- |
| (dollars in millions, unless otherwise noted) |  |  |  |  |  |
| Investment services fees | $8,529 | $8,284 | $8,047 | 3% | 3% |
| Investment management and performance fees (a) | 3,299 | 3,588 | 3,367 | (8) | 7 |
| Foreign exchange revenue | 822 | 799 | 774 | 3 | 3 |
| Financing-related fees | 175 | 194 | 212 | (10) | (8) |
| Distribution and servicing fees | 130 | 112 | 115 | 16 | (3) |
| Total fee revenue | 12,955 | 12,977 | 12,515 | - | 4 |
| Investment and other revenue | (82) | 336 | 316 | N/M | N/M |
| Total fee and other revenue | $12,873 | $13,313 | $12,831 | (3)% | 4% |
| Fee revenue as a percentage of total revenue | 79% | 81% | 79% |  |  |
| AUC/A at period end (in trillions) (b) | $44.3 | $46.7 | $41.1 | (5)% | 14% |
| AUM at period end (in billions) (c) | $1,836 | $2,434 | $2,211 | (25)% | 10% |

(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 depository 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.

| Money market fee waivers (in millions) | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Investment services fees (see table below) | $(153) | $(547) | $(209) |
| Investment management and performance fees | (165) | (429) | (142) |
| Distribution and servicing fees | (13) | (51) | (17) |
| Total fee revenue | (331) | (1,027) | (368) |
| Less: Distribution and servicing expense | 25 | 111 | 31 |
| Net impact of money market fee waivers | $(306) | $(916) | $(337) |
| Impact to investment services fees by line of business (a): |  |  |  |
| Asset Servicing | $(19) | $(105) | $(10) |
| Issuer Services | (12) | (62) | (9) |
| Pershing | (116) | (343) | (186) |
| Treasury Services | (6) | (37) | (4) |
| Total impact to investment services fees by line of business | $(153) | $(547) | $(209) |
| Impact to fee revenue by line of business (a): |  |  |  |
| Asset Servicing | $(29) | $(176) | $(18) |
| Issuer Services | (16) | (83) | (13) |
| Pershing | (137) | (401) | (227) |
| Treasury Services | (8) | (52) | (6) |
| Investment Management | (139) | (303) | (100) |
| Wealth Management | (2) | (12) | (4) |
| Total impact to fee revenue by line of business | $(331) | $(1,027) | $(368) |

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

6 BNY Mellon

## Results of Operations (continued)

### *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 depository 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.

BNY Mellon 7

## Results of Operations (continued)

### *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.

| Investment and other revenue (in millions) | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| (Loss) income from consolidated investment management funds | $(42) | $32 | $84 |
| Seed capital (losses) gains (a) | (37) | 40 | 23 |
| Other trading revenue | 149 | 6 | 13 |
| Renewable energy investment (losses) | (164) | (201) | (129) |
| Corporate/bank-owned life insurance | 128 | 140 | 148 |
| Other investment gains (b) | 159 | 159 | 35 |
| Disposal gains (losses) | 26 | 13 | (61) |
| Expense reimbursements from joint venture | 108 | 96 | 85 |
| Other income | 34 | 46 | 85 |
| Net securities (losses) gains | (443) (c) | 5 | 33 |
| Total investment and other revenue | $(82) | $336 | $316 |

*(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.

8 BNY Mellon

Results of Operations (continued)

# Net interest revenue

| Net interest revenue | 2022 | 2021 | 2020 | 2022 vs. 2021 | 2021 vs. 2020 |
| --- | --- | --- | --- | --- | --- |
| (dollars in millions) |  |  |  |  |  |
| Net interest revenue | $3,504 | $2,618 | $2,977 | 34% | (12)% |
| Add: Tax equivalent adjustment | 11 | 13 | 9 | N/M | N/M |
| Net interest revenue on a fully taxable equivalent (“FTE”) basis - Non-GAAP (a) | $3,515 | $2,631 | $2,986 | 34% | (12)% |
| Average interest-earning assets | $362,180 | $387,023 | $354,526 | (6)% | 9% |
| Net interest margin | 0.97% | 0.68% | 0.84% | 29 bps | (16) bps |
| Net interest margin (FTE) - Non-GAAP (a) | 0.97% | 0.68% | 0.84% | 29 bps | (16) bps |

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

N/M - Not meaningful.

bps - basis points.

Net interest revenue 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.

BNY Mellon 9

## Results of Operations (continued)

| Average balances and interest rates (dollars in millions) | 2022 |  |  | 2021 |  |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | Average balance | Interest | Average rate | Average balance | Interest | Average rate |
| Assets |  |  |  |  |  |  |
| Interest-earning assets: |  |  |  |  |  |  |
| Interest-bearing deposits with the Federal Reserve and other central banks: |  |  |  |  |  |  |
| Domestic offices | $46,270 | $810 | 1.75% | $47,070 | $60 | 0.13% |
| Foreign offices | 51,172 | 209 | 0.41 | 66,276 | (137) | (0.21) |
| Total interest-bearing deposits with the Federal Reserve and other central banks | 97,442 | 1,019 | 1.05 | 113,346 | (77) | (0.07) |
| Interest-bearing deposits with banks | 16,826 | 221 | 1.31 | 20,757 | 48 | 0.23 |
| Federal funds sold and securities purchased under resale agreements (a) | 24,953 | 1,200 | 4.81 | 28,530 | 120 | 0.42 |
| Loans: |  |  |  |  |  |  |
| Domestic offices | 62,640 | 1,878 | 3.00 | 55,073 | 892 | 1.62 |
| Foreign offices | 5,185 | 121 | 2.33 | 5,741 | 66 | 1.15 |
| Total loans (b) | 67,825 | 1,999 | 2.95 | 60,814 | 958 | 1.58 |
| Securities: |  |  |  |  |  |  |
| U.S. government obligations | 40,583 | 607 | 1.49 | 34,383 | 261 | 0.76 |
| U.S. government agency obligations | 64,041 | 1,157 | 1.81 | 72,552 | 985 | 1.36 |
| State and political subdivisions (c) | 1,887 | 43 | 2.31 | 2,623 | 54 | 2.01 |
| Other securities: |  |  |  |  |  |  |
| Domestic offices (c) | 17,092 | 586 | 3.43 | 17,145 | 333 | 1.94 |
| Foreign offices | 26,283 | 154 | 0.59 | 30,183 | 123 | 0.41 |
| Total other securities (c) | 43,375 | 740 | 1.71 | 47,328 | 456 | 0.96 |
| Total investment securities (c) | 149,886 | 2,547 | 1.70 | 156,886 | 1,756 | 1.12 |
| Trading securities (primarily domestic) (c) | 5,248 | 143 | 2.73 | 6,690 | 53 | 0.80 |
| Total securities (c) | 155,134 | 2,690 | 1.73 | 163,576 | 1,809 | 1.11 |
| Total interest-earning assets (c) | $362,180 | $7,129 | 1.97% | $387,023 | $2,858 | 0.74% |
| Noninterest-earning assets | 64,721 |  |  | 65,209 |  |  |
| Total assets | $426,901 |  |  | $452,232 |  |  |
| Liabilities and equity |  |  |  |  |  |  |
| Interest-bearing liabilities: |  |  |  |  |  |  |
| Interest-bearing deposits: |  |  |  |  |  |  |
| Domestic offices | $111,491 | $980 | 0.88% | $124,716 | $(27) | (0.02)% |
| Foreign offices | 101,916 | 607 | 0.60 | 112,493 | (148) | (0.13) |
| Total interest-bearing deposits | 213,407 | 1,587 | 0.74 | 237,209 | (175) | (0.07) |
| Federal funds purchased and securities sold under repurchase agreements (a) | 12,940 | 934 | 7.21 | 13,716 | (4) | (0.03) |
| Trading liabilities | 3,432 | 68 | 1.98 | 2,590 | 8 | 0.31 |
| Other borrowed funds: |  |  |  |  |  |  |
| Domestic offices | 181 | 7 | 4.12 | 160 | 5 | 2.99 |
| Foreign offices | 324 | 2 | 0.51 | 223 | 3 | 1.48 |
| Total other borrowed funds | 505 | 9 | 1.80 | 383 | 8 | 2.11 |
| Commercial paper | 5 | - | 2.06 | 3 | - | 0.07 |
| Payables to customers and broker-dealers | 17,111 | 156 | 0.91 | 16,887 | (2) | (0.01) |
| Long-term debt | 27,448 | 860 | 3.13 | 25,788 | 392 | 1.52 |
| Total interest-bearing liabilities | $274,848 | $3,614 | 1.31% | $296,576 | $227 | 0.08% |
| Total noninterest-bearing deposits | 85,652 |  |  | 86,606 |  |  |
| Other noninterest-bearing liabilities | 25,278 |  |  | 24,381 |  |  |
| Total liabilities | 385,778 |  |  | 407,563 |  |  |
| Total The Bank of New York Mellon Corporation shareholders' equity | 41,013 |  |  | 44,358 |  |  |
| Noncontrolling interests | 110 |  |  | 311 |  |  |
| Total liabilities and equity | $426,901 |  |  | $452,232 |  |  |
| Net interest revenue (FTE) - Non-GAAP (c)(d) |  | $3,515 |  |  | $2,631 |  |
| Net interest margin (FTE) - Non-GAAP (c)(d) |  |  | 0.97% |  |  | 0.68% |
| Less: Tax equivalent adjustment |  | 11 |  |  | 13 |  |
| Net interest revenue - GAAP |  | $3,504 |  |  | $2,618 |  |
| Net interest margin - GAAP |  |  | 0.97% |  |  | 0.68% |
| Percentage of assets attributable to foreign offices (e) | 26% |  |  | 30% |  |  |
| Percentage of liabilities attributable to foreign offices (e) | 30% |  |  | 31% |  |  |

(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.

10 BNY Mellon

## Results of Operations (continued)

| Average balances and interest rates (dollars in millions) | 2020 |  |  |
| --- | --- | --- | --- |
|  | Average balance | Interest | Average rate |
| Assets |  |  |  |
| Interest-earning assets: |  |  |  |
| Interest-bearing deposits with the Federal Reserve and other central banks: |  |  |  |
| Domestic offices | $45,186 | $121 | 0.27% |
| Foreign offices | 49,246 | (71) | (0.14) |
| Total interest-bearing deposits with the Federal Reserve and other central banks | 94,432 | 50 | 0.05 |
| Interest-bearing deposits with banks | 19,165 | 134 | 0.70 |
| Federal funds sold and securities purchased under resale agreements (a) | 30,768 | 545 | 1.77 |
| Loans: |  |  |  |
| Domestic offices | 44,137 | 942 | 2.13 |
| Foreign offices | 11,091 | 200 | 1.81 |
| Total loans (b) | 55,228 | 1,142 | 2.07 |
| Securities: |  |  |  |
| U.S. government obligations | 27,242 | 278 | 1.02 |
| U.S. government agency obligations | 75,430 | 1,328 | 1.76 |
| State and political subdivisions (c) | 1,418 | 36 | 2.51 |
| Other securities: |  |  |  |
| Domestic offices (c) | 14,335 | 300 | 2.09 |
| Foreign offices | 29,402 | 212 | 0.72 |
| Total other securities (c) | 43,737 | 512 | 1.17 |
| Total investment securities (c) | 147,827 | 2,154 | 1.46 |
| Trading securities (primarily domestic) (c) | 7,106 | 93 | 1.31 |
| Total securities (c) | 154,933 | 2,247 | 1.45 |
| Total interest-earning assets (c) | $354,526 | $4,118 | 1.16% |
| Noninterest-earning assets | 58,792 |  |  |
| Total assets | $413,318 |  |  |
| Liabilities and equity |  |  |  |
| Interest-bearing liabilities: |  |  |  |
| Interest-bearing deposits: |  |  |  |
| Domestic offices | $105,984 | $176 | 0.17% |
| Foreign offices | 106,836 | (15) | (0.01) |
| Total interest-bearing deposits | 212,820 | 161 | 0.08 |
| Federal funds purchased and securities sold under repurchase agreements (a) | 14,862 | 283 | 1.90 |
| Trading liabilities | 2,177 | 15 | 0.68 |
| Other borrowed funds: |  |  |  |
| Domestic offices | 849 | 15 | 1.81 |
| Foreign offices | 199 | 1 | 0.26 |
| Total other borrowed funds | 1,048 | 16 | 1.52 |
| Commercial paper | 1,082 | 7 | 0.66 |
| Payables to customers and broker-dealers | 17,789 | 28 | 0.16 |
| Long-term debt | 26,888 | 622 | 2.31 |
| Total interest-bearing liabilities | $276,666 | $1,132 | 0.41% |
| Total noninterest-bearing deposits | 69,124 |  |  |
| Other noninterest-bearing liabilities | 23,879 |  |  |
| Total liabilities | 369,669 |  |  |
| Total The Bank of New York Mellon Corporation shareholders' equity | 43,430 |  |  |
| Noncontrolling interests | 219 |  |  |
| Total liabilities and equity | $413,318 |  |  |
| Net interest revenue (FTE) - Non-GAAP (c)(d) |  | $2,986 |  |
| Net interest margin (FTE) - Non-GAAP (c)(d) |  |  | 0.84% |
| Less: Tax equivalent adjustment |  | 9 |  |
| Net interest revenue - GAAP |  | $2,977 |  |
| Net interest margin - GAAP |  |  | 0.84% |
| Percentage of assets attributable to foreign offices (e) | 30% |  |  |
| Percentage of liabilities attributable to foreign offices (e) | 32% |  |  |

(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.

BNY Mellon 11

Results of Operations (continued)

# Noninterest expense

| Noninterest expense |  |  |  | 2022 vs. 2021 | 2021 vs. 2020 |
| --- | --- | --- | --- | --- | --- |
| (dollars in millions) | 2022 | 2021 | 2020 |  |  |
| Staff | $6,800 | $6,337 | $5,966 | 7% | 6% |
| Software and equipment | 1,657 | 1,478 | 1,370 | 12 | 8 |
| Professional, legal and other purchased services | 1,527 | 1,459 | 1,403 | 5 | 4 |
| Net occupancy | 514 | 498 | 581 | 3 | (14) |
| Sub-custodian and clearing | 485 | 505 | 460 | (4) | 10 |
| Distribution and servicing | 343 | 298 | 336 | 15 | (11) |
| Business development | 152 | 107 | 105 | 42 | 2 |
| Bank assessment charges | 126 | 133 | 124 | (5) | 7 |
| Goodwill impairment | 680 | - | - | N/M | N/M |
| Amortization of intangible assets | 67 | 82 | 104 | (18) | (21) |
| Other | 659 | 617 | 555 | 7 | 11 |
| Total noninterest expense | $13,010 | $11,514 | $11,004 | 13% | 5% |
| Full-time employees at year-end | 51,700 | 49,100 | 48,500 | 5% | 1% |

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.

12 BNY Mellon

## Results of Operations (continued)---

### 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.

BNY Mellon 13

## Results of Operations (continued)

### Securities Services business segment

| (dollars in millions, unless otherwise noted) | 2022 | 2021 | 2020 | 2022 vs. 2021 | 2021 vs. 2020 |
| --- | --- | --- | --- | --- | --- |
| Revenue: |  |  |  |  |  |
| Investment services fees: |  |  |  |  |  |
| Asset Servicing | $3,918 | $3,876 | $3,635 | 1% | 7% |
| Issuer Services | 1,009 | 1,061 | 1,100 | (5) | (4) |
| Total investment services fees | 4,927 | 4,937 | 4,735 | - | 4 |
| Foreign exchange revenue | 584 | 574 | 602 | 2 | (5) |
| Other fees (a) | 202 | 113 | 182 | 79 | (38) |
| Total fee revenue | 5,713 | 5,624 | 5,519 | 2 | 2 |
| Investment and other revenue | 291 | 194 | 159 | N/M | N/M |
| Total fee and other revenue | 6,004 | 5,818 | 5,678 | 3 | 2 |
| Net interest revenue | 2,028 | 1,426 | 1,697 | 42 | (16) |
| Total revenue | 8,032 | 7,244 | 7,375 | 11 | (2) |
| Provision for credit losses | 8 | (134) | 215 | N/M | N/M |
| Noninterest expense (excluding amortization of intangible assets) | 6,266 | 5,820 | 5,522 | 8 | 5 |
| Amortization of intangible assets | 33 | 32 | 34 | 3 | (6) |
| Total noninterest expense | 6,299 | 5,852 | 5,556 | 8 | 5 |
| Income before income taxes | $1,725 | $1,526 | $1,604 | 13% | (5)% |
| Pre-tax operating margin | 21% | 21% | 22% |  |  |
| Securities lending revenue (b) | $182 | $173 | $170 | 5% | 2% |
| Total revenue by line of business: |  |  |  |  |  |
| Asset Servicing | $6,323 | $5,699 | $5,705 | 11% | -% |
| Issuer Services | 1,709 | 1,545 | 1,670 | 11 | (7) |
| Total revenue by line of business | $8,032 | $7,244 | $7,375 | 11% | (2)% |
| Selected average balances: |  |  |  |  |  |
| Average loans | $11,245 | $8,756 | $9,225 | 28% | (5)% |
| Average deposits | $183,990 | $200,482 | $177,853 | (8)% | 13% |
| Selected metrics: |  |  |  |  |  |
| AUC/A at period end (in trillions) (c) | $31.4 | $34.6 | $30.6 | (9)% | 13% |
| Market value of securities on loan at period end (in billions) (d) | $449 | $447 | $435 | -% | 3% |

(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

14 BNY Mellon

## Results of Operations (continued)

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.

BNY Mellon 15

## Results of Operations (continued)

### Market and Wealth Services business segment

|  | 2022 | 2021 | 2020 | 2022 vs. 2021 | 2021 vs. 2020 |
| --- | --- | --- | --- | --- | --- |
| (dollars in millions, unless otherwise noted) |  |  |  |  |  |
| Revenue: |  |  |  |  |  |
| Investment services fees: |  |  |  |  |  |
| Pershing | $1,908 | $1,737 | $1,734 | 10% | -% |
| Treasury Services | 689 | 662 | 641 | 4 | 3 |
| Clearance and Collateral Management | 971 | 918 | 896 | 6 | 2 |
| Total investment services fees | 3,568 | 3,317 | 3,271 | 8 | 1 |
| Foreign exchange revenue | 88 | 88 | 79 | - | 11 |
| Other fees (a) | 176 | 131 | 166 | 34 | (21) |
| Total fee revenue | 3,832 | 3,536 | 3,516 | 8 | 1 |
| Investment and other revenue | 40 | 47 | 62 | N/M | N/M |
| Total fee and other revenue | 3,872 | 3,583 | 3,578 | 8 | - |
| Net interest revenue | 1,410 | 1,158 | 1,228 | 22 | (6) |
| Total revenue | 5,282 | 4,741 | 4,806 | 11 | (1) |
| Provision for credit losses | 7 | (67) | 100 | N/M | N/M |
| Noninterest expense (excluding amortization of intangible assets) | 2,924 | 2,655 | 2,577 | 10 | 3 |
| Amortization of intangible assets | 8 | 21 | 37 | (62) | (43) |
| Total noninterest expense | 2,932 | 2,676 | 2,614 | 10 | 2 |
| Income before income taxes | $2,343 | $2,132 | $2,092 | 10% | 2% |
| Pre-tax operating margin | 44% | 45% | 44% |  |  |
| Total revenue by line of business: |  |  |  |  |  |
| Pershing | $2,537 | $2,314 | $2,332 | 10% | (1)% |
| Treasury Services | 1,483 | 1,293 | 1,327 | 15 | (3) |
| Clearance and Collateral Management | 1,262 | 1,134 | 1,147 | 11 | (1) |
| Total revenue by line of business | $5,282 | $4,741 | $4,806 | 11% | (1)% |
| Selected average balances: |  |  |  |  |  |
| Average loans | $41,300 | $38,344 | $32,432 | 8% | 18% |
| Average deposits | $91,749 | $102,948 | $83,442 | (11)% | 23% |
| Selected metrics: |  |  |  |  |  |
| AUC/A at period end (in trillions) (b) | $12.7 | $11.8 | $10.2 | 8% | 16% |
| Pershing: |  |  |  |  |  |
| AUC/A at period end (in trillions) | $2.3 | $2.6 | $2.5 | (12)% | 4% |
| Net new assets (U.S. platform) (in billions) (c) | $121 | $161 | $116 | N/M | N/M |
| Average active clearing accounts (in thousands) | 7,483 | 7,257 | 6,883 | 3% | 5% |
| Treasury Services: |  |  |  |  |  |
| Average daily U.S. dollar payment volumes | 239,630 | 235,971 | 221,755 | 2% | 6% |
| Clearance and Collateral Management: |  |  |  |  |  |
| Average tri-party collateral management balances (in billions) | $5,285 | $4,260 | $3,566 | 24% | 19% |

(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.

16 BNY Mellon

## Results of Operations (continued)

### *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.

BNY Mellon 17

## Results of Operations (continued)

### Investment and Wealth Management business segment

|  | 2022 | 2021 | 2020 | 2022 vs. 2021 | 2021 vs. 2020 |
| --- | --- | --- | --- | --- | --- |
| (dollars in millions) |  |  |  |  |  |
| Revenue: |  |  |  |  |  |
| Investment management fees | $3,215 | $3,483 | $3,261 | (8)% | 7% |
| Performance fees | 75 | 107 | 107 | (30) | - |
| Investment management and performance fees (a) | 3,290 | 3,590 | 3,368 | (8) | 7 |
| Distribution and servicing fees | 192 | 112 | 137 | 71 | (18) |
| Other fees (b) | (133) | 80 | (58) | N/M | N/M |
| Total fee revenue | 3,349 | 3,782 | 3,447 | (11) | 10 |
| Investment and other revenue (c) | (27) | 67 | 48 | N/M | N/M |
| Total fee and other revenue (c) | 3,322 | 3,849 | 3,495 | (14) | 10 |
| Net interest revenue | 228 | 193 | 197 | 18 | (2) |
| Total revenue | 3,550 | 4,042 | 3,692 | (12) | 9 |
| Provision for credit losses | 1 | (13) | 20 | N/M | N/M |
| Noninterest expense (excluding goodwill impairment and amortization of intangible assets) | 2,795 | 2,796 | 2,668 | - | 5 |
| Goodwill impairment | 680 | - | - | N/M | N/M |
| Amortization of intangible assets | 26 | 29 | 33 | (10) | (12) |
| Total noninterest expense | 3,501 | 2,825 | 2,701 | 24 | 5 |
| Income before income taxes | $48 | $1,230 | $971 | (96)% (d) | 27% |
| Pre-tax operating margin | 1% | 30% | 26% |  |  |
| Adjusted pre-tax operating margin - Non-GAAP (e) | 2% (f) | 33% | 29% |  |  |
| Total revenue by line of business: |  |  |  |  |  |
| Investment Management | $2,390 | $2,834 | $2,596 | (16)% | 9% |
| Wealth Management | 1,160 | 1,208 | 1,096 | (4) | 10 |
| Total revenue by line of business | $3,550 | $4,042 | $3,692 | (12)% | 9% |
| Selected average balances: |  |  |  |  |  |
| Average loans | $14,055 | $12,120 | $11,728 | 16% | 3% |
| Average deposits | $19,214 | $18,068 | $17,340 | 6% | 4% |

(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.

18 BNY Mellon

## Results of Operations (continued)

| AUM trends (in billions) | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| AUM by product type (a): |  |  |  |
| Equity | $135 | $187 | $170 |
| Fixed income | 198 | 267 | 259 |
| Index | 395 | 467 | 393 |
| Liability-driven investments | 570 | 890 | 855 |
| Multi-asset and alternative investments | 153 | 228 | 209 |
| Cash | 385 | 395 | 325 |
| Total AUM | $1,836 | $2,434 | $2,211 |

| Changes in AUM (a): |  |  |  |
| --- | --- | --- | --- |
| Beginning balance of AUM | $2,434 | $2,211 | $1,910 |
| Net inflows (outflows): |  |  |  |
| Long-term strategies: |  |  |  |
| Equity | (18) | (12) | (10) |
| Fixed income | (21) | 17 | 10 |
| Liability-driven investments | 78 | 36 | 22 |
| Multi-asset and alternative investments | (11) | (2) | (4) |
| Total long-term active strategies inflows | 28 | 39 | 18 |
| Index | 2 | (7) | 6 |
| Total long-term strategies inflows | 30 | 32 | 24 |
| Short-term strategies: |  |  |  |
| Cash | (12) | 70 | 49 |
| Total net inflows | 18 | 102 | 73 |
| Net market impact | (471) | 143 | 186 |
| Net currency impact | (113) | (22) | 42 |
| Divestiture | (32) | - | - |
| Ending balance of AUM | $1,836 | $2,434 | $2,211 |

| Wealth Management client assets (b) | $269 | $321 | $286 |
| --- | --- | --- | --- |

(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

| (in millions) | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Fee revenue | $61 | $36 | $34 |
| Investment and other revenue | (373) | 15 | 37 |
| Total fee and other revenue | (312) | 51 | 71 |
| Net interest expense | (162) | (159) | (145) |
| Total revenue | (474) | (108) | (74) |
| Provision for credit losses | 23 | (17) | 1 |
| Noninterest expense | 278 | 161 | 133 |
| (Loss) before income taxes | $(775) | $(252) | $(208) |
| Average loans and leases | $1,225 | $1,594 | $1,843 |

### 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.

| Foreign exchange rates vs. U.S. dollar | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Spot rate (at Dec. 31): |  |  |  |
| British pound | $1.2096 | $1.3543 | $1.3663 |
| Euro | 1.0708 | 1.1373 | 1.2267 |
| Yearly average rate: |  |  |  |
| British pound | $1.2375 | $1.3755 | $1.2836 |
| Euro | 1.0550 | 1.1994 | 1.1414 |

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.

| Country risk exposure at Dec. 31, 2022 (in billions) | Interest-bearing deposits |  | Lending (a) | Securities (b) | Other (c) | Total exposure |
| --- | --- | --- | --- | --- | --- | --- |
|  | Central banks | Banks |  |  |  |  |
| Top 10 country exposure: |  |  |  |  |  |  |
| Germany | $14.0 | $1.0 | $0.8 | $4.2 | $0.2 | $20.2 |
| United Kingdom (“UK”) | 10.9 | 0.1 | 1.2 | 4.3 | 2.4 | 18.9 |
| Belgium | 8.2 | 0.7 | 0.1 | 0.1 | - | 9.1 |
| Canada | - | 2.2 | 0.9 | 3.9 | 1.8 | 8.8 |
| Netherlands | 3.8 | - | 0.2 | 1.0 | 0.2 | 5.2 |
| Singapore | 0.1 | 1.4 | 0.1 | 1.0 | 0.9 | 3.5 |
| South Korea | 0.1 | 0.1 | 2.3 | 0.1 | 0.2 | 2.8 |
| Ireland | 0.1 | 0.2 | 0.9 | - | 1.6 | 2.8 |
| Luxembourg | 0.1 | 0.3 | 1.0 | 0.1 | 1.3 | 2.8 |
| Japan | 1.1 | 0.9 | - | 0.5 | 0.2 | 2.7 |
| Total Top 10 country exposure | $38.4 | $6.9 | $7.5 | $15.2 | $8.8 | $76.8 (d) |
| Select country exposure: |  |  |  |  |  |  |
| Brazil | $ - | $ - | $0.9 | $0.1 | $0.2 | $1.2 |
| Russia | - | 0.4 (e) | - | - | - | 0.4 |

(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.

| Securities portfolio (dollars in millions) | Dec. 31, 2021 Fair value | 2022 change in unrealized gain (loss) | Dec. 31, 2022 |  | Fair value as a % of amortized cost (a) | Unrealized gain (loss) | % Floating rate (b) | Ratings (c) |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  |  |  | Amortized cost (a) | Fair value |  |  |  | AAA/AA- | A+/A- | BBB+/BBB- | BB+ and lower | Not rated |
| U.S. Treasury | $40,582 | $(1,462) | $42,966 | $41,503 | 97% | $(1,463) | 51% | 100% | -% | -% | -% | -% |
| Agency RMBS | 50,735 | (4,895) | 43,576 | 38,916 | 89 | (4,660) | 15 | 100 | - | - | - | - |
| Agency commercial mortgage-backed securities ('MBS') | 12,291 | (927) | 12,670 | 11,864 | 94 | (806) | 42 | 100 | - | - | - | - |
| Sovereign debt/sovereign guaranteed (d) | 14,312 | (561) | 12,294 | 11,756 | 96 | (538) | 22 | 90 | 5 | 4 | 1 | - |
| Supranational | 7,646 | (267) | 8,572 | 8,298 | 97 | (274) | 64 | 100 | - | - | - | - |
| Collateralized loan obligations ('CLOs') | 5,421 | (126) | 6,429 | 6,300 | 98 | (129) | 100 | 100 | - | - | - | - |
| U.S. government agencies | 5,420 | (514) | 6,671 | 6,115 | 92 | (556) | 36 | 100 | - | - | - | - |
| Foreign covered bonds (e) | 6,238 | (267) | 6,041 | 5,776 | 96 | (265) | 57 | 100 | - | - | - | - |
| Non-agency commercial MBS | 3,114 | (311) | 3,334 | 3,054 | 92 | (280) | 54 | 100 | - | - | - | - |
| Foreign government agencies (f) | 2,686 | (114) | 2,429 | 2,307 | 95 | (122) | 34 | 95 | 5 | - | - | - |
| Non-agency RMBS | 2,793 | (276) | 2,227 | 2,060 | 93 | (167) | 50 | 85 | 3 | - | 7 | 5 |
| Other asset-backed securities ('ABS') | 2,190 | (109) | 1,443 | 1,319 | 91 | (124) | 19 | 100 | - | - | - | - |
| State and political subdivisions | 2,529 | 26 | 25 | 23 | 93 | (2) | 51 | 1 | 52 | 1 | - | 46 |
| Corporate bonds | 2,066 | 33 | - | - | - | - | - | - | - | - | - | - |
| Other | 1 | - | 1 | 1 | 100 | - | - | - | - | - | - | 100 |
| Total securities | $158,024 (g) | $(9,770) | $148,678 | $139,292 (g) | 94% | $(9,386) (g)(h) | 40% | 99% | 1% | -% | -% | -% |

(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.

| Net premium amortization and discount accretion of securities (a) (dollars in millions) | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Amortizable purchase premium (net of discount) relating to securities: |  |  |  |
| Balance at year-end | $1,151 | $1,972 | $2,283 |
| Estimated average life remaining at year-end (in years) | 4.5 | 4.4 | 3.9 |
| Amortization | $387 | $698 | $568 |
| Accretable discount related to the prior restructuring of the securities portfolio: |  |  |  |
| Balance at year-end | $42 | $109 | $130 |
| Estimated average life remaining at year-end (in years) | 8.3 | 6.1 | 5.6 |
| Accretion | $25 | $43 | $38 |

(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.

| Equity investments (in millions) | Dec. 31, 2022 | 2021 |
| --- | --- | --- |
| Renewable energy investments | $871 | $1,027 |
| Qualified affordable housing project investments | 1,298 | 1,153 |
| Equity method investments: |  |  |
| CIBC Mellon | 545 | 687 |
| Siguler Guff | 242 | 252 |
| Innocap Investment Management Inc. | 16 | - |
| Total equity method investments | 803 | 939 |
| Federal Reserve Bank stock | 478 | 472 |
| Other equity investments (a) | 695 | 449 |
| Seed capital (b) | 218 | 357 |
| Federal Home Loan Bank stock | 6 | 7 |
| Total equity investments | $4,369 | $4,404 |

(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

| Total exposure - consolidated (in billions) | Dec. 31, 2022 |  |  | Dec. 31, 2021 |  |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | Loans | Unfunded commitments | Total exposure | Loans | Unfunded commitments | Total exposure |
| Financial institutions | $9.7 | $31.7 | $41.4 | $10.2 | $30.6 | $40.8 |
| Commercial | 1.7 | 11.7 | 13.4 | 2.1 | 11.9 | 14.0 |
| Wealth management loans | 10.3 | 0.6 | 10.9 | 9.8 | 0.5 | 10.3 |
| Wealth management mortgages | 9.0 | 0.2 | 9.2 | 8.2 | 0.4 | 8.6 |
| Commercial real estate | 6.2 | 3.9 | 10.1 | 6.0 | 3.3 | 9.3 |
| Lease financings | 0.7 | - | 0.7 | 0.7 | - | 0.7 |
| Other residential mortgages | 0.4 | - | 0.4 | 0.3 | - | 0.3 |
| Overdrafts | 4.8 | - | 4.8 | 3.1 | - | 3.1 |
| Capital call financing | 3.4 | 3.5 | 6.9 | 2.3 | 1.5 | 3.8 |
| Other | 3.0 | - | 3.0 | 2.6 | - | 2.6 |
| Margin loans | 16.9 | - | 16.9 | 22.5 | - | 22.5 |
| Total | $66.1 | $51.6 | $117.7 | $67.8 | $48.2 | $116.0 |

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.

| Financial institutions portfolio exposure (dollars in billions) | Dec. 31, 2022 |  |  |  |  | Dec. 31, 2021 |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | Loans | Unfunded commitments | Total exposure | % Inv. grade | % due <1 yr. | Loans | Unfunded commitments | Total exposure |
| Securities industry | $1.6 | $17.5 | $19.1 | 96% | 98% | $1.7 | $17.5 | $19.2 |
| Asset managers | 1.6 | 7.6 | 9.2 | 98 | 84 | 1.7 | 7.1 | 8.8 |
| Banks | 6.1 | 1.5 | 7.6 | 86 | 97 | 5.8 | 1.5 | 7.3 |
| Insurance | 0.1 | 3.8 | 3.9 | 100 | 12 | 0.2 | 3.4 | 3.6 |
| Government | - | 0.2 | 0.2 | 100 | 49 | 0.1 | 0.2 | 0.3 |
| Other | 0.3 | 1.1 | 1.4 | 98 | 43 | 0.7 | 0.9 | 1.6 |
| Total | $9.7 | $31.7 | $41.4 | 95% | 85% | $10.2 | $30.6 | $40.8 |

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

30 BNY Mellon

## Results of Operations (continued)

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.

| Commercial portfolio exposure (dollars in billions) | Dec. 31, 2022 |  |  |  |  | Dec. 31, 2021 |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | Loans | Unfunded commitments | Total exposure | % Inv. grade | % due <1 yr. | Loans | Unfunded commitments | Total exposure |
| Manufacturing | $0.5 | $4.1 | $4.6 | 96% | 21% | $0.6 | $3.9 | $4.5 |
| Energy and utilities | 0.3 | 3.7 | 4.0 | 94 | 9 | 0.4 | 3.9 | 4.3 |
| Services and other | 0.8 | 3.2 | 4.0 | 96 | 29 | 1.0 | 3.2 | 4.2 |
| Media and telecom | 0.1 | 0.7 | 0.8 | 88 | - | 0.1 | 0.9 | 1.0 |
| Total | $1.7 | $11.7 | $13.4 | 95% | 19% | $2.1 | $11.9 | $14.0 |

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.

| Investment grade percentages | Dec. 31, |  |  |
| --- | --- | --- | --- |
|  | 2022 | 2021 | 2020 |
| Financial institutions | 95% | 96% | 95% |
| Commercial | 95% | 94% | 92% |

### 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%.

BNY Mellon 31

## Results of Operations (continued)

### *Commercial real estate*

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

| Composition of commercial real estate portfolio by asset class (dollars in billions) | Dec. 31, 2022 |  | Dec. 31, 2021 |  |
| --- | --- | --- | --- | --- |
|  | Total exposure | Percentage secured (a) | Total exposure | Percentage secured (a) |
| Residential | $4.1 | 85% | $3.6 | 81% |
| Office | 2.8 | 75 | 2.6 | 77 |
| Retail | 0.9 | 58 | 0.9 | 58 |
| Mixed-use | 0.8 | 33 | 0.7 | 37 |
| Hotels | 0.6 | 42 | 0.5 | 23 |
| Healthcare | 0.4 | 49 | 0.4 | 25 |
| Other | 0.5 | 66 | 0.6 | 45 |
| Total commercial real estate | $10.1 | 71% | $9.3 | 66% |

(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.

32 BNY Mellon

## Results of Operations (continued)

### *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.

| Maturity of loan portfolio at Dec. 31, 2022 (in millions) | Within 1 year | Between 1 and 5 years | Between 5 and 15 years | After 15 years | Total |
| --- | --- | --- | --- | --- | --- |
| Commercial | $929 | $631 | $172 | $ - | $1,732 |
| Commercial real estate | 1,002 | 3,723 | 1,501 | - | 6,226 |
| Financial institutions | 8,561 | 655 | 468 | - | 9,684 |
| Lease financings | 22 | 108 | 527 | - | 657 |
| Wealth management loans | 10,068 | 167 | 67 | - | 10,302 |
| Wealth management mortgages | 37 | 4 | 411 | 8,514 | 8,966 |
| Other residential mortgages | - | 7 | 154 | 184 | 345 |
| Overdrafts | 4,839 | - | - | - | 4,839 |
| Capital call financing | 1,497 | 1,912 | 29 | - | 3,438 |
| Other | 2,930 | - | 11 | - | 2,941 |
| Margin loans | 16,683 | 250 | - | - | 16,933 |
| Total | $46,568 | $7,457 | $3,340 | $8,698 | $66,063 |

### *Interest rate characteristic*

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

| Interest rate characteristic of loan portfolio maturing > 1 year at Dec. 31, 2022 (in millions) | Fixed rates | Floating rates | Total |
| --- | --- | --- | --- |
| Commercial | $71 | $732 | $803 |
| Commercial real estate | 185 | 5,039 | 5,224 |
| Financial institutions | 5 | 1,118 | 1,123 |
| Lease financings | 635 | - | 635 |
| Wealth management loans | 18 | 216 | 234 |
| Wealth management mortgages | 3,629 | 5,300 | 8,929 |
| Other residential mortgages | 315 | 30 | 345 |
| Capital call financing | - | 1,941 | 1,941 |
| Other | - | 11 | 11 |
| Margin Loans | - | 250 | 250 |
| Total | $4,858 | $14,637 | $19,495 |

BNY Mellon 33

## Results of Operations (continued)

### Allowance for credit losses

Our credit strategy is to focus on investment grade clients who are active users of our non-credit services. Our primary exposure to the credit risk of a customer consists of funded loans, unfunded contractual commitments to lend, standby letters of credit (“SBLC”) and overdrafts associated with our custody and securities clearance businesses.

The following table presents the changes in our allowance for credit losses.

| Allowance for credit losses activity |  |  |
| --- | --- | --- |
| (dollars in millions) |  |  |
|  | 2022 | 2021 |
| Beginning balance of allowance for credit losses | $260 | $501 |
| Provision for credit losses | 39 | (231) |
| Charge-offs: |  |  |
| Loans: |  |  |
| Wealth management mortgages | - | (1) |
| Other residential mortgages | - | (1) |
| Other loans | - | (16) |
| Other financial instruments | (11) | - |
| Total charge-offs | (11) | (18) |
| Recoveries: |  |  |
| Loans: |  |  |
| Financial institutions | - | 2 |
| Other residential mortgages | 4 | 6 |
| Other financial instruments | - | - |
| Total recoveries | 4 | 8 |
| Net (charge-offs) | (7) | (10) |
| Ending balance of allowance for credit losses | $292 | $260 |
| Allowance for loan losses | $176 | $196 |
| Allowance for lending-related commitments | 78 | 45 |
| Allowance for financial instruments (a) | 38 | 19 |
| Total allowance for credit losses | $292 | $260 |
| Total loans | $66,063 | $67,787 |
| Average loans outstanding | $67,825 | $60,814 |
| Net (charge-offs) recoveries of loans to average loans outstanding | (0.01)% | (0.02)% |
| Net (charge-offs) recoveries of loans to total allowance for loan losses and lending-related commitments | (2.76) | (4.15) |
| Allowance for loan losses as a percentage of total loans | 0.27 | 0.29 |
| Allowance for loan losses and lending-related commitments as a percentage of total loans | 0.38 | 0.36 |
| Net (charge-offs) to average loans by loan category: (b) |  |  |
| Wealth management mortgages: | N/A | (0.01)% |
| Net (charge-offs) during the year | N/A | $(1) |
| Average loans outstanding | N/A | $8,046 (b) |
| Other loans: | N/A | (0.77)% |
| Net (charge-offs) during the year | N/A | $(16) |
| Average loans outstanding | N/A | $2,088 (b) |

(a) Includes allowance for credit losses on federal funds sold and securities purchased under resale agreements, available-for-sale securities, held-to-maturity securities, accounts receivable, cash and due from banks and interest-bearing deposits with banks.

(b) Average loans based on month-end balances.

N/A - Not applicable. There were no net charge-offs in 2022.

34 BNY Mellon

## Results of Operations (continued)

The provision for credit losses was $39 million in 2022 compared with a benefit of $231 million in 2021. The increase was primarily driven by changes in the macroeconomic forecast.

The allowance for loan losses and allowance for lending-related commitments represent management’s estimate of lifetime expected losses in our credit portfolio. This evaluation process is subject to numerous estimates and judgments. To the extent actual results differ from forecasts or management’s judgment, the allowance for credit losses may be greater or less than future charge-offs.

Based on an evaluation of the allowance for credit losses as discussed in “Critical accounting estimates” and Note 1 of the Notes to Consolidated Financial Statements, we have allocated our allowance for loans and lending-related commitments as presented below.

| Allocation of allowance for loan losses and lending-related commitments (a) |  |  |  |  |
| --- | --- | --- | --- | --- |
|  | Dec. 31, |  |  |  |
|  | 2022 |  | 2021 |  |
| (dollars in millions) | $ | % | $ | % |
| Commercial real estate | $184 | 72% | $199 | 82% |
| Financial institutions | 24 | 9 | 13 | 5 |
| Commercial | 18 | 7 | 12 | 5 |
| Other residential mortgages | 8 | 3 | 7 | 3 |
| Wealth management mortgages | 12 | 5 | 6 | 2 |
| Capital call financing | 6 | 2 | 2 | 1 |
| Wealth management loans | 1 | 1 | 1 | 1 |
| Lease financings | 1 | 1 | 1 | 1 |
| Total | $254 | 100% | $241 | 100% |

(a) The allowance allocated to margins loans, overdrafts and other loans was insignificant at both Dec. 31, 2022 and Dec. 31, 2021. We have rarely suffered a loss on these types of loans.

The allocation of the allowance for credit losses is inherently judgmental, and the entire allowance for credit losses is available to absorb credit losses regardless of the nature of the losses.

## Nonperforming assets

The table below presents our nonperforming assets.

| Nonperforming assets (dollars in millions) | Dec. 31, |  |
| --- | --- | --- |
|  | 2022 | 2021 |
| Nonperforming loans: |  |  |
| Other residential mortgages | $31 | $39 |
| Wealth management mortgages | 22 | 25 |
| Commercial real estate | 54 | 54 |
| Total nonperforming loans | 107 | 118 |
| Other assets owned | 2 | 2 |
| Total nonperforming assets | $109 | $120 |
| Nonperforming assets ratio | 0.16% | 0.18% |
| Allowance for loan losses/ nonperforming loans | 164.5 | 166.1 |
| Allowance for loan losses/ nonperforming assets | 161.5 | 163.3 |
| Allowance for credit losses/ nonperforming loans | 237.4 | 204.2 |
| Allowance for credit losses/ nonperforming assets | 233.0 | 200.8 |

Nonperforming assets decreased $11 million in 2022 compared with 2021, primarily reflecting lower other residential mortgages and wealth management mortgage loans.

See “Nonperforming assets” in Note 1 of the Notes to Consolidated Financial Statements for our policy for placing loans on nonaccrual status.

## Deposits

We receive client deposits through the businesses in the Securities Services, Market and Wealth Services and Investment and Wealth Management segments and we rely on those deposits as a low-cost and stable source of funding.

Total deposits were $279.0 billion at Dec. 31, 2022, a decrease of 13%, compared with $319.7 billion at Dec. 31, 2021. The decrease primarily reflects lower non-interest bearing deposits (principally U.S. offices), interest-bearing deposits in U.S. offices and interest-bearing deposits in non-U.S. offices.

Noninterest-bearing deposits were $78.0 billion at Dec. 31, 2022, compared with $93.7 billion at Dec. 31, 2021. Interest-bearing deposits were primarily demand deposits and totaled $201.0 billion at Dec. 31, 2022, compared with $226.0 billion at Dec. 31, 2021.

BNY Mellon 35

## Results of Operations (continued)

The aggregate amount of deposits by foreign customers in domestic offices was $61.2 billion at Dec. 31, 2022 and $65.4 billion at Dec. 31, 2021.

Deposits in foreign offices totaled $98.3 billion at Dec. 31, 2022 and $112.1 billion at Dec. 31, 2021. These deposits were primarily overnight deposits.

Uninsured deposits are the portion of domestic deposits accounts that exceed the Federal Deposit Insurance Corporation (“FDIC”) insurance limit. Uninsured deposits in domestic deposit accounts are generally demand deposits and totaled $156.6 billion at Dec. 31, 2022 and $186.2 billion at Dec. 31, 2021.

The following table presents the amount of uninsured domestic and foreign time deposits disaggregated by time remaining until maturity.

| Uninsured time deposits at Dec. 31, 2022 |  |  |
| --- | --- | --- |
| (in millions) | Domestic | Foreign |
| Less than 3 months | $226 | $922 |
| 3 to 6 months | 42 | 5 |
| 6-12 months | 75 | 10 |
| Over 12 months | 19 | - |
| Total | $362 | $937 |

### Short-term borrowings

We fund ourselves primarily through deposits and, to a lesser extent, other short-term borrowings and long-term debt. Short-term borrowings consist of federal funds purchased and securities sold under repurchase agreements, payables to customers and broker-dealers, commercial paper and other borrowed funds. Certain short-term borrowings, for example, securities sold under repurchase agreements, require the delivery of securities as collateral.

Federal funds purchased and securities sold under repurchase agreements include repurchase agreement activity with the Fixed Income Clearing Corporation (“FICC”), where we record interest expense gross, but the ending and average balances reflect the impact of offsetting under enforceable netting agreements. This activity primarily relates to government securities collateralized resale and repurchase agreements executed with clients that are novated to and settle with the FICC.

Payables to customers and broker-dealers represent funds awaiting reinvestment and short sale proceeds payable on demand. Payables to customers and

broker-dealers are driven by customer trading activity and market volatility.

The Bank of New York Mellon may issue commercial paper that matures within 397 days from the date of issue and is not redeemable prior to maturity or subject to voluntary prepayment.

Other borrowed funds primarily include overdrafts of sub-custodian account balances in our Securities Services businesses, finance lease liabilities and borrowings under lines of credit by our Pershing subsidiaries. Overdrafts typically relate to timing differences for settlements.

### Liquidity and dividends

BNY Mellon defines liquidity as the ability of the Parent and its subsidiaries to access funding or convert assets to cash quickly and efficiently, or to roll over or issue new debt, especially during periods of market stress, at a reasonable cost, and in order to meet its short-term (up to one year) obligations. Funding liquidity risk is the risk that BNY Mellon cannot meet its cash and collateral obligations at a reasonable cost for both expected and unexpected cash flow and collateral needs without adversely affecting daily operations or our financial condition. Funding liquidity risk can arise from funding mismatches, market constraints from the inability to convert assets into cash, the inability to hold or raise cash, low overnight deposits, deposit run-off or contingent liquidity events.

Changes in economic conditions or exposure to credit, market, operational, legal and reputational risks also can affect BNY Mellon’s liquidity risk profile and are considered in our liquidity risk framework. For additional information, see “Risk Management - Liquidity Risk.”

The Parent’s policy is to have access to sufficient unencumbered cash and cash equivalents at each quarter-end to cover maturities and other forecasted debt redemptions, net interest payments and net tax payments for the following 18-month period, and to provide sufficient collateral to satisfy transactions subject to Section 23A of the Federal Reserve Act. As of Dec. 31, 2022, the Parent was in compliance with this policy.

We monitor and control liquidity exposures and funding needs within and across significant legal

36 BNY Mellon

## Results of Operations (continued)

entities, branches, currencies and business lines, taking into account, among other factors, any applicable restrictions on the transfer of liquidity among entities.

BNY Mellon also manages potential intraday liquidity risks. We monitor and manage intraday liquidity against existing and expected intraday liquid resources (such as cash balances, remaining intraday credit capacity, intraday contingency funding and available collateral) to enable BNY Mellon to meet

its intraday obligations under normal and reasonably severe stressed conditions.

We define available funds for internal liquidity management purposes as cash and due from banks, interest-bearing deposits with the Federal Reserve and other central banks, interest-bearing deposits with banks and federal funds sold and securities purchased under resale agreements. The following table presents our total available funds at period end and on an average basis.

| Available funds (dollars in millions) | Dec. 31, 2022 | Dec. 31, 2021 | Average |  |  |
| --- | --- | --- | --- | --- | --- |
|  |  |  | 2022 | 2021 | 2020 |
| Cash and due from banks | $5,030 | $6,061 | $5,542 | $5,922 | $4,506 |
| Interest-bearing deposits with the Federal Reserve and other central banks | 91,655 | 102,467 | 97,442 | 113,346 | 94,432 |
| Interest-bearing deposits with banks | 17,169 | 16,630 | 16,826 | 20,757 | 19,165 |
| Federal funds sold and securities purchased under resale agreements | 24,298 | 29,607 | 24,953 | 28,530 | 30,768 |
| Total available funds | $138,152 | $154,765 | $144,763 | $168,555 | $148,871 |
| Total available funds as a percentage of total assets | 34% | 35% | 34% | 37% | 36% |

Total available funds were $138.2 billion at Dec. 31, 2022, compared with $154.8 billion at Dec. 31, 2021. The decrease was primarily due to lower interest-bearing deposits with the Federal Reserve and other central banks and federal funds sold and securities purchased under resale agreements.

Average non-core sources of funds, such as federal funds purchased and securities sold under repurchase agreements, trading liabilities, other borrowed funds and commercial paper, were $16.9 billion for 2022 and $16.7 billion for 2021. The increase primarily reflects higher trading liabilities and other borrowed funds, partially offset by lower federal funds purchased and securities sold under repurchase agreements.

Average interest-bearing domestic deposits were $111.5 billion for 2022 and $124.7 billion for 2021. Average foreign deposits, primarily from our European-based businesses included in the Securities Services and Market and Wealth Services segments, were $101.9 billion for 2022, compared with $112.5 billion for 2021. The decrease primarily reflects client activity.

Average payables to customers and broker-dealers were $17.1 billion for 2022 and $16.9 billion for

2021. Payables to customers and broker-dealers are driven by customer trading activity and market volatility.

Average long-term debt was $27.4 billion for 2022 and $25.8 billion for 2021.

Average noninterest-bearing deposits decreased to $85.7 billion for 2022 from $86.6 billion for 2021, primarily reflecting client activity.

A significant reduction of client activity in our Securities Services and Market and Wealth Services business segments would reduce our access to deposits. See “Asset/liability management” for additional factors that could impact our deposit balances.

### Sources of liquidity

The Parent’s major sources of liquidity are access to the debt and equity markets, dividends from its subsidiaries, and cash on hand and cash otherwise made available in business-as-usual circumstances to the Parent through a committed credit facility with our intermediate holding company (“IHC”).

BNY Mellon 37

## Results of Operations (continued)

Our ability to access the capital markets on favorable terms, or at all, is partially dependent on our credit ratings, which are as follows:

| Credit ratings at Dec. 31, 2022 |  |  |  |  |
| --- | --- | --- | --- | --- |
|  | Moody's | S&P | Fitch | DBRS |
| Parent: |  |  |  |  |
| Long-term senior debt | A1 | A | AA- | AA |
| Subordinated debt | A2 | A- | A | AA (low) |
| Preferred stock | Baa1 | BBB | BBB+ | A |
| Outlook - Parent | Stable | Stable | Stable | Stable |
| The Bank of New York Mellon: |  |  |  |  |
| Long-term senior debt | Aa2 | AA- | AA | AA (high) |
| Subordinated debt | NR | A | NR | NR |
| Long-term deposits | Aa1 | AA- | AA+ | AA (high) |
| Short-term deposits | P1 | A-1+ | F1+ | R-1 (high) |
| Commercial paper | P1 | A-1+ | F1+ | R-1 (high) |
| BNY Mellon, N.A.: |  |  |  |  |
| Long-term senior debt | Aa2 (a) | AA- | AA (a) | AA (high) |
| Long-term deposits | Aa1 | AA- | AA+ | AA (high) |
| Short-term deposits | P1 | A-1+ | F1+ | R-1 (high) |
| Outlook - Banks | Stable | Stable | Stable | Stable |

*(a) Represents senior debt issuer default rating.*

*NR - Not rated.*

Long-term debt totaled $30.5 billion at Dec. 31, 2022 and $25.9 billion at Dec. 31, 2021. Issuances of $10.0 billion were partially offset by redemptions and maturities of $4.0 billion and a decrease in the fair value of hedged long-term debt. The Parent has $5.3 billion of long-term debt that will mature in 2023.

The following table presents the long-term debt issued in 2022.

| Debt issuances (in millions) | 2022 |
| --- | --- |
| 5.834% fixed-to-floating callable senior notes due 2033 | $1,500 |
| 4.414% fixed-to-floating callable senior notes due 2026 | 1,250 |
| 5.802% fixed-to-floating callable senior notes due 2028 | 1,000 |
| 3.350% fixed rate senior notes due 2025 | 950 |
| 2.050% fixed rate senior notes due 2027 | 850 |
| 4.289% fixed-to-floating callable senior notes due 2033 | 750 |
| 5.224% fixed-to-floating callable senior notes due 2025 | 750 |
| 3.430% fixed-to-floating callable senior notes due 2025 | 700 |
| 3.992% fixed-to-floating callable senior notes due 2028 | 500 |
| 4.596% fixed-to-floating callable senior notes due 2030 | 500 |
| 2.500% fixed rate senior notes due 2032 | 450 |
| SOFR + 62bps senior notes due 2025 | 400 |
| 3.850% fixed rate senior notes due 2029 | 350 |
| Total debt issuances | $9,950 |

*SOFR - compounded secured overnight financing rate

In January 2023, the Parent issued $750 million of fixed-to-floating rate senior notes maturing in 2029.

The annual fixed interest rate is 4.543% from issuance to, but excluding, Feb. 1, 2028, and then an annual interest rate of SOFR plus 116.868 basis points. The Parent also issued $750 million of fixed-to-floating rate senior notes maturing in 2034. The annual fixed interest rate is 4.706% from issuance to, but excluding, Feb. 1, 2033, and then an annual interest rate of SOFR plus 151.178 basis points.

The Bank of New York Mellon may issue notes and CDs. At Dec. 31, 2022 and Dec. 31, 2021, $780 million and $30 million, respectively, of notes were outstanding. At Dec. 31, 2022, $122 million of CDs were outstanding. There were no CDs outstanding at Dec. 31, 2021.

The Bank of New York Mellon also issues commercial paper that matures within 397 days from the date of issue and is not redeemable prior to maturity or subject to voluntary prepayment. There was no commercial paper outstanding at Dec. 31, 2022 and Dec. 31, 2021. The average commercial paper outstanding was $5 million for 2022 and $3 million for 2021.

Subsequent to Dec. 31, 2022, our U.S. bank subsidiaries could declare dividends to the Parent of approximately $3.4 billion, without the need for a regulatory waiver. In addition, at Dec. 31, 2022, non-

38 BNY Mellon

## Results of Operations (continued)

bank subsidiaries of the Parent had liquid assets of approximately $4.4 billion. Restrictions on our ability to obtain funds from our subsidiaries are discussed in more detail in “Supervision and Regulation - Capital Planning and Stress Testing - Payment of Dividends, Stock Repurchases and Other Capital Distributions” and in Note 19 of the Notes to Consolidated Financial Statements.

Pershing LLC has uncommitted lines of credit in place for liquidity purposes which are guaranteed by the Parent. Pershing LLC has two separate uncommitted lines of credit amounting to $350 million in aggregate. Average borrowings under these lines were less than $1 million, in aggregate, in 2022. Pershing Limited, an indirect UK-based subsidiary of BNY Mellon, has two separate uncommitted lines of credit amounting to $257 million in aggregate. Average borrowings under these lines were $5 million, in aggregate, in 2022.

The double leverage ratio is the ratio of our equity investment in subsidiaries divided by our consolidated Parent company equity, which includes our noncumulative perpetual preferred stock. In short, the double leverage ratio measures the extent to which equity in subsidiaries is financed by Parent company debt. As the double leverage ratio increases, this can reflect greater demands on a company’s cash flows in order to service interest payments and debt maturities. BNY Mellon’s double leverage ratio is managed in a range considering the high level of unencumbered available liquid assets held in its principal subsidiaries (such as central bank deposit placements and government securities), the Company’s cash generating fee-based business model, with fee revenue representing 79% of total revenue in 2022, and the dividend capacity of our banking subsidiaries. Our double leverage ratio was 120.5% at Dec. 31, 2022 and 119.3% at Dec. 31, 2021, and within the range targeted by management.

### *Uses of funds*

The Parent’s major uses of funds are repurchases of common stock, payment of dividends, principal and interest payments on its borrowings, acquisitions and additional investments in its subsidiaries.

In 2022, we paid $1.4 billion in dividends on our common and preferred stock. Our common stock dividend payout ratio was 49% for 2022.

In 2022, we repurchased 2.0 million common shares at an average price of $61.08 per common share for a total cost of $124 million.

### *Liquidity coverage ratio (“LCR”)*

U.S. regulators have established an LCR that requires certain banking organizations, including BNY Mellon, to maintain a minimum amount of unencumbered high-quality liquid assets (“HQLA”) sufficient to withstand the net cash outflow under a hypothetical standardized acute liquidity stress scenario for a 30-day time horizon.

The following table presents BNY Mellon’s consolidated HQLA at Dec. 31, 2022, and the average HQLA and average LCR for the fourth quarter of 2022.

| Consolidated HQLA and LCR (dollars in billions) | Dec. 31, 2022 |
| --- | --- |
| Securities (a) | $106 |
| Cash (b) | 91 |
| Total consolidated HQLA (c) | $197 |
| Total consolidated HQLA - average (c) | $200 |
| Average LCR | 118% |

(a) Primarily includes securities of U.S. government-sponsored enterprises, U.S. Treasury, sovereign securities, and U.S. agencies.

(b) Primarily includes cash on deposit with central banks.

(c) Consolidated HQLA presented before adjustments. After haircuts and the impact of trapped liquidity, consolidated HQLA totaled $133 billion at Dec. 31, 2022 and averaged $138 billion for the fourth quarter of 2022.

BNY Mellon and each of our affected domestic bank subsidiaries were compliant with the U.S. LCR requirements of at least 100% throughout 2022.

### *Statement of cash flows*

The following summarizes the activity reflected on the consolidated statement of cash flows. While this information may be helpful to highlight certain macro trends and business strategies, the cash flow analysis may not be as relevant when analyzing changes in our net earnings and net assets. We believe that in addition to the traditional cash flow analysis, the discussion related to liquidity and dividends and asset/liability management herein may provide more useful context in evaluating our liquidity position and related activity.

BNY Mellon 39

## Results of Operations (continued)

Net cash provided by operating activities was $15.1 billion in 2022, compared with $2.8 billion in 2021. In 2022, cash flows provided by operations primarily resulted from changes in trading assets and liabilities, changes in accruals and other, net and earnings. In 2021, cash flows provided by operations primarily resulted from earnings, partially offset by changes in trading assets and liabilities and changes in accruals and other, net.

Net cash provided by investing activities was $19.9 billion in 2022, compared with $19.7 billion in 2021. In 2022, net cash provided by investing activities primarily reflects changes in interest-bearing deposits with the Federal Reserve and other central banks, a net decrease in the securities portfolio and change in

federal funds sold and securities purchased under resale agreements. In 2021, net cash provided by investing activities primarily reflects changes in interest-bearing deposits with the Federal Reserve and other central banks, partially offset by a net change in loans and a net increase in the securities portfolio.

Net cash used for financing activities was $33.7 billion in 2022, compared with $22.0 billion in 2021. In 2022 and 2021, net cash used for financing activities primarily reflects changes in deposits and repayments of long-term debt, partially offset by issuances of long-term debt. In 2021, net cash used for financing activities also reflects common stock repurchases.

## Capital

| Capital data (dollars in millions, except per share amounts; common shares in thousands) | 2022 | 2021 |
| --- | --- | --- |
| At Dec. 31: |  |  |
| BNY Mellon shareholders' equity to total assets ratio | 10.0% | 9.7% |
| BNY Mellon common shareholders' equity to total assets ratio | 8.8% | 8.6% |
| Total BNY Mellon shareholders' equity | $40,734 | $43,034 |
| Total BNY Mellon common shareholders' equity | $35,896 | $38,196 |
| BNY Mellon tangible common shareholders' equity - Non-GAAP (a) | $18,686 | $19,547 |
| Book value per common share | $44.40 | $47.50 |
| Tangible book value per common share - Non-GAAP (a) | $23.11 | $24.31 |
| Closing stock price per common share | $45.52 | $58.08 |
| Market capitalization | $36,800 | $46,705 |
| Common shares outstanding | 808,445 | 804,145 |
| Full-year: |  |  |
| Cash dividends per common share | $1.42 | $1.30 |
| Common dividend payout ratio | 49% | 32% |
| Common dividend yield | 3.1% | 2.2% |

(a) See 'Explanation of GAAP and Non-GAAP financial measures' beginning on page 104 for a reconciliation of GAAP to Non-GAAP.

The Bank of New York Mellon Corporation total shareholders' equity decreased to $40.7 billion at Dec. 31, 2022 from $43.0 billion at Dec. 31, 2021. The decrease primarily reflects unrealized losses on securities available-for-sale, dividend payments and foreign currency translation, partially offset by earnings.

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.

We repurchased 2.0 million common shares at an average price of $61.08 per common share for a total of $124 million in 2022.

In June 2021, our Board of Directors authorized the repurchase of up to $6.0 billion of common shares over the six quarters beginning in the third quarter of 2021 and continuing through the fourth quarter of 2022.

In January 2023, we announced a share repurchase program approved by our Board of Directors providing for the repurchase of up to $5.0 billion of common shares beginning Jan. 1, 2023. This new share repurchase plan replaced all previously authorized share repurchase plans.

40 BNY Mellon

## Results of Operations (continued)

In July 2022, our Board of Directors approved a 9% increase in the quarterly cash dividend on common stock, from $0.34 to $0.37 per share. We began paying the increased quarterly cash dividend in the third quarter of 2022.

### *Capital adequacy*

Regulators establish certain levels of capital for bank holding companies (“BHCs”) and banks, including BNY Mellon and our bank subsidiaries, in accordance with established quantitative measurements. For the Parent to maintain its status as a financial holding company (“FHC”), our U.S. bank subsidiaries and BNY Mellon must, among other things, qualify as “well capitalized.” As of Dec. 31, 2022 and Dec. 31, 2021, BNY Mellon and our U.S. bank subsidiaries were “well capitalized.” Failure to satisfy regulatory standards, including

“well capitalized” status or capital adequacy rules more generally, could result in limitations on our activities and adversely affect our financial condition. See the discussion of these matters in “Supervision and Regulation - Regulated Entities of BNY Mellon and Ancillary Regulatory Requirements” and “Risk Factors - Capital and Liquidity Risk - Failure to satisfy regulatory standards, including “well capitalized” and “well managed” status or capital adequacy and liquidity rules more generally, could result in limitations on our activities and adversely affect our business and financial condition.”

The U.S. banking agencies’ capital rules are based on the framework adopted by the Basel Committee on Banking Supervision (“BCBS”), as amended from time to time. For additional information on these capital requirements, see “Supervision and Regulation.”

The table below presents our consolidated and largest bank subsidiary regulatory capital ratios.

| Consolidated and largest bank subsidiary regulatory capital ratios | Dec. 31, 2022 |  |  | Dec. 31, 2021 |
| --- | --- | --- | --- | --- |
|  | Well capitalized | Minimum required (a) | Capital ratios | Capital ratios |
| Consolidated regulatory capital ratios: (b) |  |  |  |  |
| Advanced Approaches: |  |  |  |  |
| CET1 ratio | N/A (c) | 8.5% | 11.2% | 11.4% |
| Tier 1 capital ratio | 6% | 10 | 14.1 | 14.2 |
| Total capital ratio | 10 | 12 | 14.9 | 15.0 |
| Standardized Approach: |  |  |  |  |
| CET1 ratio | N/A (c) | 8.5% | 11.3% | 11.2% |
| Tier 1 capital ratio | 6% | 10 | 14.4 | 14.0 |
| Total capital ratio | 10 | 12 | 15.3 | 14.9 |
| Tier 1 leverage ratio | N/A (c) | 4 | 5.8 | 5.5 |
| SLR (d) | N/A (c) | 5 | 6.8 | 6.6 |
| The Bank of New York Mellon regulatory capital ratios: (b) |  |  |  |  |
| Advanced Approaches: |  |  |  |  |
| CET1 ratio | 6.5% | 7% | 15.6% | 16.5% |
| Tier 1 capital ratio | 8 | 8.5 | 15.6 | 16.5 |
| Total capital ratio | 10 | 10.5 | 15.7 | 16.5 |
| Tier 1 leverage ratio | 5 | 4 | 6.2 | 6.0 |
| SLR (d) | 6 | 3 | 7.7 | 7.6 |

(a) Minimum requirements for Dec. 31, 2022 include minimum thresholds plus currently applicable buffers. The U.S. global systemically important banks (“G-SIB”) surcharge of 1.5% is subject to change. The countercyclical capital buffer is currently set to 0%. The stress capital buffer (“SCB”) requirement is 2.5%, equal to the regulatory minimum for Standardized Approach capital ratios.

(b) For our CET1, Tier 1 capital and Total capital ratios, our effective capital ratios under U.S. capital rules are the lower of the ratios as calculated under the Standardized and Advanced Approaches. The Tier 1 leverage ratio is based on Tier 1 capital and quarterly average total assets.

(c) The Federal Reserve’s regulations do not establish well capitalized thresholds for these measures for BHCs.

(d) The SLR is based on Tier 1 capital and total leverage exposure, which includes certain off-balance sheet exposures.

BNY Mellon 41

## Results of Operations (continued)

Our CET1 ratio determined under the Advanced Approaches was 11.2% at Dec. 31, 2022 and 11.2% at Dec. 31, 2021 under the Standardized Approach. The unchanged ratio primarily reflects capital generated through earnings, lower RWAs and the impact of the Alcentra sale, offset by the net decrease in accumulated other comprehensive income and capital deployed through dividends.

In 2022, we implemented the Standardized Approach for Counterparty Credit Risk (“SA-CCR”), which replaced the current exposure method used to measure derivative counterparty exposure.

The Tier 1 leverage ratio was 5.8% at Dec. 31, 2022, compared with 5.5% at Dec. 31, 2021. The increase was driven by lower average assets, partially offset by a decrease in capital.

Risk-based capital ratios vary depending on the size of the balance sheet at period-end and the levels and types of investments in assets, and leverage ratios vary based on the average size of the balance sheet over the quarter. The balance sheet size fluctuates from period to period based on levels of customer and market activity. In general, when servicing clients are more actively trading securities, deposit balances and the balance sheet as a whole are higher. In addition, when markets experience significant volatility or stress, our balance sheet size may increase considerably as client deposit levels increase.

Our capital ratios are necessarily subject to, among other things, anticipated compliance with all necessary enhancements to model calibration, approval by regulators of certain models used as part of RWA calculations, other refinements, further implementation guidance from regulators, market practices and standards and any changes BNY Mellon may make to its businesses. As a consequence of these factors, our capital ratios may materially change, and may be volatile over time and from period to period.

Under the Advanced Approaches, our operational loss risk model is informed by external losses, including fines and penalties levied against institutions in the

financial services industry, particularly those that relate to businesses in which we operate, and as a result external losses have impacted and could in the future impact the amount of capital that we are required to hold.

The following table presents our capital components and RWAs.

| Capital components and risk-weighted assets (in millions) | Dec. 31, |  |
| --- | --- | --- |
|  | 2022 | 2021 |
| CET1: |  |  |
| Common shareholders’ equity | $35,896 | $38,196 |
| Adjustments for: |  |  |
| Goodwill and intangible assets (a) | (17,210) | (18,649) |
| Net pension fund assets | (317) | (400) |
| Embedded goodwill | (279) | (300) |
| Deferred tax assets | (56) | (55) |
| Other | (2) | (46) |
| Total CET1 | 18,032 | 18,746 |
| Other Tier 1 capital: |  |  |
| Preferred stock | 4,838 | 4,838 |
| Other | (14) | (99) |
| Total Tier 1 capital | $22,856 | $23,485 |
| Tier 2 capital: |  |  |
| Subordinated debt | $1,248 | $1,248 |
| Allowance for credit losses | 291 | 250 |
| Other | (11) | (11) |
| Total Tier 2 capital - Standardized Approach | 1,528 | 1,487 |
| Excess of expected credit losses | 50 | - |
| Less: Allowance for credit losses | 291 | 250 |
| Total Tier 2 capital - Advanced Approaches | $1,287 | $1,237 |
| Total capital: |  |  |
| Standardized Approach | $24,384 | $24,972 |
| Advanced Approaches | $24,143 | $24,722 |
| Risk-weighted assets: |  |  |
| Standardized Approach | $159,096 | $167,608 |
| Advanced Approaches: |  |  |
| Credit Risk | $90,243 | $98,310 |
| Market Risk | 2,979 | 3,069 |
| Operational Risk | 68,450 | 63,688 |
| Total Advanced Approaches | $161,672 | $165,067 |
| Average assets for Tier 1 leverage ratio | $396,643 | $430,102 |
| Total leverage exposure for SLR | $336,049 | $354,033 |

(a) Reduced by deferred tax liabilities associated with intangible assets and tax-deductible goodwill.

42 BNY Mellon

## Results of Operations (continued)

The table below presents the factors that impacted CET1 capital.

| CET1 generation (in millions) | 2022 |
| --- | --- |
| CET1 - Beginning of period | $18,746 |
| Net income applicable to common shareholders of The Bank of New York Mellon Corporation | 2,362 |
| Goodwill and intangible assets, net of related deferred tax liabilities | 1,439 |
| Gross CET1 generated | 3,801 |
| Capital deployed: |  |
| Common stock dividends (a) | (1,165) |
| Common stock repurchases | (124) |
| Total capital deployed | (1,289) |
| Other comprehensive loss: |  |
| Unrealized loss on assets available-for-sale | (2,907) |
| Foreign currency translation | (590) |
| Unrealized loss on cash flow hedges | (6) |
| Defined benefit plans | (250) |
| Total other comprehensive loss | (3,753) |
| Additional paid-in capital (b) | 380 |
| Other additions (deductions): |  |
| Net pension fund assets | 83 |
| Embedded goodwill | 21 |
| Deferred tax assets | (1) |
| Other | 44 |
| Total other additions | 147 |
| Net CET1 deployed | (714) |
| CET1 - End of period | $18,032 |

(a) Includes dividend-equivalents on share-based awards.

(b) Primarily related to stock awards, the exercise of stock options and stock issued for employee benefit plans.

The following table shows the impact on the consolidated capital ratios at Dec. 31, 2022 of a $100 million increase or decrease in common equity, or a $1 billion increase or decrease in RWAs, quarterly average assets or total leverage exposure.

### Sensitivity of consolidated capital ratios at Dec. 31, 2022

| (in basis points) | Increase or decrease of |  |
| --- | --- | --- |
|  | $100 million in common equity | $1 billion in RWA, quarterly average assets or total leverage exposure |
| CET1: |  |  |
| Standardized Approach | 6 bps | 7 bps |
| Advanced Approaches | 6 | 7 |
| Tier 1 capital: |  |  |
| Standardized Approach | 6 | 9 |
| Advanced Approaches | 6 | 9 |
| Total capital: |  |  |
| Standardized Approach | 6 | 10 |
| Advanced Approaches | 6 | 9 |
| Tier 1 leverage | 3 | 1 |
| SLR | 3 | 2 |

### Stress capital buffer

In August 2022, the Federal Reserve announced that BNY Mellon’s SCB requirement would be 2.5%, equal to the regulatory floor, effective as of Oct. 1, 2022. The SCB replaced the static 2.5% capital conservation buffer for Standardized Approach capital ratios for Comprehensive Capital Analysis and Review (“CCAR”) BHCs. The SCB does not apply to bank subsidiaries, which remain subject to the static 2.5% capital conservation buffer. See “Supervision and Regulation” for additional information.

The SCB final rule generally eliminates the requirement for prior approval of common stock repurchases in excess of the distributions in a firm’s capital plan, provided that such distributions are consistent with applicable capital requirements and buffers, including the SCB.

### Total Loss-Absorbing Capacity (“TLAC”)

The following summarizes the minimum requirements for BNY Mellon’s external TLAC and external long-term debt (“LTD”) ratios, plus currently applicable buffers.

|  | As a % of RWAs (a) | As a % of total leverage exposure |
| --- | --- | --- |
| Eligible external TLAC ratios | Regulatory minimum of 18% plus a buffer (b) equal to the sum of 2.5%, the method 1 G- SIB surcharge (currently 1%), and the countercyclical capital buffer, if any | Regulatory minimum of 7.5% plus a buffer (c) equal to 2% |
| Eligible external LTD ratios | Regulatory minimum of 6% plus the greater of the method 1 or method 2 G-SIB surcharge (currently 1.5%) | 4.5% |

(a) RWA is the greater of the Standardized Approach and Advanced Approaches.

(b) Buffer to be met using only CET1.

(c) Buffer to be met using only Tier 1 capital.

External TLAC consists of the Parent’s Tier 1 capital and eligible unsecured LTD issued by it that has a remaining term to maturity of at least one year and satisfies certain other conditions. Eligible LTD consists of the unpaid principal balance of eligible unsecured debt securities, subject to haircuts for amounts due to be paid within two years, that satisfy certain other conditions. Debt issued prior to Dec.

BNY Mellon 43

## Results of Operations (continued)

31, 2016 has been permanently grandfathered to the extent these instruments otherwise would be ineligible only due to containing impermissible acceleration rights or being governed by foreign law.

The following table presents our external TLAC and external LTD ratios.

| TLAC and LTD ratios | Dec. 31, 2022 |  |  |
| --- | --- | --- | --- |
|  | Minimum required | Minimum ratios with buffers | Ratios |
| Eligible external TLAC: |  |  |  |
| As a percentage of RWA | 18.0% | 21.5% | 30.0% |
| As a percentage of total leverage exposure | 7.5% | 9.5% | 14.4% |
| Eligible external LTD: |  |  |  |
| As a percentage of RWA | 7.5% | N/A | 14.4% |
| As a percentage of total leverage exposure | 4.5% | N/A | 6.9% |

N/A - Not applicable.

### Issuer purchases of equity securities

| Share repurchases - fourth quarter of 2022 |  |  |  |  |
| --- | --- | --- | --- | --- |
| (dollars in millions, except per share amounts; common shares in thousands) | Total shares repurchased | Average price per share | Total shares repurchased as part of a publicly announced plan or program | Maximum approximate dollar value of shares that may yet be purchased under the publicly announced plans or programs at Dec. 31, 2022 |
| October 2022 | 1 | $38.52 | 1 | $2,628 |
| November 2022 | 18 | 42.43 | 18 | 2,627 |
| December 2022 | 16 | 45.88 | 16 | 2,626 |
| Fourth quarter of 2022 (a) | 35 | $43.81 | 35 | $2,626 (b) |

(a) Includes 35 thousand shares repurchased at a purchase price of $2 million from employees, primarily in connection with the employees' payment of taxes upon the vesting of restricted stock. There were no open market repurchases in the fourth quarter of 2022.

(b) Represents the remaining dollar value of shares yet repurchased under the share repurchase program that expired on Dec. 31, 2022. Effective Jan. 1, 2023, the maximum value of the shares to be repurchased through a new share repurchase program approved in January 2023 is $5.0 billion.

In June 2021, in connection with the Federal Reserve's release of the 2021 CCAR stress tests, we announced a share repurchase program approved by our Board of Directors providing for the repurchase of up to $6.0 billion of common shares beginning in the third quarter of 2021 and continuing through the fourth quarter of 2022.

In January 2023, we announced a share repurchase program approved by our Board of Directors providing for the repurchase of up to $5.0 billion of common shares beginning Jan. 1, 2023. This new share repurchase plan replaced all previously authorized share repurchase plans.

If BNY Mellon maintains risk-based ratio or leverage TLAC measures above the minimum required level, but with a risk-based ratio or leverage below the minimum level with buffers, we will face constraints on dividends, equity repurchases and discretionary executive compensation based on the amount of the shortfall and eligible retained income.

Share repurchases may be executed through open market repurchases, in privately negotiated transactions or by other means, including through repurchase plans designed to comply with Rule 10b5-1 and other derivative, accelerated share repurchase and other structured transactions. The timing and exact amount of any common stock repurchases will depend on various factors, including market conditions and the common stock trading price; the Company's capital position, liquidity and financial performance; alternative uses of capital; and legal and regulatory limitations and considerations.

44 BNY Mellon

Results of Operations (continued)

## Trading activities and risk management

Our trading activities are focused on acting as a market-maker for our customers, facilitating customer trades and risk-mitigating hedging in compliance with the Volcker Rule. The risk from market-making activities for customers is managed by our traders and limited in total exposure through a system of position limits, value-at-risk (“VaR”) methodology and other market sensitivity measures. VaR is the potential loss in value due to adverse market movements over a defined time horizon with a specified confidence level. The calculation of our VaR used by management and presented below assumes a one-day holding period, utilizes a 99% confidence level and incorporates non-linear product characteristics. VaR facilitates comparisons across portfolios of different risk characteristics. VaR also captures the diversification of aggregated risk at the firm-wide level.

VaR represents a key risk management measure and it is important to note the inherent limitations to VaR, which include:

- VaR does not estimate potential losses over longer time horizons where moves may be extreme;
- VaR does not take account of potential variability of market liquidity; and
- Previous moves in market risk factors may not produce accurate predictions of all future market moves.

See Note 23 of the Notes to Consolidated Financial Statements for additional information on the VaR methodology.

The following tables indicate the calculated VaR amounts for the trading portfolio for the designated periods using the historical simulation VaR model.

| VaR (a) (in millions) | 2022 |  |  | Dec. 31, 2022 |
| --- | --- | --- | --- | --- |
|  | Average | Minimum | Maximum |  |
| Interest rate | $4.1 | $1.6 | $9.3 | $2.3 |
| Foreign exchange | 3.8 | 2.0 | 10.2 | 3.0 |
| Equity | 0.2 | - | 0.9 | 0.1 |
| Credit | 2.1 | 1.0 | 4.4 | 1.8 |
| Diversification | (5.0) | N/M | N/M | (3.5) |
| Overall portfolio | 5.2 | 2.5 | 11.4 | 3.7 |

| VaR (a) (in millions) | 2021 |  |  | Dec. 31, 2021 |
| --- | --- | --- | --- | --- |
|  | Average | Minimum | Maximum |  |
| Interest rate | $2.1 | $1.5 | $3.5 | $1.7 |
| Foreign exchange | 2.6 | 1.9 | 4.1 | 2.7 |
| Equity | 0.1 | - | 0.9 | 0.1 |
| Credit | 1.7 | 1.1 | 2.8 | 1.7 |
| Diversification | (3.2) | N/M | N/M | (2.7) |
| Overall portfolio | 3.3 | 2.4 | 5.2 | 3.5 |

(a) VaR exposure does not include the impact of the Company’s consolidated investment management funds and seed capital investments.

N/M - Because the minimum and maximum may occur on different days for different risk components, it is not meaningful to compute a minimum and maximum portfolio diversification effect.

The interest rate component of VaR represents instruments whose values are predominantly driven by interest rate levels. These instruments include, but are not limited to, U.S. Treasury securities, swaps, swaptions, forward rate agreements, exchange-traded futures and options, and other interest rate derivative products.

The foreign exchange component of VaR represents instruments whose values predominantly vary with the level or volatility of currency exchange rates or interest rates. These instruments include, but are not limited to, currency balances, spot and forward transactions, currency options and other currency derivative products.

The equity component of VaR consists of instruments that represent an ownership interest in the form of domestic and foreign common stock or other equity-linked instruments. These instruments include, but are not limited to, common stock, exchange-traded funds, preferred stock, listed equity options (puts and calls), OTC equity options, equity total return swaps, equity index futures and other equity derivative products.

The credit component of VaR represents instruments whose values are predominantly driven by credit spread levels, i.e., idiosyncratic default risk. These instruments include, but are not limited to, single issuer credit default swaps, and securities with exposures from corporate and municipal credit spreads.

The diversification component of VaR is the risk reduction benefit that occurs when combining portfolios and offsetting positions, and from the correlated behavior of risk factor movements.

BNY Mellon 45

## Results of Operations (continued)

During 2022, interest rate risk generated 40% of average gross VaR, foreign exchange risk generated 37% of average gross VaR, equity risk generated 2% of average gross VaR and credit risk generated 21% of average gross VaR. During 2022, our daily trading loss exceeded our calculated VaR amount of the overall portfolio on one occasion.

The following table of total daily trading revenue or loss illustrates the number of trading days in which our trading revenue or loss fell within particular ranges during the past five quarters.

| Distribution of trading revenue (loss) (a) |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- |
| (dollars in millions) | Quarter ended |  |  |  |  |
|  | Dec. 31, 2022 | Sept. 30, 2022 | June 30, 2022 | March 31, 2022 | Dec. 31, 2021 |
| Revenue range: | Number of days |  |  |  |  |
| Less than $(2.5) | 2 | - | 1 | 1 | - |
| $(2.5) - $0 | 4 | 3 | 4 | 8 | 3 |
| $0 - $2.5 | 13 | 10 | 10 | 12 | 27 |
| $2.5 - $5.0 | 24 | 32 | 24 | 23 | 21 |
| More than $5.0 | 20 | 19 | 24 | 18 | 12 |

(a) Trading revenue (loss) includes realized and unrealized gains and losses primarily related to spot and forward foreign exchange transactions, derivatives and securities trades for our customers and excludes any associated commissions, underwriting fees and net interest revenue.

Trading assets include debt and equity instruments and derivative assets, primarily foreign exchange and interest rate contracts, not designated as hedging instruments. Trading assets were $9.9 billion at Dec. 31, 2022 and $16.6 billion at Dec. 31, 2021.

Trading liabilities include debt and equity instruments and derivative liabilities, primarily foreign exchange and interest rate contracts, not designated as hedging instruments. Trading liabilities were $5.4 billion at Dec. 31, 2022 and $5.5 billion at Dec. 31, 2021.

Under our fair value methodology for derivative contracts, an initial “risk-neutral” valuation is performed on each position assuming time-discounting based on a AA credit curve. In addition, we consider credit risk in arriving at the fair value of our derivatives.

We reflect external credit ratings as well as observable credit default swap spreads for both

ourselves and our counterparties when measuring the fair value of our derivative positions. Accordingly, the valuation of our derivative positions is sensitive to the current changes in our own credit spreads, as well as those of our counterparties.

At Dec. 31, 2022, our OTC derivative assets, including those in hedging relationships, of $2.9 billion included a credit valuation adjustment (“CVA”) deduction of $18 million. Our OTC derivative liabilities, including those in hedging relationships, of $3.0 billion included a debit valuation adjustment (“DVA”) of $6 million related to our own credit spread. Net of hedges, the CVA increased by $4 million and the DVA increased by $7 million in 2022, which increased other trading revenue by $3 million in 2022. During 2022, no realized loss was charged off against CVA reserves.

At Dec. 31, 2021, our OTC derivative assets, including those in hedging relationships, of $2.8 billion included a CVA deduction of $29 million. Our OTC derivative liabilities, including those in hedging relationships, of $3.4 billion included a DVA of $2 million related to our own credit spread. Net of hedges, the CVA increased by $1 million and the DVA was unchanged in 2021, which decreased investment and other revenue - other trading revenue by $1 million in 2021. During 2021, no realized loss was charged off against CVA reserves.

The table below summarizes our exposure, net of collateral related to our derivative counterparties, as determined on an internal risk management basis. Significant changes in counterparty credit ratings could alter the level of credit risk faced by BNY Mellon.

| Foreign exchange and other trading counterparty risk rating profile |  |  |  |  |
| --- | --- | --- | --- | --- |
| (dollars in millions) | Dec. 31, 2022 |  | Dec. 31, 2021 |  |
|  | Exposure, net of collateral | Percentage of exposure, net of collateral | Exposure, net of collateral | Percentage of exposure, net of collateral |
| Investment grade | $2,553 | 98% | $2,538 | 97% |
| Non-investment grade | 63 | 2% | 88 | 3% |
| Total | $2,616 | 100% | $2,626 | 100% |

46 BNY Mellon

Results of Operations (continued)

## Asset/liability management

Our diversified business activities include processing securities, accepting deposits, investing in securities, lending, raising money as needed to fund assets and other transactions. The market risks from these activities include interest rate risk and foreign exchange risk. Our primary market risk is exposure to movements in U.S. dollar interest rates and certain foreign currency interest rates. We actively manage interest rate sensitivity and use earnings simulation and discounted cash flow models to identify interest rate exposures.

An earnings simulation model is the primary tool used to assess changes in pre-tax net interest revenue between a baseline scenario and hypothetical interest rate scenarios. Interest rate sensitivity is quantified by calculating the change in pre-tax net interest revenue between the scenarios over a 12-month measurement period.

The baseline scenario incorporates the market’s forward rate expectations and management’s assumptions regarding client deposit rates, credit spreads, changes in the prepayment behavior of loans and securities and the impact of derivative financial instruments used for interest rate risk management purposes as of Dec. 31, 2022. These assumptions have been developed through a combination of historical analysis and future expected pricing behavior and are inherently uncertain. Actual results may differ materially from projected results due to timing, magnitude and frequency of interest rate changes, and changes in market conditions and management’s strategies, among other factors. Client deposit levels and mix are key assumptions impacting net interest revenue in the baseline as well as the hypothetical interest rate scenarios. The earnings simulation model assumes static deposit levels and mix and it also assumes that no management actions will be taken to mitigate the effects of interest rate changes. Typically, the baseline scenario uses the average deposit balances of the quarter.

In the table below, we use the earnings simulation model to assess the impact of various hypothetical interest rate scenarios compared to the baseline scenario. In each of the scenarios, all currencies’ interest rates are instantaneously shifted higher or lower at the start of the forecast. Long-term interest rates are defined as all tenors equal to or greater than three years and short-term interest rates are defined as

all tenors equal to or less than three months. Interim term points are interpolated where applicable.

The following table shows net interest revenue sensitivity for BNY Mellon.

| Estimated changes in net interest revenue (in millions) | Dec. 31, 2022 | Sept. 30, 2022 | Dec. 31, 2021 |
| --- | --- | --- | --- |
| Up 100 bps rate shock vs. baseline | $214 | $267 | $688 |
| Long-term up 100 bps, short-term unchanged | 30 | (17) | 204 |
| Short-term up 100 bps, long-term unchanged | 184 | 283 | 483 |
| Long-term down 50 bps, short-term unchanged | (20) | 7 | (98) |
| Down 100 bp rate shock vs. baseline | (281) | (394) | 392 |

The declines in most of the rising rate sensitivities compared with Sept. 30, 2022 are due to higher deposit interest expense in rising rate scenarios, which is driven by the expectation of paying higher rates on deposits as central banks continue their tightening cycle.

While the net interest revenue sensitivity scenario calculations assume static deposit balances to facilitate consistent period-over-period comparisons, net interest revenue is impacted by changes in deposit balances. Noninterest-bearing deposits are particularly sensitive to changes in short-term rates.

To illustrate the net interest revenue sensitivity to deposit run-off, we note that a $5 billion instantaneous reduction of U.S. dollar-denominated noninterest-bearing deposits would reduce the net interest revenue sensitivity results in the up 100 basis point scenario in the table above by approximately $290 million. The impact would be smaller if the run-off was assumed to be a mixture of interest-bearing and noninterest-bearing deposits.

For a discussion of factors impacting the growth or contraction of deposits, see “Risk Factors - Capital and Liquidity Risk - Our business, financial condition and results of operations could be adversely affected if we do not effectively manage our liquidity.”

We also project future cash flows from our assets and liabilities over a long-term horizon and then discount these cash flows using instantaneous parallel shocks to prevailing interest rates. This measure reflects the

BNY Mellon 47

## Results of Operations (continued)

structural balance sheet interest rate sensitivity by discounting all future cash flows. The aggregation of these discounted cash flows is the economic value of equity (“EVE”). The following table shows how EVE would change in response to changes in interest rates.

| Estimated changes in EVE | Dec. 31, 2022 |
| --- | --- |
| Rate change: |  |
| Up 200 bps vs. baseline | (1.8)% |
| Up 100 bps vs. baseline | 2.2% |

The asymmetrical accounting treatment of the impact of a change in interest rates on our balance sheet may create a situation in which an increase in interest rates can adversely affect reported equity and regulatory capital, even though economically there may be no impact on our economic capital position. For example, an increase in rates will result in a decline in the value of our available-for-sale securities portfolio. In this example, there is no corresponding change on our fixed liabilities, even though economically these liabilities are more valuable as rates rise.

These results do not reflect strategies that management could employ to limit the impact as interest rate expectations change.

To manage foreign exchange risk, we fund foreign currency-denominated assets with liability instruments denominated in the same currency. We utilize various foreign exchange contracts if a liability denominated in the same currency is not available or desired, and to minimize the earnings impact of translation gains or losses created by investments in foreign markets. We use forward foreign exchange contracts to protect the value of our net investment in foreign operations. At Dec. 31, 2022, net investments in foreign operations totaled $13 billion and were spread across 18 foreign currencies.

48 BNY Mellon

## Risk Management---

### *Overview*

BNY Mellon plays a vital role in the global financial markets, and effective risk management is critical to our success. BNY Mellon operates under the Enterprise Risk Management Framework (“risk management framework”) which is the foundation of our risk management approach. Risk management begins with a strong risk culture, and we reinforce our culture through policies and the Code of Conduct, which are grounded in our core values of passion for excellence, integrity, strength in diversity and courage to lead.

These values are critical to our success. They not only explain what we stand for and our shared culture, but also help us to think and act globally. They serve as a representation of the promises we have made to our clients, communities, shareholders and each other.

BNY Mellon’s Risk Identification process is a core component of BNY Mellon’s risk framework and is the foundation for understanding and managing risk across our six primary risk categories: Operational Risk, Market Risk, Credit Risk, Liquidity Risk, Model Risk and Strategic Risk. Quarterly, the Company engages in a process designed to document identification and assessment of its risks, and to determine the set of risks material to BNY Mellon. Outputs from the Risk Identification process inform elements of our risk framework such as our Risk Appetite as well as Enterprise-wide Stress Testing and Capital Planning.

BNY Mellon’s Risk Appetite expresses the level of risk we are willing to assume to meet our objectives in a manner that balances risk and reward while considering our risk capacity and maintaining a balance sheet that remains resilient throughout market cycles. This guides BNY Mellon’s risk-taking activities and informs key decision-making processes, including the manner by which we pursue our business strategy and the methods by which we manage risk. The Risk Appetite Statement and associated key risk metrics to monitor our risk profile are updated and approved by the Risk Committee of the Board at least annually.

BNY Mellon conducts Enterprise-wide Stress Testing as part of its Internal Capital Adequacy Assessment Process in accordance with CCAR, and as required by the enhanced prudential standards issued pursuant to

the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). Enterprise-wide Stress Testing considers the Company’s lines of business, products, geographic areas and risk types incorporating the results from underlying models and projections for a range of stress scenarios. Additional details on Capital Planning and Stress Testing are included in “Supervision and Regulation.”

### *Three Lines of Defense*

BNY Mellon’s Three Lines of Defense model is a critical component of our risk management framework to clarify roles and responsibilities across the organization.

BNY Mellon’s first line of defense includes senior management and business and corporate staff, excluding management and employees in Risk Management, Compliance and Internal Audit. Senior management in the first line is responsible for maintaining and implementing an effective risk management framework and ensuring BNY Mellon appropriately manages risk consistent with its strategy and risk tolerance, including establishing clear responsibilities and accountability for the identification, measurement, management and control of risk.

Risk & Compliance is the independent second line of defense. It is responsible for establishing a framework that outlines expectations and provides guidance for the effective management of risk at BNY Mellon while also independently testing, reviewing and challenging the first line. Risk & Compliance provides independent oversight across three views - lines of business; regions and legal entities; and enterprise-wide risk and compliance disciplines which apply consistent standards for each risk or compliance type or topic across the firm.

The Chief Risk Officer has reporting lines to both the Chief Executive Officer and the Risk Committee of the Company’s Board of Directors.

Internal Audit is BNY Mellon’s third line of defense and serves as an independent, objective assurance function that reports directly to the Audit Committee of the Company’s Board of Directors. It assists the Company in accomplishing its objectives by bringing a systematic, disciplined, risk-based approach to evaluate and improve the effectiveness of the Company’s risk management, control and governance

BNY Mellon 49

**Risk Management** (continued)

processes. The scope of Internal Audit's work includes the review and evaluation of the adequacy, effectiveness and sustainability of risk management

procedures, internal control systems, information systems and governance processes.

*Governance*

BNY Mellon's management is responsible for execution of the Company's risk management framework and the governance structure that supports it, with oversight provided by BNY Mellon's Board of Directors through two key Board committees: the Risk Committee and the Audit Committee.

A summary of the governance structure is provided below.

| BNY Mellon Board of Directors |  |
| --- | --- |
| Risk Committee | Audit Committee |
| Senior Risk and Control Committee ("SRCC") |  |
| Anti-Money Laundering Oversight Committee Asset Liability Committee Balance Sheet Risk Committee Business Risk Committees Compliance and Ethics Oversight Committee | Contract Management Committee Credit Portfolio Management Committees Enterprise Insider Threat Steering Committee International Senior Risk and Control Committee Operational Risk Committee Product Approval and Review Committee Regulatory Oversight Committee Resolvability Steering Committee Strategic Risk Committee Technology Risk Committee |

The Risk Committee is comprised entirely of independent directors and meets on a regular basis to review and assess the control processes with respect to the Company's inherent risks. It also reviews and assesses the risk management activities of the Company and the Company's risk policies and activities. The roles and responsibilities of the Risk Committee are described in more detail in its charter, a copy of which is available on our website, www.bnymellon.com.

The Audit Committee is also comprised entirely of independent directors. The Audit Committee meets on a regular basis to perform an oversight review of the integrity of the financial statements and financial reporting process, compliance with legal and regulatory requirements, our independent registered public accountant's qualifications and independence, and the performance of our independent registered public accountant and internal audit function. The Audit Committee also reviews management's assessment of the adequacy of internal controls. The functions of the Audit Committee are described in more detail in its charter, a copy of which is available on our website, www.bnymellon.com.

The SRCC is the most senior risk governance group at the Company and is responsible for oversight of all Risk Management, Compliance & Ethics activities and processes, including the Enterprise Risk Management Framework. The committee is chaired by the Chief Risk Officer and its members include the Chief Executive Officer, Chief Financial Officer and General Counsel.

The SRCC has 15 sub-committees:

- Anti-Money Laundering Oversight Committee: Responsible for coordinating the Company's compliance with Anti-Money Laundering laws and regulations and enforcing the Company's Anti-Money Laundering Program.
- Asset Liability Committee ("ALCO"): The senior management committee responsible for balance sheet oversight, including capital, liquidity and interest rate risk management.
- Balance Sheet Risk Committee (the "BSRC"): Reviews and receives escalation relating to balance sheet risk management frameworks associated with the assets, liabilities and capital

50 BNY Mellon

## Risk Management (continued)---

of the Company. The BSRC reviews the adequacy of associated controls and processes, monitors risk management in the context of risk appetite, and approves related policy documents.- • **Business Risk Committees:** Review and assess risk and control issues observed from existing business practices or activities or arising from new business practices or activities in our various lines of business and supporting operations.
- • **Compliance and Ethics Oversight Committee:** Provides governance and oversight of the operations of the Compliance and Ethics function and the management and reporting of compliance risk-related issues, as well as Compliance & Ethics processes, policies, procedures and standards.
- • **Contract Management Committee:** The governance and escalation body for the Company's Customer Contract Management policy across the businesses, overseeing related policies, infrastructure, risk considerations and operations.
- • **Credit Portfolio Management Committees:** Seven Portfolio Management Committees, governed by the same charter and rules, manage, monitor and review one of Credit Risk's primary portfolio segments, including underwriting criteria, portfolio limits and composition, concentration, credit strategy, quality and exposure.
- • **Enterprise Insider Threat Steering Committee:** Provides enterprise-wide governance and oversight related to the Enterprise Insider Threat Program and related initiatives, as well as provides visibility to senior leadership related to the enterprise risk profile as it relates to insider threat risks.
- • **International Senior Risk and Control Committee:** Provides risk management oversight, and acts as a point of convergence for the coordination, transparency and communication of material issues (live or emerging) across international entities.
- • **Operational Risk Committee:** Oversees the operational risk framework and policies, reviews and monitors program outputs and metrics, and monitors resolution of significant operational risk matters, including changes to the risk and control environment.
- • **Product Approval and Review Committee:** Responsible for reviewing and approving proposals to introduce new and modify or retire existing products.
- • **Regulatory Oversight Committee:** Provides strategic direction, oversight, challenge, and coordination across regulatory remediation initiatives within the Company's Regulatory Oversight Program.
- • **Resolvability Steering Committee:** Oversees recovery and resolution planning, including but not limited to the project governance and oversight framework for all recovery and resolution planning requirements in relevant jurisdictions where BNY Mellon operates.
- • **Strategic Risk Committee:** Considers for approval proposals for major strategic initiatives significantly impacting the risk profile of the Company, including but not limited to acquisitions, material changes to existing products, material new products, significant business process changes and complex transactions.
- • **Technology Risk Committee:** Oversees the review and assessment of technology risk and control issues observed from existing business practices or activities, or arising from new business practices or activities in our various lines of business and supporting operations so as to assist business management and corporate staff in managing and monitoring technology risk and control issues.

BNY Mellon 51

**Risk Management** (continued)

# *Risk Types Overview*

The understanding, identification, measurement and mitigation of risk are essential elements for the successful management of BNY Mellon. Our primary risk categories are:

| Type of risk | Description |
| --- | --- |
| Operational | The risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. Operational risk includes compliance and technology risks. |
| Market | The potential loss in value for the BNY Mellon financial portfolio caused by adverse movements in market prices of FX, fixed income and equity assets, credit spreads, commodities and liabilities accounted for under fair value and equivalent methods. |
| Credit | The risk of loss if any of our borrowers or other counterparties were to default on their obligations to us. Credit risk is present in the majority of our assets, but primarily concentrated in the loan and securities books, as well as foreign exchange and off-balance sheet exposures such as lending commitments, letters of credit and securities lending indemnifications. |
| Liquidity | The risk that BNY Mellon cannot meet its cash and collateral obligations at a reasonable cost for both expected and unexpected cash flows, without adversely affecting daily operations or financial conditions. Liquidity risk can arise from cash flow mismatches, market constraints from the inability to convert assets to cash, the inability to raise cash in the markets, deposit run-off or contingent liquidity events. |
| Model | The potential loss arising from incorrectly designing/applying a model approach or inaccuracies caused by market, credit or liquidity stress. |
| Strategic | The risk arising from adverse business decisions, poor implementation of business decisions or lack of responsiveness to changes in the financial industry and operating environment. Strategic and/or business risks may also arise from the acceptance of new businesses, the introduction or modification of products, strategic finance and risk management decisions, business process changes, complex transactions, acquisitions/divestitures/joint ventures and major capital expenditures/investments. |

# *Operational Risk*

In providing a comprehensive array of products and services, we are exposed to operational risk. Operational risk may result from, but is not limited to, errors related to transaction processing, breaches of internal control systems and compliance requirements, fraud by employees or persons outside BNY Mellon or business interruption due to system failures or other events. Operational risk may also include breaches of our technology and information systems resulting from unauthorized access to confidential information or from internal or external threats, such as cyberattacks. Operational risk also includes potential legal or regulatory actions that could arise. In the case of an operational event, we could suffer financial losses as well as reputational damage.

To address these risks, we maintain comprehensive policies and procedures and an internal control framework designed to provide a sound operational environment. These controls have been designed to manage operational risk at appropriate levels given our financial strength, the business environment and markets in which we operate, and the nature of our businesses, and considering factors such as competition and regulation.

The organizational framework for operational risk is based upon a strong risk culture that incorporates both governance and risk management activities comprising:

- Accountability of Businesses - Business managers are responsible for maintaining an effective system of internal controls commensurate with their risk profiles and in accordance with BNY Mellon policies and procedures.
- Operational Risk Management is the independent second line function responsible for developing risk management policies and tools for assessing, measuring, monitoring and managing operational risk for BNY Mellon. The primary objectives of the Operational Risk Management Framework are to promote effective risk management, identify emerging risks and drive continuous improvement in controls and to reduce operational risk. The Operational Risk Management function includes independent operational risk oversight of all lines of business and functions.

52 BNY Mellon

## Risk Management (continued)---

- • Technology risk is a subset of operational risk. Technology Risk Management is the independent operational risk management function that is responsible for independent risk oversight of the technology footprint. The function brings together the second line independent risk oversight of technology, resiliency and data in a cohesive and holistic manner. These areas are closely related, allowing expertise to be brought to bear across some of BNY Mellon's most significant risk exposures. The function also conducts integrated independent assessments on multiple cyber and digital initiatives within the Company. They partner with businesses and legal entities to drive better understanding and a more accurate assessment of operational risks that can occur from technology operations. Technology Risk Management also acts as a catalyst to drive the development of global technology policies, key controls and methods to assess, measure and monitor information and technology risk for BNY Mellon.
- • Operational resiliency is a top priority for the Company. Foundational to our enterprise resiliency strategy is the Business Services Framework, governed by the Enterprise Resiliency Office, with second line oversight from Resiliency Risk Management. Business management is accountable for maintaining effective resiliency capabilities under this framework, while Technology and Operations are responsible for successful execution in coordination with the business. Elements of the resiliency strategy include the Business Services Framework, IT Asset Management, Application transformation and Mainframe modernization, as well as Disaster Recovery Testing and Business Continuity capabilities. We are also focused on the resiliency capabilities of our most important service providers. These capabilities are intended to enable the Company to deliver services to our clients by the ability to prevent, respond and recover from business disruptions and threats.
- • Compliance and financial crimes risk is also a subset of operational risk. It is defined as the risk of legal or regulatory sanctions, material financial loss, or a financial institution's reputational loss as a result of its failure to comply with laws, regulations, rules, related self-regulatory organization standards, and codes of conduct or organizational standards of practice. We seek to comply with all obligations through a

comprehensive, integrated Compliance and Ethics Management Framework that is driven by Holistic Risk Management Principles.

### *Market Risk*

Our business activity tends to minimize outright our direct exposure to market risk, with such risk primarily limited to market volatility from trading activity in support of clients. More significant direct market risk is assumed in the form of interest rate and credit spread risk within the investment portfolio both as a means for forward asset/liability management and net interest revenue generation, and also through the interest rate risk associated with BNY Mellon’s balance sheet position which is sensitive to adverse movements in interest rates.

The Company has indirect market risk exposure associated with the change in the value of financial collateral underlying securities financing and derivatives positions. The Collateral Margin Review Committee reviews and approves the standards for collateral received or paid in respect of collateralized derivative agreements and securities financing transactions.

Oversight of market risk is performed by the SRCC and the BSRC and through executive review meetings. Stress tests results for the trading portfolio are reviewed during the Markets Weekly Risk meeting, which is attended by senior managers from Risk Management, Finance and Sales and Trading. Oversight of the risk management framework associated with the Corporate Treasury and Portfolio Management functions is performed by the BSRC. Detailed aspects of this oversight are conducted by the Treasury Risk Committee, a subcommittee of the BSRC.

The Business Risk Committee for the Markets business reviews key risk and control issues and related initiatives facing all Markets lines of business. Also addressed during the Business Risk Committee meetings are trading VaR and trading stressed VaR exposures against limits.

Finally, the Risk Quantification Review Group reviews back-testing results for the Company’s VaR model.

BNY Mellon 53

## Risk Management (continued)---

### *Credit Risk*

We extend direct credit in order to foster client relationships and as a method by which to generate interest income from the deposits that result from business activity. We extend and incur intraday credit exposure in order to facilitate our various processing activities.

To balance the value of our activities with the credit risk incurred in pursuing them, we set and monitor internal credit limits for activities that entail credit risk, most often on the size of the exposure and the quality of the counterparty. For credit exposures driven by changing market rates and prices, exposure measures include an add-on for such potential changes.

We manage credit risk exposure at a counterparty, industry, country and portfolio level. Credit risk exposure at the counterparty level is managed through our credit approval framework and involves four approval levels up to and including the Chief Risk Officer of the Company. The requisite approvals are based upon the size and relative risk of the aggregate exposure under consideration. The Credit Risk Group is responsible for approving the size, terms and maturity of all credit exposures, as well as the ongoing monitoring of the creditworthiness of the counterparty. In addition, it is responsible for challenging and approving the internal risk ratings on each exposure.

The calculation of a fundamental credit measure is based on a projection of a statistically probable credit loss, used to help determine the appropriate loan loss reserve and to measure customer profitability. Credit loss considers three basic components: the estimated size of the exposure whenever default might occur, the probability of default before maturity and the severity of the loss we would incur, commonly called “loss given default.” For institutional lending, where most of our credit risk is created, unfunded commitments are assigned a usage given default percentage. Borrowers/counterparties are assigned ratings by the business and challenged, reviewed and approved by the Credit Portfolio Managers on an 18-grade scale, which translate to a scaled probability of default. Additionally, transactions are assigned loss given default ratings (on a 5-grade scale) that reflect the transactions’ structures, including the effects of guarantees, collateral and relative seniority of position.

The Risk and Compliance Modeling and Analytics Group is responsible for the calculation methodologies and the estimates of the inputs used in those methodologies for the determination of expected loss. These methodologies and input estimates are regularly evaluated for appropriateness and accuracy. As new techniques and data become available, the Risk and Compliance Modeling and Analytics Group incorporates, where appropriate, those techniques or data.

BNY Mellon seeks to limit both on- and off-balance sheet credit risk through prudent underwriting and the use of capital only where risk-adjusted returns warrant. We seek to manage risk and improve our portfolio diversification through syndications, asset sales, credit enhancements and active collateralization and netting agreements. In addition, we have a separate Credit Risk Review Group, which is an independent group within Internal Audit, made up of experienced loan review officers who perform timely reviews of the loan files and credit ratings assigned to the loans.

### *Liquidity Risk*

Adequate liquidity is vital to BNY Mellon’s ability to process payments as well as settle and clear transactions on behalf of clients. The Company’s liquidity position can be affected by multiple factors, including funding mismatches, market conditions that impact our ability to convert our investment portfolio to cash, inability to issue debt or roll over funding, run-off of core deposits, and contingent liquidity events such as additional collateral posting requirements. Additionally, a downgrade in our credit rating can not only lead to an outflow of deposits, which are a major source of our funding, but also increase our margin requirements on secured transactions and have a broader adverse impact on our overall brand that may further impair our ability to refinance maturing liabilities. Changes in economic conditions or exposure to other risks can also affect our liquidity.

The Board of Directors approves liquidity risk tolerance and is responsible for oversight of liquidity risk management of the Company. ALCO provides governance for the appropriate execution of Board-approved strategies, policies and procedures for managing liquidity. Senior management is responsible for executing those Board-approved strategies, policies and procedures for managing

54 BNY Mellon

## Risk Management (continued)---

liquidity which ALCO oversees, as well as regularly reporting the liquidity position of the Company to the Board of Directors. The BSRC provides governance over independent risk oversight of liquidity risks associated with assets and liabilities, and oversees the establishment of control frameworks. The Treasury Risk Committee, which is chaired by independent risk management, validates and approves internal stress testing methodologies and assumptions, and an independent Liquidity Risk function is responsible for providing ongoing review and oversight of liquidity risk management.

BNY Mellon actively manages and monitors its cash position, quality of the investment portfolio, intraday liquidity positions and potential liquidity needs in order to support the timely payment and settlement of obligations under both normal and stressed conditions. The Company adheres to a range of stress testing measures to maintain sufficient liquidity relative to risk appetite, including the Liquidity Coverage Ratio and Internal Liquidity Stress Testing.

### *Model Risk*

Models create the infrastructure for managing risk. Among their multiple functions, models help us value securities, rate the credit quality of obligors, establish capital needs and monitor liquidity trends. Model risk incidents could result from faulty design, misuse, or environmental conditions that invalidate our assumptions or otherwise make a model unfit for purpose. When this happens, the Company could be exposed to losses and other adverse consequences resulting from operational, market, credit and liquidity risk, as well as reputational harm. We aim to maintain a low-risk environment.

BNY Mellon’s processes are designed to identify the conditions under which model risk incidents will occur and to establish controls that are designed to minimize or prevent loss in the event of a model risk incident. These processes include enforcement of standards for developing models, a process to validate new models and review the changes to existing models, as well as monitoring of performance throughout a model’s life.

Model Risk Management, an independent risk management function, is responsible for executing Board-approved strategies, policies, and procedures for managing models. Senior management is responsible for regularly reporting on the Company’s

modeling infrastructure to the Risk Committee of the Board of Directors. The Board of Directors approves risk tolerances and is responsible for oversight.

When monitoring model risk, we evaluate multiple dimensions including the quality of design, the robustness of controls, and indications of underperformance. Based on these measures, we create an overall metric that is intended to measure the health of the Company’s modeling environment and set thresholds around it. This allows us to manage model risk, not only at the level of the individual model, but also in aggregate, across all the Company’s businesses.

### *Strategic Risk*

Our strategy includes, but is not limited to, improving organic growth across our businesses, driving quality solutions and operating efficiencies, and expanding technology-enabled solutions. Successful realization of our strategy requires that we provide expertise and insight through market-leading solutions that drive economies of scale and attract, develop and retain highly talented people capable of executing our strategy, while protecting our sound and stable financial profile. We must understand and meet market and client expectations with suitable products and offerings that are financially viable and scalable and that integrate into our business model. Failure to do so could impact both our growth strategy and our ability to service our existing clients, resulting in potential financial loss or litigation.

Changes in the markets in which we and our clients operate can evolve quickly. The introduction of new or disruptive technologies, geopolitical events and slowing economies are examples of events that can produce market uncertainty. Failure to either anticipate or participate in transformational change within a given market or appropriately and promptly react to market conditions or client preferences could result in poor strategic positioning and potential negative financial impact. While it is essential that we continue to innovate and respond to changing markets and client demand, we must do so in a manner that does not affect our financial position or jeopardize our fundamental business strategy.

BNY Mellon 55

# Supervision and Regulation

### *Evolving Regulatory Environment*

BNY Mellon engages in banking, investment advisory and other financial activities in the U.S. and 34 other countries and is subject to extensive regulation in the jurisdictions in which it operates. Global supervisory authorities generally are charged with ensuring the safety and soundness of financial institutions, protecting the interests of customers, including depositors in banking entities and investors in mutual funds and other pooled vehicles, safeguarding the integrity of securities and other financial markets and promoting systemic resiliency and financial stability in the relevant country. They are not, however, generally charged with protecting the interests of our shareholders or non-depositor creditors. This discussion outlines the material elements of selected laws and regulations applicable to us. The impact of certain other laws and regulations, such as tax law, is discussed elsewhere in this Annual Report. Changes in these standards, or in their application, cannot be predicted, but may have a material effect on our businesses and results of operations.

The financial services industry has been the subject of enhanced regulatory oversight in the past decade globally, and this enhanced oversight environment is likely to continue in the future. Our businesses have been subject to a significant number of global reform measures.

Political developments have resulted and may continue to result in legislative and regulatory changes to key aspects of the Dodd-Frank Act and its implementing regulations and in laws or regulations relating to environmental, social and governance (“ESG”) matters.

### *Enhanced Prudential Standards*

The Federal Reserve has adopted rules (“SIFI Rules”) to implement liquidity requirements, capital stress testing and overall risk management requirements affecting U.S. systemically important financial institutions (“SIFIs”). BNY Mellon must comply with enhanced liquidity and overall risk management standards, which include maintenance of a buffer of highly liquid assets based on projected funding needs for 30 days. The liquidity buffer is in addition to the rules regarding the LCR and net stable funding ratio (“NSFR”), discussed below, and is described by the Federal Reserve as being “complementary” to these liquidity standards.

### *Single Counterparty Credit Limits*

The Federal Reserve has adopted a final rule imposing single-counterparty credit limits (“SCCLs”) on, among other organizations, domestic BHCs, including BNY Mellon, that are G-SIBs. The SCCLs apply to the credit exposure of a covered firm and all of its subsidiaries to a single counterparty and all of its affiliates and connected entities.

The final rule established two primary credit exposure limits: (i) a covered domestic BHC may not have aggregate net credit exposure to any unaffiliated counterparty in excess of 25% of its Tier 1 capital; and (ii) a U.S. G-SIB is further prohibited from having aggregate net credit exposure in excess of 15% of its Tier 1 capital to any “major counterparty” (defined as a G-SIB or a nonbank SIFI).

BNY Mellon has been in compliance with the two primary exposure limits since the effective date based on the daily monitoring process we have established. The final rule provides a cure period of 90 days (or, with prior notice from the Federal Reserve, a longer or shorter period) for breaches of the SCCL rule. During the cure period, a company may not engage in additional credit transactions with the particular counterparty unless the company has obtained a temporary credit exposure limit increase from the Federal Reserve.

### *Capital Planning and Stress Testing*

#### *Payment of Dividends, Stock Repurchases and Other Capital Distributions*

The Parent is a legal entity separate and distinct from its banks and other subsidiaries. Therefore, the Parent primarily relies on dividends, interest, distributions and other payments from its subsidiaries, including extensions of credit from the IHC, to meet its obligations, including its obligations with respect to its securities, and to provide funds for share repurchases and payment of common and preferred dividends to its stockholders, to the extent declared by the Board of Directors. Various federal and state laws and regulations limit the amount of dividends that may be paid to the Parent by our U.S. bank subsidiaries without regulatory consent. If, in the opinion of the applicable federal regulatory agency, a depository institution under its jurisdiction is engaged in or is about to engage in an unsafe or unsound practice (which, depending on the financial condition

56 BNY Mellon

## Supervision and Regulation (continued)---

of the bank, could include the payment of dividends), the regulator may require, after notice and hearing, that the bank cease and desist from such practice. The Federal Reserve, the FDIC and the Office of the Comptroller of the Currency (“OCC”) (together the “Agencies”) have indicated that the payment of dividends would constitute an unsafe and unsound practice if the payment would reduce a depository institution’s capital to an inadequate level. Moreover, under the Federal Deposit Insurance Act, as amended (the “FDI Act”), an insured depository institution (“IDI”) may not pay any dividends if the institution is undercapitalized or if the payment of the dividend would cause the institution to become undercapitalized. In addition, the Agencies have issued policy statements which provide that FDIC-insured depository institutions and their holding companies should generally pay dividends only out of their current operating earnings.

In general, the amount of dividends that may be paid by our U.S. banking subsidiaries, including to the Parent, is limited to the lesser of the amounts calculated under a “recent earnings” test and an “undivided profits” test. Under the recent earnings test, a dividend may not be paid if the total of all dividends declared and paid by the entity in any calendar year exceeds the current year’s net income combined with the retained net income of the two preceding years, unless the entity obtains prior regulatory approval. Under the undivided profits test, a dividend may not be paid in excess of the entity’s “undivided profits” (generally, accumulated net profits that have not been paid out as dividends or transferred to surplus). The ability of our bank subsidiaries to pay dividends to the Parent may also be affected by the capital adequacy standards applicable to those subsidiaries, which include minimum requirements and buffers.

There are also limitations specific to the IHC’s ability to make distributions or extend credit to the Parent. The IHC is not permitted to pay dividends to the Parent if certain key capital or liquidity indicators are breached. Additionally, if our projected financial resources deteriorate so severely that resolution of the Parent becomes imminent, the committed lines of credit provided by the IHC to the Parent will automatically terminate, with all outstanding amounts becoming due.

BNY Mellon’s capital distributions are subject to Federal Reserve oversight. The major component of

that oversight is the Federal Reserve’s CCAR, implementing its capital plan rule. That rule requires BNY Mellon to submit annually a capital plan to the Federal Reserve. We are also required to collect and report certain related data on a quarterly basis to allow the Federal Reserve to monitor progress against the annual capital plan.

On March 4, 2020, the Federal Reserve finalized an SCB rule, which made changes to the capital plan rule. The SCB rule eliminated the quantitative grounds for objection to a firm’s CCAR capital plan and introduced an SCB that became part of quarterly capital requirements of CCAR firms on Oct. 1, 2020. The final rule replaced the 2.5% capital conservation buffer with an SCB requirement for capital ratios under the U.S. capital rules’ standardized approach risk-weightings framework (“Standardized Approach”) that is based on the largest projected decrease in a firm’s CET1 ratio in the nine-quarter CCAR supervisory severely adverse scenario plus four quarters of planned common stock dividends as percentage of RWAs. The SCB is subject to a 2.5% floor. Each CCAR firm, including BNY Mellon, will be notified of its SCB by June 30, and the SCB will become effective on October 1 of the applicable calendar year. In August 2022, the Federal Reserve announced BNY Mellon’s SCB requirement of 2.5%, which equals the regulatory floor. The SCB rule requires that firms reduce their planned capital actions if those distributions would cause the firm to fall below applicable buffer requirements based on the firm’s own baseline scenario projections and allows firms to increase certain planned capital distributions if they are forecasted to be above capital buffer constraints. The SCB rule also eliminates the requirement for prior approval of capital distributions in excess of the distributions in a firm’s capital plan, provided that such distributions do not cause a breach of the firm’s capital ratios, including applicable buffers. In addition, the SCB rule provides that a firm must receive prior approval for any dividend, stock repurchase or other capital distribution, other than a capital distribution on a newly issued capital instrument, if a firm is required to resubmit its capital plan. See “Capital” for information about our share repurchase program.

The Agencies revised the definition of “eligible retained income” in 2020 to limit the potential for sudden and severe limitations on capital distributions if a banking organization’s capital ratios fall below the applicable buffer requirements. To the extent a

BNY Mellon 57

## Supervision and Regulation (continued)---

banking organization’s capital buffer is less than 100% of its applicable buffer requirements, its distributions and discretionary bonus payments are constrained by the amount of the shortfall and its eligible retained income. Under the final rule, eligible retained income is defined as the greater of (i) a banking organization’s net income for the four preceding calendar quarters, net of any distributions and associated tax effects not already reflected in net income, and (ii) the average of a banking organization’s net income over the preceding four quarters. The Federal Reserve made corresponding changes to the definition of “eligible retained income” in the TLAC buffer requirements. For more information on TLAC, see “Total Loss-Absorbing Capacity” below.

### *Regulatory Stress-Testing Requirements*

In addition to the CCAR stress testing requirements, Federal Reserve regulations also include complementary Dodd-Frank Act Stress Tests (“DFAST”). The CCAR and DFAST requirements substantially overlap, and the Federal Reserve implements them at the BHC level on a coordinated basis. Under these DFAST regulations, we are required to undergo an annual regulatory stress test conducted by the Federal Reserve. The BHC is required to conduct an annual company-run stress test. In addition, The Bank of New York Mellon is required to conduct an annual company-run stress test (although the bank is permitted to combine certain reporting and disclosure of its stress test results with the results of BNY Mellon). Results from our annual company-run stress tests are reported to the appropriate regulators and published.

### *Capital Requirements - Generally*

As a BHC, we are subject to U.S. capital rules, administered by the Federal Reserve. Our bank subsidiaries are subject to similar capital requirements administered by the Federal Reserve in the case of The Bank of New York Mellon and by the OCC in the case of our national bank subsidiaries, BNY Mellon, N.A. and The Bank of New York Mellon Trust Company, National Association. These requirements are intended to ensure that banking organizations have adequate capital given the risk levels of their assets and off-balance sheet exposures.

Notwithstanding the detailed U.S. capital rules, the Agencies retain significant discretion to set higher

capital requirements for categories of BHCs or banks or for an individual BHC or bank as warranted.

### *U.S. Capital Rules - Minimum Risk-Based Capital Ratios and Capital Buffers*

The U.S. capital rules require banking organizations subject to the advanced approaches risk-weighting framework (the “Advanced Approaches”), such as BNY Mellon, to satisfy minimum risk-based capital ratios using both the Standardized Approach and the Advanced Approaches. See “Capital” for details on these requirements. In addition, for CCAR firms, these minimum ratios are supplemented by (i) the SCB (which, for BNY Mellon, is 2.5%, as noted), in the case of a firm’s Standardized Approach capital ratios, and (ii) a capital conservation buffer of 2.5%, in the case of a firm’s Advanced Approaches capital ratios. The capital conservation buffer can only be satisfied with CET1 capital.

When systemic vulnerabilities are meaningfully above normal, the SCB and capital conservation buffer may be expanded up to an additional 2.5% through the imposition of a countercyclical capital buffer. For internationally active banks such as BNY Mellon, the countercyclical capital buffer required threshold is a weighted average of the countercyclical capital buffers deployed in each of the jurisdictions in which the bank has private sector credit exposures. The Federal Reserve, in consultation with the OCC and FDIC, has affirmed the current countercyclical capital buffer level for U.S. exposures of 0% and noted that any future modifications to the buffer would generally be subject to a 12-month phase-in period. Any countercyclical capital buffer required threshold arising from exposures outside the U.S. will also generally be subject to a 12-month phase-in period.

For G-SIBs, like BNY Mellon, the U.S. capital rules’ buffers are also supplemented by a G-SIB risk-based capital surcharge, which is the higher of the surcharges calculated under two methods (referred to as “method 1” and “method 2”). Method 1 is based on the Basel Committee on Banking Supervision (“BCBS”) framework and considers a G-SIB’s size, interconnectedness, cross-jurisdictional activity, substitutability and complexity. Method 2 uses similar inputs, but is calibrated to result in significantly higher surcharges and replaces substitutability with a measure of reliance on short-

58 BNY Mellon

## Supervision and Regulation (continued)---

term wholesale funding. The G-SIB surcharge applicable to BNY Mellon for 2022 was 1.5%.

### *U.S. Capital Rules - Deductions from and Adjustments to Capital Elements*

The U.S. capital rules provide for a number of deductions from and adjustments to CET1 capital. These include, for example, providing that unrealized gains and losses on all available-for-sale debt securities may not be filtered out for regulatory capital purposes, and the requirement that deferred tax assets dependent upon future taxable income and significant investments in non-consolidated financial entities be deducted from CET1 to the extent that any one such category exceeds 10% of CET1 or all such categories in the aggregate exceed 15% of CET1.

In addition, the Agencies have adopted a final rule that generally requires certain Advanced Approaches banking organizations, including BNY Mellon, to deduct from Tier 2 capital, subject to certain exceptions, direct, indirect and synthetic exposures to covered debt instruments, including TLAC instruments.

### *U.S. Capital Rules - Advanced Approaches Risk-Based Capital Rules*

Under the U.S. capital rules’ Advanced Approaches framework, credit risk-weightings are generally based on risk-sensitive approaches that largely rely on the use of internal credit models and parameters, whereas under the Standardized Approach credit risk-weightings are generally based on supervisory risk-weightings which vary primarily by counterparty type and asset class. BNY Mellon is required to comply with Advanced Approaches reporting and public disclosures. For purposes of determining whether we meet minimum risk-based capital requirements under the U.S. capital rules, our CET1 ratio, Tier 1 capital ratio, and total capital ratio is the lower of each ratio as calculated under the Standardized Approach and under the Advanced Approaches framework (based on currently applicable buffers).

### *U.S. Capital Rules - Standardized Approach*

The Standardized Approach calculates risk-weighted assets in the denominator of capital ratios using a broad array of risk-weighting categories that are intended to be risk sensitive. The risk-weights for the Standardized Approach generally range from 0% to 1,250%. Higher risk-weights under the Standardized

Approach apply to a variety of exposures, including certain securitization exposures, equity exposures, claims on securities firms and exposures to counterparties on OTC derivatives.

Securities finance transactions, including transactions in which we serve as agent and provide securities replacement indemnification to a securities lender, are treated as repo-style transactions under the U.S. capital rules. The rules do not permit a banking organization to use a simple VaR approach to calculate exposure amounts for repo-style transactions or to use internal models to calculate the exposure amount for the counterparty credit exposure for repo-style transactions under the Standardized Approach (although these methodologies are allowed in the Advanced Approaches). Under the Standardized Approach, a banking organization may use a collateral haircut approach to recognize the credit risk mitigation benefits of financial collateral that secures a repo-style transaction, including an agented securities lending transaction, among other transactions. To apply the collateral haircut approach, a banking organization must determine the exposure amount and the relevant risk weight for the counterparty and collateral posted.

### *Leverage Ratios*

The U.S. capital rules require a minimum 4% leverage ratio for all banking organizations, as well as a 3% Basel III-based SLR for Advanced Approaches banking organizations, including BNY Mellon. Unlike the Tier 1 leverage ratio, the SLR includes certain off-balance sheet exposures in the denominator, including the potential future credit exposure of derivative contracts and 10% of the notional amount of unconditionally cancelable commitments.

The U.S. G-SIBs (including BNY Mellon) are subject to an enhanced SLR, which requires us to maintain an SLR of greater than 5% (composed of the current minimum requirement of 3% plus a greater than 2% buffer) and requires bank subsidiaries of those BHCs to maintain at least a 6% SLR in order to qualify as “well capitalized” under the prompt corrective action regulations discussed below.

The Agencies have adopted a final rule to exclude certain central bank deposits from the total leverage exposure, the SLR denominator, and related TLAC and LTD measures of custody banks, including BNY

BNY Mellon 59

## Supervision and Regulation (continued)---

Mellon and The Bank of New York Mellon. Under the final rule, qualifying central banks include a Federal Reserve Bank, the European Central Bank or a central bank of a member country of the Organisation for Economic Co-operation and Development (“OECD”), provided that an exposure to the OECD member country receives a zero percent risk-weighting and the sovereign debt of such country is not, and has not been, in default in the past five years. The central bank deposit exclusion from the SLR denominator equals the average daily balance over the applicable quarter of all deposits placed with a qualifying central bank up to an amount equal to the on-balance sheet deposit liabilities that are linked to fiduciary or custodial and safekeeping accounts.

On April 11, 2018, the Federal Reserve and the OCC issued a joint notice of proposed rule-making that would recalibrate the enhanced SLR standards that apply to U.S. G-SIBs and certain of their IDI subsidiaries. The proposed rule would replace the 2% SLR buffer that currently applies to all U.S. G-SIBs with a buffer equal to 50% of the firm’s risk-based G-SIB surcharge. For IDI subsidiaries of U.S. G-SIBs regulated by the Federal Reserve or the OCC, the proposal would replace the current 6% SLR threshold requirement for those institutions to be considered “well capitalized” under the prompt corrective action framework with an SLR of at least 3% plus 50% of the G-SIB surcharge applicable to their top-tier holding companies. The proposed rule would also make corresponding changes to the TLAC SLR buffer and LTD requirements for U.S. G-SIBs. The Federal Reserve and OCC have not yet issued a final rule.

### *BCBS Revisions to Components of Basel III*

In December 2017, the BCBS released revisions to Basel III intended to reduce variability of RWA and improve the comparability of banks’ risk-based capital ratios. Among other measures, the final revisions: (i) establish a revised Standardized Approach for credit risk that enhances the Standardized Approach’s granularity and risk sensitivity; (ii) adjust the internal ratings-based approaches for credit risk by removing the use of the advanced internal ratings-based approach for certain asset classes and establishing input floors for the calculation of RWA; (iii) replace the advanced measurement approach for operational risk with a revised Standardized Approach for operational risk based on measures of a bank’s income and historical

losses; (iv) revise the leverage ratio exposure measure, establish a “leverage ratio buffer” for G-SIBs, set at 50% of a G-SIB’s risk-based capital surcharge, and allow national discretion to exclude central bank placements in limited circumstances (see “Leverage Ratios” above); and (v) introduce a new 72.5% output floor based on the Standardized Approach.

In January 2019, the BCBS released revised minimum capital requirements for market risk. While the U.S. regulators have implemented or issued proposals to implement certain aspects of these revised Basel standards, there is continuing uncertainty regarding the extent to which, and manner in which, the U.S. regulators will implement them.

### *Standardized Approach for Measuring Counterparty Credit Risk Exposures*

The Agencies have jointly issued a final rule that amends the U.S. capital rules to implement a new approach for calculating the exposure amount for derivative contracts, which is called the Standardized Approach for Counterparty Credit Risk (“SA-CCR”). The final rule also incorporates SA-CCR into the determination of exposure amount of derivatives for total leverage exposure under the SLR and the cleared transaction framework under the U.S. capital rules.

### *Total Loss-Absorbing Capacity*

The Federal Reserve imposes external TLAC and related requirements for U.S. G-SIBs, including BNY Mellon, at the top-tier holding company.

U.S. G-SIBs are required to maintain a minimum eligible external TLAC equal to the greater of (i) 18% of RWAs plus a buffer (to be met using only CET1) equal to the sum of 2.5% of RWAs, the G-SIB surcharge calculated under method 1 and any applicable countercyclical buffer; and (ii) 7.5% of their total leverage exposure (the denominator of the SLR) plus a buffer (to be met using only Tier 1 Capital) equal to 2%.

U.S. G-SIBs are also required to maintain minimum external eligible LTD equal to the greater of (i) 6% of RWAs plus the G-SIB surcharge (calculated using the greater of method 1 and method 2), and (ii) 4.5% of total leverage exposure. In order to be deemed eligible LTD, debt instruments must, among other requirements, be unsecured, not be structured notes, and have a maturity of at least one year from the date

60 BNY Mellon

## Supervision and Regulation (continued)---

of issuance. In addition, LTD issued on or after Dec. 31, 2016 must (i) not have acceleration rights, other than in the event of non-payment or the bankruptcy or insolvency of the issuer and (ii) be governed by U.S. law. However, debt issued by a U.S. G-SIB prior to Dec. 31, 2016 is permanently grandfathered to the extent these securities would be ineligible only due to containing impermissible acceleration rights or being governed by foreign law.

Further, the top-tier holding companies of U.S. G-SIBs are not permitted to issue certain guarantees of subsidiary liabilities, incur liabilities guaranteed by subsidiaries, issue short-term debt to third parties, or enter into derivatives and certain other financial contracts with external counterparties. Certain liabilities are capped at 5% of the value of the U.S. G-SIB’s eligible external TLAC instruments. The Federal Reserve considered requiring internal TLAC at domestic subsidiaries of U.S. G-SIBs, but has not proposed rules regarding these instruments.

Foreign jurisdictions may impose internal TLAC requirements on the foreign subsidiaries of U.S. G-SIBs. The European Union’s Capital Requirements Regulation 2 (“CRR2”) requires EU material subsidiaries of non-EU G-SIBs (including BNY Mellon) to maintain a minimum level of internal loss absorbing capacity. The Bank of New York Mellon SA/NV (“BNY Mellon SA/NV”) is considered an EU material subsidiary for purposes of this regulation and is, therefore, subject to an internal TLAC requirement.

### *Prompt Corrective Action*

The FDI Act, as amended by the Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”), requires the Agencies to take “prompt corrective action” in respect of depository institutions that do not meet specified capital requirements. FDICIA establishes five capital categories for FDIC-insured banks: “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized,” and “critically undercapitalized.” The FDI Act imposes progressively more restrictive constraints on operations, management and capital distributions the less capital the institution holds. While these regulations apply only to banks, such as The Bank of New York Mellon and BNY Mellon, N.A., the Federal Reserve is authorized to take appropriate action against the parent BHC, such as the Parent, based on the undercapitalized status of any

banking subsidiary. In certain circumstances, the Parent would be required to guarantee the performance of the capital restoration plan if one of our banking subsidiaries were undercapitalized.

The Agencies’ prompt corrective action framework contains “well capitalized” thresholds for IDIs. Under these rules, an IDI must have the capital ratios as detailed in the “Capital” disclosure in order to satisfy the quantitative ratio requirements to be deemed “well capitalized.”

### *Liquidity Standards - Basel III and U.S. Rules*

BNY Mellon is subject to the U.S. LCR Rule, which is designed to ensure that BNY Mellon and certain domestic bank subsidiaries maintain an adequate level of unencumbered HQLA equal to their expected net cash outflow for a 30-day time horizon under an acute liquidity stress scenario. As of Dec. 31, 2022, the Parent and its domestic bank subsidiaries were in compliance with applicable LCR requirements.

The Agencies have issued a final NSFR rule that implements a quantitative long-term liquidity requirement applicable to large and internationally active banking organizations, including BNY Mellon. Under the final rule, BNY Mellon’s NSFR is expressed as a ratio of its available stable funding to its required stable funding amount, and BNY Mellon is required to maintain an NSFR of 1.0. The effective date of the final NSFR rule was July 1, 2021, with the exception of certain disclosure requirements, which will begin to apply in 2023. As of Dec. 31, 2022, BNY Mellon was in compliance with the NSFR rule.

Separately, as noted above, the SIFI Rules impose additional liquidity requirements for BHCs with $100 billion or more in total assets, including BNY Mellon, including an independent review of liquidity risk management; establishment of cash flow projections; a contingency funding plan and liquidity risk limits; liquidity stress testing under multiple stress scenarios and time horizons tailored to the specific products and profile of the company; and maintenance of a liquidity buffer of unencumbered highly liquid assets sufficient to meet projected net cash outflows over 30 days under a range of stress scenarios.

### *Volcker Rule*

The provisions of the Dodd-Frank Act commonly referred to as the “Volcker Rule” prohibit “banking entities,” including BNY Mellon, from engaging in

BNY Mellon 61

## Supervision and Regulation (continued)---

proprietary trading and limit our sponsorship of, and investments in, private equity and hedge funds (“covered funds”), including our ability to own or provide seed capital to covered funds. In addition, the Volcker Rule restricts us from engaging in certain transactions with covered funds (including, without limitation, certain U.S. funds for which BNY Mellon acts as both sponsor/manager and custodian). These restrictions are subject to certain exceptions.

The restrictions concerning proprietary trading contain limited exceptions for, among other things, bona fide liquidity risk management and risk-mitigating hedging activities, as well as certain classes of exempted instruments, including government securities. Ownership interests in covered funds are generally limited to 3% of the total number or value of the outstanding ownership interests of any individual fund at any time more than one year after the date of its establishment. The aggregate value of all such ownership interests in covered funds is limited to 3% of the banking organization’s Tier 1 capital, and such interests are subject to a deduction from its Tier 1 capital. The 2019 amendments to the Volcker Rule (discussed below) remove the requirements that ownership interests in third-party covered funds held under the underwriting and market-making exemptions be subject to the aggregate limit and capital deduction but preserve these requirements for ownership interests in covered funds sponsored or organized by BNY Mellon.

The Volcker Rule regulations also require us to develop and maintain a compliance program. In 2019, the Agencies, the Commodity Futures Trading Commission (the “CFTC”) and the Securities and Exchange Commission (the “SEC”) modified the regulations implementing the Volcker Rule. The most impactful aspects of the revisions with respect to BNY Mellon concern the compliance requirements applicable to institutions with moderate exposure to trading assets and trading liabilities, which are institutions with less than $20 billion and more than $1 billion of trading assets and trading liabilities. Specifically, among other revisions, such “moderate trading” banks are no longer required to file an annual CEO attestation and quantitative metrics. Furthermore, the comprehensive six-pillar compliance program associated with the Volcker Rule will no longer apply to “moderate trading” banks; rather, such banks are permitted to tailor their compliance programs to the size and nature of their

activities. BNY Mellon is treated as a “moderate trading” bank under the revised Volcker Rule. The final revisions also clarified and amended certain definitions, requirements and exemptions.

On June 25, 2020, a second set of amendments to the Volcker Rule was released, which is principally focused on the restrictions on banking entities’ investments in, sponsorship of, and other relationships with covered funds. Generally, the changes establish new exclusions from the covered fund definition for certain types of investment vehicles, modify the eligibility criteria for certain existing exclusions, and clarify and modify other provisions with respect to investment in, sponsoring of and transactions with covered funds.

### *Derivatives*

Title VII of the Dodd-Frank Act imposes a comprehensive regulatory structure on the OTC derivatives markets in which BNY Mellon operates, including requirements relating to the business conduct of dealers, trade reporting, margin and recordkeeping. Title VII also requires persons acting as swap dealers, including The Bank of New York Mellon, to register with the CFTC and become subject to the CFTC’s supervisory, examination and enforcement powers. Additionally, Title VII requires persons acting as security-based swap dealers to register with the SEC. The Bank of New York Mellon is registered as a security-based swap dealer.

In addition, because BNY Mellon is subject to supervision by the Federal Reserve, we must comply with the U.S. prudential margin rules for variation and initial margin with respect to its OTC swap transactions. Furthermore, various BNY Mellon subsidiaries are also subject to OTC derivatives regulation by local authorities in Europe and Asia.

### *ESG Regulations*

On March 21, 2022, the SEC proposed climate-related disclosure requirements that would, among other things, require disclosure of direct and indirect greenhouse gas emissions, with certain emissions disclosures subject to third-party attestation requirements; climate-related scenario analysis (if the issuer conducts scenario analyses), together with qualitative and quantitative information about the hypothetical future climate scenarios used in its analysis; climate transition plans or climate-related targets or goals, along with disclosure of progress

62 BNY Mellon

## Supervision and Regulation (continued)---

against any such plans, targets or goals; climate-related risks over the short-, medium- and long-term; qualitative and quantitative information regarding climate-related risks and historical impacts in audited financial statements; corporate governance of climate-related risks; and climate-related risk-management processes.

On May 25, 2022, the SEC proposed for public comment a framework requiring certain funds that are registered investment companies (“RICs”) under the Investment Company Act of 1940, as amended (the “1940 Act”), including mutual funds, closed end funds and exchange-traded funds (“ETFs”), that consider ESG factors in their investment process to provide additional disclosures in their registration statements and shareholder reports. The disclosure requirements would vary depending on the fund’s investment strategy. The SEC also proposed similar amendments to the disclosure requirements for registered investment advisers under the Investment Advisers Act of 1940, as amended (“RIAs”) that consider ESG factors as part of their advisory business. Specifically, the proposal would require RIAs to provide a description of the ESG factors they consider in providing advisory services and how they are incorporated when formulating investment advice.

On Dec. 2, 2022, the Federal Reserve proposed for public comment “Principles for Climate-Related Financial Risk Management for Large Financial Institutions.” The principles provide a high-level framework for the safe and sound management of exposures to climate-related financial risks for certain Federal Reserve-supervised financial institutions, including BNY Mellon. The principles address governance; policies, procedures, and limits; strategic planning; risk management; data, risk measurement and reporting; and scenario analysis.

Under the European Union’s Corporate Sustainability Reporting Directive (“CSRD”), in-scope entities will be subject to sustainability reporting requirements to be phased in starting Jan. 1, 2024. Entities covered by the CSRD include EU entities or parent entities of EU groups that meet at least two of the following criteria in the relevant financial year: (i) total assets exceeding €20 million; (ii) net turnover exceeding €40 million; and (iii) an average number of employees exceeding 250. These entities will be required to report on both the impacts of the activities of the entity or group on people and the environment as well as how sustainability matters affect the

financial performance of the entity or group. We are evaluating the potential impact of the CSRD.

### *SEC Rules on Mutual Funds and RIAs*

SEC regulations impose requirements on mutual funds, exchange-traded funds and other RICs under the 1940 Act. Among other things, these rules require mutual funds (other than money market funds) to provide portfolio-wide and position-level holdings data to the SEC on a monthly basis.

The regulations also impose liquidity risk management requirements that are intended to reduce the risk that funds will not be able to meet shareholder redemptions and to minimize the impact of redemptions on remaining shareholders.

On May 25, 2022, the SEC proposed for comment amendments to RIC naming convention rules. The proposal would expand the scope of terms that the SEC considers materially deceptive and misleading in a RIC’s name without a corresponding policy to invest at least 80% of the fund’s net asset value (plus certain borrowings) in the manner suggested by the fund’s name (“80% Policy”). The proposal would require an 80% Policy for a RIC with a name that indicates that the fund’s investment decisions incorporate one or more ESG factors and for any fund that includes “growth” or “value” in its name.

On Oct. 26, 2022, the SEC proposed for comment new rules to prohibit RIAs from outsourcing certain services and functions without conducting due diligence and monitoring of the service providers. The proposal would apply to RIAs that outsource select “covered functions,” which include those services or functions that are necessary for providing advisory services in compliance with federal securities laws and that, if not performed or performed negligently, would result in harm to clients. The proposal would further require RIAs to conduct due diligence and monitoring for all third-party recordkeepers and obtain reasonable assurances that the recordkeepers will meet certain standards. Finally, it would require RIAs to maintain books and records related to the new rule’s oversight obligations and to report census-type information about the service providers covered under the rule.

On Nov. 2, 2022, the SEC proposed for public comment rule amendments that would require the adoption of “swing pricing” and a “hard close” by all

BNY Mellon 63

## Supervision and Regulation (continued)---

open-end RICs other than money market funds and ETFs (“Open-End Funds”). The requirements would alter the manner in which shares in Open-End Funds are traded, as shareholders would no longer receive the net asset value (“NAV”) per share for their transactions but instead could receive a price more or less than the NAV depending on whether a “swing factor” was applied to their transaction. This swing factor would be the amount by which the Open-End Fund adjusts its per-share NAV and would represent a good-faith estimate of the transaction costs imposed on current shareholders of the Open-End Fund by the transacting shareholders. To facilitate the operation of swing pricing, the SEC also proposed to require a “hard close” for Open-End Funds, which would make a purchase or sale order for shares of an Open-End Fund eligible for a given day’s price only if the Open-End Fund or certain designated agents receive the order before the time when the Open-End Fund calculates its NAV, which is typically as of 4:00 PM Eastern Time.

### *Recovery and Resolution Planning*

As required by the Dodd-Frank Act, large financial institutions, such as BNY Mellon, are required to submit periodically to the Federal Reserve and the FDIC a plan - referred to as the 165(d) resolution plan - for their rapid and orderly resolution in the event of material financial distress or failure. In addition, certain large IDIs, such as The Bank of New York Mellon, are required to submit periodically to the FDIC a separate plan for resolution in the event of the institution’s failure. The public portions of these resolution plans are available on the Federal Reserve’s and FDIC’s websites. BNY Mellon also maintains a comprehensive recovery plan, which describes actions it could take to avoid failure if faced with financial stress.

In 2019, the Federal Reserve and FDIC issued a final rule modifying certain requirements for the 165(d) resolution plan. The final rule requires U.S. G-SIBs, such as BNY Mellon, to file alternating full and more limited, targeted resolution plans every two years. BNY Mellon submitted a targeted resolution plan on July 1, 2021. The Federal Reserve and FDIC found no deficiencies or shortcomings in BNY Mellon’s 2021 resolution plan submission. BNY Mellon’s next full resolution plan is due to be submitted on July 1, 2023. The final rule does not materially modify the components or informational requirements of full resolution plans.

If the Federal Reserve and FDIC jointly determine that our 165(d) resolution plan is not credible and we fail to address the deficiencies in a timely manner, the FDIC and the Federal Reserve may jointly impose more stringent capital, leverage or liquidity requirements or restrictions on our growth, activities or operations. If we continue to fail to adequately remedy any deficiencies, we could be required to divest assets or operations that the regulators determine necessary to facilitate our orderly resolution.

The resolution strategy set out in our 165(d) resolution plan is a single point of entry strategy, whereby certain key operating subsidiaries would be provided with sufficient capital and liquidity to operate in the event of material financial stress or failure, and only our parent holding company would file for bankruptcy. In connection with our single point of entry resolution strategy, we have established the IHC to facilitate the provision of capital and liquidity resources to certain key subsidiaries in the event of material financial distress or failure. In addition, we have a binding support agreement in place that requires the IHC to provide that support. The support agreement required the Parent to transfer its intercompany loans and most of its cash to the IHC and requires the Parent to continue to transfer cash and other liquid financial assets to the IHC on an ongoing basis.

BNY Mellon and the other U.S. G-SIBs are also subject to heightened supervisory expectations for recovery and resolution preparedness under Federal Reserve rules and guidance. The Federal Reserve incorporates reviews of our capabilities in respect of recovery and resolution preparedness as part of its ongoing supervision of BNY Mellon.

In the European Economic Area (“EEA”), the European Union Bank Recovery and Resolution Directive (“BRRD”) provides the legal framework for recovery and resolution planning, including a set of harmonized powers to resolve or implement recovery of in-scope institutions, such as EEA subsidiaries of non-EEA banks. BRRD gives relevant EEA regulators various powers, including (i) powers to intervene pre-resolution to require an institution to take remedial steps to avoid the need for resolution; (ii) resolution tools and powers to facilitate the resolution of failing entities, such as the power to “bail-in” the debt of an institution (including certain deposit obligations); (iii) the power to require a firm

64 BNY Mellon

## Supervision and Regulation (continued)---

to change its structure to remove impediments to resolvability; and (iv) powers to require in-scope institutions to prepare recovery plans. Under the BRRD, resolution authorities (rather than the institutions themselves) are responsible for drawing up resolution plans based on information provided by relevant institutions.

Under BRRD, in-scope institutions are required to maintain a minimum requirement for their own funds, (defined as regulatory capital), and eligible liabilities (“MREL”) that can be written down or bailed-in to absorb losses. MREL is set on a case-by-case basis for each institution subject to BRRD and is applicable to all EU-domiciled credit institutions and certain other firms subject to BRRD. BNY Mellon SA/NV is subject to MREL.

The BRRD has been amended by the Bank Resolution and Recovery Directive 2 (“BRRD2”). Key changes introduced by BRRD2 include incorporation of the Financial Stability Board’s (“FSB”) standard on TLAC into existing EU rules on MREL, expansion of the BRRD moratorium tool and introduction of an EU-wide requirement for contractual recognition of resolution stay powers.

Some jurisdictions, including the UK, already had a requirement for contractual recognition of resolution stay powers. While the UK was a member of the EU (and during the subsequent Brexit transition period, which ended on Dec. 31, 2020), the UK transposed most requirements of BRRD and BRRD2 in local legislation and regulation.

### *Rules on Resolution Stays for Qualified Financial Contracts*

The Agencies’ regulations require U.S. G-SIBs (and their subsidiaries and controlled entities) and the U.S. operations of foreign G-SIBs to amend their covered qualified financial contracts (“QFCs”), thereby facilitating the application of U.S. special resolution regimes as necessary.

The regulations allow these G-SIBs to comply by amending covered QFCs (with the consent of relevant counterparties) using the International Swaps and Derivatives Association (“ISDA”) 2018 U.S. Resolution Stay Protocol (the “Protocol”), ISDA 2015 Universal Stay Protocol or by executing appropriate bilateral amendments to the covered QFCs. BNY Mellon entities which have been

confirmed to engage in covered QFC activities have adhered to the Protocol and, where necessary, have executed bilateral amendments to cover QFCs.

### *Cybersecurity and Computer Security Regulation*

The New York State Department of Financial Services (“NYSDFS”) requires financial institutions regulated by NYSDFS, including The Bank of New York Mellon, to establish a cybersecurity program, adopt a written cybersecurity policy, designate a chief information security officer, and have policies and procedures in place to ensure the security of information systems and non-public information accessible to, or held by, third parties. The NYSDFS rule also includes a variety of other requirements to protect the confidentiality, integrity and availability of information systems, as well as the annual delivery of a certificate of compliance.

The Agencies have adopted a final rule imposing notification requirements for significant computer security incidents on banking organizations. Under the final rule, a BHC, state member bank or national bank, including the Parent, The Bank of New York Mellon and BNY Mellon, N.A., are required to notify the Federal Reserve or OCC, as applicable, within 36 hours of incidents that could result in the banking organization’s inability to deliver services to a material portion of its customer base, disrupt the banking organization’s lines of businesses the failure of which would result in material losses, or disrupt operations the failure of which would threaten the financial stability of the U.S.

On March 9, 2022, the SEC published proposed disclosure rules and amendments regarding cybersecurity risk management, governance and incident reporting by public companies. Under the proposal, public companies, including The Bank of New York Mellon Corporation, would be required to file a Form 8-K within four business days of determining that it had suffered a material cybersecurity incident. The proposal also includes disclosure requirements regarding policies and procedures for the identification and management of cybersecurity risks, oversight by the Board of Directors and management over cybersecurity risks, and Board member expertise in cybersecurity matters.

BNY Mellon 65

Supervision and Regulation (continued)

# Insolvency of an Insured Depository Institution or a Bank Holding Company; Orderly Liquidation Authority

If the FDIC is appointed as conservator or receiver for an IDI such as The Bank of New York Mellon or BNY Mellon, N.A., upon its insolvency or in certain other circumstances, the FDIC has the power to:

- Transfer any of the depository institution's assets and liabilities to a new obligor, including a newly formed "bridge" bank without the approval of the depository institution's creditors;
- Enforce the terms of the depository institution's contracts pursuant to their terms without regard to any provisions triggered by the appointment of the FDIC in that capacity; or
- Repudiate or disaffirm any contract or lease to which the depository institution is a party, the performance of which is determined by the FDIC to be burdensome and the disaffirmance or repudiation of which is determined by the FDIC to promote the orderly administration of the depository institution.

In addition, under federal law, the claims of holders of domestic deposit liabilities and certain claims for administrative expenses against an IDI would be afforded a priority over other general unsecured claims against such an institution, including claims of debt holders of the institution, in the "liquidation or other resolution" of such an institution by any receiver. As a result, whether or not the FDIC ever sought to repudiate any debt obligations of The Bank of New York Mellon or BNY Mellon, N.A., the debt holders would be treated differently from, and could receive, if anything, substantially less than, the depositors of the bank.

The Dodd-Frank Act created a resolution regime (known as the "orderly liquidation authority") for systemically important financial companies, including BHCs and their affiliates. Under the orderly liquidation authority, the FDIC may be appointed as receiver for the systemically important institution, and its failed nonbank subsidiaries, for purposes of liquidating the entity if, among other conditions, it is determined that the institution is in default or in danger of default and the failure poses a risk to the stability of the U.S. financial system.

If the FDIC is appointed as receiver under the orderly liquidation authority, then the powers of the receiver, and the rights and obligations of creditors and other

parties who have dealt with the institution, would be determined under the Dodd-Frank Act's orderly liquidation authority provisions, and not under the insolvency law that would otherwise apply. The powers of the receiver under the orderly liquidation authority were based on the powers of the FDIC as receiver for depository institutions under the FDI Act. However, the provisions governing the rights of creditors under the orderly liquidation authority were modified in certain respects to reduce disparities with the treatment of creditors' claims under the U.S. Bankruptcy Code as compared to the treatment of those claims under the new authority. Nonetheless, substantial differences in the rights of creditors exist between these two regimes, including the right of the FDIC to disregard the strict priority of creditor claims in some circumstances, the use of an administrative claims procedure to determine creditors' claims (as opposed to the judicial procedure utilized in bankruptcy proceedings), and the right of the FDIC to transfer assets or liabilities of the institution to a third party or a "bridge" entity.

# Depositor Preference

Under U.S. federal law, claims of a receiver of an IDI for administrative expenses and claims of holders of U.S. deposit liabilities (including foreign deposits that are payable in the U.S. as well as in a foreign branch of the depository institution) are afforded priority over claims of other unsecured creditors of the institution, including depositors in non-U.S. branches. As a result, such depositors could receive, if anything, substantially less than the depositors in U.S. offices of the depository institution.

# Transactions with Affiliates

Transactions between BNY Mellon's banking subsidiaries, on the one hand, and the Parent and its nonbank subsidiaries and affiliates, on the other, are subject to certain restrictions, limitations and requirements, which include limits on the types and amounts of transactions (including extensions of credit and asset purchases by our banking subsidiaries) that may take place and generally require those transactions to be on arm's-length terms. In general, extensions of credit by a BNY Mellon banking subsidiary to any nonbank affiliate, including the Parent, must be secured by designated amounts of specified collateral and are limited in the aggregate to 10% of the relevant bank's capital and surplus for transactions with a single affiliate and to 20% of the relevant bank's capital and surplus for

66 BNY Mellon

## Supervision and Regulation (continued)---

transactions with all affiliates. There are also limitations on affiliate credit exposures arising from derivative transactions and securities lending and borrowing transactions.

### *Deposit Insurance*

Our U.S. banking subsidiaries, including The Bank of New York Mellon and BNY Mellon, N.A., accept deposits, and those deposits have the benefit of FDIC insurance up to the applicable limit. The current limit for FDIC insurance for deposit accounts is $250,000 per depositor at each insured bank. Under the FDI Act, insurance of deposits may be terminated by the FDIC upon a finding that the IDI has engaged in unsafe and unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by a bank’s federal regulatory agency.

The FDIC’s Deposit Insurance Fund (the “DIF”) is funded by assessments on IDIs. The FDIC assesses DIF premiums based on a bank’s average consolidated total assets, less the average tangible equity of the IDI during the assessment period. For larger institutions, such as The Bank of New York Mellon and BNY Mellon, N.A., assessments are determined based on CAMELS ratings and forward-looking financial measures to calculate the assessment rate, which is subject to adjustments by the FDIC, and the assessment base.

Under the FDIC’s regulations, a custody bank, including The Bank of New York Mellon and BNY Mellon, N.A., may deduct from its assessment base 100% of cash and balances due from depository institutions, securities, federal funds sold, and securities purchased under agreement to resell with a Standardized Approach risk-weight of 0% and may deduct 50% of such asset types with a Standardized Approach risk-weight of greater than 0% and up to and including 20%. This assessment base deduction may not exceed the average value of deposits that are classified as transaction accounts and are identified by the bank as being directly linked to a fiduciary or custodial and safekeeping account.

### *Source of Strength and Liability of Commonly Controlled Depository Institutions*

BHCs are required by law to act as a source of financial and managerial strength to their bank subsidiaries. BNY Mellon has a statutory obligation

to commit resources to its bank subsidiaries in times of financial distress. In addition, any loans by BNY Mellon to its bank subsidiaries would be subordinate in right of payment to depositors and to certain other indebtedness of its banks. In the event of a BHC’s bankruptcy, any commitment by the BHC to a federal bank regulator to maintain the capital of a subsidiary bank will be assumed by the bankruptcy trustee and entitled to a priority of payment. In addition, in certain circumstances, BNY Mellon’s IDI subsidiaries could be held liable for losses incurred by another BNY Mellon IDI subsidiary. In the event of impairment of the capital stock of one of BNY Mellon’s national bank subsidiaries or The Bank of New York Mellon, BNY Mellon, as the banks’ stockholder, could be required to pay such deficiency.

### *Incentive Compensation Arrangements Proposal*

Section 956 of the Dodd-Frank Act requires federal regulators to prescribe regulations or guidelines regarding incentive-based compensation practices at certain financial institutions, including BNY Mellon. In April 2016, a joint proposed rule was released, replacing a previous 2011 proposal, which each of six agencies must separately approve. The time frame for final implementation, if any, is currently unknown.

### *Anti-Money Laundering (“AML”) and the USA PATRIOT Act*

A major focus of governmental policy on financial institutions has been aimed at combating money laundering and terrorist financing. The USA PATRIOT Act of 2001 contains numerous AML requirements for financial institutions that are applicable to BNY Mellon’s bank, broker-dealer and investment adviser subsidiaries and mutual funds and private investment companies advised or sponsored by our subsidiaries. Those regulations impose obligations on financial institutions to maintain a broad AML program that includes internal controls, independent testing, compliance management personnel, training, and customer due diligence processes, as well as appropriate policies, procedures and controls to detect, prevent and report money laundering, terrorist financing and other suspicious activity, and to verify the identity of their customers. Certain of those regulations impose specific due diligence requirements on financial institutions that maintain correspondent or private banking relationships with non-U.S. financial institutions or persons.

BNY Mellon 67

## Supervision and Regulation (continued)---

The Anti-Money Laundering Act of 2020 (“AMLA”), which amends the Bank Secrecy Act (“BSA”), was enacted to comprehensively reform and modernize U.S. AML laws. Among other things, the AMLA codifies a risk-based approach to AML compliance for financial institutions; requires the development of standards by the U.S. Department of the Treasury for evaluating technology and internal processes for BSA compliance; and expands enforcement- and investigation-related authority, including a significant expansion in the available sanctions for certain BSA violations and instituting BSA whistleblower incentives and protections. The AMLA contains many statutory provisions that require additional rulemakings, reports and other measures, and the rulemaking process has begun for several of these provisions. In June 2021, the first government-wide priorities for anti-money laundering and countering the financing of terrorism (“AML/CFT Priorities”) were published. These AML/CFT Priorities will need to be incorporated into banks’ risk-based BSA compliance programs after completion of the rulemaking process and on the effective date of the final regulations. The impact of the AMLA will depend on, among other things, the completion of the rulemaking process and the issuing of implementation guidance.

### *Financial Crimes Enforcement Network (“FinCEN”)*

FinCEN has issued rules under the BSA that apply to covered financial institutions, including The Bank of New York Mellon and BNY Mellon, N.A., setting forth five pillars of an effective AML program: development of internal policies, procedures and related controls; designation of a compliance officer; a thorough and ongoing training program; independent review for compliance; and customer due diligence (“CDD”). CDD requires a covered financial institution to implement and maintain risk-based procedures for conducting CDD that include the identification and verification of any beneficial owner(s) of each legal entity customer at the time a new account is opened.

### *NYSDFS Anti-Money Laundering and Anti-Terrorism Regulations*

The NYSDFS has also issued regulations requiring regulated institutions, including The Bank of New York Mellon, to maintain a transaction monitoring program to monitor transactions for potential BSA and AML violations and suspicious activity reporting, and a watch list filtering program to interdict

transactions prohibited by applicable sanctions programs.

The regulations require a regulated institution to maintain programs to monitor and filter transactions for potential BSA and AML violations and prevent transactions with sanctioned entities. The regulations also require institutions to submit annually a Board resolution or senior officer compliance finding confirming steps taken to ascertain compliance with the regulation.

### *Privacy and Data Protection*

The privacy provisions of the Gramm-Leach-Bliley Act generally prohibit financial institutions, including BNY Mellon, from disclosing nonpublic personal financial information of consumer customers to third parties for certain purposes (primarily marketing) unless customers have the opportunity to “opt out” of the disclosure. The Fair Credit Reporting Act restricts information sharing among affiliates for marketing purposes.

In the EU, privacy law is primarily regulated by the General Data Protection Regulation (“GDPR”). The GDPR contains enhanced compliance obligations and increased penalties for non-compliance compared to prior EU data protection legislation.

### *Acquisitions/Transactions*

Federal and state laws impose notice and approval requirements for mergers and acquisitions involving depository institutions or BHCs. The Bank Holding Company Act of 1956, as amended by the Gramm-Leach-Bliley Act and by the Dodd-Frank Act (the “BHC Act”), requires the prior approval of the Federal Reserve for the direct or indirect acquisition by a BHC of more than 5% of any class of the voting shares or all or substantially all of the assets of a commercial bank, savings and loan association or BHC. In reviewing bank acquisition and merger applications, the bank regulatory authorities will consider, among other things, the competitive effect of the transaction, financial and managerial resources, including the capital position of the combined organization, convenience and needs of the community factors, including the applicant’s record under the Community Reinvestment Act of 1977 (the “CRA”), the effectiveness of the subject organizations in combating money laundering activities and the risk to the stability of the U.S. banking or financial system. In addition, prior

68 BNY Mellon

## Supervision and Regulation (continued)---

Federal Reserve approval would be required for BNY Mellon to acquire direct or indirect ownership or control of any voting shares of a company with assets of $10 billion or more that is engaged in activities that are “financial in nature.”

### *Rating System for the Supervision of Large Financial Institutions*

The Federal Reserve’s rating system for the supervision of large financial institutions (“LFIs”) applies to, among other entities, all BHCs with total consolidated assets of $100 billion or more, including BNY Mellon.

The LFI rating system includes a four-level rating scale and three component ratings. The four levels are: Broadly Meets Expectations; Conditionally Meets Expectations; Deficient-1; and Deficient-2. The component ratings are assigned for: Capital Planning and Positions; Liquidity Risk Management and Positions; and Governance and Controls. A firm must be rated “Broadly Meets Expectations” or “Conditionally Meets Expectations” for each of its component ratings to be considered “well managed” in accordance with various statutes and regulations that permit additional activities, prescribe expedited procedures or provide other benefits for “well managed” firms.

### *Regulated Entities of BNY Mellon and Ancillary Regulatory Requirements*

BNY Mellon is registered as an FHC under the BHC Act. We are subject to supervision by the Federal Reserve. In general, the BHC Act limits an FHC’s business activities to banking, managing or controlling banks, performing certain servicing activities for subsidiaries, engaging in activities incidental to banking, and engaging in any activity, or acquiring and retaining the shares of any company engaged in any activity, that is either financial in nature or complementary to a financial activity and does not pose a substantial risk to the safety and soundness of depository institutions or the financial system generally.

A BHC’s ability to maintain FHC status is dependent on: (i) its U.S. depository institution subsidiaries qualifying on an ongoing basis as “well capitalized” and “well managed” under the prompt corrective action regulations of the appropriate regulatory agency (discussed above under “Prompt Corrective Action”); (ii) the BHC itself qualifying on an ongoing

basis as “well capitalized” and “well managed” under applicable Federal Reserve regulations; and (iii) its U.S. depository institution subsidiaries continuing to maintain at least a “satisfactory” rating under the CRA.

An FHC that does not continue to meet all the requirements for FHC status will, depending on which requirements it fails to meet, lose the ability to undertake new activities, continue current activities, or make acquisitions, that are not generally permissible for BHCs without FHC status. As of Dec. 31, 2022, BNY Mellon and our U.S. bank subsidiaries were “well capitalized” based on the ratios and rules applicable to them.

The Bank of New York Mellon, BNY Mellon’s largest banking subsidiary, is a New York state-chartered bank, and a member of the Federal Reserve System and is subject to regulation, supervision and examination by the Federal Reserve, the FDIC and the NYSDFS. BNY Mellon’s national bank subsidiaries, BNY Mellon, N.A. and The Bank of New York Mellon Trust Company, National Association, are chartered as national banking associations subject to primary regulation, supervision and examination by the OCC.

We operate a number of broker-dealers that engage in securities underwriting and other broker-dealer activities in the U.S. These companies are SEC-registered broker-dealers and members of Financial Industry Regulatory Authority, Inc. (“FINRA”), a securities industry self-regulatory organization. BNY Mellon’s nonbank subsidiaries engaged in securities-related activities are regulated by supervisory agencies in the countries in which they conduct business.

Certain of BNY Mellon’s public finance and advisory activities are regulated by the Municipal Securities Rulemaking Board and are required under the SEC’s Municipal Advisors Rule to register with the SEC if they provide advice to municipal entities or certain other persons on the issuance of municipal securities, or about certain investment strategies or municipal derivatives.

Certain of BNY Mellon’s subsidiaries are registered with the CFTC as commodity pool operators, introducing brokers and/or commodity trading advisors and, as such, are subject to CFTC regulation. The Bank of New York Mellon is provisionally registered as a swap dealer (as defined in the Dodd-

BNY Mellon 69

## Supervision and Regulation (continued)---

Frank Act) with the CFTC and is a member of the National Futures Association (“NFA”) in that same capacity. As a swap dealer, The Bank of New York Mellon is subject to regulation, supervision and examination by the CFTC and NFA.

Certain of our subsidiaries are RIAs, and as such are supervised by the SEC. They are also subject to various U.S. federal and state laws and regulations and to the laws and regulations of any countries in which they conduct business. Our subsidiaries advise both RICs, including the BNY Mellon Family of Funds and BNY Mellon ETF Funds, and private investment companies which are not registered under the 1940 Act.

Certain of our investment management, trust and custody operations provide services to employee benefit plans that are subject to the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), administered by the U.S. Department of Labor. ERISA imposes certain statutory duties, liabilities, disclosure obligations and restrictions on fiduciaries, as applicable, related to the services being performed and fees being paid.

SEC Regulation Best Interest (“Reg BI”) requires a broker-dealer to act in the “best interest” of a retail customer when making a recommendation of any securities transaction or investment strategy to any such customer. The Form CRS Relationship Summary (“Form CRS”) requires registered investment advisers and broker-dealers to provide retail investors with a brief summary about the nature of their relationship with their investment professional and supplements other more detailed disclosures.

On Feb. 9, 2022, the SEC proposed rule amendments to shorten the standard settlement cycle for certain broker-dealer securities transactions to T+1. The proposal included additional amendments designed to accelerate the confirmation of such trades. The SEC adopted a final rule on Feb. 15, 2023. We are assessing the potential impacts of the final rule.

On Dec. 14, 2022, the SEC proposed four rulemakings related to market structure, including a proposed Regulation Best Execution, which would establish a best execution regulatory framework for broker-dealers, and proposals regarding order competition and disclosure of order execution information. We are assessing the potential impacts of the proposals.

On Feb. 15, 2023, the SEC proposed amendments to the custody rule under the Investment Advisers Act of 1940, which generally requires registered investment advisers having custody of client funds or securities to maintain client funds or securities with a qualified custodian. The proposal would expand the types of investments covered by the custody rule to include any client “assets.” It would also require registered investment advisers to enter into a written agreement with, and obtain reasonable assurances from, the qualified custodian that the custodian will comply with protections in the proposed rule, including with respect to indemnification of the client, responsibility for subcustodians and central securities depositories, asset segregation, and no liens. In addition, the SEC proposed amendments to the investment adviser recordkeeping rule to require advisers to keep additional, more detailed records. We are evaluating the potential impact of the proposals.

### *Exchange-Traded Funds Rule*

SEC Rule 6c-11 (the “ETF Rule”) under the 1940 Act permits ETFs that satisfy certain conditions to organize and operate without first obtaining an exemptive order from the SEC and requires an ETF to make certain disclosures, including historical data on an ETF’s premiums, discounts and bid-ask spread information, as well as the ETF’s daily portfolio holdings. The ETF Rule also requires ETFs using custom baskets to put written policies and procedures in place establishing that the custom baskets are in the best interests of the ETF and its shareholders. Pursuant to the ETF Rule, BNY Mellon has launched a number of ETFs.

### *Post-Brexit UK Regulatory Framework*

The UK left the EU on Jan. 31, 2020, and the transition period ended on Dec. 31, 2020 (“Brexit Transition Period”). Existing EU regulations that were in force and applicable in the UK on Dec. 31, 2020, were “on-shored” into the UK regulatory framework (and adapted as appropriate for the UK context) as “retained EU law.” EU rules and regulations that came into effect on or after Jan. 1, 2021, do not apply to financial activities within the UK. The UK and EU financial services regulatory frameworks have started diverging from each other after the conclusion of the Brexit Transition Period.

Under the EU-UK Trade and Cooperation Agreement (“EU-UK Agreement”), which became fully effective in April 2021, the EU and UK have agreed to make

70 BNY Mellon

## Supervision and Regulation (continued)---

their best endeavors to ensure that internationally agreed standards in the financial services sector for regulation and supervision are implemented and applied in their territory and establish a framework for structured regulatory cooperation on financial services.

The Financial Services Act 2021 made several changes to the UK financial services regulatory framework, including the prudential frameworks for credit institutions and investment firms. In particular, the Financial Services Act 2021 grants substantial prudential rulemaking powers to the Prudential Regulatory Authority (“PRA”) with respect to UK credit institutions, and the Financial Conduct Authority (“FCA”) with respect to UK investment firms. The UK’s version of the EU Capital Requirements Regulation (“UK CRR2”) for credit institutions and the UK Investment Firms Prudential Regime (“UK IFPR”) came into effect on Jan. 1, 2022. For more information regarding the UK IFPR, see “Investment Firms Directive and Investment Firms Regulation” below.

We maintain a presence in the UK through the London branch of The Bank of New York Mellon, The Bank of New York Mellon (International) Limited, a credit institution incorporated and authorized in the UK, and a number of our investment firms. We maintain a presence in the EU through the Frankfurt branch of The Bank of New York Mellon, BNY Mellon SA/NV, which is headquartered in Belgium and has a branch network in a number of other EU countries, and through certain of our investment firms. BNY Mellon SA/NV has a general banking license for the provision of banking and investment services.

### *Operations and Regulations Outside the U.S.*

In Europe, branches of The Bank of New York Mellon are subject to regulation in the countries in which they are established, in addition to being subject to oversight by the U.S. regulators referred to above. BNY Mellon SA/NV is a public limited liability company incorporated under the laws of Belgium, holds a banking license issued by the National Bank of Belgium and is authorized to carry out all banking and savings activities as a credit institution. The European Central Bank (the “ECB”) has responsibility for the direct supervision of significant banks and banking groups in the Euro area, including BNY Mellon SA/NV. The ECB’s supervision is carried out in conjunction with the

relevant national prudential regulator (the National Bank of Belgium in BNY Mellon SA/NV’s case), as part of the Single Supervisory Mechanism. BNY Mellon SA/NV conducts its activities in Belgium as well as through its branch offices in Denmark, France, Germany, UK, Ireland, Italy, Luxembourg, the Netherlands and Spain.

Certain of our financial services operations in the UK are subject to regulation and supervision by the FCA and the PRA. The PRA is responsible for the authorization and prudential regulation of firms that carry on PRA-regulated activities, including banks. PRA-authorized firms are also subject to regulation by the FCA for conduct purposes. In contrast, FCA-authorized firms (such as investment management firms) have the FCA as their sole regulator for both prudential and conduct purposes. As a result, FCA-authorized firms must comply with FCA prudential and conduct rules and the FCA’s Principles for Businesses, while dual-regulated firms must comply with the FCA conduct rules and FCA Principles, as well as the applicable PRA prudential rules and the PRA’s Principles for Businesses.

The PRA regulates The Bank of New York Mellon (International) Limited, our UK-incorporated bank, as well as the London branch of The Bank of New York Mellon. Certain of BNY Mellon’s UK-incorporated subsidiaries are authorized to conduct investment business in the UK. Their investment management advisory activities and their sale and marketing of retail investment products are regulated by the FCA. Certain UK investment funds, including investment funds of BNY Mellon, are registered with the FCA and are offered for sale to retail investors in the UK.

The types of activities in which the foreign branches of our banking subsidiaries and our international subsidiaries may engage are subject to various restrictions imposed by the Federal Reserve. Those foreign branches and international subsidiaries are also subject to the laws and regulatory authorities of the countries in which they operate and, in the case of banking subsidiaries, may be subject to regulatory capital requirements in the jurisdictions in which they operate.

The primary prudential framework in the EU is provided by the Capital Requirements Directive 5 (“CRD5”) and the Capital Requirements Regulation 2 (“CRR2”), both of which implement many elements of the Basel III framework.

BNY Mellon 71

## Supervision and Regulation (continued)---

Among other things, CRD5 includes a requirement for certain non-EU banking groups with more than €40 billion of assets in the EU to establish a single “EU intermediate parent undertaking” (“EU IPU”) to serve as an EU holding company for all EU credit institutions and certain EU investment firms in the group. Following review, BNY Mellon is currently not required to establish an EU IPU structure on the basis of its existing legal entity structure and operations.

CRR2 includes provisions relating to the leverage ratio, NSFR, MREL (including closer alignment to the final FSB TLAC standard), a revised Basel market risk framework, counterparty credit risk, exposures to central counterparties, exposures to collective investment undertakings, large exposures and reporting/disclosure requirements.

The lines of business included in our Securities Services, Market and Wealth Services and Investment and Wealth Management business segments are subject to significant regulation in numerous jurisdictions around the world relating to, among other things, the safeguarding, administration and management of client assets and client funds.

Various existing and/or proposed EU directives and regulations have or will have a significant impact on the provision of many of our products and services, including the revised Markets in Financial Instruments Directive II and Markets in Financial Instruments Regulation (collectively, “MiFID II”), the Alternative Investment Fund Managers Directive (“AIFMD”), the Directive on Undertakings for Collective Investment in Transferable Securities (“UCITS V”), the Central Securities Depositories Regulation, the revised regulation on OTC derivatives, central counterparties and trade repositories (commonly known as “EMIR”), the Payment Services Directive II and the Benchmarks Regulation. These EU directives and regulations may impact our operations and risk profile but may also provide new opportunities for the provision of BNY Mellon products and services. Some of these EU directives and regulations are subject to review, and the outcome of these reviews is not yet certain.

### *Investment Firms Directive and Investment Firms Regulation*

In the EU, the Investment Firms Directive/Investment Firms Regulation (“IFD/IFR”), previously referred to

as the “new prudential regime for investment firms,” is a more tailored, proportionate prudential regime for investment firms. BNY Mellon has several UK-domiciled investment firms that are subject to UK IFPR.

The main change under both IFD/IFR and UK IFPR is that capital requirements for most investment firms are no longer based on Basel standards for banks such as credit risk, market risk or operational risk. Instead, the capital requirements are based on factors that are more tailored to the risks that investment firms face.

### *European Financial Markets and Market Infrastructure*

The EU continues to develop proposals and regulations in relation to financial markets and market infrastructures. MiFID II applies to financial institutions conducting business in the EEA and has required significant changes to comply with relevant regulatory requirements, including extensive transaction reporting and market transparency obligations and a heightened focus on how financial institutions conduct business with and disclose information to their clients. A set of revisions to EU MiFID II rules (the so-called quick fix) came into effect on Feb. 28, 2022 and include changes to cost and charges disclosures and means of client communication. In the UK, a similar set of revisions became effective in July 2021 for most of the amended rules.

### *Funds Regulation in Europe*

The AIFMD has a direct effect on our alternative fund manager clients and our depository business and other products offered across Europe as well as upon our Investment Management business. AIFMD imposes heightened obligations upon depositories, which have operational effects.

Our businesses servicing regulated funds in Europe and our Investment Management businesses in Europe are also affected by the revised directive governing UCITS V.

Under the regulations for depository safekeeping duties under AIFMD and UCITS V, the Commission recognizes the use of omnibus account structures when accounting for assets in a chain of custody, but requires that depositories and trustees, such as BNY Mellon, maintain their own books and records.

72 BNY Mellon

## Other Matters---

### *Replacement of Interbank Offered Rates (“IBORs”), including LIBOR*

The UK Financial Conduct Authority (the “FCA”) and the administrator for LIBOR have announced that the publication of the most commonly used U.S. dollar LIBOR settings will cease to be published or cease to be representative after June 30, 2023. The publication of all other LIBOR settings ceased to be published or to be representative as of Dec. 31, 2021. In addition, the U.S. bank regulators had also issued guidance strongly encouraging banking organizations to cease using U.S. dollar LIBOR as a reference rate in new contracts by Dec. 31, 2021. As a result, financial market participants have begun to transition away from LIBOR and other IBORs to alternative reference rates. The transition event on Dec. 31, 2021 had minimal impact across BNY Mellon’s businesses, however the remaining U.S. dollar LIBOR transition will impact assets and liabilities on our balance sheet that reference IBORs, investments that we manage linked to IBORs in our Investment Management business and the operational servicing of products that reference IBORs in our Market and Wealth Services and Securities Services business segments.

In March 2022, the Adjustable Interest Rate (LIBOR) Act (the “LIBOR Act”) was enacted. The LIBOR Act provides a statutory framework to replace U.S. dollar LIBOR with a benchmark rate based on the Secured Overnight Financing Rate (“SOFR”) for

contracts governed by U.S. law that have no fallbacks or fallbacks that would require the use of a poll or LIBOR-based rate. In December 2022, the Federal Reserve adopted final rules to identify the SOFR-based replacement rate and conforming changes for legacy LIBOR-linked contracts.

We are working to facilitate an orderly transition from IBORs to alternative reference rates for us and our clients. Accordingly, we have created a global transition program with senior management oversight that focuses on, among other things, evaluating and monitoring the impacts of the discontinuance of reference IBORs and the transition to replacement benchmarks on our business operations and financial condition; identifying and evaluating the scope of impacted financial instruments and contracts and the attendant risks; and implementing technology systems, models and analytics to support the transition. In addition, we continue to actively engage with our regulators and clients and participate in central bank and sector working groups.

Despite the proximity of the June 30, 2023 cessation date, there remain, however, a number of unknown factors regarding the transition from the IBORs and/or interest rate benchmark reforms that could impact our business. For a further discussion of the various risks, see “Risk Factors - Market Risk - Transitions away from and the replacement of LIBOR and other IBORs could adversely impact our business, financial condition and results of operations.”

BNY Mellon 73

# Risk Factors

An investment in securities issued by us involves certain risks that you should carefully consider. The following discussion sets forth the most material risk factors that could affect our business, financial condition or results of operations. Some of these risks are interrelated and the occurrence of one may exacerbate the effect of others. Additionally, factors other than those discussed below or in our other reports filed with or furnished to the SEC could also adversely affect our business, financial condition or results of operations. We cannot assure you that the risk factors described below or elsewhere in our reports address all potential risks that we may face. These risk factors also serve to describe considerations which may cause our results to differ materially from those described in forward-looking statements included herein or in other documents or statements that make reference to this Annual Report. See “Forward-looking Statements.”

# Summary

Our business, financial condition and results of operations may be materially and adversely affected by various risk types and considerations, including operational risk, market risk, credit risk, capital and liquidity risk, strategic risk and additional risks, including as a result of the following:

# Operational Risk

- Errors or delays in our operational and transaction processing, or those of third parties.
- Our risk management framework, models and processes may not be effective in identifying or mitigating risk and reducing the potential for losses.
- Failure to attract, retain, develop and motivate employees.
- A communications or technology disruption or failure within our infrastructure or the infrastructure of third parties that results in a loss of information, delays our ability to access information or impacts our ability to provide services to our clients.
- A cybersecurity incident, or a failure in our computer systems, networks and information, or those of third parties, could result in the theft, loss, unauthorized access to, disclosure, use or

alteration of information, system or network failures, or loss of access to information.

- We are subject to extensive government rulemaking, policies, regulation and supervision that impact our operations. Changes to and introduction of new rules and regulations have compelled, and in the future may compel, us to change how we manage our businesses.
- Regulatory or enforcement actions or litigation.
- A failure or circumvention of our controls and procedures.

# Market Risk

- We are dependent on fee-based business for a substantial majority of our revenue and our fee-based revenues could be adversely affected by slowing in market activity, weak financial markets, underperformance and/or negative trends in savings rates or in investment preferences.
- Weakness and volatility in financial markets and the economy generally.
- Levels of and changes in interest rates have impacted, and will in the future continue to impact, our profitability and capital levels, at times adversely.
- We have experienced, and may continue to experience, unrealized or realized losses on securities related to volatile and illiquid market conditions, reducing our capital levels and/or earnings.
- Transitions away from and the replacement of LIBOR and other IBORs.

# Credit Risk

- The failure or perceived weakness of any of our significant clients or counterparties, many of whom are major financial institutions or sovereign entities, and our assumption of credit, counterparty and concentration risk, could expose us to loss.
- We could incur losses if our allowance for credit losses, including loan and lending-related commitment reserves, is inadequate or if our

74 BNY Mellon

Risk Factors (continued)

expectations of future economic conditions deteriorate.

Capital and Liquidity Risk

- Failure to effectively manage our liquidity.
- Failure to satisfy regulatory standards, including “well capitalized” and “well managed” status or capital adequacy and liquidity rules more generally.
- The Parent is a non-operating holding company and, as a result, is dependent on dividends from its subsidiaries and extensions of credit from its IHC to meet its obligations, including with respect to its securities, and to provide funds for share repurchases and payment of dividends to its stockholders.
- Our ability to return capital to shareholders is subject to the discretion of our Board of Directors and may be limited by U.S. banking laws and regulations, including those governing capital and capital planning, applicable provisions of Delaware law and our failure to pay full and timely dividends on our preferred stock.
- Any material reduction in our credit ratings or the credit ratings of our principal bank subsidiaries, The Bank of New York Mellon or BNY Mellon, N.A., could increase the cost of funding and borrowing to us and our rated subsidiaries.
- The application of our Title I preferred resolution strategy or resolution under the Title II orderly liquidation authority could adversely affect the Parent’s liquidity and financial condition and the Parent’s security holders.

Strategic Risk

- New lines of business, new products and services or transformational or strategic project initiatives subject us to new or additional risks, and the failure to implement these initiatives.
- We are subject to competition in all aspects of our business, which could negatively affect our ability to maintain or increase our profitability.
- Our strategic transactions present risks and uncertainties.

Additional Risks

- Adverse events, publicity, government scrutiny or other reputational harm.
- Climate change concerns could adversely affect our business, affect client activity levels and damage our reputation.
- Impacts from natural disasters, climate change, acts of terrorism, pandemics, global conflicts and other geopolitical events.
- Tax law changes or challenges to our tax positions with respect to historical transactions may adversely affect our net income and effective tax rate.
- Changes in accounting standards governing the preparation of our financial statements and future events could have a material impact on our reported financial condition, results of operations, cash flows and other financial data.

Operational Risk

Errors or delays in our operational and transaction processing, or those of third parties, may materially adversely affect our business, financial condition, results of operations and reputation.

We are required to accurately process large numbers of transactions each day on a timely basis. The transactions we process or execute are operationally complex and can involve numerous parties, jurisdictions, regulations and systems, and, therefore, are subject to execution and processing errors and failures. In situations reliant upon manual processes, the risk of execution and processing errors and failures is heightened. Manual processes are inherently more prone to human and other processing error, malfeasance, fraud and other misconduct than automated processes. With more complex and voluminous transactions at ever increasing speeds, which present an increased risk of error or significant operational delay, we must continuously evolve our processes, controls, systems and workforce in a manner designed to achieve accurate and timely execution of these transactions. When errors or delays do occur, they may be difficult to detect and remediate in a timely manner. The use of automation, artificial intelligence and other emerging technologies in connection with automated processes may amplify the impact of any such error or delay, as the failure to

BNY Mellon 75

## Risk Factors (continued)---

timely discover and respond to an operational error relating to an automated process can have dramatic consequences in light of the speed and volume of transactions involved. Furthermore, the risks resulting from an operational error may be heightened with respect to certain asset classes, such as some digital assets, with respect to which it may be impossible to retrieve wrongfully or erroneously transferred digital assets.

Operational errors or significant operational delays could have a material and negative impact on our ability to conduct our business or service our clients, which could adversely affect our results due to potentially higher expenses and lower revenues, lower our capital ratios, create liability for us or our clients or negatively impact our reputation. We also recognize that service reliability and systems resilience are essential components to processing transactions and safeguarding financial assets, and an operational error impacting a large number of transactions could have unfavorable ripple effects in the financial markets, which could exacerbate the adverse effects of the error on us.

Affiliates or third parties with which we do business or that facilitate our business activities could also be sources of execution and processing errors, failures or significant operational delays. In certain jurisdictions, we may be deemed to be statutorily or criminally liable for operational errors, fraud, breakdowns or delays by these affiliates or third parties. Additionally, as a result of regulations, including the Alternative Investment Fund Managers Directive and the Undertakings for Collective Investment in Transferable Securities V, when we act as depository in the European Economic Area, we could be exposed to restitution risk for, among other things, errors or fraud perpetrated by a sub-custodian resulting in a loss or delay in return of client’s securities. When we are not acting as a European Economic Area depository, but where we provide custody services to a European Economic Area depository, we may accept similar liabilities to that of a European Economic Area depository as a matter of contract.

*Our risk management framework, models and processes may not be effective in identifying or mitigating risk and reducing the potential for losses.*

Our risk management framework seeks to identify and mitigate risk and loss to us. We have established

comprehensive policies and procedures and an internal control framework designed to provide a sound operational environment for the types of risk to which we are subject, including operational risk, credit risk, market risk, liquidity risk, model risk and strategic risk. We have also established frameworks to mitigate risk and loss to us as a result of the actions of affiliates or third parties with which we do business or that facilitate our business activities. However, as with any risk management framework, there are inherent limitations to our current and future risk management strategies, including risks that we may not have appropriately anticipated or identified.

Our regulators remain focused on ensuring that financial institutions build and maintain robust risk management policies. Regulators’ views of the quality of our risk models and framework affect our regulators’ evaluations of us, and we are exposed to the risk of adverse regulatory and supervisory developments, including enforcement actions and increased costs in connection with remediation efforts, if our regulators view our risk models and framework to be insufficient or if remediation is not completed in a timely manner. Accurate and timely enterprise-wide risk information is necessary to enhance management’s decision-making in times of crisis. If our risk management framework or governance structure proves ineffective or if our enterprise-wide management information is incomplete or inaccurate, we could suffer unexpected losses, which could materially adversely affect our results of operations or financial condition.

In certain instances, we rely on models to measure, monitor and predict risks. However, these models are inherently limited because they involve techniques, including the use of historical data, trends, assumptions and judgments that cannot anticipate every economic and financial outcome in the markets in which we operate, nor can they anticipate the specifics and timing of such outcomes, especially during severe market downturns or stress events, such as those experienced in March 2020 and other times during the COVID-19 pandemic. These models may not appropriately capture all relevant risks or accurately predict future events or exposures. The risk of the unsuccessful development or implementation of our models, systems or processes, as well as risk associated with oversight, monitoring and application of models, cannot be completely eliminated. We may experience unexpected losses if our models, estimates or judgments used or applied in

76 BNY Mellon

## Risk Factors (continued)---

connection with our risk management activities or in the preparation of our financial statements prove to have been inadequate or incorrect. All models have some degree of inaccuracy, which can be further exacerbated when environmental conditions or stress conditions push theory beyond its limits. The models that we use to assess and control our market risk exposures also reflect assumptions about the degree of correlation among prices of various asset classes or other market indicators. The 2008 financial crisis and resulting regulatory reform highlighted both the importance and some of the limitations of managing unanticipated risks. In times of market stress or other unforeseen circumstances, previously uncorrelated indicators may become correlated, or previously correlated indicators may move in different directions. These types of market movements have at times limited the effectiveness of our hedging strategies and have caused us to incur significant losses, and they may do so in the future.

In addition, our businesses and the markets in which we operate are continuously evolving. We may fail to fully understand the implications of changes in our businesses or the financial markets or fail to adequately or timely enhance our risk framework to address those changes. If our risk framework is ineffective because it fails to keep pace with changes in the financial markets, regulatory requirements, our businesses, our counterparties, clients or service providers or for other reasons, we could incur losses, suffer reputational damage, face significant remediation expenses or find ourselves out of compliance with applicable regulatory or contractual mandates or supervisory expectations.

An important aspect of our risk management framework is creating a risk culture that is sustainable and appropriate to our role as a major financial institution in which all employees fully understand that there is risk in every aspect of our business and the importance of managing risk as it relates to their job functions. If we fail to create the appropriate environment that sensitizes all of our employees to managing risk, our business could be adversely impacted. For more information on how we monitor and manage our risk management framework, see “Risk Management - Overview.”

*Our business may be adversely affected if we are unable to attract, retain, develop and motivate employees.*

Our success depends, in large part, on our ability to attract new employees, retain, develop and motivate our existing employees, have a diverse and inclusive workplace and continue to compensate our employees competitively amid heightened regulatory restrictions and an inflationary environment. Competition for the most skilled employees in most activities in which we engage can be intense, and we may not be able to recruit and retain key personnel. In addition, third-party suppliers and service providers on which we rely may face challenges in attracting and retaining their employees, which may have a negative impact on our operations and our resiliency capabilities.

We rely on certain employees with subject matter expertise to assist in the implementation of important initiatives and to support the development of new products and services, including in connection with our digital assets initiatives. As focus on technology and risk management increases in the financial industry, competition for technologists and risk personnel has intensified, which could constrain our ability to execute on certain of our strategic initiatives.

Our ability to attract, retain and motivate key executives and other employees may be negatively affected by continuous changes to immigration policies and restrictions applicable to incentive and other compensation programs, including deferral, clawback requirements and other limits on incentive compensation. Some of these restrictions may not apply to some of our competitors and to other institutions with which we compete for talent, in particular as we are more often competing for personnel with financial technology providers and other entities that may not be publicly traded or regulated banking organizations and, in either case, may not have the same limitations on compensation as we do.

The loss of employees’ skills, knowledge of the market, industry experience, and the cost of finding replacements, particularly in a protracted inflationary environment with a competitive labor market, have led, and we expect will continue to lead, to an increase in labor costs and hurt our business. In addition, our current or future approach to in-office and remote-work arrangements may not meet the

BNY Mellon 77

## Risk Factors (continued)---

needs or expectations of our current or prospective employees, may not be perceived as favorable as compared to the arrangements offered by competitors and may not be conducive to a collaborative working environment, which could adversely affect our ability to attract, retain, develop and motivate employees. If we are unable to continue to attract, retain, develop and motivate highly qualified employees, our performance, including our competitive position, could be adversely affected.

*A communications or technology disruption or failure within our infrastructure or the infrastructure of third parties that results in a loss of information, delays our ability to access information or impacts our ability to provide services to our clients may materially adversely affect our business, financial condition and results of operations.*

We use communications and information systems to conduct our business. Our businesses are highly dependent on our ability to process large volumes of data that require global capabilities and scale from our technology platforms. If our technology or communications fail, or those of industry utilities or our service providers fail, we have in the past experienced, and could in the future experience, production and system outages or failures, or other significant operational delays. Any such outage, failure or delay could adversely affect our ability to effect transactions or service our clients, which could expose us to liability for damages, result in the loss of business, damage our reputation, subject us to regulatory scrutiny or sanctions or expose us to litigation, any of which could have a material adverse effect on our business, financial condition and results of operations. The continued prevalence of remote work arrangements has increased our reliance on remote access systems and video conferencing services, and, as a result, we are exposed to similar risks if the technology and communications systems our employees or employees of third parties use while working remotely fail. Security or technology disruptions, failures or delays that impact our communications or information systems could also adversely affect our ability to manage our exposure to risk or expand our business. These incidents are unpredictable and can arise from numerous sources, not all of which are in our control, including, among others, human error, malfeasance and other misconduct, as well as operational disruptions at third parties.

Upgrading our computer systems, software and networks subjects us to the risk of disruptions, failures or delays due to the complexity and interconnectedness of our computer systems, software and networks. The failure to properly upgrade or maintain these computer systems, software and networks could result in greater susceptibility to cyberattacks, particularly in light of the greater frequency and severity of cyberattacks in recent years, as well as the growing prevalence of cyberattacks affecting third-party software and information service providers. Additionally, cloud technologies are becoming increasingly critical to the operation of our systems and platforms, and, as our reliance on this technology continues to grow, we will continue to be increasingly subject to evolving risks relating to the use of cloud technologies. Our new product initiatives, including in connection with digital asset services, may further expose us to new evolving technology risks and may lead to dependencies on, and compatibility issues with, decentralized or third-party blockchains and their protocols, which we do not control. Although we have programs and processes to identify such risks, there can be no assurance that any such disruptions, failures or delays will not occur or, if they do occur, that actions taken to mitigate their impact will be timely or adequate. Although we maintain insurance covering certain technology infrastructure losses, there can be no assurance that liabilities or losses we may incur will be covered under such policies or that the amount of insurance will be adequate.

We continue to evaluate and strengthen our business continuity and operational resiliency capabilities and have increased our investments in technology to steadily enhance those capabilities, including our ability to resume and sustain our operations. There can be no guarantee, however, that a technology outage will not occur, including as a result of failures related to upgrades and maintenance, or that our business continuity and operational resiliency capabilities will enable us to maintain our operations and appropriately respond to events. For a discussion of operational risk, see “Risk Management - Risk Types Overview - Operational Risk.”

Third parties with which we do business or that facilitate our business activities, including exchanges, clearing houses, financial intermediaries or vendors that provide services or security solutions for our operations, could also be sources of technology risk to us, including from breakdowns, capacity

78 BNY Mellon

## Risk Factors (continued)---

constraints, attacks (including cyberattacks targeted at third-party service providers), failures or delays of their own systems or other services that impair our ability to process transactions and communicate with customers and counterparties. This risk may be intensified to the extent that there is concentration in a single unique product or service provided by a single vendor, or to the extent we rely on service providers from a single geographic area. In addition, we are exposed to the risk that a technology disruption or other information security event at a vendor common to our third-party service providers could impede their ability to provide products or services to us. We may not be able to effectively monitor or mitigate operational risks relating to the use of common vendors by third-party service providers, which could result in potential liability to clients and customers, regulatory fines, penalties or other sanctions, increased operational costs or harm to our reputation.

As our business areas evolve, whether due to the introduction of technology, new service offering requirements for our clients, or changes in regulation relative to these service offerings, unforeseen risks materially impacting our business operations could arise. The technology used could become increasingly complex and rely on the continued effectiveness of the programming code and integrity of the inputted data. Rapid technological changes and competitive pressures require us to make significant and ongoing investments in technology not only to develop competitive new products and services or adopt new technologies, but to sustain our current businesses. Our financial performance depends in part on our ability to develop and market these new products and services in a timely manner at a competitive price and adopt or develop new technologies that differentiate our products or provide cost efficiencies. The failure to adequately review and consider critical business changes prior to and during introduction and deployment of key technological systems or the failure to adequately align operational capabilities with evolving client commitments and expectations, subjects us to the risk of an adverse impact on our ability to service and retain customers and on our operations. The costs we incur in enhancing our technology could be substantial and may not ultimately improve our competitiveness or profitability.

As a result of financial entities, central agents, clearing agents and houses, exchanges and

technology systems across the globe becoming more interdependent and complex, a technology failure that significantly degrades, deletes or compromises the systems or data of one or more financial entities or suppliers could have a material impact on counterparties or other market participants, including us. A disruptive event or, failure or delay experienced by one institution could disrupt the functioning of the overall financial system.

*A cybersecurity incident, or a failure in our computer systems, networks and information, or those of third parties, could result in the theft, loss, unauthorized access to, disclosure, use or alteration of information, system or network failures, or loss of access to information. Any such incident or failure could adversely impact our ability to conduct our businesses, damage our reputation and cause losses.*

We have been, and we expect to continue to be, the target of attempted cyberattacks, computer viruses or other malicious software, denial of service efforts, phishing attacks and other information security threats, including unauthorized access attempts and cyberattacks targeted at third-party service providers. The continued reliance on remote working arrangements, as well as our employees’ corresponding usage of mobile and cloud technologies, subjects us to a number of cyber risks, including attempted cyberattacks targeting remote workers, as well as mobile and cloud technologies. Although we deploy a broad range of sophisticated defenses, we could suffer a material adverse impact or disruption as a result of a cybersecurity incident.

Cybersecurity incidents may occur through intentional or unintentional acts by individuals or groups having authorized or unauthorized access to our systems or our clients’ or counterparties’ information, which may include confidential or proprietary information. These individuals or groups may include employees, vendors and customers, as well as others with malicious intent. Malicious actors may also attempt to place individuals within BNY Mellon or fraudulently induce employees, vendors, customers or other users of our systems to disclose sensitive information in order to gain access to our data or that of our clients. A cybersecurity incident that results in the theft, loss, unauthorized access to, disclosure, use or alteration of information, system or network failures, or loss of access to information, may require us to reconstruct lost data (which may not be possible), reimburse clients for data and credit

BNY Mellon 79

## Risk Factors (continued)---

monitoring services, or result in loss of customer business or damage to our computers or systems and those of our customers and counterparties. A cybersecurity incident could also result in the loss of customer digital assets, including custodied digital assets, which may be distinctly difficult to recover and could subject us to customer disputes, claims for reimbursement, losses, negative publicity, reputational damage and governmental and regulatory scrutiny, investigations and enforcement actions. These impacts could be costly and time-consuming and could materially adversely affect our business, financial condition and results of operations.

While we seek to mitigate these risks to ensure the integrity of our systems and information and continuously evolve our cybersecurity capabilities, it is possible that we may not anticipate or implement effective preventive measures against all cybersecurity threats, or detect all such threats, especially because the techniques used change frequently or are not recognized until after they are launched. Moreover, attacks can originate from a wide variety of sources, including malicious actors who are involved with organized crime or who may be linked to terrorist organizations or hostile foreign governments, or from cross-contamination of legitimate parties (including vendors, clients, financial market utilities, and other financial institutions). Risks relating to attacks on our vendors, including supply chain attacks affecting our software and information technology service providers, have been rising as such attacks become increasingly frequent and severe and as financial entities and technology systems have become increasingly consolidated, interdependent and complex.

The failure to maintain an adequate technology infrastructure and applications with effective cybersecurity controls relative to the type, size and complexity of operations, markets and products traded, access to trading venues and our market interconnectedness could impact operations and impede our productivity and growth, which could cause our earnings to decline or could impact our ability to comply with regulatory obligations, leading to regulatory fines and sanctions. We may be required to expend significant additional resources to modify, investigate or remediate vulnerabilities or other exposures arising from cybersecurity threats. Despite our capabilities for identifying and attempting to mitigate the impact of cyberattacks, a successful cyberattack could occur and persist for an

extended period of time before being detected. In addition, because any investigation of a cybersecurity incident would be inherently unpredictable, the extent of a particular cybersecurity incident and the path of investigating the incident may not be immediately clear. It may take a significant amount of time before such an investigation can be completed and reliable information about the incident is known. While such an investigation is ongoing, we may not necessarily know the extent of the harm or how best to remediate it, certain errors or actions could be repeated or compounded before they are discovered and remediated, and communication to the public, clients, regulators, and other stakeholders may not be sufficiently timely or accurate, any or all of which could further increase the costs and consequences of a cybersecurity incident. Moreover, potential new regulations may require us to publicly disclose information about a cybersecurity event before the incident has been resolved or fully investigated.

In addition, we rely on a variety of measures to protect our intellectual property and proprietary information, including copyrights, trademarks, patents and controls on access and distribution. These measures may not prevent misappropriation or infringement of our intellectual property or proprietary information and a resulting loss of competitive advantage. Furthermore, if a third party were to assert a claim of infringement or misappropriation of its proprietary rights, obtained through patents or otherwise, against us, we could be required to spend a significant amount of resources to defend such claims, develop alternative methods of operations, pay substantial money damages, obtain a license from the third party or possibly stop providing one or more products or services. In addition, we conduct business in various jurisdictions that may not have comparable levels of protection for intellectual property and proprietary information as the U.S. The protection afforded in those jurisdictions may be less established and/or predictable. As a result, there may also be heightened risks associated with the potential theft of data, proprietary information, technology and intellectual property in those jurisdictions by domestic or foreign actors, including private parties and those affiliated with or controlled by state actors. Any theft of data, proprietary information, technology or intellectual property may negatively impact our operations and reputation, including disrupting our business activities in those jurisdictions.

80 BNY Mellon

## Risk Factors (continued)---

We are also subject to laws and regulations relating to the protection and privacy of the information of clients, employees and others, and any failure to comply with these laws and regulations could expose us to liability, increased regulatory oversight and/or reputational damage.

*We are subject to extensive government rulemaking, policies, regulation and supervision that impact our operations. Changes to and introduction of new rules and regulations have compelled, and in the future may compel, us to change how we manage our businesses, which could have a material adverse effect on our business, financial condition and results of operations.*

As a large, internationally active financial services company, we operate in a highly regulated environment, and are subject to a comprehensive statutory and regulatory regime affecting all aspects of our business and operations, including oversight by governmental agencies both inside and outside the U.S. Regulations and related regulatory guidance and supervisory oversight impact how we analyze certain business opportunities, our regulatory capital and liquidity requirements, the revenue profile of certain of our core activities, the products and services we provide, how we monitor and manage operational risk and how we promote a sound governance and control environment. Any changes to the regulatory frameworks and environment in which we operate and the significant management attention and resources necessary to address those changes could materially adversely affect our business, financial condition and results of operations and have other negative consequences. Although these risks apply to our businesses generally, at the present time they are particularly relevant for our digital asset activities and the evolving expectations associated with ESG matters. This reflects the pace of developments relating to digital assets and ESG regulation, including the increased focus by regulators and other governmental authorities on these topics and the relatively uncertain, distinct and novel nature of the associated principles.

The evolving regulatory environment and uncertainty about the timing and scope of future regulations may contribute to decisions we may make to suspend, reduce or withdraw from existing businesses, activities or initiatives, which may result in potential lost revenue or significant restructuring or related costs or exposures. We also face the risk of

becoming subject to new or more stringent requirements in connection with the introduction of new regulations or modification of existing regulations, which could require us to hold more capital or liquidity or have other adverse effects on our businesses or profitability. In addition, regulatory responses in connection with severe market downturns or unforeseen stress events may alter or disrupt our planned future strategies and actions.

The monetary, tax and other policies of various governments, agencies and regulatory authorities both in the U.S. and globally have a significant impact on interest rates, currencies, commodity pricing (including oil), the imposition of tariffs or other limitations on international trade and travel, and overall financial market performance, which can impact our business, results of operations and capital. Changes in these policies are beyond our control and can be difficult to predict and we cannot determine the ultimate effect that any such changes would have upon our business, financial condition or results of operations. Legal or regulatory changes affecting access to financial markets can also adversely affect us. For example, under the Holding Foreign Companies Accountable Act, the SEC must prohibit trading in the securities of companies identified by the SEC for three consecutive years as having retained an auditor located in a foreign jurisdiction that the Public Company Accounting Oversight Board (“PCAOB”) has determined it is unable to inspect or investigate completely. In December 2022, the PCAOB vacated an earlier determination with respect to mainland China and Hong Kong. However, the PCAOB has indicated it expects to continue to have complete access going forward and will consider the need to issue a new determination if needed. As a result of this legislation, companies located in mainland China, Hong Kong or potentially other jurisdictions may decide, or eventually be required, to delist or otherwise remove their securities from U.S. financial markets, which would adversely affect our businesses, particularly our Issuer Services line of business.

The regulatory and supervisory focus of U.S. banking agencies is primarily intended to protect the safety and soundness of the banking system and federally insured deposits, and not to protect investors in our securities. Regulatory and supervisory standards and expectations across jurisdictions may be divergent and otherwise may not conform and/or may be applied in a manner that is not harmonized within a

BNY Mellon 81

## Risk Factors (continued)---

jurisdiction (in relation to national versus non-national financial services providers) and/or across jurisdictions. Additionally, banking regulators have wide supervisory discretion in the ongoing examination and enforcement of applicable banking statutes, regulations, and guidelines, and may restrict our ability to engage in certain activities or acquisitions or may require us to limit our capital distributions, maintain more capital or hold more highly liquid assets.

The U.S. capital rules subject us and our U.S. banking subsidiaries to stringent capital requirements, which could restrict growth, activities or operations, trigger divestiture of assets or operations or limit our ability to return capital to shareholders.

The LCR and NSFR require us to maintain significant holdings of high-quality and generally lower-yielding liquid assets. In calculating the LCR and NSFR, we must also determine which deposits should be considered stable deposits. Stable deposits must meet a series of requirements and typically receive favorable treatment under the LCR and NSFR. We use qualitative and quantitative analysis to identify core stable deposits. It is possible that our LCR and NSFR could fall below applicable regulatory requirements as a consequence of the inherent uncertainties associated with this analysis (including as a result of regulatory changes or additional guidance from our regulators). In addition to facing potential regulatory consequences (which could be significant), we may be required to remedy this shortfall by liquidating assets in our investment portfolio or raising additional debt, each of which could have a material negative impact on our net interest revenue.

We develop and submit plans for our rapid and orderly resolution in the event of material financial distress or failure to the Federal Reserve and the FDIC. If the agencies determine that our future submissions are not credible or would not facilitate an orderly resolution under the U.S. Bankruptcy Code, and we fail to address any such deficiencies in a timely manner, we may be subject to more stringent capital or liquidity requirements or restrictions on our growth, activities or operations, or may be required to divest assets or operations, which could adversely affect our business, financial condition and results of operations.

Our global activities are also subject to extensive regulation by various non-U.S. regulators, including governments, securities exchanges, central banks and other regulatory bodies in the jurisdictions in which we operate, relating to, among other things, the safeguarding, administration and management of client assets and client funds, regulation of markets, recovery and resolution planning and payments and financial market infrastructure.

Various laws, regulations, rules and directives effective in the jurisdictions in which we operate have an impact on our provision of many products and services. Implementation of, and revisions to, these laws, regulations, rules and directives have affected our operations and risk profile. For example, the key regulatory frameworks impacting our operations in the EU and UK continue to diverge in a number of respects. Further divergence in the nature and scope of these regulations could have an adverse impact on our results of operations and business prospects.

In addition, we are subject in our global operations to rules and regulations relating to corrupt and illegal payments and money laundering, economic sanctions and embargo programs administered by the U.S. Office of Foreign Assets Control and similar bodies and governmental agencies worldwide, and laws relating to doing business with certain individuals, groups and countries, such as the U.S. Foreign Corrupt Practices Act, the USA PATRIOT Act, the Iran Threat Reduction and Syria Human Rights Act of 2012 and the UK Bribery Act. While we have invested and continue to invest significant resources in training and in compliance monitoring, the geographical diversity of our operations, employees, clients and customers, as well as the vendors and other third parties that we deal with, presents the risk that we may be found in violation of such rules, regulations or laws and any such violation could subject us to significant penalties or adversely affect our reputation. In addition, such rules could impact our ability to engage in business with certain individuals, entities, groups and countries, which could materially adversely affect certain of our businesses and results of operations. For example, following Russia’s invasion of Ukraine in the first quarter of 2022, we ceased new banking business in Russia and suspended investment management purchases of Russian securities. Government sanctions and our actions in response to the ongoing war in Ukraine have had and could continue to have a negative impact on our revenue and our business.

82 BNY Mellon

## Risk Factors (continued)---

As a result of the recent implementation of data protection-related laws and regulations, including the EU GDPR, the California Consumer Privacy Act of 2018 and the New York Department of Financial Services’ cybersecurity regulation, we need to allocate additional time and resources to comply with such laws and regulations, and our potential liability for non-compliance and reporting obligations in the case of data breaches has significantly increased. In addition, our businesses are increasingly subject to laws and regulations relating to privacy, surveillance, encryption and data localization in the jurisdictions in which we operate. Compliance with these laws and regulations has required us to change our policies, procedures and technology for information security and segregation of data, which, among other things, makes us more vulnerable to operational failures, and to monetary penalties for breach of such laws and regulations.

Failure to comply with laws, regulations or policies, or meet supervisory expectations, applicable to us and our businesses could result in civil or criminal sanctions or enforcement proceedings by regulatory or governmental authorities, money penalties and reputational damage, which could have a material adverse effect on our business, financial condition and results of operations. If violations of legal or regulatory requirements do occur, they could damage our reputation, increase our legal and compliance costs, including requiring us to devote substantial resources towards remediation efforts, and ultimately adversely impact our results of operations. Laws, regulations or policies currently affecting us and our subsidiaries, supervisory expectations, or regulatory and governmental authorities’ interpretation of statutes and regulations may change at any time, which may adversely impact our business and results of operations.

See “Supervision and Regulation” for additional information regarding the potential impact of the regulatory environment on our business.

# ***Regulatory or enforcement actions or litigation could materially adversely affect our results of operations or harm our businesses or reputation.***

Like many major financial institutions, we and our affiliates are the subject of inquiries, investigations, lawsuits and proceedings by counterparties, clients, other third parties, tax authorities and regulatory and other governmental agencies in the U.S. and abroad,

as well as the Department of Justice and state attorneys general. See “Legal proceedings” in Note 22 of the Notes to Consolidated Financial Statements for a discussion of material legal and regulatory proceedings in which we are involved. The number of these investigations and proceedings, as well as the amount of penalties and fines sought, has remained elevated for many firms in the financial services industry, including us. We have in the past been, and may in the future become, subject to heightened regulatory scrutiny, inquiries or investigations, and potentially client-related inquiries or claims, relating to broad, industry-wide concerns that could lead to increased expenses or reputational damage. Regulators and other governmental authorities may also be more likely to pursue enforcement actions, or seek admissions of wrongdoing or guilty pleas, in connection with the resolution of an inquiry or investigation to the extent a firm has previously been subject to other governmental investigations or enforcement actions. The current trend of large settlements by financial institutions with governmental entities may adversely affect the outcomes for other financial institutions in similar actions, especially where governmental officials have announced that the large settlements will be used as the basis or a template for other settlements. Separately, policymakers globally continue to focus on protection of client assets, as well as tax avoidance and evasion.

The complexity of the federal and state regulatory and enforcement regimes in the U.S., coupled with the global scope of our operations and the increased aggressiveness of the tax and regulatory environment worldwide, also means that a single event may give rise to a large number of overlapping investigations and regulatory proceedings, either by multiple federal and state agencies in the U.S. or by multiple regulators and other governmental entities or tax authorities in different jurisdictions. Responding to inquiries, investigations, lawsuits and proceedings, regardless of the ultimate outcome of the matter, is time consuming and expensive and can divert the attention of our senior management from our business. The outcome of such proceedings may be difficult to predict or estimate until late in the proceedings, which may last a number of years.

Certain of our subsidiaries are subject to periodic examination, special inquiries and potential proceedings by regulatory authorities. If compliance failures or other violations are found during an

BNY Mellon 83

## Risk Factors (continued)---

examination, inquiry or proceeding, a regulatory agency could initiate actions and impose sanctions for violations, including, for example, regulatory agreements, remediation undertakings, cease and desist orders, civil monetary penalties or termination of a license and could lead to litigation by investors or clients, any of which could cause our earnings to decline.

Our businesses involve the risk that clients or others may sue us, claiming that we or third parties for whom they say we are responsible have failed to perform under a contract or otherwise failed to carry out a duty perceived to be owed to them, including perceived fiduciary or contractual duties. This risk may be heightened during periods when credit, equity or other financial markets are deteriorating in value or are particularly volatile, or when clients or investors are experiencing losses. As a publicly held company, we are also subject to the risk of claims under the federal securities laws. Volatility in our stock price increases this risk.

Increasingly, regulators, tax authorities and courts have sought to hold financial institutions liable for the misconduct of their clients where such regulators and courts have determined that the financial institution should have detected that the client was engaged in wrongdoing, even though the financial institution had no direct knowledge of the wrongdoing.

Actions brought against us may result in lawsuits, enforcement actions, injunctions, settlements, damages, fines or penalties, which could have a material adverse effect on our financial condition or results of operations or require changes to our business. Claims for significant monetary damages are asserted in many of these legal actions, while claims for disgorgement, penalties and/or other remedial sanctions may be sought in regulatory matters. Although we establish accruals for our litigation and regulatory matters in accordance with applicable accounting guidance, our exposure to such litigation and regulatory matters can be unpredictable, and when those matters proceed to a stage where they present loss contingencies that are both probable and reasonably estimable, there may be a material exposure to loss in excess of any amounts accrued, or in excess of any loss contingencies disclosed as reasonably possible. Such loss contingencies may not be probable and reasonably estimable until the proceedings have progressed significantly, which

could take several years and occur close to resolution of the matter.

Each of the risks outlined above could result in increased regulatory supervision and affect our ability to attract and retain customers or maintain access to the capital markets.

*A failure or circumvention of our controls and procedures could have a material adverse effect on our business, financial condition, results of operations and reputation.*

Management regularly reviews and updates our internal controls, disclosure controls and procedures, and corporate governance policies and procedures. Any system of controls, however well designed and operated, is based in part on certain assumptions and can provide only reasonable, not absolute, assurances that the objectives of the system will be met. Any failure or circumvention of our controls and procedures or failure to comply with regulations related to controls and procedures could have a material adverse effect on our business, reputation, results of operations and financial condition. Moreover, if we identify material weaknesses in our internal control over financial reporting or are otherwise required to restate our financial statements, we could be required to implement expensive and time-consuming remedial measures and could lose investor confidence in the accuracy and completeness of our financial reports. In addition, there are risks that individuals, either employees or contractors, may circumvent established control mechanisms in order to, for example, exceed exposure, liquidity, trading or investment management limitations, or commit fraud.

### Market Risk

*We are dependent on fee-based business for a substantial majority of our revenue and our fee-based revenues could be adversely affected by slowing in market activity, weak financial markets, underperformance and/or negative trends in savings rates or in investment preferences.*

Our principal operational focus is on fee-based business, which is distinct from commercial banking institutions that earn most of their revenues from loans and other traditional interest-generating products and services. In 2022, 79% of our total revenue was fee-based. Our fee-based businesses include investment and wealth management, custody,

84 BNY Mellon

## Risk Factors (continued)---

corporate trust, depository receipts, clearing, collateral management and treasury services, which are highly competitive businesses.

Fees for many of our products and services are based on the volume of transactions processed, the market value of assets managed and/or administered, securities lending volume and spreads, and fees for other services rendered. Corporate actions, cross-border investing, global mergers and acquisitions activity, new debt and equity issuances, and secondary trading volumes, among other things, all affect the level of our fee revenue. As the volume of these activities decreases due to low client activity, weak financial markets or otherwise, our fee-based revenues also decrease, which negatively impacts our results of operations.

If our Investment and Wealth Management businesses experience poor investment returns due to weak market conditions or underperformance (relative to competitors or benchmarks), the market values of the portfolios that we manage will be lower (on a relative basis) and our ability to retain existing assets and/or attract new client assets may be impacted. Market and regulatory trends have also resulted in increased demand for lower fee investment and wealth management products and services, and lower performance-fee structures, both of which have impacted and may continue to impact our fee revenue. Some of these dynamics have also negatively impacted fees in our Market and Wealth Services and Securities Services businesses and any of these dynamics may also occur in the future. Significant declines in the volume of capital markets activity would reduce the number of transactions we process and the amount of securities we lend and therefore would also have an adverse effect on our results of operations. Our business may be adversely impacted by decreases in the rate at which individuals invest in mutual funds and other collective funds, unit investment trusts or exchange-traded funds, or contribute to defined contribution plans. Changes in economic and market conditions, including as a result of higher market volatility, inflationary pressures, recessionary conditions or declines in equity values, could result in changes in the investment patterns of our clients or negatively impact the market value of client portfolios, each of which could have a negative impact on our results of operations.

When our investment management revenues decline, interest rates rise rapidly or other market factors

affect the value of our investment management business, we may have, and in the past have had, declines in the fair value in our Investment Management reporting unit, one of the two reporting units in our Investment and Wealth Management segment. If the fair value of the Investment Management reporting unit declines below its carrying value, we would be required to take, and in the past have taken, an impairment charge.

*Weakness and volatility in financial markets and the economy generally may materially adversely affect our business, financial condition and results of operations.*

As a financial institution, our Investment Management, Wealth Management, Pershing, Depository Receipts and Markets, including Securities Lending, businesses are particularly sensitive to economic and market conditions, including in the capital and credit markets. When these markets are volatile or disruptive, we have experienced declines in our fair valued assets, including in our securities portfolio and seed capital, as well as a fair value reduction in the portfolios that we manage that generate investment and wealth management fees. Conditions in the financial markets and the economy generally, both in the U.S. and elsewhere around the world have materially affected, and may continue to affect, our results of operations, including investment management fees.

Foreign exchange trading that we execute for clients generates revenues which are primarily driven by the volume of client transactions and the spread realized on these transactions, both of which are impacted by market volatility and the impact of foreign exchange hedging activities. Our clients’ cross-border investing activity could decrease in reaction to economic and political uncertainties, including changes in laws or regulations governing cross-border transactions, such as currency controls or tariffs. Volumes and/or spreads in some of our products tend to benefit from currency volatility and are likely to decrease during times of lower currency volatility. Such revenues also depend on our ability to manage the risk associated with the currency transactions we execute and program pricing.

A variety of factors impact global economies and financial markets, including interest rates and their associated yield curves, commodity pricing, market and political instabilities, volatile debt and equity

BNY Mellon 85

Risk Factors (continued)

market values, inflation and expectations relating to inflation trends, the strength of the U.S. dollar, the imposition of tariffs or other limitations on international trade or travel, high unemployment and governmental budget deficits (including, in the U.S., at the federal, state and municipal levels), and contagion risk from possible default on sovereign debt, declining business and consumer confidence. Any resulting economic pressure on consumers and lack of confidence in the financial markets may adversely affect our business, financial condition and results of operations. Additionally, global economies and financial markets may be adversely affected by widespread health emergencies or pandemics (including the further spread of SARS-CoV-2 or its variants), natural disasters, climate-related incidents, acts of war (such as the war in Ukraine), economic sanctions or other geopolitical events (or concerns over the possibility of such events). In particular, we face the following risks in connection with these factors, some of which are discussed at greater length in separate risk factors:

- Geopolitical tension and economic instability in countries around the world can at times increase the demand for low-risk investments, particularly in U.S. Treasuries and the dollar. A “flight to safety” has historically increased our balance sheet, which has negatively impacted, and could continue to negatively impact, our leverage-based regulatory capital measures. A sustained “flight to safety” has historically triggered a decline in trading, capital markets and cross-border activity which would likely decrease our revenue, negatively impacting our results of operations, financial condition and, if sustained in the long term, our business.
- The fees earned by our Investment Management and Wealth Management businesses are higher as assets under management and/or investment performance increase. Those fees are also impacted by the composition of the assets under management, with higher fees for some asset categories as compared to others. Uncertain and volatile capital markets, particularly declines, could result in movements from higher to lower fee products and/or reductions in our assets under management because of investors’ decisions to withdraw assets or from simple declines in the value of assets under management as markets decline.
- Market conditions resulting in lower transaction volumes could have an adverse effect on the

revenues and profitability of certain of our businesses such as clearing, settlement, payments and trading.

- Uncertain and volatile capital markets, particularly declines in equity prices, could reduce the value of our investments in securities, including pension and other post-retirement plan assets and produce downward pressure on our stock price and credit availability without regard to our underlying financial strength.
- Derivative instruments we hold for our own account to hedge and manage our exposure to market risks, including interest rate risk, equity price risk, foreign currency risk and credit risk associated with our products and businesses might not perform as intended or expected, resulting in higher realized losses and unforeseen stresses on liquidity. Our derivatives-based hedging strategies also rely on the performance of counterparties to such derivatives. These counterparties may fail to perform for various reasons resulting in losses on under-collateralized positions.
- The process we use to estimate our expected credit losses is subject to uncertainty in that it requires use of statistical models and difficult, subjective and complex judgments, including forecasts of economic conditions and how these conditions might impair the ability of our borrowers and others to meet their obligations. In uncertain and volatile economic environments, our ability to estimate our estimated credit losses may be impaired, which could adversely affect our overall profitability and results of operations.

For a discussion of our management of market risk, see “Risk Management - Risk Types Overview - Market Risk.”

*Levels of and changes in interest rates have impacted, and will in the future continue to impact, our profitability and capital levels, at times adversely.*

We earn revenue, known as “net interest revenue,” on the difference between the interest income earned on our interest-earning assets, such as the loans we make and the securities we hold in our investment securities portfolio, and the interest expense incurred on our interest-bearing liabilities, such as deposits and borrowed money. Additionally, we earn net interest revenue on other activities relating to interest-earning

86 BNY Mellon

Risk Factors (continued)

assets and interest-bearing liabilities, such as reverse repurchase agreements and repurchase agreements, respectively. Our net interest margin, which is the result of dividing net interest revenue by average interest-earning assets, is sensitive to whether the interest rate paid or received is fixed or moves with changes in market interest rates.

The recent rise in rates, and any future rate increases, could adversely impact our business, financial condition and results of operations, due to:

- higher market volatility, recessionary conditions and declines in equity values, resulting in a decline in the valuation of assets under management;
- reduced liquidity in bonds and fixed-income funds, resulting in lower performance and fees;
- increased number of delinquencies, bankruptcies or defaults and more nonperforming assets and net charge-offs, as borrowers may have more difficulty making higher interest payments;
- higher redemptions from our fixed-income funds or separate accounts, as clients move funds into investments with higher rates of return;
- declines in deposit levels, resulting in reduced internal and regulatory liquidity buffers and lower revenues;
- reductions in the value of our fixed-income securities held for liquidity purposes;
- further increases in accumulated other comprehensive loss in our shareholders’ equity and therefore our tangible common equity due to the impact of rising long-term rates on the available-for-sale securities in our investment portfolio, which would negatively affect our risk-based and leverage based regulatory capital ratios; or
- higher funding cost.

A declining short-term rate environment would likely adversely impact, and has in the past adversely impacted, our net interest revenue and results of operations due to:

- compression of our net interest margin, depending on our balance sheet position;
- constraints on our ability to achieve net interest revenue consistent with historical averages;

- sustained weakness of our spread-based revenues, resulting in continued voluntary waiving of fees on certain money market mutual funds and related distribution fees, in order to prevent the yields on such funds from becoming uneconomic; or
- adverse impacts on the value of our fixed-rate mortgage-backed securities, driven by higher mortgage prepayment speeds.

A more detailed discussion of the interest rate and market risks we face is contained in “Risk Management.”

We have experienced, and may continue to experience, unrealized or realized losses on securities related to volatile and illiquid market conditions, reducing our capital levels and/or earnings.

We maintain an investment securities portfolio of various holdings, types and maturities. At Dec. 31, 2022, approximately 61% of these securities were classified as available-for-sale, which are recorded on our balance sheet at fair value with unrealized gains or losses reported as a component of accumulated other comprehensive income, net of tax. The securities in our held-to-maturity portfolio, recorded on our balance sheet at amortized cost, were approximately 39% of our securities portfolio at Dec. 31, 2022. Our available-for-sale securities portfolio, to the extent unhedged, may have more volatility to accumulated other comprehensive income or earnings than a portfolio comprised exclusively of, for example, U.S. Treasury securities or, alternatively, a loan portfolio that is accounted for at amortized cost.

Our investment securities portfolio represents a greater proportion of our consolidated total assets (approximately 35% at Dec. 31, 2022), in comparison to many other major U.S. financial institutions due to our custody and trust bank business model. Accordingly, our capital levels and results of operations and financial condition are materially exposed to the risks associated with our investment securities portfolio.

We reserve for current expected credit losses with respect to our available-for-sale and held-to-maturity securities. Credit losses in excess of our allowance for credit losses would impact our results of operations.

BNY Mellon 87

## Risk Factors (continued)---

Under the U.S. capital rules, after-tax changes in the fair value of available-for-sale investment securities are included in CET1 capital. Since held-to-maturity securities are not subject to fair-value accounting, changes in the fair value of these instruments (other than expected credit losses) are not similarly included in the determination of CET1 capital. As a result, we may experience increased variability in our CET1 capital relative to those major financial institutions who maintain a lower proportion of their consolidated total assets in an available-for-sale accounting classification.

Generally, the fair value of available-for-sale securities is determined based on market prices available from third-party sources. During periods of market disruption, it may be difficult to value certain of our investment securities if trading becomes less frequent and/or market data becomes less observable. As a result, valuations may include inputs and assumptions that are less observable or require greater estimation and judgment as well as valuation methods which are more complex. These values may not be ultimately realizable in a market transaction, and such values may change very rapidly as market conditions change and valuation assumptions are modified. Decreases in value may have a material adverse effect on our results of operations or financial condition. The estimate of expected credit losses is determined in part by management’s assessment of the financial condition and prospects of a particular issuer, projections of future cash flows and recoverability of the particular security. Management’s conclusions on such assessments are highly judgmental and include assumptions and projections of future cash flows which may ultimately prove to be incorrect as assumptions, facts and circumstances change. On the other hand, we are limited in the actions we can take related to our held-to-maturity securities absent a significant deterioration in the issuer’s creditworthiness. Therefore, we may be constrained in our ability to liquidate a held-to-maturity security that is deteriorating in value, which would negatively impact the fair value of our securities portfolio. If our determinations change about our intention or ability to not sell available-for-sale securities that have experienced a reduction in fair value below their amortized cost, we could be required to recognize a loss in earnings for the entire difference between fair value and amortized cost.

For information regarding our investment securities portfolio, refer to “Consolidated balance sheet review - Securities.”

# ***Transitions away from and the replacement of LIBOR and other IBORs could adversely impact our business, financial condition and results of operations.***

The FCA and the administrator for LIBOR have announced that the publication of the most commonly used U.S. dollar LIBOR settings will cease to be published or cease to be representative after June 30, 2023. The publication of all other LIBOR settings ceased to be published or to be representative as of Dec. 31, 2021. In addition, the U.S. bank regulators had also issued guidance strongly encouraging banking organizations to cease using U.S. dollar LIBOR as a reference rate in new contracts by Dec. 31, 2021. As a result, financial market participants have begun to transition away from IBORs. This transition is further supported by the requirements of the EU Benchmarks Regulation, which no longer permits IBORs that rely on quotes or estimates submitted by contributing banks that are not anchored in transaction-based data.

Various regulators, industry bodies and other market participants in the U.S. and other countries are engaged in initiatives to develop, introduce and encourage the use of alternative rates to replace certain benchmarks. However, the introduction of, and adoption of, successor rates had been slow until late 2021. In the U.S., SOFR has been identified by the Alternate Reference Rates Committee convened by the Federal Reserve as the alternative benchmark rate to U.S. dollar LIBOR, and the LIBOR Act, which was enacted in March 2022, provides a statutory framework to replace U.S. dollar LIBOR with a benchmark rate based on SOFR for certain contracts governed by U.S. law. However, there continues to be substantial uncertainty as to the ultimate effects of LIBOR transition, including with respect to the acceptance and use of SOFR or other alternative benchmark rates or the effectiveness of legislative initiatives, such as the LIBOR Act. The characteristics of these new rates are not identical to the benchmarks they seek to replace, will not produce the exact economic equivalent as those benchmarks, and may perform differently in a variety of market conditions compared to those benchmarks. For example, during the early stages of the COVID-19

88 BNY Mellon

## Risk Factors (continued)---

pandemic, there was more volatility in SOFR as compared to LIBOR.

Transitions to SOFR and other alternative rates or benchmarks may cause LIBOR (in the case of LIBOR-linked instruments that have not yet transitioned) or the applicable alternative benchmark rates to perform differently, or have other consequences which cannot be predicted. In the event any such benchmark or other referenced financial metric is significantly changed or discontinued (for example, when LIBOR and other IBORs cease to be published), or are no longer recognized as an acceptable benchmark, there may be uncertainty as to the calculation of the applicable interest rate or payment amount for certain financial instruments or contracts, depending on the terms of the governing instrument. In addition, even if the method of calculation of a fallback rate is clear, the resulting interest rate or payment amount may be different than the interest rate or payment amount that would have applied based on the original benchmark.

We may be adversely impacted by the changes involving LIBOR and other benchmark rates as a result of our business activities and our underlying operations. We utilize benchmark rates in a variety of agreements and instruments and are responsible for the use of benchmark rates in a variety of capacities, as well as in our operational functions. We could be subject to claims from customers, counterparties, investors or regulators alleging that, notwithstanding any uncertainty around the rate environment, we did not correctly discharge our responsibilities. We could also face claims in connection with the interpretation and implementation of fallback provisions. The LIBOR transition presents various challenges related to contractual mechanics of existing floating rate financial instruments and contracts that reference LIBOR and mature after the applicable setting ceases to be published or regarded as representative. Certain of these instruments and contracts do not provide for alternative benchmark rates, which makes it unclear what the future benchmark rates would be after LIBOR’s cessation. Although the LIBOR Act has provided clarity on the replacement of U.S. dollar LIBOR for certain contracts, significant uncertainty remains for contracts not covered by the LIBOR Act. Moreover, particular contracts may require fallback rates that are different from the most widely used alternative to LIBOR.

Fluctuations in interest rates triggered by the transition away from LIBOR and other IBORs could adversely affect the availability or cost of floating-rate funding. We could experience losses on a product or have to pay more or receive less on securities that we own or have issued. We may also not be able to successfully amend or renegotiate IBOR-based agreements and instruments, including as a result of a failure to receive the requisite consent from counterparties, which could have adverse impacts. Such impacts include, in some cases, agreements and instruments effectively bearing interest at a fixed rate (rather than a floating rate) based on the last IBOR rate that was able to be determined under the document. A variety of factors may affect the transition from existing IBOR-based rates to alternative benchmark rates, including, for example, whether transactions that serve as the basis for alternative benchmark rates and IBOR-based rates are similarly secured (or unsecured) transactions, or are of a similar tenor.

Divergences between existing IBOR-based and alternative benchmark rates (or rates fixed at the last determined IBOR rate) may result in our hedges being ineffective. In addition, uncertainty relating to LIBOR or another benchmark could result in, and in some cases have resulted in, pricing volatility, increased capital requirements, loss of market share in certain products, adverse tax or accounting consequences, higher compliance, legal and operational costs, increased difficulty in estimating our net interest revenue, and risks associated with client disclosures, discretionary actions taken or negotiation of fallback provisions, and disruption of business continuity, systems and models, all of which may adversely impact our business and results of operations. Use of alternative benchmark rates may also, in some cases, be limited or prohibited by contract, law or regulation.

There can be no assurance that we, other market participants, clients and vendors will be adequately prepared for an actual discontinuation of IBORs, that existing assets and liabilities based on or linked to IBORs will transition successfully to alternative benchmark rates or that appropriate systems and analytics would be developed for one or more alternative benchmark rates, any of which could adversely impact our business, financial condition and results of operations.

BNY Mellon 89

## Risk Factors (continued)---

### Credit Risk

*The failure or perceived weakness of any of our significant clients or counterparties, many of whom are major financial institutions or sovereign entities, and our assumption of credit, counterparty and concentration risk, could expose us to loss and adversely affect our business.*

We have exposure to clients and counterparties in many different industries, particularly financial institutions, as a result of trading, clearing and financing, providing custody services, securities lending services or other relationships. We routinely execute transactions with global clients and counterparties in the financial industry as well as sovereigns and other governmental or quasi-governmental entities. Our direct exposure consists of extensions of secured and unsecured credit to clients and use of our balance sheet. In addition to traditional credit activities, we also extend intraday credit in order to facilitate our various processing, settlement and intermediation activities. Our ability to engage in funding or other transactions could be adversely affected by the actions and commercial soundness of other financial institutions or sovereign entities, as defaults or non-performance (or even uncertainty concerning such default or non-performance) by one or more financial institutions, or the financial services industry generally, have in the past led to market-wide liquidity problems and could lead to losses or defaults by us or by other institutions (including our counterparties and/or clients) in the future. The consolidation and failures of financial institutions during the 2008 financial crisis increased the concentration of our client and counterparty risk.

As a result of our membership in several industry clearing or settlement exchanges and central counterparty clearinghouses, we may be required to guarantee obligations and liabilities or provide financial support in the event that other members do not honor their obligations or default. These obligations may be limited to members that dealt with the defaulting member or to the amount (or a multiple of the amount) of our contribution to a clearing or settlement exchange guarantee fund, or, in a few cases, the obligation may be unlimited.

When we provide credit to clients in connection with providing cash management, clearing, custodial and other services, we are exposed to potential loss if the client experiences credit difficulties. Higher market

volatility, inflationary pressures, recessionary conditions or declines in equity values could negatively affect the creditworthiness of our clients, which, in turn, would increase our credit risk. We are also generally not able to net exposures across affiliated clients or counterparties and may not be able to net exposures to the same legal entity across multiple products. In addition, we may incur a loss in relation to one entity or product even though our exposure to one of the entity’s affiliates is over-collateralized. Moreover, not all of our client or counterparty exposure is secured.

In our agency securities lending program, we act as agent on behalf of our clients, the lenders of securities, in securities lending transactions with our clients’ counterparties (including broker-dealers), acting as borrowers, wherein securities are lent by our clients and the securities loans are collateralized by cash or securities posted by such counterparties. Typically, in the case of cash collateral, our clients authorize us as their agent to invest the cash collateral in approved investments pursuant to each client’s investment guidelines and instructions. Such approved investments may include reverse repurchase transactions with repo counterparties. In many cases, in the securities loans we enter into on behalf of our clients, we agree to replace the client’s loaned securities that the borrower fails to return due to certain defaults by the borrower, mainly the borrower’s insolvency. Therefore, in situations where the market value of the loaned securities that the borrower fails to return to a client (which loaned securities we are obligated to replace and return to the client) exceeds the amount of proceeds resulting from the liquidation of the client’s approved investments and cash and non-cash collateral of such client, we may be responsible for the shortfall amount necessary to purchase any replacement securities. In addition, in certain cases, we may also assume the risk of loss related to approved investments that are reverse repurchase transactions as described above. In these two scenarios, we, rather than our clients, are exposed to the risks of the defaulting counterparty in the securities lending transactions and, where applicable, in the reverse repurchase transactions. For further discussion on our securities lending indemnifications, see “Commitments and contingent liabilities - Off-balance sheet arrangements” in Note 22 of the Notes to Consolidated Financial Statements.

From time to time, we assume concentrated credit risk at the individual obligor, counterparty or group

90 BNY Mellon

## Risk Factors (continued)---

level, potentially exposing us to a single market or political event or a correlated set of events. For example, we may be exposed to defaults by companies located in countries with deteriorating economic conditions or by companies in certain industries. Our commercial real estate portfolio also exposes us to concentrated credit risk, including to the New York metro market. Such concentrations may be material. Our material counterparty exposures change daily, and the counterparties or groups of related counterparties to which our risk exposure is material also vary during any reported period; however, our largest exposures tend to be to other financial institutions, clearing organizations, and governmental entities, both inside and outside the U.S. Concentration of counterparty exposure presents significant risks to us and to our clients because the failure or perceived weakness of our counterparties (or in some cases of our clients’ counterparties) has the potential to expose us to risk of financial loss. Changes in market perception of the financial strength of particular financial institutions or sovereign issuers can occur rapidly, are often based on a variety of factors and are difficult to predict.

Although our overall business is subject to these interdependencies, several of our businesses are particularly sensitive to them, including our currency and other trading activities, our securities lending and securities finance businesses and our investment management business. If we experience any of the losses described above, it may materially and adversely affect our results of operations.

We are also subject to the risk that our rights against third parties may not be enforceable in all circumstances. In addition, deterioration in the credit quality of third parties whose securities or obligations we hold, including a deterioration in the value of collateral posted by third parties to secure their obligations to us under derivatives contracts and other agreements, could result in losses and/or adversely affect our ability to rehypothecate or otherwise use those securities or obligations for liquidity purposes. Disputes with clients and counterparties as to the valuation of collateral can significantly increase in times of market stress and illiquidity. In addition, disruptions in the liquidity or transparency of the financial markets may result in our inability to sell, syndicate or realize the value of our positions, thereby leading to increased concentrations. An inability to reduce our positions may not only increase the market and credit risks associated with such positions, but

may also increase the level of RWA on our balance sheet, thereby increasing our capital requirements and funding costs, all of which could adversely affect the operations and profitability of our businesses.

Under U.S. regulatory restrictions on credit exposure, which include a broadening of the measure of credit exposure, we are required to limit our exposures to specific obligors or groups, including financial institutions. These regulatory credit exposure restrictions may adversely affect our businesses and may require us to modify our operating models or the policies and practices we use.

*We could incur losses if our allowance for credit losses, including loan and lending-related commitment reserves, is inadequate or if our expectations of future economic conditions deteriorate.*

When we loan money, commit to loan money or provide credit or enter into another contract with a counterparty, we incur credit risk, or the risk of loss if our borrowers do not repay their loans or our counterparties fail to perform according to the terms of their agreements. Our revenues and profitability are adversely affected when our borrowers default, in whole or in part, on their loan obligations to us or when there is a significant deterioration in the credit quality of our loan portfolio. We reserve for potential future credit losses by recording a provision for credit losses through earnings. The allowance for loan losses and allowance for lending-related commitments represents management’s estimate of current expected credit losses over the lifetime of the related credit exposure taking into account relevant information about past events, current conditions and reasonable and supportable forecasts of future economic conditions that affect the collectability of our loans and lending commitments. We use a quantitative methodology and qualitative framework for determining the allowance for loan losses and the allowance for lending-related commitments. Within this qualitative framework, management applies judgment when assessing internal risk factors and environmental factors to compute an additional allowance for each component of the loan portfolio. As is the case with any such judgments, we could fail to identify these factors or accurately estimate their impact. We cannot provide any assurance as to whether charge-offs related to our credit exposure may occur in the future. Current and future market and economic developments may increase default and

BNY Mellon 91

## Risk Factors (continued)---

delinquency rates and negatively impact the quality of our credit portfolio, which may impact our charge-offs. Although our estimates contemplate current conditions and how we expect them to change over the life of the portfolio, it is reasonably possible that actual conditions could be worse than anticipated in those estimates, which could materially affect our results of operations and financial condition. See “Critical accounting estimates.” accounting estimates.'

### *Capital and Liquidity Risk*

***Our business, financial condition and results of operations could be adversely affected if we do not effectively manage our liquidity.***

Our operating model and overall strategy rely heavily on our access to financial market utilities and global capital markets. Without such access, it would be difficult to process payments and settle and clear transactions on behalf of our clients. Deterioration in our liquidity position, whether actual or perceived, can impact our market access by affecting participants’ willingness to transact with us. Changes to our liquidity can be caused by various factors, such as funding mismatches, market constraints disabling asset to cash conversion, inability to issue debt, run-offs of core deposits, and contingent liquidity events such as additional collateral posting. Changes in economic conditions or exposure to credit, market, operational, legal and reputational risks can also affect our liquidity.

Our business is dependent in part on our ability to meet our cash and collateral obligations at a reasonable cost for both expected and unexpected cash flows. We also must manage liquidity risks on an intraday basis, in a manner designed to ensure that we can access required funds during the business day to make payments or settle immediate obligations, often in real time. We receive client deposits through a variety of investment management and investment servicing businesses and we rely on those deposits as a low-cost and stable source of funding. Our ability to continue to receive those deposits, and other short-term funding sources, is subject to variability based on a number of factors, including volume and volatility in the global securities markets, the relative interest rates that we are prepared to pay for those deposits, and the perception of the safety of those deposits or other short-term obligations relative to alternative short-term investments available to our clients. We could lose deposits if we suffer a

significant decline in the level of our business activity, our credit ratings are materially downgraded, interest rates continue to rise, or we are subject to significant negative press or significant regulatory action or litigation, among other reasons. Our liquidity could also be adversely affected by customers’ withdrawal of deposits in response to volatility and disruptions in the financial market or a stress event. If we were to lose a significant amount of deposits, we may need to replace such funding with more expensive funding and/or reduce assets, which would reduce our net interest revenue.

The degree of client demand for short-term credit tends to increase during periods of market turbulence. For example, investors in mutual funds for which we act as custodian may engage in significant redemption activity due to adverse market or economic conditions. We may then extend intraday credit to our fund clients in order to facilitate their ability to pay such redemptions. In addition, during periods of market turbulence, draws under committed revolving credit facilities that we provide to our institutional clients may increase substantially, as occurred in March 2020. Such client demand may negatively impact our leverage-based capital ratios, and in times of sustained market volatility, may result in significant leverage-based ratio declines.

In addition, our access to the debt and equity capital markets is a significant source of liquidity. Events or circumstances often outside of our control, such as market disruptions, government fiscal and monetary policies, uncertainty over the U.S. government debt ceiling or loss of confidence by securities purchasers or counterparties in us or in the funds markets, could limit our access to capital markets, increase our cost of borrowing, adversely affect our liquidity, or impair our ability to execute our business plan. In addition, clearing organizations, regulators, clients and financial institutions with which we interact may exercise the right to require additional collateral based on market perceptions or market conditions, which could further impair our access to and cost of funding. Market perception of sovereign default risks can also lead to inefficient money markets and capital markets, which could further impact our funding availability and cost. Conversely, excess liquidity inflows could increase interest expense, limit our financial flexibility, and increase the size of our total assets in a manner that could have a negative impact on our capital ratios.

92 BNY Mellon

## Risk Factors (continued)---

Under the U.S. capital rules, the size of the capital surcharge that applies to U.S. G-SIBs is based in part on its reliance on short-term wholesale funding, including certain types of deposit funding, which may increase the cost of such funding. Furthermore, certain non-U.S. authorities require large banks to incorporate a separate subsidiary in countries in which they operate, and to maintain independent capital and liquidity at foreign subsidiaries. These requirements could hinder our ability to efficiently manage our funding and liquidity in a centralized manner, requiring us to hold more capital and liquidity overall.

In addition, our cost of funding could be affected by actions that we may take in order to satisfy applicable LCR and NSFR requirements, to lower our G-SIB score, to satisfy the amount of eligible long-term debt outstanding under the TLAC rule, to address obligations under our resolution plan or to satisfy regulatory requirements in non-U.S. jurisdictions relating to the pre-positioning of liquidity in certain subsidiaries.

If we are unable to raise funds using the methods described above, we would likely need to finance, reduce or liquidate unencumbered assets, such as our central bank deposits and bank placements, or securities in our investment portfolio to meet funding needs. We may be unable to sell some of our assets, or we may have to sell assets at a discount from market value, either of which could adversely affect our business, financial condition and results of operations. Further, our ability to sell assets may be impaired if other market participants are seeking to sell similar assets at the same time, which could occur in a liquidity or other market crisis. Additionally, if we experience cash flow mismatches, deposit run-off or market constraints resulting from our inability to convert assets to cash or access capital markets, our liquidity could be severely impacted. During periods of market uncertainty, our level of client deposits has in recent years tended to increase; however, because these deposits have high potential run-off rates, we have historically deposited these so-called excess deposits with central banks and in other highly liquid and low-yielding instruments.

If we are unable to continue to fund our assets through deposits or access capital markets on favorable terms or if we suffer an increase in our borrowing costs or otherwise fail to manage our liquidity effectively, our liquidity, net interest margin,

financial results and condition may be materially adversely affected. In certain cases, this could require us to raise additional capital through the issuance of preferred or common stock, which could dilute the ownership of existing stockholders, and/or reduce common stock repurchases or our common stock dividend to preserve capital. For a further discussion of our liquidity, see “Liquidity and dividends.”

*Failure to satisfy regulatory standards, including “well capitalized” and “well managed” status or capital adequacy and liquidity rules more generally, could result in limitations on our activities and adversely affect our business and financial condition.*

Under U.S. and international regulatory capital adequacy rules and other regulatory requirements, we and our subsidiary banks must meet thresholds that include quantitative measures of assets, liabilities, and certain off-balance sheet items, subject to qualitative judgments by regulators about components, risk weightings and other factors. As discussed in “Supervision and Regulation,” BNY Mellon is registered with the Federal Reserve as a BHC and an FHC. An FHC’s ability to maintain its status as an FHC is dependent upon a number of factors, including its U.S. bank subsidiaries qualifying on an ongoing basis as “well capitalized” and “well managed” under the banking agencies’ prompt corrective action regulations as well as applicable Federal Reserve regulations. Failure by an FHC or one of its U.S. bank subsidiaries to qualify as “well capitalized” and “well managed,” if unremedied over a period, would cause it to lose its status as an FHC and could affect the confidence of clients in it, compromising its competitive position. Additionally, an FHC that does not continue to meet all the requirements for FHC status could lose the ability to undertake new activities or make acquisitions that are not generally permissible without FHC status or to continue such activities.

The failure by one of our U.S. bank subsidiaries to maintain its status as “well capitalized” could lead to, among other things, higher FDIC assessments and could have reputational and associated business consequences.

If we or our subsidiary banks fail to meet U.S. and international minimum capital rules and other regulatory requirements, we may not be able to

BNY Mellon 93

## Risk Factors (continued)---

deploy capital in the operation of our business or distribute capital to stockholders, which may adversely affect our business.

Failure to meet any current or future capital or liquidity requirements, including those imposed by the U.S. capital rules, the LCR, the NSFR, or by regulators in implementing other portions of the Basel III framework, could materially adversely affect our financial condition. Compliance with U.S. and international regulatory capital and liquidity requirements may impact our ability to return capital to shareholders and may impact our operations by requiring us to liquidate assets, increase borrowings, issue additional equity or other securities, or cease or alter certain operations, which may adversely affect our results of operations.

Finally, our regulatory capital ratios, liquidity metrics, and related components are based on our current interpretation, expectations, and understanding of the applicable rules and are subject to, among other things, ongoing regulatory review, regulatory approval of certain statistical models, additional refinements, modifications or enhancements (whether required or otherwise) to our models, and further implementation guidance. Any modifications resulting from these ongoing reviews or the continued implementation of the U.S. capital rules, the LCR, the NSFR, the resolution planning process, and related amendments could result in changes in our risk-weighted assets, capital components, liquidity inflows and outflows, HQLA, or other elements involved in the calculation of these measures, which could impact regulatory capital and liquidity ratios. Further, because operational risk is currently measured based not only upon our historical operational loss experience but also upon ongoing events in the banking industry generally, our level of operational risk-weighted assets could significantly increase or otherwise remain elevated and may potentially be subject to significant volatility, negatively impacting our capital ratios. The uncertainty caused by these factors could ultimately impact our ability to meet our goals, supervisory requirements, and regulatory standards.

*The Parent is a non-operating holding company and, as a result, is dependent on dividends from its subsidiaries and extensions of credit from its IHC to meet its obligations, including with respect to its securities, and to provide funds for share

repurchases and payment of dividends to its stockholders.*

The Parent is a non-operating holding company, whose principal assets and sources of income are its principal U.S. bank subsidiaries-The Bank of New York Mellon and BNY Mellon, N.A.-and its other subsidiaries, including Pershing and the IHC. The Parent is a legal entity separate and distinct from its banks, the IHC and other subsidiaries. Therefore, the Parent primarily relies on dividends, interest, distributions, and other payments from its subsidiaries, including extensions of credit from the IHC, to meet its obligations, including with respect to its securities, and to provide funds for share repurchases and payment of common and preferred dividends to its stockholders, to the extent declared by the Board of Directors.

There are various limitations on the extent to which our banks and other subsidiaries can finance or otherwise supply funds to the Parent (by dividend or otherwise) and certain of our affiliates. Each of these restrictions can reduce the amount of funds available to meet the Parent’s obligations. Many of our subsidiaries, including our bank subsidiaries, are subject to laws and regulations that restrict dividend payments or authorize regulatory bodies to block or reduce the flow of funds from those subsidiaries to the Parent or other subsidiaries. In addition, our bank subsidiaries would not be permitted to distribute a dividend if doing so would constitute an unsafe and unsound practice or if the payment would reduce their capital to an inadequate level. Our subsidiaries may also choose to restrict dividend payments to the Parent in order to increase their own capital or liquidity levels. Our bank subsidiaries are also subject to restrictions on their ability to lend to or transact with non-bank affiliates, minimum regulatory capital and liquidity requirements, and restrictions on their ability to use funds deposited with them in bank or brokerage accounts to fund their businesses. See “Supervision and Regulation” and “Liquidity and dividends” and Note 19 of the Notes to Consolidated Financial Statements. Further, we evaluate and manage liquidity on a legal entity basis, which may place legal and other limitations on our ability to utilize liquidity from one legal entity to satisfy the liquidity requirements of another, including the Parent.

There are also limitations specific to the IHC’s ability to make distributions or extend credit to the Parent.

94 BNY Mellon

## Risk Factors (continued)---

The IHC is not permitted to pay dividends to the Parent if certain key capital and liquidity indicators are breached, and if the resolution of the Parent is imminent, the committed lines of credit provided by the IHC to the Parent will automatically terminate, with all outstanding amounts becoming due.

Because the Parent is a holding company, its rights and the rights of its creditors, including the holders of its securities, to a share of the assets of any subsidiary upon the liquidation or recapitalization of the subsidiary, will be subject to the prior claims of the subsidiary’s creditors (including, in the case of our banking subsidiaries, their depositors) except to the extent that the Parent may itself be a creditor with recognized claims against the subsidiary. The rights of holders of securities issued by the Parent to benefit from those distributions will also be junior to those prior claims. Consequently, securities issued by the Parent will be effectively subordinated to all existing and future liabilities of our subsidiaries.

*Our ability to return capital to shareholders is subject to the discretion of our Board of Directors and may be limited by U.S. banking laws and regulations, including those governing capital and capital planning, applicable provisions of Delaware law and our failure to pay full and timely dividends on our preferred stock.*

Holders of our common and preferred stock are only entitled to receive such dividends or other distributions of capital as our Board of Directors may declare out of funds legally available for such payments. Although we have historically declared cash dividends on our common and preferred stock, we are not required to do so. In addition to the Board of Directors’ approval, our ability to take certain actions, including our ability to declare dividends or repurchase our common stock, may be subject to limitations in connection with the CCAR process and the buffers under the Federal Reserve’s capital and TLAC rules. Through the CCAR process, we may be required to resubmit our capital plan in the event of a deterioration in the general financial markets or economy or changes in our risk profile (including a material change in business strategy or risk exposure), financial condition or corporate structure. For example, in connection with the onset of the COVID-19 pandemic in 2020, the Federal Reserve required all banking institutions subject to CCAR, including us, to resubmit their capital plans based on updated supervisory scenarios released by the Federal

Reserve, and imposed temporary limitations on capital distributions and share repurchases by such banking institutions. The Federal Reserve is also able, outside the CCAR process, to restrict our ability to make capital distributions and subject us to other supervisory or enforcement actions.

A Federal Reserve determination that our capital planning processes were weak or otherwise fail to meet supervisory expectations could have a variety of adverse consequences, including, without limitation, ratings downgrades, ongoing heightened supervisory scrutiny, expenses associated with remediation activities, and potentially an enforcement action.

A failure to increase dividends along with our competitors, or any reduction of, or elimination of, our common stock dividend would likely adversely affect the market price of our common stock, impact our return on equity and market perceptions of BNY Mellon.

Our ability to declare or pay dividends on, or purchase, redeem or otherwise acquire, shares of our common stock will be prohibited, subject to certain exceptions, in the event that we do not declare and pay in full dividends for the then-current dividend period (in the case of dividends) or most recently completed dividend period (in the case of repurchases) of our Series A preferred stock or the last preceding dividend period (in the case of dividends) or most recently completed dividend period (in the case of repurchases) of our Series D, Series F, Series G, Series H or Series I preferred stock.

In addition, regulatory capital rules that are or will be applicable to us including the U.S. capital rules risk-based capital requirements, the SLR, the stress capital buffer, the enhanced SLR, the TLAC rule and the U.S. G-SIB surcharge may limit or otherwise restrict how we utilize our capital, including common stock dividends and stock repurchases, and may require us to increase or alter the mix of our outstanding regulatory capital instruments. Changes in the composition of our balance sheet, including as a result of changing economic conditions and market values, may further require us to increase or alter the mix of our outstanding regulatory capital, which in turn could impact our ability to return capital to shareholders.

BNY Mellon 95

## Risk Factors (continued)---

Any requirement to increase our regulatory capital ratios or alter the composition of our capital could require us to liquidate assets or otherwise change our business and/or investment plans, which may negatively affect our financial results. Further, any requirement to maintain higher levels of capital may constrain our ability to return capital to shareholders either in the form of common stock dividends or stock repurchases.

*Any material reduction in our credit ratings or the credit ratings of our principal bank subsidiaries, The Bank of New York Mellon or BNY Mellon, N.A., could increase the cost of funding and borrowing to us and our rated subsidiaries and have a material adverse effect on our business, financial condition and results of operations and on the value of the securities we issue.*

Our debt and preferred stock and the debt and deposits of our principal bank subsidiaries, The Bank of New York Mellon and BNY Mellon, N.A., are currently rated investment grade by the major rating agencies. These rating agencies regularly evaluate us and our rated subsidiaries. Their credit ratings are based on a number of factors, including our financial strength, performance, prospects and operations, as well as factors not entirely within our control, including conditions affecting the financial services industry generally and the U.S. government. Rating agencies employ different models and formulas to assess the financial strength of a rated company, and from time to time rating agencies have, in their discretion, altered these models. Changes to rating agency models, general economic conditions, regulatory developments or other circumstances outside our control could negatively impact a rating agency’s judgment of the rating or outlook it assigns to us or our rated subsidiaries. As a result, we or our rated subsidiaries may not be able to maintain our respective credit ratings or outlook on our securities.

A material reduction in our credit ratings or the credit ratings of our rated subsidiaries, which can occur at any time without notice, could have a material adverse effect on our access to credit markets, the related cost of funding and borrowing, our credit spreads, our liquidity and on certain trading revenues, particularly in those businesses where counterparty creditworthiness is critical. In addition, in connection with certain over-the-counter derivatives contracts and other trading agreements, counterparties may require us or our rated subsidiaries to provide

additional collateral or to terminate these contracts and agreements and collateral financing arrangements in the event of a credit ratings downgrade below certain ratings levels, which could impair our liquidity. If a rating agency downgrade were to occur during broader market instability, our options for responding to events may be more limited and more expensive, possibly significantly. An increase in the costs of our funding and borrowing, or an impairment of our liquidity, could have a material adverse effect on our results of operations and financial condition. A material reduction in our credit ratings also could decrease the number of investors and counterparties willing or permitted to do business with or lend to us and adversely affect the value of the securities we have issued or may issue in the future.

We cannot predict what actions rating agencies may take, or what actions we may elect or be required to take in response thereto, which may adversely affect us. For further discussion on the impact of a credit rating downgrade, see “Disclosure of contingent features in OTC derivative instruments” in Note 23 of the Notes to Consolidated Financial Statements.

*The application of our Title I preferred resolution strategy or resolution under the Title II orderly liquidation authority could adversely affect the Parent’s liquidity and financial condition and the Parent’s security holders.*

In 2017, in connection with our single point of entry resolution strategy under Title I of the Dodd-Frank Act, the Parent entered into a binding support agreement with certain key subsidiaries to facilitate the provision of capital and liquidity resources to them in the event of material financial distress or failure. The support agreement requires the Parent to transfer cash and other liquid financial assets to the IHC on an ongoing basis, subject to certain amounts retained by the Parent to meet its near-term cash needs, in exchange for unsecured subordinated funding notes issued by the IHC as well as a committed line of credit to the Parent to service its near-term obligations. The Parent’s and the IHC’s obligations under the support agreement are secured.

If our projected liquidity resources deteriorate so severely that resolution of the Parent becomes imminent, the committed line of credit the IHC provided to the Parent will automatically terminate, with all amounts outstanding becoming due and payable, and the support agreement will require the

96 BNY Mellon

## Risk Factors (continued)---

Parent to transfer most of its remaining assets (other than stock in subsidiaries and a cash reserve to fund bankruptcy expenses) to the IHC. As a result, during a period of severe financial stress, the Parent could become unable to meet its debt and payment obligations (including with respect to its securities), causing the Parent to seek protection under bankruptcy laws earlier than it otherwise would have.

If the Parent were to become subject to a bankruptcy proceeding and our single point of entry strategy is successful, our material entities will not be subject to insolvency proceedings and their creditors would not be expected to suffer losses, while the Parent’s security holders, including unsecured debt holders, could face significant losses, potentially including the loss of their entire investment. The single point of entry strategy, in which the Parent would be the only legal entity to enter resolution proceedings, is designed to result in greater risk of loss to holders of the Parent’s unsecured senior debt securities and other securities than would be the case under a different resolution strategy.

Further, if the single point of entry strategy is not successful, our liquidity and financial condition would be adversely affected and all security holders may, as a consequence, be in a worse position than if the strategy had not been implemented.

In addition, Title II of the Dodd-Frank Act established an orderly liquidation process in the event of the failure of a large systemically important financial institution, such as BNY Mellon, in order to avoid or mitigate serious adverse effects on the U.S. financial system. Specifically, if BNY Mellon is in default or danger of default, and certain specified conditions are met, the FDIC may be appointed receiver under the orderly liquidation authority, and we would be resolved under that authority instead of the U.S. Bankruptcy Code.

U.S. supervisors have indicated that a single point of entry strategy may be a desirable strategy to resolve a large financial institution such as BNY Mellon under Title II in a manner that would, similar to our preferred strategy under our Title I resolution plan, impose losses on shareholders, unsecured debt holders and other unsecured creditors of the Parent, while permitting the holding company’s subsidiaries to continue to operate and remain solvent. Under such a strategy, assuming the Parent entered resolution proceedings and its subsidiaries remained

solvent, losses at the subsidiary level would be absorbed by the Parent and ultimately borne by the Parent’s security holders (including holders of the Parent’s unsecured debt securities), while third-party creditors of the Parent’s subsidiaries would not be expected to suffer losses. Accordingly, the Parent’s security holders (including holders of unsecured debt securities and other unsecured creditors) could face losses in excess of what otherwise would have been the case.

### *Strategic Risk*

***New lines of business, new products and services or transformational or strategic project initiatives subject us to new or additional risks, and the failure to implement these initiatives could affect our results of operations.***

From time to time, we have launched new lines of business, offered new products and services within existing lines of business or undertaken transformational or strategic projects. There are substantial risks and uncertainties associated with these efforts. We invest significant time and resources in developing and marketing new lines of business, products and services and executing on our transformational and strategic initiatives. For example, we have devoted considerable resources to developing new technology solutions for our clients, including our initiatives related to real-time electronic payments and global collateral management. If these technology solutions are not successful, it could adversely impact our reputation, business and results of operations. In 2021, we announced a strategic initiative to develop a multi-asset digital custody and administration platform designed to simultaneously support both traditional and digital assets, including cryptocurrencies. As part of this initiative, we have started to provide custody services for a limited number of cryptocurrencies for select U.S. institutional clients. Developing and providing new products and services, including those relating to digital assets, increases our operational risk exposures. These risks are often heightened in connection with asset classes, such as digital assets, that are not only new for BNY Mellon but also relatively new to the financial markets more broadly. Compared with our activities involving traditional assets, digital asset-related products or services may introduce incremental or unique risks, particularly those associated with cybersecurity exposures and

BNY Mellon 97

## Risk Factors (continued)---

third-party dependencies, as well as reputational, technology, legal and regulatory risks.

Regulatory requirements can affect whether initiatives are able to be brought to market in a manner that is timely and attractive to our customers. Initial timetables for the development and introduction of new lines of business or new products or services and price and profitability targets may not be met. Furthermore, our revenues and costs may fluctuate because new businesses or products and services generally require startup costs while revenues may take time to develop, which may adversely impact our results of operations.

Significant effort and resources are necessary to manage and oversee the successful completion of transformational or strategic project initiatives. These initiatives often place significant demands on management and a limited number of employees with subject matter expertise and may involve significant costs to implement, as well as increase operational risk as we develop and implement related controls and procedures and employees learn to process transactions and operate under new systems, controls and procedures. The failure to properly execute on these transformational or strategic initiatives could adversely impact our business, reputation and results of operations.

Legal, regulatory and reputational risks may also exist in connection with dealing with new products or markets, or clients and customers whose businesses focus on such products or markets, where there is regulatory uncertainty or different or conflicting regulations depending on the regulator or the jurisdiction. We may invest significant time and resources into the expansion of existing or creation of new compliance and risk management systems with respect to new products or markets.

*We are subject to competition in all aspects of our business, which could negatively affect our ability to maintain or increase our profitability.*

The businesses in which we operate are intensely competitive around the world. Larger and more geographically diverse companies, and financial technology firms that invest substantial resources in developing and designing new technology and that are not subject to the same level of regulation, may be able to offer financial products and services at more competitive prices than we are able to offer. We have

also experienced, and anticipate that we will continue to experience, pricing pressure in many of our businesses, particularly our Asset Servicing business due to trends in the market for custodial services and the considerable market influence exerted by clients in that business. Pricing pressures, as a result of the willingness of competitors to offer comparable or improved products or services at a lower price, may result in a reduction in the price we can charge for our products and services, which could, and in some cases has, negatively affected our ability to maintain or increase our profitability.

In addition, technological advances have made it possible for other types of non-depository institutions, such as financial technology firms, outsourcing companies and data processing companies, to offer a variety of products and services competitive with certain areas of our business, including with respect to our clearing, settlement, payments and trading activities. In the future, financial technology firms may be able to provide traditional banking products and services by obtaining a bank-like charter, such as the OCC’s fintech charter, or offer cryptocurrencies.

Moreover, new or disruptive technologies may quickly impact markets, and the manner in which our clients interact and transact within markets. For example, the emergence, adoption and evolution of new technologies that do not require intermediation, including distributed ledgers, as well as advances in robotic process automation, could significantly affect the competition for payments processing and other financial services. Our failure to either anticipate, or participate in, the transformational change within a given market or adapt these technologies as successfully as our peers, could make us less competitive and result in potential negative financial impact. Increased competition in any of these areas may require us to make additional capital investments in our businesses in order to remain competitive.[{"box_2d": [521, 776, 909, 927], "label": "text", "caption": "Furthermore, regulations could impact our ability to conduct certain of our businesses in a cost-effective manner or at all. The more restrictive laws and regulations applicable to the largest U.S. financial services institutions, including the U.S. capital rules, can put us at a competitive disadvantage relative to both our non-U.S. competitors and U.S. competitors not subject to the same laws and regulations. See “Supervision and Regulation.” and

98 BNY Mellon

## Risk Factors (continued)---

### ***Our strategic transactions present risks and uncertainties and could have an adverse effect on our business, financial condition and results of operations.***

From time to time, to achieve our strategic objectives, we have acquired, disposed of, or invested in (including through joint venture relationships) companies and businesses and have entered into strategic alliances or other collaborations with third-party service providers to deliver products and services to clients, and may do so in the future. Our ability to pursue or complete strategic transactions is in certain instances subject to regulatory approval and we cannot be certain when or if, or on what terms and conditions, any required regulatory approvals would be granted. Moreover, to the extent we pursue a strategic transaction, there can be no guarantee that the transaction will close when anticipated, or at all. If a strategic transaction does not close, or if the strategic transaction fails to maximize shareholder value or required regulatory approval is not obtained, it could have an adverse effect on our business, financial condition and results of operations.

Each acquisition poses integration challenges, including successfully retaining and assimilating clients and key employees, capitalizing on certain revenue synergies and integrating the acquired company’s employees, culture, control functions, systems and technology. In some cases, acquisitions involve entry into new businesses or new geographic or other markets, and these situations also present risks and uncertainties in instances where we may be inexperienced in these new areas. We may be required to spend a significant amount of time and resources to integrate these acquisitions. The anticipated integration benefits may take longer to achieve than projected and the time and cost needed to consolidate control functions, platforms and systems may significantly exceed our estimates. If we fail to successfully integrate strategic acquisitions, including doing so in a timely and cost-effective manner, we may not realize the expected benefits, which could have an adverse impact on our business, financial condition and results of operations. In addition, we may incur expenses, costs, losses, penalties, taxes and other liabilities related to the conduct of the acquired businesses prior to the date of our ownership (including in connection with the defense and/or settlement of legal and regulatory claims, investigations and proceedings) which may not be recoverable through indemnification or

otherwise. If the purchase price we pay in an acquisition exceeds the fair value of assets acquired less the liabilities we assume, then we may need to recognize goodwill on our consolidated balance sheet. Goodwill is an intangible asset that is not eligible for inclusion in regulatory capital under applicable requirements. Further, if the value of the acquisition declines, we may be required to record an impairment charge.

Each disposition also poses challenges, including separating the disposed businesses, products and systems in a way that is cost-effective and is not disruptive to us or our customers. The inherent uncertainty involved in the process of evaluating, negotiating or executing a potential sale of one of our companies or businesses may cause the loss of key clients, employees, vendors and other business partners, which could have an adverse impact on our business, financial condition and results of operations. In addition, a portion of the purchase price we expect to receive in a disposition may be contingent or based on an earnout (e.g., dependent on the profitability or results of operation of the business over a period of time after the sale is completed). In such cases, we may not realize all, or any, contingent or earnout payments we anticipate receiving if the future performance of the business does not meet our expectations or if other contingent payment conditions are not satisfied.

Joint ventures, non-controlling investments, strategic alliances and other collaborations contain potentially increased financial, legal, reputational, operational, regulatory and/or compliance risks. We may be dependent on joint venture partners, firms with which we collaborate, controlling shareholders or management who may have business interests, strategies or goals that are inconsistent with ours. Such dependencies, particularly in the case of establishing de novo joint ventures, may delay the launch of a new venture and result in the loss of a market opportunity. Business decisions or other actions or omissions of the joint venture partner, the firms with which we collaborate, controlling shareholders or management may adversely affect the value of our investment (or, in the case of strategic alliances or other collaborations, the value of our products or services), impact our results of operations, result in litigation or regulatory action against us and otherwise damage our reputation and brand.

BNY Mellon 99

**Risk Factors** (continued)---

### *Additional Risks*

#### ***Our businesses may be negatively affected by adverse events, publicity, government scrutiny or other reputational harm.***

We are subject to reputational, legal, compliance and regulatory risk in the ordinary course of our business. Harm to our reputation can result from numerous sources, including adverse publicity or negative information, whether or not true, arising from events occurring at BNY Mellon, other financial institutions or in the financial markets, perceived failure to comply with legal and regulatory requirements or deliver appropriate standards of service and quality, or a failure to appropriately describe our products and services, how we address social and sustainability concerns in our business activities or in our relationships with clients, the purported actions of our employees or the use of social media by our employees, alleged financial reporting irregularities involving ourselves or other large and well-known companies and perceived conflicts of interest. For example, a cybersecurity event impacting us or our customers’ data could have a negative impact on our reputation and customer confidence in BNY Mellon and our cybersecurity defenses and business continuity and resiliency capabilities. Our reputation could also be harmed by the failure of an affiliate, joint venture or a vendor or other third party with which we do business to comply with laws or regulations. Our reputation may be significantly damaged by adverse publicity or negative information regarding BNY Mellon, whether or not true, that may be published or broadcast by the media or posted on social media, non-mainstream news services or other internet forums. The speed and pervasiveness with which information can be disseminated through these channels, in particular social media, may magnify risks relating to negative publicity. Damage to our reputation could affect the confidence of clients, rating agencies, regulators, employees, stockholders and other stakeholders and could in turn have an impact on our business and results of operations.

Additionally, governmental scrutiny from regulators, tax authorities, legislative bodies and law enforcement agencies with respect to financial services companies has remained at elevated levels. Press coverage and other public statements, including information posted on social media or other internet forums, that allege some form of wrongdoing (including, in some cases, press coverage and public

statements that do not directly involve BNY Mellon) often result in some type of investigation or in lawsuits. Certain enforcement authorities have recently required admissions of wrongdoing, and in some cases, criminal pleas, as part of the resolution of matters brought by them against financial institutions. Any such resolution of a matter involving BNY Mellon could lead to increased exposure to civil litigation, could adversely affect our reputation and ability to do business in certain products and in certain jurisdictions and could have other negative effects.

#### ***Climate change concerns could adversely affect our business, affect client activity levels and damage our reputation.***

Climate change represents a key risk driver that may have significant impacts on the global economy, the finance sector and the diverse network of our stakeholders over the short, medium and long term. Such concerns have led and are likely to continue to lead to governmental efforts around the world to mitigate the impacts of climate change. Consumers and businesses are also changing their behavior and business preferences as a result of these concerns. New governmental regulations or guidance relating to climate change, as well as changes in consumers’ and businesses’ behaviors and business preferences, may affect whether and on what terms and conditions we will engage in certain activities or offer certain products or services. The governmental and supervisory focus on climate change could also result in our becoming subject to new or heightened regulatory requirements relating to climate change, such as requirements relating to operational resiliency or stress testing for various climate stress scenarios, or additional, potentially costly, reporting requirements. Any such new or heightened requirements could result in increased regulatory, compliance or other costs or higher capital requirements, and may subject us to different and potentially conflicting requirements in the various jurisdictions in which we operate. In connection with the targeted transition to a lower carbon economy, legislative or public policy changes and changes in consumer sentiment could negatively impact the businesses and financial condition of our clients, which may decrease revenues from those clients and increase the credit risk associated with loans and other credit exposures to those clients. In addition, our reputation may be damaged as a result of our involvement, or our clients’ involvement, in certain

100 BNY Mellon

## Risk Factors (continued)---

industries or projects associated with climate change and we could face pressure from the public sector, individuals or other groups to cease doing business in such industries or projects. At the same time, certain financial institutions have also been subject to criticism and other negative publicity as a result of their decisions to reduce their involvement in certain industries or projects perceived to be associated with climate change. Our business, reputation and ability to attract and retain employees may also be harmed if our response to climate change is perceived to be ineffective, insufficient or otherwise inappropriate.

# ***Impacts from natural disasters, climate change, acts of terrorism, pandemics, global conflicts and other geopolitical events may have a negative impact on our business and operations.***

In conducting our business and maintaining and supporting our global operations, which includes clients, counterparties, vendors and other third parties, we are subject to risks of loss from the outbreak of war, escalation of hostilities, acts of terrorism, natural disasters, climate change, pandemics (including the further spread of SARS-CoV-2 or its variants), global conflicts or other similar catastrophic events that could have a negative impact on our business and operations. We may also be impacted by unfavorable political, economic, legal or other developments, including but not limited to social or political instability, changes in governmental policies or policies of central banks, sanctions, expropriation, nationalization, confiscation of assets, price, capital and exchange controls, the imposition of tariffs or other limitations on international trade and travel, and changes in laws and regulations.

For example, as a result of Russia’s invasion of Ukraine in the first quarter of 2022, we ceased originating new banking business in Russia and suspended investment management purchases of Russian securities. An escalation of hostilities, or the imposition of additional sanctions or other laws prohibiting or limiting operations in certain jurisdictions, as a result of the conflict in Ukraine or conflicts in other regions could lead to unexpected disruptions to our businesses and could adversely affect the global economy and financial markets generally, diminish levels of economic activity and increase volatility in commodity prices, credit and capital markets. The extent and duration of any such military action, and the responses to such action by governments, central banks and the markets, may

magnify the impact of other risks described in this section.

While we have business continuity and disaster recovery plans in place, such events could still damage our facilities, disrupt or delay normal business operations (including communications, technology and physical access to our facilities), result in harm or cause travel limitations on our employees, with a similar impact on our clients, suppliers and counterparties. Notwithstanding our efforts to maintain business continuity and disaster recovery plans, to the extent a catastrophic event occurs and our remote work arrangements fail or are otherwise impaired, our ability to service and interact with our clients may suffer. If we are unable to implement and maintain remote work arrangements, including, for example, because of an internal or external failure of our information technology infrastructure or increased rates of employee illness or unavailability, our business continuity status would be adversely impacted and there would be a disruption to our businesses.

Catastrophic events, including those caused by climate change, could also negatively impact the purchase of our products and services if those events result in reduced capital markets activity, lower asset price levels, or disruptions in general economic activity, or in financial market settlement functions, which could negatively impact our business and results of operations. In addition, such catastrophic events may lead, and in some cases have led, to higher market volatility, as well as an increase in delinquencies, bankruptcies or defaults that could result in our experiencing higher levels of non-performing assets, net charge-offs and provisions for credit losses, negatively impacting our business and operations. Furthermore, we invest in renewable energy projects, which have been and may in the future be adversely affected by extreme weather events, natural disasters and other catastrophic events.

# ***Tax law changes or challenges to our tax positions with respect to historical transactions may adversely affect our net income, effective tax rate and our overall results of operations and financial condition.***

In the course of our business, we receive inquiries and challenges from both U.S. and non-U.S. tax authorities on the amount of taxes we owe. If we are not successful in defending these inquiries and challenges, we may be required to adjust the timing

BNY Mellon 101

## Risk Factors (continued)---

or amount of taxable income or deductions or the allocation of income among tax jurisdictions, all of which can require a greater provision for taxes or otherwise negatively affect earnings. Probabilities and outcomes are reviewed as events unfold, and adjustments to the reserves are made when necessary, but the reserves may prove inadequate because we cannot necessarily accurately predict the outcome of any challenge, settlement or litigation or the extent to which it will negatively affect us or our business. Future tax laws or the expiration of or changes in existing tax laws, or the interpretation of those laws worldwide, could also have a material impact on our business or net income. Our actions taken in response to, or reliance upon, such changes in the tax laws may impact our tax position in a manner that may result in lower earnings. In addition, upon any change in tax law, we must recognize the effect of the change on our deferred tax assets and liabilities. An increase in the U.S. tax rate would likely result in an increase in our net deferred tax liabilities and a reduction in our net income in the period of enactment of the change. In addition, changes in tax rates or tax law could also impact the method and amount of capital that we return to shareholders. See Note 12 of the Notes to Consolidated Financial Statements for further information.

# ***Changes in accounting standards governing the preparation of our financial statements and future events could have a material impact on our reported financial condition, results of operations, cash flows and other financial data.***

From time to time, the Financial Accounting Standards Board (“FASB”), the SEC and bank regulators change the financial accounting and reporting standards governing the preparation of our financial statements or the interpretation of those standards. These changes are difficult to predict and can materially impact how we record and report our financial condition, results of operations, cash flows and other financial data. In some cases, the FASB, the SEC and bank regulators may change financial accounting and reporting standards governing the preparation of our financial statements or the interpretation of those standards that may require us

to apply a new or revised standard retrospectively, potentially resulting in the restatement of our prior period financial statements and our related disclosures.

Additionally, our accounting policies and methods are fundamental to how we record and report our financial condition and results of operations. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates based upon assumptions and use judgments about future economic and market conditions which affect reported amounts and related disclosures in our financial statements. Amounts subject to estimates are items such as the allowance for credit losses, goodwill and other intangibles and litigation and regulatory contingencies. Among other effects, such changes in estimates could result in further impairments of goodwill and intangible assets and establishment of allowances for credit losses as well as litigation and regulatory contingencies. In performing our annual and interim goodwill impairment tests, we may use an income approach to estimate the fair values of each reporting unit. Estimated cash flows used in the income approach are based on management’s projections. Estimated cash flows extend far into the future, and, by their nature, are difficult to estimate over such an extended time frame. Factors that may significantly affect the cash flow estimates include, among others, market values of assets we manage, the level and mix of those assets, customer behaviors and attrition, operating margins, changes in revenue growth trends, certain money market fee waiver practices, cost structures and technology, regulatory and legislative changes, specific industry or market sector conditions, competition and changes in interest rates. In the future, small changes in the assumptions, such as changes in the cash flow estimates, discount rate or long-term growth rate, or a prolonged macroeconomic downturn may produce a material non-cash goodwill impairment. If actual or subsequent events occur that are materially different than the assumptions, judgments and estimates we used, our results of operation may be materially and negatively impacted.

102 BNY Mellon

# Recent Accounting Developments

### *Recently issued accounting standards*

The following accounting guidance issued by FASB has not yet been adopted as of Dec. 31, 2022.

#### *Accounting Standards Update (“ASU”) 2022-01, Derivatives and Hedging (Topic 815): Fair Value Hedging - Portfolio Layer Method*

In March 2022, the FASB issued ASU 2022-01, *Derivatives and Hedging (Topic 815): Fair Value Hedging - Portfolio Layer Method*, which provides guidance that expands the ability to hedge interest rate risk by permitting the use of multiple hedged layers of a single closed portfolio of assets and will (1) Allow multiple layer hedging within the same closed portfolio, (2) Expand the scope of the portfolio layer method to include non-prepayable assets, (3) Expand the eligible hedging instruments to be utilized in a single-layer hedge, and (4) Permit held-to-maturity debt securities to be transferred to available-for-sale at the date of adoption, provided such transferred securities are designated in a portfolio layer method hedge within 30 days of the adoption date.

The standard also provides further guidance and disclosure requirements with respect to hedge basis adjustments related to portfolio layer method hedges.

We will consider utilizing the updated guidance in future hedging strategies. This ASU was effective Jan. 1, 2023.

#### *ASU 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures*

In March 2022, the FASB issued ASU 2022-02, *Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures*, which provides post-implementation guidance related to the adoption of ASU 2016-13, *Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments*, which was effective Jan. 1, 2020. This ASU amends the guidance related to two issues: Troubled Debt Restructurings (“TDRs”) and disclosure requirements for the credit profile of the loan portfolio. This ASU eliminates the accounting guidance for TDRs by creditors, while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. An entity must apply the loan refinancing and restructuring guidance to determine whether a modification results in a new loan or a continuation of an existing loan.

This ASU also requires that an entity disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20, Financial Instruments - Credit Losses - Measured at Amortized Cost.

We do not expect the impact of the revised guidance on accounting for loan modification to be material and will apply the updated disclosure requirements in the first quarter 2023. The ASU was effective Jan. 1, 2023.

BNY Mellon 103

## Supplemental Information (unaudited)---

### Explanation of GAAP and Non-GAAP financial measures

BNY Mellon has included in this Annual Report certain Non-GAAP financial measures on a tangible basis as a supplement to GAAP information, which exclude goodwill and intangible assets, net of deferred tax liabilities. We believe that the return on tangible common equity - Non-GAAP is additional useful information for investors because it presents a measure of those assets that can generate income, and the tangible book value per common share - Non-GAAP is additional useful information because it presents the level of tangible assets in relation to shares of common stock outstanding.

BNY Mellon has presented revenue measures excluding notable items, including a net loss from repositioning the securities portfolio, disposal gains and losses and the accelerated amortization of deferred costs for depository receipts related to Russia. Expense measures, excluding notable items, including goodwill impairment, severance expense, litigation reserves and real estate charges, are also presented. Litigation reserves represent accruals for loss contingencies that are both probable and reasonably estimable, but exclude standard business-related legal fees. Income before taxes, net income applicable to common shareholders of The Bank of New York Mellon Corporation, diluted earnings per share, operating leverage, return on common equity,

return on tangible common equity, pre-tax operating margin and the effective tax rate, excluding the notable items mentioned above, are also provided. These measures have been provided to permit investors to view the financial measures on a basis consistent with how management views the businesses.

The presentation of the growth rates of investment management and performance fees on a constant currency basis permits investors to assess the significance of changes in foreign currency exchange rates. Growth rates on a constant currency basis were determined by applying the current period foreign currency exchange rates to the prior period revenue. We believe that this presentation, as a supplement to GAAP information, gives investors a clearer picture of the related revenue results without the variability caused by fluctuations in foreign currency exchange rates.

BNY Mellon has also included the adjusted pre-tax operating margin - Non-GAAP, which is the pre-tax operating margin for the Investment and Wealth Management business segment, net of distribution and servicing expense that was passed to third parties who distribute or service our managed funds. We believe that this measure is useful when evaluating the performance of the Investment and Wealth Management business segment relative to industry competitors.

104 BNY Mellon

## Supplemental Information (unaudited) (continued)

| Reconciliation of Non-GAAP measures, excluding notable items (dollars in millions) | 2022 | 2021 | 2022 vs. 2021 |
| --- | --- | --- | --- |
| Fee revenue - GAAP | $12,955 | $12,977 | -% |
| Impact of notable items (a) | (88) | - |  |
| Adjusted fee revenue - Non-GAAP | $13,043 | $12,977 | 1% |
| Total revenue - GAAP | $16,377 | $15,931 | 3% |
| Impact of notable items (a) | (511) | 13 |  |
| Adjusted total revenue - Non-GAAP | $16,888 | $15,918 | 6% |
| Total noninterest expense - GAAP | $13,010 | $11,514 | 13% |
| Impact of notable items (a) | 1,029 | 129 |  |
| Adjusted total noninterest expense - Non-GAAP | $11,981 | $11,385 | 5% |
| Net income applicable to common shareholders of The Bank of New York Mellon Corporation - GAAP | $2,362 | $3,552 | (34)% |
| Impact of notable items (a) | (1,378) | (85) |  |
| Adjusted net income applicable to common shareholders of The Bank of New York Mellon Corporation - Non-GAAP | $3,740 | $3,637 | 3% |
| Diluted earnings per share - GAAP | $2.90 | $4.14 | (30)% |
| Impact of notable items (a) | (1.69) | (0.10) |  |
| Adjusted diluted earnings per share - Non-GAAP | $4.59 | $4.24 | 8% |

(a) Notable items in 2022 include the goodwill impairment, the 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). Notable items in 2021 include litigation reserves, severance expense and gains on disposals (reflected in investment and other revenue).

The following table presents the reconciliation of noninterest expense growth rates.

| Noninterest expense reconciliation (dollars in millions) | 2021 | 2020 | 2021 vs. 2020 |
| --- | --- | --- | --- |
| Noninterest expense - GAAP | $11,514 | $11,004 | 5% |
| Impact of notable items (a) | 129 | 165 |  |
| Adjusted total noninterest expense - Non-GAAP | $11,385 | $10,839 | 5% |

(a) Notable items in 2021 include litigation reserves and severance expense. Notable items in 2020 include litigation reserves, severance expense and real estate charges recorded in the fourth quarter of 2020.

The following table presents the reconciliation of the pre-tax operating margin.

| Pre-tax operating margin reconciliation (dollars in millions) | 2022 | 2021 |
| --- | --- | --- |
| Income before taxes - GAAP | $3,328 | $4,648 |
| Impact of notable items (a) | (1,540) | (116) |
| Adjusted income before taxes, excluding notable items - Non-GAAP | $4,868 | $4,764 |
| Total revenue - GAAP | $16,377 | $15,931 |
| Impact of notable items (a) | (511) | 13 |
| Adjusted total revenue, excluding notable items - Non-GAAP | $16,888 | $15,918 |
| Pre-tax operating margin - GAAP (b) | 20% | 29% |
| Adjusted pre-tax operating margin - Non-GAAP (b) | 29% | 30% |

(a) Notable items in 2022 include the goodwill impairment, the 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). Notable items in 2021 include litigation reserves, severance expense and gains on disposals (reflected in investment and other revenue).

(b) Income before taxes divided by total revenue.

BNY Mellon 105

## Supplemental Information (unaudited) (continued)

The following table presents the reconciliation of effective tax rate.

| Effective tax rate reconciliation (dollars in millions) | 2022 |
| --- | --- |
| Provision for income taxes | $768 |
| Impact of notable items (a) | (162) |
| Adjusted provision for income taxes, excluding notable items - Non-GAAP | $930 |
| Income before taxes - GAAP | $3,328 |
| Impact of notable items (a) | (1,540) |
| Adjusted income before taxes, excluding notable items - Non-GAAP | $4,868 |
| Effective tax rate - GAAP | 23.1% |
| Adjusted effective tax rate - Non-GAAP | 19.1% |

(a) Notable items in 2022 include the goodwill impairment, the 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).

The following table presents the reconciliation of the return on common equity and tangible common equity.

| Return on common equity and tangible common equity reconciliation (dollars in millions) | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Net income applicable to common shareholders of The Bank of New York Mellon Corporation - GAAP | $2,362 | $3,552 | $3,423 |
| Add: Amortization of intangible assets | 67 | 82 | 104 |
| Less: Tax impact of amortization of intangible assets | 16 | 20 | 25 |
| Adjusted net income applicable to common shareholders of The Bank of New York Mellon Corporation, excluding amortization of intangible assets - Non-GAAP | $2,413 | $3,614 | $3,502 |
| Impact of notable items (a) | (1,378) | (85) |  |
| Adjusted net income applicable to common shareholders of The Bank of New York Mellon Corporation, excluding amortization of intangible assets and notable items - Non-GAAP | $3,791 | $3,699 |  |
| Average common shareholders’ equity | $36,175 | $39,695 | $39,200 |
| Less: Average goodwill | 17,060 | 17,492 | 17,331 |
| Average intangible assets | 2,939 | 2,979 | 3,051 |
| Add: Deferred tax liability - tax deductible goodwill | 1,181 | 1,178 | 1,144 |
| Deferred tax liability - intangible assets | 660 | 676 | 667 |
| Average tangible common shareholders’ equity - Non-GAAP | $18,017 | $21,078 | $20,629 |
| Return on common shareholders’ equity - GAAP | 6.5% | 8.9% | 8.7% |
| Adjusted return on common shareholders’ equity - Non-GAAP | 10.3% | 9.2% |  |
| Return on tangible common shareholders’ equity - Non-GAAP | 13.4% | 17.1% | 17.0% |
| Adjusted return on tangible common shareholders’ equity - Non-GAAP | 21.0% | 17.6% |  |

(a) Notable items in 2022 include the goodwill impairment, the 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). Notable items in 2021 include litigation reserves, severance expense and gains on disposals (reflected in investment and other revenue).

106 BNY Mellon

## Supplemental Information (unaudited) (continued)

The following table presents the reconciliation of book value and tangible book value per common share.

| Book value and tangible book value per common share reconciliation (dollars in millions, except per share amounts and unless otherwise noted) | Dec. 31, |  |  |
| --- | --- | --- | --- |
|  | 2022 | 2021 | 2020 |
| BNY Mellon shareholders' equity at year end - GAAP | $40,734 | $43,034 | $45,801 |
| Less: Preferred stock | 4,838 | 4,838 | 4,541 |
| BNY Mellon common shareholders' equity at year end - GAAP | 35,896 | 38,196 | 41,260 |
| Less: Goodwill | 16,150 | 17,512 | 17,496 |
| Intangible assets | 2,901 | 2,991 | 3,012 |
| Add: Deferred tax liability - tax deductible goodwill | 1,181 | 1,178 | 1,144 |
| Deferred tax liability - intangible assets | 660 | 676 | 667 |
| BNY Mellon tangible common shareholders' equity at year end - Non-GAAP | $18,686 | $19,547 | $22,563 |
| Year-end common shares outstanding (in thousands) | 808,445 | 804,145 | 886,764 |
| Book value per common share - GAAP | $44.40 | $47.50 | $46.53 |
| Tangible book value per common share - Non-GAAP | $23.11 | $24.31 | $25.44 |

The following table presents the impact of changes in foreign currency exchange rates on our consolidated investment management and performance fees.

| Constant currency reconciliation - Consolidated (dollars in millions) | 2022 vs. |  |  |
| --- | --- | --- | --- |
|  | 2022 | 2021 | 2021 |
| Investment management and performance fees - GAAP | $3,299 | $3,588 | (8)% |
| Impact of changes in foreign currency exchange rates | - | (135) |  |
| Adjusted investment management and performance fees - Non-GAAP | $3,299 | $3,453 | (4)% |

The following table presents the impact of changes in foreign currency exchange rates on investment management and performance fees reported in the Investment and Wealth Management business segment.

| Constant currency reconciliation - Investment and Wealth Management business segment (dollars in millions) | 2022 vs. |  |  |
| --- | --- | --- | --- |
|  | 2022 | 2021 | 2021 |
| Investment management and performance fees - GAAP | $3,290 | $3,590 | (8)% |
| Impact of changes in foreign currency exchange rates | - | (135) |  |
| Adjusted investment management and performance fees - Non-GAAP | $3,290 | $3,455 | (5)% |

BNY Mellon 107

## Supplemental Information (unaudited) (continued)

The following table presents the reconciliation of the pre-tax operating margin for the Investment and Wealth Management business segment.

| Pre-tax operating margin reconciliation - Investment and Wealth Management business segment (dollars in millions) | 2022 | 2021 | 2020 | 2022 vs. 2021 |
| --- | --- | --- | --- | --- |
| Income before income taxes - GAAP | $48 | $1,230 | $971 | (96)% |
| Impact of notable items (a) | (709) | (5) |  |  |
| Adjusted income before income taxes - Non-GAAP | $757 | $1,235 |  | (39)% |
| Total revenue - GAAP | $3,550 | $4,042 | $3,692 |  |
| Less: Distribution and servicing expense | 345 | 300 | 338 |  |
| Adjusted total revenue, net of distribution and servicing expense - Non-GAAP | $3,205 | $3,742 | $3,354 |  |
| Pre-tax operating margin - GAAP (b) | 1% | 30% | 26% |  |
| Adjusted pre-tax operating margin, net of distribution and servicing expense - Non-GAAP (b) | 2% | 33% | 29% |  |
| Adjusted pre-tax operating margin, net of distribution and servicing expense and excluding notable items - Non-GAAP (b) | 24% |  |  |  |

(a) Notable items in 2022 include the goodwill impairment, severance expense, losses on disposals (reflected in investment and other revenue) and litigation reserves. Notable items in 2021 include litigation reserves, losses on disposals (reflected in investment and other revenue) and severance expense.

(b) Income before taxes divided by total revenue.

108 BNY Mellon

**Time limit hit – remaining pages or documents were skipped.**