The Bank of New York Mellon Annual Report 2008

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FY2008 Annual Report · The Bank of New York Mellon

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The Bank of New York Mellon Corporation 2008 Annual Report

bnymellon.com

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

“2008 was an

FINANCIAL RESULTS

extraordinarily challenging

and difficult year for your

company and its clients,

as we weathered the

financial crisis and the

global economic slowdown.

Income from continuing operations (in millions)
Income (loss) from discontinued operations, net of tax (in millions)

Income before extraordinary (loss) and preferred dividends (in millions)

Extraordinary (loss) on consolidation of commercial paper conduits, net of tax (in millions)

Preferred dividends (in millions)

2008 2007(a)

1,442
3

2,227
(8)

1,445

(26)

(33)

2,219

(180)

—

Net income applicable to common stock (in millions)

$ 1,386

$ 2,039

As strategically well

Earnings per common share — diluted

positioned and resilient as

we are, it was not possible

to be immune from this storm.

There were positives

underlying our performance

during 2008, which we

believe will allow us to

continue to outperform

our peers over time.”

Continuing operations
Discontinued operations, net of tax

Income before extraordinary (loss)
Extraordinary (loss), net of tax

Net income applicable to common stock

CONTINUING OPERATIONS — KEY DATA

Total revenue (in millions)
Fee and other revenue as a percent of total revenue (FTE)
Percent of non-U.S. revenue (FTE)(b)
Assets under management at year end (in billions)
Assets under custody and administration at year end (in trillions)

Capital ratios at Dec. 31

Tier I capital ratio
Total (Tier I plus Tier II capital ratio)
Tangible common shareholders’ equity to assets(b)

$ 1.22
—

$ 2.38
(0.01)

1.22
(0.02)

2.37
(0.19)

$ 1.20

$ 2.18

$ 13,652

$ 11,334

78%
32%

80%
32%

$ 928
$ 20.2

$ 1,121
$ 23.1

13.3%
17.1
3.8

9.3%
13.2
5.2

(a) Results for 2007 include six months of The Bank of New York Mellon Corporation and six months

of legacy The Bank of New York Company, Inc.

(b) See page 79 for a reconciliation of GAAP to non-GAAP.

Note: FTE denotes presentation on a fully taxable equivalent basis.

To Our Shareholders

2008 was an extraordinarily challenging and difficult year
for your company and its clients, as we weathered the
financial crisis and the global economic slowdown.
Although we did outperform the S&P Financials, which
were down 55 percent, our total shareholder return was a
negative 40 percent. As strategically well positioned and
resilient as we are, it was not possible to be immune from
this storm. Our results were disappointing, principally
reflecting write-downs on investment securities on our
balance sheet, mainly related to residential mortgages, as
well as customer support agreements in the aftermath of the
Lehman Brothers bankruptcy.

There were positives underlying this performance during
2008, which we believe will allow us to continue to
outperform our peers over time. In 2008, we:
• Grew operating revenue by 9 percent*
• Controlled expenses by keeping operating expenses

essentially flat with the prior year*

• Generated profits in all four quarters totaling

$1.4 billion after taxes

• Achieved top ranking in client satisfaction in our

global custody business

• Grew market share across our businesses
• Continued to exceed our merger milestones and

raised our targets for expense and revenue synergies

• Maintained extraordinary liquidity, with more than
$100 billion in cash and short-term investments
• Obtained an upgrade by one of the major debt rating
agencies, and have the highest rating among U.S.
financial institutions by Moody’s and the second
highest rating by Standard & Poor’s
Increased our Tier 1 capital ratio to 13.3 percent,
higher than most of our banking peers

•

• Accepted a $3 billion investment from the U.S.
government in exchange for preferred stock and
warrants and an agreement to pay the government
$150 million a year in dividends until the investment
is repaid. We’ve used the funds to purchase
mortgage-backed securities and debentures issued by
U.S government-sponsored agencies as well as debt
securities of other healthy financial institutions, and
for interbank lending

*Comparisons to 2007 are on a proforma combined basis,

including the merger with Mellon Financial.

Throughout 2008, we were actively engaged with
regulators, government officials and clients in an effort to
stem the turmoil in the global markets. We were awarded
many mandates related to stabilization efforts by various
governmental agencies globally. We are especially proud of
our selection by the U.S. Treasury as financial agent in
support of the Troubled Asset Relief Program, which
recognizes our leadership in securities servicing and the
critical market infrastructure we provide. Our status as a
critical part of the world’s financial infrastructure is more
visible than ever.

Our Financial Strength

When evaluating financial companies in the current
environment, three critical measures apply: earnings
potential, liquidity and capital adequacy. Here’s how The
Bank of New York Mellon stacks up against them:

• Earnings potential – Our earnings power is based on

our focus on global opportunities in asset
management and securities servicing, which in 2008
benefited from high levels of volume and volatility in
the markets offset by lower market values. While the
economic slowdown is slowing our growth rate, our
business model clearly works. Also, we are not
directly involved in consumer banking or mortgage
lending, segments that are under material stress in
this current environment.

• Liquidity – We enjoy exceptional liquidity in an
illiquid market. Our company is funded by client
deposits from multiple business segments. Deposits
increased by 35 percent year over year, an indication
of the strength of our reputation and our company.
• Capital adequacy – We have a resilient capital base
and meet all the requirements of a “well-capitalized
bank.” From a regulator’s point of view, Tier 1
capital is the most important measure of our financial
strength. At December 31, we had a Tier 1 capital
ratio of 13.3 percent. Unlike our peers, we disclosed
the results of stress testing we routinely perform to
gauge the adequacy of our capital base. These results
demonstrate our ability to withstand increasing levels
of impairment and valuation declines related to our
investment securities portfolio.

While we’re not insulated from the impact of the current
environment, we are properly positioned for the challenging
year ahead.

Earnings

For 2008 we reported net income applicable to common
stock of $1.4 billion, a decline of 32 percent.

Our performance in 2008 was negatively impacted by $1.6
billion (pre-tax) in securities write-downs, principally
reflecting enormous liquidity discounts for mortgage-
backed securities as well as some deterioration. As our
company has the ability and intent to hold these securities
for the long term, the actual expected incurred loss is much
less, at approximately $535 million. Based on what we
know today, we believe we’ll have the opportunity to earn
back a substantial portion of these write-downs over the
remaining lives of the securities.

In the past, we stretched for additional yield in our
securities portfolios by purchasing AAA-rated, non-agency
mortgage-backed securities to enhance net interest revenue
and earnings. However, our shareholders pay us for growth
in fee revenue, which was 78 percent of our revenue in
2008. Consequently, going forward, we will minimize
credit risk in net interest revenue flows.

In addition, during 2008 we incurred pre-tax charges of
$894 million related to our decision to provide support to
clients invested in money market mutual funds, cash sweep
funds and similar collective funds principally impacted by
the Lehman Brothers bankruptcy. It was the right thing to
do for our clients and helped contribute to stability in the
overall market. We entered into support agreements that
were designed to enable these funds to continue to operate
at a stable share price of $1. We do not expect to enter into
any material support agreements in the future.

2009 Business Priorities

We expect to continue to be in a challenging environment
throughout the year and have planned accordingly. We are
well positioned relative to other financial companies and
we are guided by a clear set of priorities:

• We need to continue to deliver the world’s greatest
client service, which is at the core of our reputation
and has protected our revenue base.

•

Facing a weaker revenue environment, we are
carefully managing our expenses. Entering 2009 we
took the step of reducing our global workforce of
43,000 by approximately 4 percent, or 1,800
positions.

• We continue to focus intently on managing risk and

maintaining strong internal controls.

• We will substantially finish our merger integration,

which was nearly three-quarters complete at year end
2008. We will continue to ensure it’s done right and
completed by year end 2009, and without negatively
impacting client service.

• We are being very conservative with our capital.

Recessions always end, and usually sooner than expected.
We are confident in our ability to outperform over the long
term, thanks in no small measure to the exceptional people
of this company. They have continued to outperform and
uphold our clients’ trust, and I sincerely thank them for
that.

We offer our gratitude and best wishes to Thomas A.
Renyi, who retired as Executive Chairman after nearly four
decades with the company. During his 10 years as Chief
Executive Officer of The Bank of New York, he
successfully directed the company’s transformation from a
traditional commercial bank to a global leader in securities
servicing, setting the stage for the historic merger with
Mellon. We thank Tom for his many contributions and
exceptional leadership.

We also offer our appreciation to our directors for their
wisdom, support and guidance. We recognize the
contributions of Frank J. Biondi, Jr., whose 13 years of
service as a director of our company and The Bank of New
York Company, Inc., ended last year. Finally, we thank
you, our shareholders, for your continued confidence in our
great company.

Yours sincerely,

Robert P. Kelly
Chairman and Chief Executive Officer

The Bank of New York Mellon Corporation

Highlights of Our Businesses

Asset Management (19 percent of 2008 total revenue)**
Assets under management at year end were $862 billion, a
decrease of 17 percent from the prior year. Over the same
period the S&P 500 dropped 38 percent, the MSCI World
Index declined 40 percent and the BC Aggregate Bond
Index grew 5 percent. Despite unprecedented market
conditions, the Asset Management investment boutiques
continued to deliver good relative investment returns for
clients, and continued to focus on product innovation. Our
cash services businesses (consolidated under the name
BNY Mellon Cash Investment Strategies in January 2009),
had strong growth in assets under management in 2008,
with $92 billion in net flows. BNY Mellon Asset
Management is the fourth largest institutional asset
manager in the U.S., with leading positions in the corporate
and public pension, Taft-Hartley and endowments and
foundations markets, while its Dreyfus affiliate is a major
mutual fund and separately managed accounts player.

In 2008 we continued our strong international growth, with
revenue from non-U.S. clients accounting for about
41 percent of asset management revenue. We furthered our
international expansion in 2008, completing the acquisition
of ARX, a leading independent asset management business
headquartered in Rio de Janeiro, Brazil.

Wealth Management (6 percent of 2008 total revenue)**
In Wealth Management, client assets under management
and custody totaled $139 billion at year end. Close
communication with clients throughout the market crisis
was a top priority and key to the organization’s success in
2008. Record-setting new business results, excellent long-
term asset flows, continued strong client retention rates,
and growth in lending to high-net-worth clients were all
achieved while still maintaining tight expense controls.
Critical efforts related to the combination of our two legacy
organizations were successfully completed, and important
investments were made to support both expanded resources
and geographies, including an office opening in Tampa,
Florida.

Asset Servicing (36 percent of 2008 total revenue)**
During a year of successful integration implementation,
Asset Servicing continued to deliver outstanding client
service and maintain client loyalty. In 2008 we
outperformed our peer group of the world’s largest global
custodians in the Global Custodian, Global Investor and
R&M surveys of custody clients. We also met our revenue
retention target of 98 percent. Despite sharp declines in
asset values, assets under custody and administration
declined just 13 percent from the prior year, outpacing our
peers, and reflecting the positive impact of $1.9 trillion in
total business wins.

Broker-Dealer Services, which gained significant market
share due to market displacements that occurred, also
provided critical infrastructure and operational support for
the U.S. Treasury Securities Lending and the Federal

Reserve’s Primary Dealer Credit Facilities. These programs
helped bolster market liquidity and orderly market
functioning.

In foreign exchange, we achieved strong new business and
record revenue growth, benefiting from unprecedented
levels of volatility and volumes. We ranked number one in
17 categories in Global Investor’s 2008 Foreign Exchange
(FX) Survey, including “Best FX Service Overall.”

Issuer Services (17 percent of 2008 total revenue)**
Despite the challenging global markets of 2008, Issuer
Services experienced increased earnings and market
expansion due, in great part, to our reputation for quality,
our balanced business model serving the equity and fixed
income markets, and our strong global footprint. We
continued to focus on product innovation, as evidenced by
the extension of our leading market position with the
launch of a new series of ADR indices.

In 2008, our industry leadership continued to be recognized
by the marketplace. Both International Securitisation
Report and Institutional Investor’s Total Securitization
recognized us as Trustee of the Year due to our ongoing
commitment to client support, service excellence and
global development. Thomson Financial once again named
us as #1 trustee. In addition, for the third consecutive year,
we were recognized by J.D. Power and Associates for
providing “An Outstanding Customer Service Experience”
in shareowner services.

Clearing Services (11 percent of 2008 total revenue)**
Clearing Services experienced strong growth in both
revenue and profit, excluding the impact of the B-Trade and
G-Trade execution businesses we sold to BNY ConvergEx
in the first quarter of 2008. With increased levels of new
business, Pershing benefited from the flight to quality
among broker-dealers, registered investment advisors and
hedge funds, many of which moved from more highly
leveraged organizations to less leveraged providers of
clearing, financing and custody services such as Pershing.

Treasury Services (11 percent of 2008 total revenue)**
Treasury Services showed strong growth in both revenue
and earnings during 2008, making significant progress
toward completion of platform and system integration
across a broad range of cash and liquidity management,
foreign exchange, trade services and treasury services
outsourcing offerings. We received Best White Label
System Provider recognition in Global Finance magazine’s
2008 Best Treasury and Cash Management Banks rankings,
and our accounts payable outsourcing services received
best-in-class recognition for the third consecutive year in an
annual survey.

**Excludes the Other Segment. See page 26 of Business Segments

Review, in the financial section.

The Bank of New York Mellon Corporation

Financial Section

THE BANK OF NEW YORK MELLON CORPORATION
2008 ANNUAL REPORT
TABLE OF CONTENTS

Financial Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Management’s Discussion and Analysis of Financial Condition and Results of Operations:

Results of operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Summary of financial results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impact of the market disruption on our business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reorganization of subsidiary banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fee and other revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net interest revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noninterest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Extraordinary loss – consolidation of commercial paper conduits . . . . . . . . . . . . . . . . . . . . . . .
Business segments review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Critical accounting estimates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated balance sheet review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Support agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liquidity and dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commitments and obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Off-balance sheet arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk management
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trading activities and risk management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign exchange and other trading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asset/liability management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Business continuity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Supplemental information – Explanation of non-GAAP financial measures (unaudited) . . . . . . . . .
Supplemental information – Rate/volume analysis (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Recent accounting developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selected quarterly data (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forward-looking statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
New York Stock Exchange and Securities and Exchange Commission annual certifications . . . . . .
Report of management on internal control over financial reporting . . . . . . . . . . . . . . . . . . . . . . . . . .
Report of independent registered public accounting firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Financial Statements and Notes:

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Income Statement
Consolidated Balance Sheet
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statement of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statement of Changes in Shareholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Directors, Senior Management and Executive Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Performance Graph . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Corporate Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Inside back cover

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

Financial Summary

(dollar amounts in millions, except per share
amounts and unless otherwise noted)

Year ended Dec. 31

Fee and other revenue
Net interest revenue

Total revenue
Provision for credit losses
Merger and integration (“M&I”) expenses
Restructuring charge
Noninterest expense excluding M&I and restructuring charge

Income from continuing operations before income taxes
Income taxes

Income from continuing operations
Income (loss) from discontinued operations, net of tax

Income before extraordinary (loss) and preferred dividends

Extraordinary (loss) on consolidation of commercial paper conduits, net of tax
Preferred dividends

Net income applicable to common stock

Per common share – diluted (a):

Income from continuing operations excluding M&I expenses (c)
Income from continuing operations
Income (loss) from discontinued operations, net of tax

Income before extraordinary (loss)

Extraordinary (loss), net of tax

Net income applicable to common stock

Selected data

Return on tangible common equity before extraordinary loss (c)
Return on tangible common equity before extraordinary loss, excluding M&I and restructuring

charge (c)

Return on common equity before extraordinary loss (c)
Return on common equity before extraordinary loss excluding M&I, restructuring charge and intangible

amortization (c)

Return on assets before extraordinary loss
Pre-tax operating margin (FTE) (continuing operations)
Pre-tax operating margin (FTE) excluding M&I, restructuring charge and intangible amortization

(continuing operations)

Average common equity to average assets

Fee and other revenue as a percent of total revenue (FTE)
Annualized fee revenue per employee (based on average headcount) (in thousands)
Percent of non-U.S. revenue (FTE)
Net interest margin (FTE) (continuing operations)

Legacy The Bank of
New York Company, Inc. only

2008

2007 (a)

2006

2005

2004

10,701
2,951

13,652
131
483
181
10,918

1,939
497

1,442
3

1,445
(26)
(33)

1,386

1.47
1.22
-

1.22
(0.02)

1.20

9,034
2,300

11,334
(10)
404
-
7,715

3,225
998

2,227
(8)

2,219
(180)
-

2,039

2.64
2.38
(0.01)

2.37
(0.19)

2.18

5,339
1,499

6,838
(20)
106
-
4,582

2,170
694

1,476
1,371

2,847
-
-

2,847

2.14
2.04
1.90

3.94
-

3.94

4,715
1,340

6,055
(7)
-
-
4,084

1,978
635

1,343
228

1,571
-
-

1,571

1.84
1.84
0.31

2.16 (b)
-

2.16

4,394
1,157

5,551
(4)
-
-
3,715

1,840
587

1,253
187

1,440
-
-

1,440

1.71
1.71
0.25

1.96
-

1.96

20.8%

29.4%

50.7%

29.4%

30.1%

25.6
5.0

7.5
0.67
15

23
13.4

32.3
11.0

13.1
1.49
29

35
13.6

52.0
27.6

28.7
2.67
32

35
9.7

78%

287

32% (c)

1.92

80%

289
32% (c)

2.08

78%

262

30%

2.01

29.4
16.6

16.9
1.55
33

34
9.3

78%

30.1
16.4

16.6
1.45
33

34
8.9

79%

240

229

30%

2.02

30%

1.79

Cash dividends per common share (a)
Common dividend payout ratio
Dividend yield
Closing common stock price per common share (a)
Market capitalization (in billions)
Book value per common share (a)
Employees (continuing operations)
Period-end common shares outstanding (in thousands) (a)

Assets under management at year end (in billions)
Assets under custody and administration at year end (in trillions)

Cross-border assets at year end (in trillions)

Market value of securities on loan at year end (in billions)

Capital ratios at Dec. 31
Tier I capital ratio (d)
Total (Tier I plus Tier II) capital ratio (d)
Tangible common shareholders’ equity to assets (c) (d)

At Dec. 31
Securities
Loans
Total assets
Deposits
Long-term debt
Preferred (Series B) stock
Common shareholders’ equity

0.96
80.00%
3.4
28.33
32.5
22.00
42,900
1,148,467

0.95
43.58%
1.9
48.76
55.9
25.66
42,500
1,145,983

0.91
23.10%
2.2
41.73
29.8
16.03
22,400
713,079

0.87
40.28%
2.6
33.76
24.6
13.57
19,900
727,483

0.84
42.86%
2.4
35.43
26.0
12.66
19,600
734,079

928
20.2
7.5
341

13.3%
17.1
3.8

39,435
43,394
237,512
159,673
15,865
2,786
25,264

1,121
23.1
10.0
633

142
15.5
6.3
399

115
11.4
3.4
311

111
10.0
2.7
232

9.3%
13.2
5.2

8.2%
12.5
5.7

8.4%
12.5
5.9

8.3%
12.2
5.8

48,698
50,931
197,656
118,125
16,873
-
29,403

$ 21,106
37,793
103,206
62,146
8,773
-
11,429

$ 27,218
32,927
102,118
49,787
7,817
-
9,876

$ 23,770
28,375
94,529
43,052
6,121
-
9,290

(a) Results for 2007 include six months of The Bank of New York Mellon Corporation and six months of legacy The Bank of New York Company, Inc. All legacy The Bank of New

York Company, Inc. earnings per share and share-related data are presented in post merger share count terms.

(b) Does not foot due to rounding.
(c) See pages 79 and 80 for a reconciliation of GAAP to non-GAAP.
(d)

Includes discontinued operations.

Note: FTE denotes presentation on a fully taxable equivalent basis.

The Bank of New York Mellon Corporation

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,”
the “Company,” and similar terms for periods on or
after July 1, 2007 refer to The Bank of New York
Mellon Corporation and prior to July 1, 2007 refer to
The Bank of New York Company, Inc.

The Company’s actual results of future operations
may differ from those estimated or anticipated in
certain forward-looking statements contained herein
for reasons which are discussed below and under the
heading “Forward Looking Statements.” When used
in this report, words such as “estimate,” “forecast,”
“project,” “anticipate,” “confident,” “target,”
“expect,” “intend,” “continue,” “seek,” “believe,”
“plan,” “goal,” “could,” “should,” “may,” “will,”
“strategy,” “synergies,” “opportunities,” “trends,” and
words of similar meaning, signify forward-looking
statements in addition to statements specifically
identified as forward-looking statements.

Certain business terms used in this document are
defined in the Glossary.

The following should be read in conjunction with the
Consolidated Financial Statements included in this
report. Investors should also read the section entitled
“Forward-looking Statements.”

How we reported results

On July 1, 2007, The Bank of New York Company,
Inc. and Mellon Financial Corporation (“Mellon
Financial”) merged into The Bank of New York
Mellon Corporation (together with its consolidated
subsidiaries, the “Company”), with the Company
being the surviving entity.

The merger transaction resulted in The Bank of New
York Company, Inc. shareholders receiving 0.9434
shares of the Company’s common stock for each share
of The Bank of New York Company, Inc. common
stock outstanding at the closing date of the merger.
All legacy The Bank of New York Company, Inc.
earnings per share and common stock outstanding
amounts in this Annual Report have been restated to
reflect this exchange ratio. For accounting and
financial reporting purposes the merger was accounted
for as a purchase of Mellon Financial. All information
in this Annual Report is reported on a continuing
operations basis, unless otherwise noted. For a
description of discontinued operations, see Note 4 in
the Notes to Consolidated Financial Statements.

The Bank of New York Mellon Corporation

Throughout this Annual Report, certain measures,
which are noted, exclude certain items. We believe the
presentation of this information enhances investors’
understanding of period-to-period results. In addition,
these measures reflect the principal basis on which our
management monitors financial performance. See
“Supplemental information – Explanation of
non-GAAP financial measures”.

Certain amounts are presented on a fully taxable
equivalent (FTE) basis. We believe that this
presentation allows for comparison 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. Results for
2007 reflect six months of The Bank of New York
Mellon Corporation and six months of legacy The
Bank of New York Company, Inc. Results prior to
2007 reflect legacy The Bank of New York Company,
Inc. only. For additional information regarding the
merger, see Note 3 of Notes to Consolidated Financial
Statements.

Overview

Our businesses

The Bank of New York Mellon Corporation (NYSE
symbol: BK) is a global leader in providing a
comprehensive array of services that enable
institutions and individuals to manage and service
their financial assets in more than 100 markets
worldwide. We strive to be the global provider of
choice for asset and wealth management and
institutional services and be recognized for our broad
and deep capabilities, superior client service and
consistent outperformance versus peers. Our global
client base consists of financial institutions,
corporations, government agencies, endowments and
foundations and high-net-worth individuals. At
Dec. 31, 2008, we had $20.2 trillion in assets under
custody and administration, $928 billion in assets
under management and service more than $11 trillion
in outstanding debt.

The Company’s businesses benefit from the global
growth in financial assets, the globalization of the
investment process and the growth and concentration
of wealth segments. Our long-term financial goals are
focused on deploying capital to accelerate the long-
term growth of our businesses and on achieving
superior total returns to shareholders by generating
first quartile earnings per share growth over time
relative to a group of peer companies.

Results of Operations (continued)

Key components of our strategy include: providing
superior client service versus peers (as measured
through independent surveys); strong investment
performance (relative to investment benchmarks);
above median revenue growth (relative to peer
companies for each of our businesses); an increasing
percentage of revenue and income derived from
outside the U.S.; successful integration of
acquisitions; competitive margins and positive
operating leverage. We have established Tier I capital
as our principal capital measure and have established
a targeted minimum ratio of 10%.

Summary of financial results

Highlights of 2008 results

We reported net income applicable to common stock
of $1.4 billion and diluted earnings per share of $1.20,
and income from continuing operations applicable to
common stock of $1.4 billion and diluted earnings per
share of $1.22. This compares to net income
applicable to common stock of $2.0 billion, or diluted
earnings per share of $2.18 and income from
continuing operations applicable to common stock of
$2.2 billion, or $2.38 per fully diluted share in 2007.
In December of 2008, we consolidated the assets of
our bank-sponsored commercial paper conduit, Old
Slip Funding, LLC (“Old Slip”) which resulted in an
extraordinary after-tax loss of $26 million or $0.02 per
share. See Extraordinary loss – Consolidation of
commercial paper conduits, for a further explanation.
Results for 2008 included:

Š Securities write-downs of $1.6 billion (pre-tax),
or $0.85 per share, primarily relating to negative
market assumptions in the housing industry
driven by the current economic environment.
(See the balance sheet review section on page
47);

Š A charge related to voluntary fund support

agreements of $894 million (pre-tax), or $0.46
per share. These support agreements primarily
related to customers impacted by the Lehman
Brothers Holdings, Inc. (“Lehman”) bankruptcy,
as well as structured investment vehicle (“SIV”)
exposure in short-term net asset value funds.
(See the support agreements section on page
62);

Š A charge relating to certain structured lease

transactions (“SILOs/LILOs”) of $489 million
(pre-tax) as well as the settlement of several
audit cycles, with a combined impact of $0.36
per share;

Š M&I expenses of $483 million (pre-tax), or

$0.25 per share. (See the noninterest expense
section on page 21); and

Š A restructuring charge of $181 million (pre-tax),

or $0.09 per share, related to our global
workforce reduction of approximately 4% of our
workforce or 1,800 positions. (See restructuring
charge on page 116).

Results for 2008 were significantly impacted by the
merger with Mellon Financial. The merger increased
asset servicing revenue, asset and wealth management
revenue, foreign exchange and other trading activities,
treasury services revenue, distribution and servicing,
and had a lesser impact on issuer services revenue.

Š Assets under custody and administration totaled
$20.2 trillion at Dec. 31, 2008 compared with
$23.1 trillion at Dec. 31, 2007 as the benefit of
new business conversions was more than offset
by weaker market values and the impact of a
stronger U.S. dollar. (See the Institutional
Services sector on pages 31 and 32).

Š Assets under management (“AUM”) totaled
$928 billion at Dec. 31, 2008 compared with
$1.12 trillion at Dec. 31, 2007. Net positive
flows of $49 billion were not sufficient to offset
the impact from market depreciation and a
stronger U.S. dollar. (See the Asset and Wealth
Management sector on pages 27 and 28).
Š Asset servicing revenue totaled $3.3 billion in
2008 compared with $2.4 billion in 2007. The
increase was primarily due to higher securities
lending revenue, net new business and the fourth
quarter 2007 acquisition of the remaining 50%
interest in BNY Mellon Asset Servicing B.V.,
partially offset by lower market levels and a
stronger U.S. dollar. (See the Asset Servicing
segment on pages 32 through 34).
Issuer services revenue totaled $1.7 billion in
2008 compared with $1.6 billion in 2007. The
increase primarily reflects growth in Depositary
Receipts and Corporate Trust fees. (See the
Issuer Services segment on pages 34 and 35).
Š Clearing and execution services fees totaled $1.1
billion in 2008 compared with $1.2 billion in
2007. The decrease primarily reflects the sale of
the execution businesses in the first quarter of
2008, partially offset by growth in trading
activity along with growth in money market
mutual fund fees. (See the Clearing Services
segment on pages 35 and 36).

Š Asset and wealth management fees totaled $3.1
billion in 2008 compared with $2.1 billion in

The Bank of New York Mellon Corporation

Results of Operations (continued)

2007. The increase reflects inflows of money
market assets, partially offset by global
weakness in market values and net long-term
outflows. (See the Asset Management and
Wealth Management segments on page 29
through 31).

Š Foreign exchange and other trading activities
revenue totaled a record $1.5 billion in 2008
compared with $786 million in 2007. The
increase primarily reflects the benefit of
increased market volatility and higher client
volumes. (See the fee and other revenue section
on pages 15 through 17).

Š Net interest revenue totaled $3.0 billion in 2008

compared with $2.3 billion in 2007. The
increase was primarily due to wider spreads on
investment securities and a higher level of
noninterest-bearing liabilities which drove a
higher level of average interest-earning assets,
partially offset by the SILO/LILO charges
recorded in 2008. (See the net interest revenue
section on page 18).

Š Noninterest expense totaled $11.6 billion in

2008 compared with $8.1 billion in 2007. The
increase resulted from support agreement
charges, the restructuring charge and the
acquisition of the remaining 50% interest in
BNY Mellon Asset Servicing B.V. These
increases were partially offset by the benefit of
merger-related expense synergies generated in
2008, the sale of the execution businesses and a
stronger U.S. dollar. (See the noninterest
expense section on pages 21 through 23).
Š The unrealized net of tax loss on our securities
portfolio was $4.1 billion at Dec. 31, 2008
compared with $342 million at Dec. 31, 2007.
The increase primarily resulted from wider
credit spreads reflecting market illiquidity. (See
the balance sheet review section on page 47).
Š The Tier I capital ratio at Dec. 31, 2008 was

13.3% compared with 9.3% at Dec. 31, 2007.
The Company had total assets of $237.5 billion
at Dec. 31, 2008 compared with $197.7 billion
at Dec. 31, 2007. The increase in total assets
reflects a higher level of client deposits
generated during the market turmoil that began
in mid-September 2008. Noninterest-bearing
deposits were $56 billion at Dec. 31, 2008
compared with $32 billion at Dec. 31, 2007.
(See the Capital section on page 67).

The Bank of New York Mellon Corporation

Š At Dec. 31, 2008, we had approximately $47
billion of liquid funds with large global banks
and $58 billion of cash (including approximately
$53 billion on deposit with the Federal Reserve
and other central banks) for a total of
approximately $105 billion of available funds.
This compares with available funds of $50
billion at Dec. 31, 2007. Our liquid assets to
total assets were 44% at Dec. 31, 2008,
compared with 25% at Dec. 31, 2007.

Highlights of 2007 results

In 2007, we reported consolidated net income of $2.0
billion and diluted earnings per share of $2.18
compared with net income of $2.8 billion and diluted
earnings per share of $3.94 in 2006. Net income in
2006 included income from discontinued operations,
net of tax, of $1.4 billion and diluted earnings per
share of $1.90, primarily from the sale of our Retail
Business.

In December of 2007, we consolidated the assets of
our bank-sponsored commercial paper conduit, Three
Rivers Funding Corporation (“TRFC”) which resulted
in an extra-ordinary after-tax loss of $180 million or
$0.19 per share.

Income from continuing operations before extra-
ordinary loss in 2007 was $2.2 billion and diluted
earnings per share was $2.38, compared with $1.5
billion and $2.04 per share in 2006.

Performance highlights for 2007 were primarily
impacted by the merger with Mellon Financial and
include:

Š Asset servicing revenue was $2.4 billion in 2007

compared with $1.4 billion in 2006.
Issuer services revenue was $1.6 billion in 2007
compared with $895 million in 2006. The
increase was primarily due to the acquisition of
the corporate trust business (“the Acquired
Corporate Trust Business”) of J.P. Morgan
Chase & Co. and strong growth in Depositary
Receipts revenue.

Š Asset and wealth management fees totaled $2.1
billion in 2007 compared with $545 million in
2006.

Results of Operations (continued)

Š Revenue from foreign exchange and other

trading activities was $786 million in 2007,
compared with $415 million in 2006. The
increase includes higher customer volumes and
the favorable impact that resulted from increased
currency volatility in the second half of 2007.
Š Net interest revenue was $2.3 billion in 2007;

compared with $1.5 billion in 2006.

Š Securities losses totaled $201 million in 2007
primarily reflecting a $200 million loss on
collateralized debt obligations (CDOs) recorded
in the fourth quarter.

Š Noninterest expense was $8.1 billion in 2007
compared with $4.7 billion in 2006. The
increase includes the purchase of the Acquired
Corporate Trust Business, as well as $404
million pre-tax of M&I expense and $319
million pre-tax of intangible amortization
expense in 2007, partially offset by the
disposition of certain businesses in the BNY
ConvergEx Group transaction and $175 million
of merger-related synergies generated in 2007.

Highlights of 2006 results

In 2006, we reported net income of $2.8 billion and
diluted earnings per share of $3.94 and income from
continuing operations of $1.5 billion and diluted
earnings per share of $2.04. Discontinued operations
for 2006 included a net after-tax gain of $1.4 billion,
or diluted earnings per share of $1.90.

Performance highlights for 2006 include:

Š A 13% increase in securities servicing fees;
Š A 12% increase in net interest revenue;
Š A 9% increase in foreign exchange and other

trading activities, and

Š A 20% increase in asset and wealth management

fees.

On Oct. 1, 2006, we purchased the Acquired
Corporate Trust Business from, and sold our retail
business to, JPMorgan Chase.

On Oct. 2, 2006, we completed the transaction
resulting in the formation of BNY CovergEx Group.

Impact of the market disruption on our
business

Impact on our business

Market volatility associated with the performance of
global equity indices and the disruption in the fixed
income securities market, had a considerable impact
on all of our core businesses.

Our Asset and Wealth Management businesses have
been negatively impacted by global weakness in
market values. In 2008, the S&P 500 and the MSCI
EAFE indices declined 38% and 45%, respectively,
resulting in lower performance fees, a decline in
investment income related to seed capital investments
as well as lower asset and wealth management fee
revenue as lower market values offset the impact of
new business wins.

In contrast, current market conditions have favorably
impacted our processing and capital markets related
fees in our Institutional Services businesses, as well as
our net interest revenue. Market volatility has resulted
in an increased volume of activity impacting foreign
exchange and clearing and has led to a widening of
spreads associated with securities lending, foreign
exchange and net interest revenue.

A lower risk appetite by investors and our institutional
clients has led to an increase in deposit levels. It is
uncertain how long we will continue to benefit from
increased volatility, volumes and deposit levels.

Market conditions have resulted in a reduction in the
volume in new fixed income securities issuances
which has impacted the level of new business in our
Corporate Trust business.

However, the disruption has also resulted in new
opportunities. The Company is playing a vital role in
supporting governments’ stabilization efforts in North
America and Europe to bring liquidity back to the
financial markets.

In October 2008, the Company was selected by the
U.S. Department of the Treasury as the sole provider
of a broad range of custodial and Corporate Trust
services to support the government’s Troubled Asset
Relief Program (“TARP”).

The U.S. Treasury Department has hired us to provide
the accounting of record for its portfolio, hold all cash
and assets in the portfolio, provide for document
custody and assist with other related services.

The following discusses the areas of our business that
are likely to continue to be impacted by the current
market environment, as well as events during 2008
that impacted the Company’s operations.

In November 2008, we were selected by the U.S.
Department of Education to provide conduit
administration services for the Federal Family
Education Loan Program (“FFEL”).

The Bank of New York Mellon Corporation

Results of Operations (continued)

In addition, in the first quarter of 2008, the Federal
Reserve established the Primary Dealer Credit Facility
(“PDCF”) and the Term Securities Lending Facility
(“TSLF”). The Company provides collateral
management services for these programs.

On Jan. 23, 2009, the Company, through its subsidiary
BNY Trust Company of Canada, was appointed
trustee, paying agent and registrar for the restructuring
of Canada’s non-bank sponsored asset-backed
commercial paper market.

Our role in this restructuring will be to service debt
issues and process principal and interest payments for
investors. We will also serve as collateral agent and
accounting agent on three separate pools of assets.

In 2008, we assisted in the issuance of $80 billion of
government guaranteed debt for 12 of the major
financial institutions across Europe. In the United
Kingdom, we have also acted for major financial
institutions that are both issuing debt under the
Government Guarantee Scheme and exchanging
“toxic assets” for Treasury Bills under the Special
Liquidity Scheme. Across the rest of Europe, we are
acting for banks whose governments have put
guarantees in place on debt issued.

Support for these programs is administered through
our Global Corporate Trust and Asset Servicing
businesses.

Securities write-downs

The ongoing disruption in the fixed income securities
market has resulted in additional impairment charges,
as well as an increase in unrealized securities losses.
In 2008, we recorded impairment charges on our
securities portfolio of $1.6 billion, pre-tax, or $0.85
per common share. These losses were primarily driven
by lower market values of Alt-A, home equity lines of
credit (“HELOC”) and asset-backed collateralized
debt obligations (“CDO”) securities. The market value
of these securities was severely impacted by the
depressed housing market and deterioration in the
broader economy. The unrealized loss on the
securities portfolio, which is recorded in other
comprehensive income, was $4.1 billion at Dec. 31,
2008, compared with $342 million at Dec. 31, 2007.
The unrealized loss was influenced by the same
factors. See the investment securities discussion in
Consolidated balance sheet review for the impact of
the market disruptions on our investment securities
portfolio.

The Bank of New York Mellon Corporation

Support agreements

In 2008, the Company elected to support its clients
invested in money market mutual funds, cash sweep
funds and similar collective funds, managed by our
affiliates, impacted by the Lehman bankruptcy. The
support agreements relate to five commingled cash
funds used primarily for overnight custody cash
sweeps, four Dreyfus money market funds and various
securities lending customers.

These voluntary agreements are in addition to an
agreement covering SIV exposure in a Sterling-
denominated NAV fund, an agreement covering
securities related to Whistle Jacket Capital/White Pine
Financial, LLC to a commingled short-term net asset
value fund and agreements providing support to a
collective investment pool. In 2008, we also offered to
support certain clients holding auction rate securities
in the Wealth Management and Treasury Services
segments. Combined, these actions resulted in an
$894 million, pre-tax, or $0.46 per common share,
charge recorded in 2008. See page 62 for further
information on support agreements.

Asset-backed commercial paper liquidity facility
program

In September 2008, the Federal Reserve announced an
Asset-Backed Commercial Paper (“ABCP”) Money
Market Mutual Fund (“MMMF”) Liquidity Facility
program (the “ABCP Program”).

Eligible borrowers under the ABCP Program include
all U.S. depository institutions, U.S. bank holding
companies, U.S. branches and agencies of foreign
banks and broker-dealers. Eligible borrowers may
borrow funds under the ABCP Program in order to
fund the purchase of eligible ABCP from an MMMF.
The MMMF must be a fund that qualifies as a money
market mutual fund under Rule 2a-7 of the Investment
Company Act of 1940, as amended (the “Investment
Company Act”). ABCP used for collateral in the
ABCP Program must be rated no lower than A1, F1 or
P1, U.S. dollar denominated and from a U.S. issuer.
The ABCP Program, which began on Sept. 19, 2008,
was initially scheduled to run through Jan. 30, 2009.
The Federal Reserve has extended this program
through Oct. 30, 2009.

Borrowings under the ABCP Program are
non-recourse. Further, the ABCP pledged under the
ABCP Program receives a 0% risk weight for risk-
based capital purposes and is excluded from average
total consolidated assets for leverage capital purposes.

Results of Operations (continued)

Subsidiaries of the Company purchased ABCP under
the ABCP Program from MMMFs managed by the
Company’s subsidiaries, as well as funds managed by
third parties. At Dec. 31, 2008, we held $5.6 billion of
assets and liabilities under the ABCP Program. The
ABCP Program increased average assets by $2.3
billion in 2008. These assets are recorded on the
balance sheet as other short-term investments – U.S.
government-backed commercial paper. The liabilities
are recorded as Borrowings from the Federal Reserve
related to asset-backed commercial paper. In January
2009, $4.5 billion of these assets and borrowings were
repaid without credit losses.

Temporary guarantee program for money market
mutual funds

In September 2008, the U.S. Treasury Department
opened its Temporary Guarantee Program for Money
Market Mutual Funds (the “Temporary Guarantee
Program”). The U.S. Treasury will guarantee the share
price of any publicly offered eligible money market
fund that applies for and pays a fee to participate in
the Temporary Guarantee Program. All money market
funds that are structured within the confines of Rule
2a-7 of the Investment Company Act, maintain a
stable share price of $1.00, are publicly offered and
are registered with the SEC are eligible to participate
in the Temporary Guarantee Program.

The Temporary Guarantee Program provides coverage
to shareholders for amounts that they held in
participating money market funds at the close of
business on Sept. 19, 2008. The guarantee will be
triggered if the market value of assets held in a
participating fund falls below $0.995, the fund’s
sponsor chooses not to maintain the $1.00 share price,
and the fund’s board determines to liquidate the fund.
The Temporary Guarantee Program is designed to
address temporary dislocations in credit markets and
initially was scheduled to run through Dec. 18, 2008.
In November 2008, the Department of the Treasury
announced an extension of the Temporary Guarantee
Program until April 30, 2009 to support ongoing
stability in this market. Continued protection is
contingent upon funds renewing their coverage and
paying any additional required fee. The Secretary of
the Treasury may further extend the program until
Sept. 18, 2009; however, no decision has been made
to extend the program beyond April 30, 2009.

Each Dreyfus and BNY Mellon Funds Trust money
market fund has entered into a Guarantee Agreement
with the Department of the Treasury which permits

these funds to participate in the Temporary Guarantee
Program. On Dec. 12, 2008, the funds renewed their
coverage, via the extension discussed above, to ensure
continued protection.

U.S. Treasury program – investment in U.S. financial
institutions

In October 2008, the U.S. government announced the
Troubled Asset Relief Program (“TARP”) Capital
Purchase Program (“CPP”) authorized under the
Emergency Economic Stabilization Act (“EESA”).
The intention of this program is to encourage U.S.
financial institutions to build capital, to increase the
flow of financing to U.S. businesses and consumers
and to support the U.S. economy. On Oct. 14, 2008,
the Company announced that it would be part of the
initial group of nine institutions in which the U.S.
Treasury would purchase an equity stake. Since Oct.
14, 2008, the U.S. Treasury has purchased an equity
position in many institutions.

The Company agreed to issue and sell to the U.S.
Treasury preferred stock and a warrant to purchase
shares of common stock in accordance with the terms
of the CPP for an aggregate purchase price of $3
billion. As a result, on Oct. 28, 2008, we issued Fixed
Rate Cumulative Perpetual Preferred Stock, Series B
($2.779 billion) and a warrant for common stock
($221 million), as described below, to the U.S.
Treasury. The Series B preferred stock will pay
cumulative dividends at a rate of 5% per annum until
the fifth anniversary of the date of the investment and
thereafter at a rate of 9% per annum. Dividends will
be payable quarterly in arrears on March 20, June 20,
Sept. 20 and Dec. 20 of each year. The Series B
preferred stock can only be redeemed within the first
three years with the proceeds of at least $750 million
from one or more qualified equity offerings. After
Dec. 20, 2011, the Series B preferred stock may be
redeemed in whole or in part, at any time, at our
option, at a price equal to 100% of the issue price plus
any accrued and unpaid dividends. Redemption of the
Series B preferred stock at any time will be subject to
the prior approval of the Federal Reserve. Under the
American Recovery and Reinvestment Act of 2009
(“ARRA”) enacted Feb. 17, 2009, the U.S. Treasury,
subject to consultation with the appropriate Federal
banking agency, is required to permit a TARP
recipient to repay any assistance previously provided
under TARP to such financial institution, without
regard to whether the financial institution has replaced
such funds from any other source or to any waiting
period. When such assistance is repaid, the U.S.
Treasury is required to liquidate warrants associated

The Bank of New York Mellon Corporation

Results of Operations (continued)

with such assistance at the current market price. The
Series B preferred stock qualifies as Tier I capital.

Issuance of the Series B preferred shares places
restrictions on our common stock dividend and
repurchases of common stock. Prior to the earlier of
(i) the third anniversary of the closing date or (ii) the
date on which the Series B preferred stock is
redeemed in whole or the U.S. Treasury has
transferred all of the Series B preferred stock to
unaffiliated third parties, the consent of the U.S.
Treasury is required to:

Š Pay any dividend on our common stock other
than regular quarterly dividends of not more
than our current quarterly dividend of $0.24 per
common share; or

Š Redeem, purchase or acquire any shares of

common stock or other capital stock or other
equity securities of any kind of the Company or
any trust preferred securities issued by the
Company or any affiliate except in connection
with (i) any benefit plan in the ordinary course
of business consistent with past practice;
(ii) market-making, stabilization or customer
facilitation transactions in the ordinary course
or; (iii) acquisitions by the Company as trustees
or custodians.

In addition, until such time as the U.S. Treasury
ceases to own any debt or equity securities of the
Company acquired pursuant to the Oct. 28, 2008
closing or exercise of the warrant described below, the
Company must ensure that its compensation, bonus,
incentive and other benefit plans, arrangements and
agreements (including so-called golden parachute,
severance and employment agreements (collectively,
“Benefit Plans”) with respect to its Senior Executive
Officers (as defined in the EESA and regulations
thereunder) (a “Senior Executive Officer”)) comply
with Section 111(b) of the EESA as implemented by
any guidance and regulations issued and in effect on
Oct. 28, 2008, as well as the ARRA legislation
enacted in February 2009. ARRA has revised several
of the provisions in the EESA with respect to
executive compensation and has enacted additional
compensation limitations on TARP recipients. The
provisions include new limits on the ability of TARP
recipients to pay or accrue bonuses, retention awards,
or incentive compensation to at least the 20 next most
highly-compensated employees in addition to the
Company’s Senior Executive Officers, a prohibition
on golden parachute payments on such Senior
Executive Officers and the next five most highly-
compensated employees, a clawback of any bonus,
retention or incentive awards paid to any Senior

The Bank of New York Mellon Corporation

Executive Officer or any of the next 20 most highly-
compensated employees based on materially
inaccurate earnings, revenues, gains or other criteria, a
required policy restricting excessive or luxury
expenditures, and a requirement that TARP recipients
implement a non-binding “say-on-pay” shareholder
vote on executive compensation.

In connection with the issuance of the Series B
preferred stock, we issued a warrant to purchase
14,516,129 shares of our common stock to the U.S.
Treasury. The warrant has a 10-year term and an
exercise price of $31.00 per share. The warrant is
immediately exercisable, in whole or in part. Exercise
must be on a cashless basis unless the Company
agrees to a cash exercise. However, the U.S. Treasury
has agreed that it will not transfer or exercise the
warrant for more than 50% of the shares covered until
the earlier of (i) the date on which we receive
aggregate gross proceeds of not less than $3 billion
from one or more qualified equity offerings, and
(ii) Dec. 31, 2009. If the Company completes one or
more qualified equity offerings on or prior to Dec. 31,
2009 that results in the Company receiving aggregate
gross proceeds of not less than $3 billion, the number
of shares of common stock originally covered by the
warrant will be reduced by one-half. The U.S.
Treasury will not exercise voting power associated
with any shares underlying the warrant. The warrant
will be classified as permanent equity under GAAP.

The preferred dividends and the amortization of the
discount on the Series B preferred stock reduced net
income applicable to common stock by $33 million,
or $0.03 per common share in 2008 and are expected
to reduce earnings per share by approximately $0.16
per common share in 2009.

The proceeds from the Series B preferred stock have
been utilized to improve the flow of funds in the
financial markets. Specifically we have:

Š Purchased mortgage-backed securities and
debentures issued by U.S. government-
sponsored agencies to support efforts to increase
the amount of money available to lend to
qualified borrowers in the residential housing
market.

Š Purchased debt securities of other financial

institutions, which helps increase the amount of
funds available to lend to consumers and
businesses.

Š Continued to make loans to other financial
institutions through the interbank lending
market.

Results of Operations (continued)

All of these efforts address the need to improve
liquidity in the financial system and are consistent
with our business model which is focused on
institutional clients.

FDIC Temporary Liquidity Guarantee Program

In October 2008, the FDIC announced the Temporary
Liquidity Guarantee Program. This program:

Š Guarantees certain types of senior unsecured
debt issued by most U.S. bank holding
companies, U.S. savings and loan holding
companies and FDIC-insured depositary
institutions between Oct. 14, 2008 and the
earlier of (i) June 30, 2009 and (if applicable)
(ii) the date the FDIC-insured bank elects not to
participate in the program – a decision that must
have been made no later than Dec. 5, 2008,
including promissory notes, commercial paper
and any unsecured portion of secured debt. The
Company did not elect to opt out of this
program. Prepayment of debt not guaranteed by
the FDIC and replacement with FDIC-
guaranteed debt is not permitted. The amount of
debt covered by the guarantee may not exceed
125 percent of the par value of the issuing
entity’s senior unsecured debt, excluding debt
extended to affiliates or institution-affiliated
parties, outstanding as of Sept. 30, 2008, that is
scheduled to mature before June 30, 2009, (this
date may be extended). For FDIC guaranteed
debt issued on or before June 30, 2009, an
annualized assessment rate will be paid to the
FDIC equal to 50 or 75 points multiplied by the
amount of debt with a maturity of less than one
year. For debt with a maturity of greater than
one year, the annualized assessment rate is 100
basis points. For FDIC-guaranteed debt issued
on or before June 30, 2009, the guarantee will
terminate on the earlier of the maturity of the
debt or June 30, 2012.

Š Provides full FDIC deposit insurance coverage
for funds held by FDIC-insured banks in
noninterest-bearing transaction deposit accounts
at FDIC-insured depositary institutions until
Dec. 31, 2009. For such accounts, a 10 basis
point surcharge on the depositary institution’s
current assessment rate will be applied to
deposits not otherwise covered by the existing
deposit insurance limit of $250,000. At Dec. 31,
2008, $49.9 billion of deposits with us were
covered by the FDIC’s Temporary Liquidity
Guarantee Program.

The FDIC adopted the final rule implementing the
Temporary Liquidity Program on Nov. 21, 2008.
Participation in the FDIC’s Temporary Liquidity
Guarantee Program resulted in $7 million, pre-tax, of
additional expense, recorded in other expenses, in
2008 and is expected to result in $50 million, pre-tax,
of additional expense, or $0.03 per common share, in
2009, based on deposit levels at Dec. 31, 2008.

At Dec. 31, 2008, the Company was eligible to issue
approximately $600 million of FDIC-guaranteed debt
under this program.

Money market investor funding facility

In October 2008, the Federal Reserve announced the
creation of the Money Market Investor Funding
Facility (“MMIFF”), which will support a private-
sector initiative designed to provide liquidity to U.S.
money market investors.

Under the MMIFF, the Federal Reserve Bank of New
York will provide senior secured financing to a series
of special purpose vehicles (“SPVs”) that will
purchase high-quality money market instruments
maturing in 90 days or less from U.S. money market
funds. Eligible assets will include U.S. dollar-
denominated certificates of deposit and commercial
paper issued by highly rated financial institutions and
having remaining maturities of 90 days or less.
Eligible investors will include U.S. money market
mutual funds and over time may include other U.S.
money market investors. In January 2009, the Federal
Reserve expanded the set of institutions eligible to
participate in the MMIFF to also include U.S.-based
securities lending cash collateral reinvestment funds,
portfolios and accounts (securities lenders) and U.S.-
based investment funds that operate in a manner
similar to money market mutual funds, such as certain
local government investment pools, common trust
funds and collective investment funds.

The MMIFF became operational on Nov. 24, 2008.
SPVs were eligible to begin purchasing assets on
Nov. 24, 2008 and will cease purchasing assets on
Oct. 30, 2009, unless the Federal Reserve Board
extends the MMIFF. As of Feb. 25, 2009, none of the
Company’s money market funds or investment funds
that operate in a manner similar to money market
mutual funds had offered assets for sale to these
SPVs.

The Bank of New York Mellon Corporation

Results of Operations (continued)

Reorganization of subsidiary banks

On July 1, 2008, we completed the process of
consolidating and renaming our principal U.S. bank
and trust company subsidiaries into two principal
banks. This consolidation effort was an essential part
of our overall merger and integration process.

The two principal banks resulting from the
consolidation of the entities, which mainly were U.S.
banks and trust companies, are:

Š The Bank of New York Mellon (the “Bank”), a
New York state chartered bank, formerly named
“The Bank of New York”, which houses our
institutional businesses including Asset
Servicing, Issuer Services, Treasury Services,
Broker-Dealer and Advisor Services and the
bank-advised business of Asset Management.

Š BNY Mellon, National Association (“BNY
Mellon, N.A.”), a nationally-chartered bank,
formerly named “Mellon Bank, N.A.”, which
houses our Wealth Management business.
Currently, this bank contains only the legacy
Mellon Financial wealth management business.
The wealth management business of the legacy
The Bank of New York Company, Inc. is
expected to be added to BNY Mellon, N.A. in
2009.

As part of the consolidation, the number of our U.S.
trust companies was reduced to two – The Bank of
New York Mellon Trust Company, National
Association and BNY Mellon Trust Company of
Illinois. These companies house trust products and
services across the U.S. Also concentrating on trust
products and services will be BNY Mellon Trust of
Delaware, a Delaware bank. Most asset management
businesses, along with Pershing, will continue to be
direct or indirect non-bank subsidiaries of The Bank
of New York Mellon Corporation.

The Bank of New York Mellon Corporation

Results of Operations (continued)

Fee and other revenue

(dollars in millions unless otherwise noted)

2008

2007 (a)

2006 (a)

Securities servicing fees:
Asset servicing
Issuer services
Clearing and execution services

Total securities servicing fees
Asset and wealth management fees
Performance fees
Foreign exchange and other trading activities
Treasury services
Distribution and servicing
Financing-related fees
Investment income
Other

Total fee revenue (non-FTE)

Securities gains (losses)

$ 3,348
1,685
1,087

$2,353
1,560
1,192

6,120
3,135
83
1,462
518
421
188
112
290

12,329
(1,628)

5,105
2,060
93
786
348
212
216
149
266

9,235
(201)

$1,401
895
1,248

3,544
545
35
415
209
6
250
160
173

5,337
2

2008
vs.
2007

2007
vs.
2006

42%
8
(9)

68%
74
(4)

20
52
(11)
86
49
99
(13)
(25)
9

34
N/M

44
278
166
89
67
N/M
(14)
(7)
54

73
N/M

Total fee and other revenue (non-FTE)

$10,701

$9,034

$5,339

18%

69%

Fee and other revenue as a percentage of total revenue (FTE)
Market value of AUM at period-end (in billions)
Market value of assets under custody and administration at period-end (in

trillions)

78%
928

80%

78%

$1,121

$ 142

(17)% 689%

20.2

$ 23.1

$ 15.5

(13)% 49%

(a) Results for 2007 include six months of The Bank of New York Mellon Corporation and six months of legacy The Bank of New York

Company, Inc. Results for 2006 reflect legacy The Bank of New York Company, Inc. only.

Fee and other revenue

Fee and other revenue increased 18% in 2008 versus
2007. The merger with Mellon Financial significantly
increased asset servicing revenue, asset and wealth
management revenue, foreign exchange and other
trading activities, treasury services revenue and
distribution and servicing, and had a lesser impact on
issuer services revenue. The following discussion
highlights factors other than the merger.

Securities servicing fees

The increase in securities servicing fees compared to
2007 includes:

• Growth in asset servicing revenue was driven by

higher securities lending revenue (included in asset
servicing), strong new business activity and the
acquisition of the remaining 50% interest in BNY
Mellon Asset Servicing B.V. in the fourth quarter
of 2007;

• Growth in issuer services revenue driven by higher

Depositary Receipts, Corporate Trust and
Shareowner Services fees; and

• Growth in clearing and execution services,

excluding the sale of the execution businesses in the

first quarter of 2008, driven by money market
mutual fund fees and new business, partially offset
by significantly lower market valuations.

Partially offsetting growth in securities servicing fees
were lower market levels and a stronger U.S. dollar.

See the “Institutional Services sector” in “Business
segments review” for additional details.

Asset and wealth management fees

The increase in asset and wealth management fees
from 2007 included strong money market flows and
net new business in Wealth Management, which were
more than offset by significant declines in global
market values and long-term outflows. See the “Asset
and Wealth Management sector” in “Business
segments review” for additional details regarding the
drivers of asset and wealth management fees.

Total AUM for the Asset and Wealth Management
sector were $928 billion at Dec. 31, 2008, compared
with $1.12 trillion at Dec. 31, 2007. The decrease
resulted from market depreciation, the impact of a
stronger U.S. dollar and long-term outflows, partially
offset by strong money market inflows. The S&P 500

The Bank of New York Mellon Corporation

Results of Operations (continued)

index was 903 at Dec. 31, 2008 compared with 1468
at Dec. 31, 2007, a 38% decrease. Net asset inflows
totaled $49 billion in 2008 resulting from $92 billion
of money market inflows partially offset by
$43 billion of long-term outflows.

Performance fees

Performance fees, which are reported in the Asset
Management segment, are generally calculated as a
percentage of a portfolio’s performance in excess of a
benchmark index or a peer group’s performance.
There is an increase/decrease in incentive expense
with a related change in performance fees.
Performance fees totaled $83 million in 2008, a
decrease of $10 million compared with 2007. The
decrease was primarily due to a lower level of fees
generated on certain equity and alternative strategies.

Foreign exchange and other trading activities

Foreign exchange and other trading activities revenue,
which is primarily reported in the Asset Servicing
segment, was a record $1.5 billion in 2008, an
increase of $676 million, or 86%, compared with
2007. The increase primarily resulted from higher
volatility in all major currencies and a rise in client
volumes, as well as the higher value of the credit
default swap book (used to economically hedge
certain loan exposures). On a daily basis, the
Company monitors a volatility index of global
currency using a basket of 30 major currencies. In
2008, the volatility of this index was above median for
most of the year and significantly above median in the
fourth quarter. In 2007, the volatility of the index was
below median in the first half of the year, recovering
to near median in the second half of the year.

Treasury services

Treasury services, which are primarily reported in the
Treasury Services segment, include fees related to
funds transfer, cash management, and liquidity
management. Treasury services fees increased $170
million from 2007 resulting from higher processing
volumes in global payment and cash management
services.

The Bank of New York Mellon Corporation

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 Asset
Management segment. These fees, which include
12b-1 fees, fluctuate with the overall level of net
sales, the relative mix of sales between share classes
and the funds’ market values.

The $209 million increase in distribution and
servicing fee revenue in 2008 compared with 2007
primarily reflects strong money market inflows. The
impact of these fees on income in any one period can
be more than 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.

Financing-related fees

Financing-related fees, which are primarily reported
in the Treasury Services segment, include capital
markets fees, loan commitment fees and credit-related
trade fees. Financing-related fees decreased $28
million from 2007. The decrease reflects lower
leveraged loan portfolio fees and lower credit-related
activities consistent with our strategic direction.

Investment income

Investment income, which is primarily reported in the
Other and Asset Management segments, includes the
gains and losses on private equity investments and
seed capital investments, income from insurance
contracts, and lease residual gains and losses. The
decline compared to 2007 principally reflects lower
private equity investment income as well as the
change in market value of seed capital investments
associated with our Asset Management business,
partially offset by higher revenue from insurance
contracts assumed in the merger with Mellon
Financial. Private equity investment income was $1
million in 2008 compared with $67 million in 2007.
Seed capital revenue was a loss of $82 million in 2008
compared with a loss of $35 million in 2007. Revenue
from insurance contracts was $145 million in 2008
compared with $111 million in 2007.

Results of Operations (continued)

Other revenue

Other revenue
(in millions)

Asset-related gains
Expense reimbursements from

joint ventures

Equity investment income
Merchant card fees
Net economic value payments
Other

Securities gains (losses)

2008

$ 86

34
32
10
2
126

2007 (a)

2006 (a)

$100

58
56
25
41
77

-
47
-
23
3

Securities losses totaled $1.6 billion in 2008 and $201
million in 2007. The following table details the
securities write-downs in 2008 by type of security.
These write-downs primarily reflect deterioration in
the housing market and the general economy in 2008.
See “Consolidated balance sheet review” for further
information on the investment portfolio and a
discussion of expected incurred loss.

Total other revenue

$290

$266

$173

(a) Results for 2007 include six months of The Bank of New York
Mellon Corporation and six months of legacy The Bank of
New York Company, Inc. Results for 2006 reflect legacy The
Bank of New York Company, Inc. only.

Other revenue includes asset-related gains, expense
reimbursements from joint ventures, equity
investment income, merchant card fees, net economic
value payments and other. Asset-related gains include
loan, real estate and other asset dispositions. Equity
investment income primarily reflects our
proportionate share of the income from our
investment in Wing Hang Bank Limited. Expense
reimbursements from joint ventures relate to expenses
incurred by the Company on behalf of joint ventures.
Other primarily includes foreign currency translation
gains (losses), other investments and various
miscellaneous revenues.

Other revenue increased from 2007 primarily
reflecting higher asset related gains partially offset by
lower net economic value payments, lower expense
reimbursements from joint ventures, lower equity
investment income and lower merchant card fees.
Asset related gains in 2008 include the $42 million
gain associated with the initial public offering by
VISA. Lower expense reimbursements relate to the
acquisition of the remaining 50% interest in BNY
Mellon Asset Servicing B.V. Economic value
payments primarily related to the Acquired Corporate
Trust Business, for international customers whose net
revenue had not previously been transferred. Upon
conversion, revenue from the Acquired Corporate
Trust Business clients was reflected in issuer services
fees and net interest revenue.

Securities gains (losses) (a)
(in millions)

Alt-A securities
ABS CDOs
Home equity lines of credit
SIV securities
Prime/Other RMBS
Subprime RMBS
Other

Total securities write-downs

2008

2007

$1,236
122
104
70
12
12
72 (b)

-
201
-
-
-
-
-

$1,628

$201

(a) Excludes $45 million related to Old Slip in 2008 and $301
million related to TRFC in 2007 that were recorded, net of
tax, as extraordinary loss.
Includes $25 million related to Federal Home Loan
Mortgage Corporation (“FHLMC”).

(b)

2007 compared with 2006

The increase in fee and other revenue in 2007
compared with 2006 was primarily driven by the
merger with Mellon Financial and the full-year impact
of the acquisition in October 2006 of the Acquired
Corporate Trust Business, partially offset by the
October 2006 BNY ConvergEx Group transaction and
securities losses.

Fee and other revenue was also impacted by the
following: securities servicing fees increased
reflecting strong organic growth in securities lending
revenue, depositary receipts and broker-dealer
services; asset and wealth management fees increased
as a result of net new business and improved equity
markets; foreign exchange and other trading activities
increased as a result of higher customer volumes due
to increased activity of existing clients, new clients,
and increased volatility; other revenue reflects lower
asset related gains; securities losses were primarily
driven by a $200 million loss on CDOs recorded in
2007.

The Bank of New York Mellon Corporation

Results of Operations (continued)

Net interest revenue

(dollar amounts in millions)

Net interest revenue (non-FTE)
Tax equivalent adjustment

Net interest revenue ( FTE)

SILO/LILO charges

Net interest revenue (FTE) – non-GAAP

Average interest-earning assets
Net interest margin (FTE)
Net interest margin (FTE) – non-GAAP

2008

2,951
22

2,973
489

3,462

2007 (a)

2006 (a)

2,300
12

2,312
-

2,312

$ 1,499
22

$ 1,521
-

$ 1,521

$75,606

$154,438

$111,174

1.92%
2.24%

2.08%
2.08%

2.01%
2.01%

2008
vs.
2007

2007
vs.
2006

28% 53%

N/M

29% 52%

N/M

50% 52%

39% 47%
(16)bp
7 bp
16 bp
7 bp

(a) Results for 2007 include six months of The Bank of New York Mellon Corporation and six months of legacy The Bank of New York

Company, Inc. Results for 2006 reflect legacy The Bank of New York Company, Inc. only.

Net interest revenue on an FTE basis totaled $2.973
billion in 2008 and included a $489 million charge
related to SILO/LILOs. Net interest revenue on an
FTE basis totaled $2.312 billion in 2007. The net
interest margin was 1.92% in 2008 compared with
2.08% in 2007.

The growth in net interest revenue in 2008 compared
with 2007 reflects the merger with Mellon Financial.
In addition to the merger, the increase in net interest
revenue resulted from a higher level of noninterest-
bearing deposits which resulted in a higher level of
interest-earning assets, wider spreads and the
accretion of unrealized losses on investment
securities. Growth in net interest revenue was partially
offset by SILO/ LILO charges recorded in 2008. Net
interest revenue in 2007 was impacted by a required
recalculation of the yield on leveraged leases under
SFAS No. 13-2 for changes to New York state tax
rates resulting from the merger with Mellon Financial
($22 million). Also, in 2007, we received net
economic value payments on the Acquired Corporate
Trust Business deposits post-acquisition but prior to
the transfer of the deposits to us. These payments,
which totaled $41 million in 2007, were recorded in
other revenue.

Average interest-earning assets were $154 billion in
2008, compared with $111 billion in 2007 and $76
billion in 2006. The increase in 2008 from 2007 was
driven by the merger with Mellon Financial, as well as
growth in deposits from Institutional Services clients
as the client base responded to continued market
volatility by increasing their deposit levels with us.
Most of this increase occurred in the second half of
2008. These deposits were placed in liquid funds
either with the Federal Reserve and other central
banks or in short-term deposits with large global

The Bank of New York Mellon Corporation

banks. Average interest-earning cash on deposit with
the Federal Reserve and other central banks and
interbank investments were $60.1 billion in 2008,
$32.2 billion in 2007 and $16.1 billion in 2006.
Average loans were $48.1 billion in 2008, compared
with $41.5 billion in 2007 and $33.6 billion in 2006.
Average securities were $46.2 billion in 2008, up
from $37.4 billion in 2007 and $25.9 billion in 2006.

The net interest margin was 1.92% in 2008 compared
with 2.08% in 2007 and 2.01% in 2006. The decrease
from 2007 principally reflects the SILO/LILO charges
recorded in 2008. Excluding the SILO/LILO charges,
the net interest margin increased 16 basis points
compared with 2007, primarily reflecting wider
spreads.

2007 compared with 2006

The increase in net interest revenue in 2007 compared
to 2006 primarily resulted from the merger with
Mellon Financial, a higher level of average interest-
earning assets driven by growth in client deposits,
higher deposit balances associated with the Acquired
Corporate Trust Business, wider spreads on
investment securities and lower bond premium
amortization. This growth was partially offset by the
required recalculation of the yield on leverage leases
under SFAS No. 13-2, for changes to New York state
tax rates resulting from the merger with Mellon
Financial ($22 million).

The net interest margin was 2.08% in 2007 compared
with 2.01% in 2006. The increase primarily reflects
the merger with Mellon Financial as well as a higher
average level of noninterest-bearing deposits, wider
spreads on investment securities and lower bond
premium amortization.

Results of Operations (continued)

Average balances and interest rates

(dollar amounts in millions, presented on an FTE basis)

Assets
Interest-earning assets:

Interest-bearing deposits with banks (primarily foreign banks)
Interest-bearing deposits held at the Federal Reserve and other central banks
Other short-term investments – U.S. government-backed commercial paper
Federal funds sold and securities under resale agreements
Margin loans
Non-margin loans:

Domestic offices:
Consumer
Commercial
Foreign offices

Total non-margin loans

Securities:

U.S. government obligations
U.S. government agency obligations
Obligations of states and political subdivisions
Other securities:

Domestic offices
Foreign offices
Total other securities

Trading securities:
Domestic offices
Foreign offices
Total trading securities
Total securities
Total interest-earning assets

Allowance for loan losses
Cash and due from banks
Other assets

Total assets

Liabilities and shareholders’ equity
Interest-bearing deposits:
Domestic offices:

Money market rate accounts
Savings
Certificates of deposits of $100,000 & over
Other time deposits
Total domestic

Foreign offices:
Banks
Government & official institutions
Other

Total foreign
Total interest-bearing deposits

Federal funds purchased and securities under repurchase agreements
Other borrowed funds:
Domestic offices
Foreign offices

Total other borrowed funds

Borrowings from the Federal Reserve related to ABCP
Payables to customers and broker-dealers
Long-term debt

Total interest-bearing liabilities

Total noninterest-bearing deposits
Other liabilities

Total liabilities

Total shareholders’ equity

Total liabilities and shareholders’ equity

Net interest margin – taxable equivalent basis
Percentage of assets attributable to foreign offices (d)
Percentage of liabilities attributable to foreign offices

Average balance

Interest

Average rates

2008

$ 46,473
4,757
2,348
6,503
5,427

6,422
22,111
14,172
42,705

606
11,513
766

23,124
8,386
31,510

1,696
134
1,830
46,225
154,438
(335)
6,228
49,626
$209,957

$ 14,604
970
2,041
6,393
24,008

11,801
1,420
55,539
68,760
92,768
5,140

2,289
970
3,259
2,348
5,495
16,353
125,363
34,247
21,643
181,253
28,704
$209,957

35%
36

$1,752
27
71
150
183

326
224
563
1,113 (a)

18
506
56

1,250
463
1,713

66
5
71
2,364
$5,660 (c)

$ 139
14
61
125
339

184
25
1,228
1,437
1,776
57

61
29
90
53
69
642
$2,687

3.77%
0.56
3.03
2.30
3.37

5.07
1.01 (b)
3.97
2.61 (b)

3.02
4.40
7.16

5.41
5.52
5.44

3.92
3.44
3.88
5.11
3.66%(b)

0.95%
1.47
2.96
1.95
1.41

1.56
1.75
2.21
2.09
1.91
1.12

2.67
3.00
2.77
2.25
1.25
3.93
2.14%

1.92%(b)

(a)

(b)

Includes fees of $36 million in 2008. Nonaccrual loans are included in the average loan balance; the associated income, recognized on the cash basis, is included
in interest.
Includes the impact of the SILO/LILO charge in 2008. Excluding these charges, the domestic offices’ non-margin commercial loan rate would have been 3.23%,
the total non-margin loan rate would have been 3.75%, the interest-earning assets rate would have been 3.98% and the net interest margin would have been
2.24%.

(c) The tax equivalent adjustment was $22 million in 2008 and is based on the federal statutory tax rate (35%) and applicable state and local taxes.
(d)

Includes Cayman Islands branch offices.

The Bank of New York Mellon Corporation

Results of Operations (continued)

Average balances and interest rates (continued) (a)

(dollar amounts in millions, presented on an FTE basis)
Assets
Interest-earning assets:

Interest-bearing deposits with banks (primarily foreign banks)
Federal funds sold and securities under resale agreements
Margin loans
Non-margin loans:

Domestic offices:

Consumer
Commercial

Foreign offices

Total non-margin loans

Securities:

U.S. government obligations
U.S. government agency obligations
Obligations of states and political subdivisions
Other securities:

Domestic offices
Foreign offices
Total other securities

Trading securities:

Domestic offices
Foreign offices
Total trading securities
Total securities
Total interest-earning assets

Allowance for loan losses
Cash due from banks
Other assets
Assets of discontinued operations
Total assets

Liabilities and shareholders’ equity
Interest-bearing deposits
Domestic offices:

Money market rate accounts
Savings
Certificates of deposit of $100,000 & over
Other time deposits
Total domestic

Foreign offices:
Banks
Government & official institutions
Other

Total foreign

Total interest-bearing deposits

Federal funds purchased & securities under repurchase agreements
Other borrowed funds:
Domestic offices
Foreign offices

Total other borrowed funds

Payables to customers and broker-dealers
Long-term debt

Total interest-bearing liabilities

Total noninterest-bearing deposits
Other liabilities
Liabilities of discontinued operations
Total liabilities

Shareholders’ equity

Total liabilities and shareholders’ equity

Average
balance

2007 (b)

Interest

Average
rates

Average
balance

2006 (b)

Interest

Average
rates

$ 26,505
5,727
5,392

$1,242
290
332

4.68%
5.06
6.16

$ 13,327
2,791
5,372

$ 538
130
330

4.04%
4.67
6.15

278
913
693
1,884 (c)

12
390
27

1,125
363
1,488

5.90
4.85
5.50
5.22

4.45
5.33
6.73

5.67
4.81
5.44

47
51
98
2,015
$5,763 (d)

4.19
5.39
4.74
5.38
5.18%

$ 349
16
152
60
577

358
45
1,409
1,812
2,389
125

76
15
91
177
669
$3,451

3.03%
2.56
5.35
5.93
3.61

3.69
4.03
3.57
3.60
3.60
4.30

4.28
2.02
3.59
3.47
5.43
3.87%

4,722
18,806
12,595
36,123

270
7,314
408

19,832
7,529
27,361

1,121
953
2,074
37,427
111,174
(303)
3,945
33,773
53
$148,642

$ 11,535
610
2,845
1,012
16,002

9,720
1,108
39,492
50,320
66,322
2,890

1,762
761
2,523
5,113
12,327
89,175
21,677
17,503
53
128,408
20,234
$148,642

2,985
14,955
10,300
28,240

190
3,565
105

15,702
2,746
18,448

660
2,908
3,568
25,876
75,606
(340)
2,910
18,302
10,364
$106,842

5,465
452
4,114
551
10,582

6,764
705
25,092
32,561
43,143
2,237

1,632
459
2,091
4,899
8,295
60,665
11,609
13,871
10,364
96,509
10,333
$106,842

168
707
574
1,449 (c)

8
169
9

850
114
964

5.64
4.72
5.57
5.13

4.32
4.73
8.34

5.42
4.15
5.23

30
135
165
1,315
$3,762 (d)

4.56
4.64
4.63
5.09
4.98%

$ 145
6
210
26
387

243
25
779
1,047
1,434
104

94
6
100
167
436
$2,241

2.66%
1.36
5.12
4.70
3.66

3.59
3.50
3.11
3.22
3.33
4.65

5.74
1.32
4.77
3.40
5.26
3.69%

2.01%

Net interest margin-taxable equivalent basis
Percentage of assets attributable to foreign offices (e)
Percentage of liabilities attributable to foreign offices
(a) Results for 2007 include six months of The Bank of New York Mellon Corporation and six months of legacy The Bank of New York Company, Inc.

37%
38

33%
36

2.08%

Results for 2006 reflect legacy The Bank of New York Company, Inc. only.

(b) Average balances and rates have been impacted by allocations made to match assets of discontinued operations with liabilities of discontinued

(c)

operations.
Includes fees of $32 million in 2007 and $42 million in 2006. Nonaccrual loans are included in the average loan balance; the associated income,
recognized on the cash basis, is included in interest.

(d) The tax equivalent adjustments were $12 million in 2007 and $22 million in 2006, and are based on the federal statutory tax rate (35%) and applicable

state and local taxes
Includes Cayman Islands branch office.

(e)

The Bank of New York Mellon Corporation

Results of Operations (continued)

Noninterest expense

Noninterest expense
(dollar amounts in millions)

Staff:

Compensation
Incentives
Employee benefits

Total staff

Professional, legal and other purchased services
Net occupancy
Distribution and servicing
Software
Furniture and equipment
Sub-custodian and clearing
Business development
Other

Subtotal

Support agreement charges
Restructuring charge
Amortization of intangible assets
Merger and integration expenses:

The Bank of New York Mellon Corporation
Acquired Corporate Trust Business

Total noninterest expense

Total staff expense as a percentage of total revenue (FTE)
Employees at period-end

2008

2007 (a)

2006 (a)

2008
vs.
2007

2007
vs.
2006

$ 3,161

1,250 (b)
704

$ 2,453
1,114
553

$ 1,615
621
404

29%
12 (b)
27

52%
79
37

5,115
1,126
575
517
331
324
313
279
962

9,542
894
181
482

471
12

4,120
781
449
268
280
267
383
190
655

7,393
3
-
319

355
49

2,640
381
279
17
220
190
333
108
338

4,506
-
-
76

-
106

$11,582

$ 8,119

$ 4,688

37% (c)

36%

42,900

42,500

38%

22,400

24
44
28
93
18
21
(18)
47
47

29
N/M
N/M
51

33
(76)

43%

56
105
61
N/M
27
41
15
76
94

64
N/M
-
320

N/M
(54)

73%

90%

(a) Results for 2007 include six months of The Bank of New York Mellon Corporation and six months of legacy The Bank of New York

Company, Inc. Results for 2006 reflect legacy The Bank of New York Company, Inc. only.

(b) On a pro forma basis, including incentives for Mellon Financial in the first half of 2007, total incentives decreased 15% compared

with 2007.

(c) Total staff expense as a percentage of total revenue (FTE) excluding the SILO/LILO charges and securities write-down was 32% in

2008.

Total noninterest expense increased $3.5 billion, or
43%, compared with 2007. In addition to the merger
with Mellon Financial, the following factors
contributed to the increase:

an $894 million charge related to support
agreements primarily recorded in the second half
of 2008 related to the Company’s voluntary
support of clients invested in money market
mutual funds, cash sweep funds and similar
collective funds, managed by our affiliates,
impacted by the Lehman bankruptcy. See the
Support Agreements section for further
information;
the acquisition of the remaining 50% interest in
BNY Mellon Asset Servicing B.V. in the fourth
quarter of 2007;
a $181 million restructuring charge related to
our previously announced global workforce
reduction program. This program is expected to
reduce our workforce by approximately 4%, or
1,800 positions. For further information on the

components of the restructuring charge, see
Note 13 of Notes to Consolidated Financial
Statements; and
a $50 million of charges related to credit
monitoring for lost tapes.

Partially offsetting these increases were:

expense synergies associated with the merger
with Mellon Financial. In 2008, we achieved
total expense synergies of $550 million
representing an increase of $375 million over
the prior year;
the sale of the execution businesses in the first
quarter of 2008; and
a stronger U.S. dollar.

Staff expense
Given our mix of fee-based businesses, which are
staffed with high quality professionals, staff expense
comprised approximately 54% of total noninterest
expense, excluding the restructuring charge, the
support agreement charges, M&I and intangible
amortization expenses.

The Bank of New York Mellon Corporation

Results of Operations (continued)

Staff expense is comprised of:

compensation expense, which includes:
Š

base salary expense, primarily driven by
headcount;
the cost of temporary help and overtime, and
severance expense;

Š
Š
incentive expense, which includes:
Š

additional compensation earned under a wide
range of sales commission and incentive
plans designed to reward a combination of
individual, business unit and corporate
performance goals; as well as
Š
stock- based compensation expense, and
employee benefit expense, primarily medical
benefits, payroll taxes, pension and other
retirement benefits.

The increase in staff expense compared with 2007
reflects a net increase in headcount associated with the
Mellon Financial merger, the acquisition of the
remaining 50% interest in BNY Mellon Asset
Servicing B.V. and the second quarter 2008 annual
employee merit increase. Partially offsetting these
increases was the sale of the execution businesses and
the ongoing benefit of merger-related synergies.

Non-staff expense

Non-staff expense includes certain expenses that vary
with the levels of business activity and levels of
expensed business investments, fixed infrastructure
costs and expenses associated with corporate activities
related to technology, compliance, productivity
initiatives and corporate development.

Non-staff expense, excluding the support agreement
charges, the restructuring charge, intangible
amortization expense and M&I totaled $4.4 billion in
2008 compared with $3.3 billion in 2007. The
increase reflects the merger with Mellon Financial,
partially offset by the sale of the execution businesses,
strong expense control and a stronger U.S. dollar and
also included the following activity:

Increases in professional, legal and other
purchased services, software expense, furniture

The Bank of New York Mellon Corporation

and equipment and business development
expenses resulting from business growth and
strategic initiatives;

Š A $249 million increase in distribution and

servicing expense. Distribution and servicing
expense represents amounts paid to other
financial intermediaries to cover their costs for
distribution (marketing support, administration
and record keeping) and servicing of mutual
funds. Generally, increases in distribution and
servicing expense reflect higher net sales.
Distribution and servicing expense in any one
year is not expected to be fully recovered by
higher distribution and service revenue; rather it
contributes to future growth in mutual fund
management revenue reflecting the growth in
mutual fund assets generated through certain
distribution channels; and

Š An increase in other expense reflecting organic
business growth, the previously mentioned
credit monitoring charges for lost tapes and the
write-down of seed capital investments related
to a formerly affiliated hedge fund manager.

Amortization of intangible assets increased to $482
million in 2008 compared with $319 million in 2007,
primarily reflecting the merger with Mellon Financial.

In 2008, we incurred $471 million of M&I expenses
related to the merger with Mellon Financial,
comprised of the following:

Integration/conversion costs—including
consulting, system conversions and staff ($302
million);

Š Personnel related—includes severance,

retention, relocation expenses, accelerated
vesting of stock options and restricted stock
expense ($151 million); and

Š One-time costs—includes facilities related costs,
asset write-offs, vendor contract modifications,
rebranding and net gain (loss) on disposals ($18
million).

We also incurred $12 million of M&I expense
associated with the acquisition of the corporate trust
business of JPMorgan Chase (“Acquired Corporate
Trust Business”) in 2008.

Results of Operations (continued)

2007 compared with 2006

Total noninterest expense, excluding support
agreement charges, intangible amortization and M&I
expense, was $7.4 billion in 2007, an increase of $2.9
billion or 64% compared with 2006. The merger with
Mellon Financial, the purchase of the Acquired
Corporate Trust Business and the disposition of
certain execution businesses in the BNY ConvergEx
transaction significantly impacted comparisons of
2007 to 2006. The net impact of these transactions
increased nearly all expense categories. Noninterest
expense for 2007 also includes the pre-tax write-off of
the value of the remaining interest in a hedge fund
manager that was disposed of in 2006 ($32 million).
Noninterest expense in 2007 also included $175
million in expense synergies associated with the
merger with Mellon Financial.

In 2007, we incurred $355 million of M&I expenses
related to the merger with Mellon Financial,
comprised of the following: personnel related ($122
million); integration/conversion costs ($136 million);
transaction costs ($67 million), and one-time costs
($30 million). We also incurred $49 million of M&I
expense associated with the Acquired Corporate Trust
Business in 2007.

Amortization of intangible assets increased to $319
million in 2007 compared with $76 million in 2006,
primarily reflecting the merger with Mellon Financial.

Income taxes

On a continuing operations basis, the effective tax rate
for 2008 was 25.6%, compared to 31.0% for 2007 and
32.0% for 2006. The lower effective tax rate in 2008
compared with 2007 resulted from lower domestic
earnings and a higher proportion of income earned in
lower taxed foreign jurisdictions. The lower effective
tax rate in 2007 compared with 2006 primarily
reflected the benefit of higher foreign tax credits and
lower state and local taxes, partially offset by the
phase out of the benefits received from synthetic fuel
credits.

Extraordinary loss - Consolidation of
commercial paper conduits

(approximately $125 million in assets). The
consolidation resulted in the recognition of an
extraordinary loss (non-cash accounting charge) of
$26 million after-tax, or $0.02 per common share,
representing the current mark-to-market discount from
par associated with spread-widening for the assets in
Old Slip.

On Dec. 31, 2007, we called the first loss notes of
TRFC, making us the primary beneficiary and
triggering the consolidation of TRFC. The
consolidation resulted in the recognition of an
extraordinary loss (non-cash accounting charge) of
$180 million after-tax, or $0.19 per share in 2007,
representing the mark to market discount from par
associated with spread widening for the assets in
TRFC. In addition to the extraordinary loss, the size
of the Dec. 31, 2007 balance sheet increased by the
full amount of third party commercial paper funding
previously issued by TRFC of approximately $4.0
billion.

Business segments review

We have an internal information system that produces
performance data for our seven business segments
along product and service lines.

Business segments accounting principles

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

Segment results are subject to reclassification
whenever improvements are made in the measurement
principles or when organizational changes are made.

The accounting policies of the business segments are
the same as those described in Note 1 of Notes to
Consolidated Financial Statements except that other
fee revenue and net interest revenue differ from the
amounts shown in the Consolidated Income Statement
because amounts presented in the Business segments
are on an FTE basis.

On Dec. 30, 2008, we voluntarily called the first loss
notes of Old Slip, making us the primary beneficiary
and triggering the consolidation of Old Slip

In the second quarter of 2008, we moved the financial
results of Mellon 1st Business Bank (“M1BB”) and
Mellon United National Bank (“MUNB”) to the Other

The Bank of New York Mellon Corporation

Results of Operations (continued)

segment from the Wealth Management segment. This
change reflects the sale of M1BB in June 2008, as
well as our focus on reducing non-core activities.
Historical segment results for Wealth Management
and Other have been restated to reflect these changes.
Pre-tax income for M1BB was $50 million for full
year 2007 and was primarily comprised of net interest
revenue.

The operations of acquired businesses are integrated
with the existing business segments soon after most
acquisitions are completed. As a result of the
integration of staff support functions, management of
customer relationships, operating processes and the
financial impact of funding the acquisitions, we
cannot precisely determine the impact of acquisitions
on income before taxes and therefore do not report it.

We provide segment data for seven segments, with
certain segments combined into sector groupings as
shown below:

Primary types of revenue

Š Asset and wealth management fees from:

Institutional clients
Mutual funds
Private clients

Š Performance fees
Š Distribution and servicing fees
Š Wealth management fees from high-net-worth
individuals and families, family offices and
business enterprises, charitable gift programs,
and foundations and endowments

Š Asset servicing fees, including:

Institutional trust and custody fees
Broker-dealer services
Securities lending

Š Foreign exchange
Š

Issuer services fees, including:

Corporate trust
Depositary receipts
Employee investment plan services
Shareowner services

Š Clearing and execution services fees, including:
Broker-dealer and registered investment
advisor services

Š Treasury services fees, including:
Global payment services
Working capital solutions

Š Financing-related fees
Š Leasing operations
Š The activities of Mellon United National Bank
Š Corporate treasury activities
Š Global markets and institutional banking

services
Š Business exits
Š M&I expenses

Sector/Segment
Asset & Wealth Management sector

Asset Management segment

Wealth Management segment

Institutional Services sector
Asset Servicing segment

Issuer Services segment

Clearing Services segment

Treasury Services segment

Other segment

The Bank of New York Mellon Corporation

Results of Operations (continued)

Business segment information is reported on a
continuing operations basis for all periods presented.
See Note 4 of Notes to Consolidated Financial
Statements for a discussion of discontinued
operations.

The results of our business segments are presented
and analyzed on an internal management reporting
basis:

Š Revenue amounts reflect fee and other revenue
generated by each segment. Fee and other
revenue transferred between segments under
revenue transfer agreements is included within
other revenue in each segment.

Š Revenues and expenses associated with specific
client bases are included in those segments. For
example, foreign exchange activity associated
with clients using custody products is allocated
to the Asset Servicing segment.

Š Net interest revenue is allocated to segments

based on the yields on the assets and liabilities
generated by each segment. We employ a funds
transfer pricing system that matches funds with
the specific assets and liabilities of each segment
based on their interest sensitivity and maturity
characteristics.

Š The measure of revenues and profit or loss by a
segment has been adjusted to present segment
data on an FTE basis.

Š Support and other indirect expenses are

allocated to segments based on internally-
developed methodologies.

Š Support agreement charges are recorded in the

segment in which the charges occurred.

Š The restructuring charge recorded in 2008 was a
corporate initiative and therefore was recorded
in the Other segment.

Š Balance sheet assets and liabilities and their
related income or expense are specifically
assigned to each segment. Segments with a net
liability position have been allocated assets.

Š Goodwill and intangible assets are reflected

within individual business segments.

Š The operations of the Acquired Corporate Trust
Business are included from Oct. 1, 2006, the
date on which it was acquired.

Š The operations of Mellon Financial are included
from July 1, 2007, the effective date of the
merger.

The merger with Mellon Financial had a considerable
impact on the comparison of business segment results
between 2008, 2007 and 2006. The merger
significantly impacted the Asset Management, Wealth
Management and Asset Servicing segments and, to a
lesser extent, the Issuer Services, Treasury Services
and the Other segments. The Clearing Services
segment was significantly impacted by the sale of the
execution businesses to BNY ConvergEx in the first
quarter of 2008. The Issuer Services segment and
Clearing Services segment were significantly
impacted by the Acquired Corporate Trust Business
and the formation of the BNY ConvergEx Group in
October 2006, respectively.

The volatile market environment in 2008 impacted
our business segments compared with 2007 as
reflected by higher foreign exchange and other trading
activities, higher securities lending revenue and higher
net interest revenue. Broad declines in the equity
markets in 2008 influenced revenue in the Asset
Management, Wealth Management and Asset
Servicing segments compared with 2007. Also in
2008, we elected to support clients impacted by the
Lehman bankruptcy, as well as clients impacted by
the declining value of certain SIV securities. These
support agreements had a significant impact on the
2008 results of the Asset Management and Asset
Servicing segments. Depositary receipts were also
strong in 2008, reflecting increased corporate actions
and new business. Securities write-downs, the SILO/
LILO charge and M&I expenses are corporate level
items and are therefore recorded in the Other segment.

The Bank of New York Mellon Corporation

Results of Operations (continued)

The following table presents the value of certain market indices at period end and on an average basis.

Market indices

2008

2007

2006

2008 vs. 2007

2007 vs. 2006

Increase/(Decrease)

S&P 500 Index (a)
S&P 500 Index – daily average
FTSE 100 Index (a)
FTSE Index – daily average
NASDAQ Composite Index (a)
Lehman Brothers Aggregate BondSM Index (a)
MSCI EAFE® Index (a)
NYSE Volume (in billions)
NASDAQ Volume (in billions)

(a) Period end.

903
1221
4434
5368
1577
275
1237
660
577

1468
1477
6457
6403
2652
258
2253
532
540

1418
1311
6221
5920
2415
227
2075
459
503

(38)%
(17)
(31)
(16)
(41)
7
(45)
24
7

4%
13
4
8
10
14
9
16
7

Non-program equity trading volumes increased 44%
in 2008 compared with 2007. Average daily U.S.
fixed-income trading volume was down 1%. Total
debt issuance decreased 28% in 2008 compared with
2007. The issuance of global collateralized debt
obligations was down 88% compared with 2007.

The period end S&P 500 Index decreased 38% at
Dec. 31, 2008 versus Dec. 31, 2007. The period end
FTSE 100 Index decreased 31%. On a daily average
basis, the S&P 500 Index decreased 17% and the
FTSE 100 Index decreased 16% in 2008 versus 2007.
The period end NASDAQ Composite Index decreased
41% at Dec. 31, 2008 versus Dec. 31, 2007.

The changes in the value of market indices impact fee
revenue in the Asset and Wealth Management
segments and our securities servicing businesses.
Using the S&P 500 as a proxy for the equity markets,
we estimate that a 100 point change in the value of the
S&P 500, sustained for one year, would impact fee
revenue by approximately 1% and fully diluted EPS
on a continuing operations basis by $0.05 per share.

The following consolidating schedules below show
the contribution of our segments to our overall
profitability.

For the year ended Dec. 31, 2008
(dollar amounts in millions,
presented on an FTE basis)

Asset
Management

Wealth
Management

Fee and other revenue
Net interest revenue

Total revenue

Provision for credit losses
Noninterest expense

$ 2,797
79

2,876

-
2,655

Income before taxes

221

624
200

824

-
634

190

Total
Asset and
Wealth
Management
Sector

Asset
Servicing

Issuer
Services

Clearing
Services

Treasury
Services

Total
Institutional
Services
Sector

$ 3,421
279

$ 4,394
1,086

$ 1,851
710

$ 1,329
314

975
726

8,549
2,836

Other
Segment

$ (1,229)
(142)

Total
Continuing
Operations

$ 10,741
2,973

3,700

-
3,289

5,480

-
3,761

2,561

-
1,413

1,643

-
1,143

411

$ 1,719

$ 1,148

500

-
841

860

1,701

11,385

(1,371)

13,714(a)

-
7,158

131
1,135

131
11,582

4,227

$ (2,637)

2,001

37% N/M
$50,131

$136,515

15%

$209,957

Pre-tax operating margin (b)
Average assets

23%

11%

31%

45%

30%

51%

$13,267

$10,044

$23,311

$59,150

$35,169

$16,593

$25,603

Excluding intangible amortization:

Noninterest expense
Income before taxes
Pre-tax operating margin (b)

$ 2,400
476
17%

580
244
30%

$ 2,980
720
19%

$ 3,737
1,743

$ 1,332
1,229

32%

48%

$ 1,117
526
32%

814
887
52%

7,000
4,385

$ 1,120
(2,622)
39% N/M

$ 11,100
2,483

18%

(a) Consolidated results include FTE impact of $62 million in 2008.
(b)

Income before taxes divided by total revenue.

The Bank of New York Mellon Corporation

Results of Operations (continued)

For the year ended Dec. 31, 2007 (a)

(dollar amounts in millions, presented
on an FTE basis)

Asset
Management

Wealth
Management

Total Asset
and Wealth
Management
Sector

Asset
Servicing

Issuer
Services

Clearing
Services

Treasury
Services

Fee and other revenue
Net interest revenue

Total revenue

Provision for credit losses
Noninterest expense

Income before taxes

Pre-tax operating margin (c)
Average assets (d)

Excluding intangible amortization:

Noninterest expense
Income before taxes
Pre-tax operating margin (c)

$1,866
19

1,885

-
1,383

$ 423
111

$ 2,289
130

$ 2,934
693

$ 1,660
567

$ 1,360
304

534

-
413

2,419

-
1,796

3,627

-
2,474

2,227

-
1,159

1,664

-
1,216

$ 502

$ 121

623

$ 1,153

$ 1,068

448

Total
Institutional
Services
Sector

Other
Segment

$ 6,701
2,076

8,777

-
5,506

64
106

170

(10)
817

Total
Continuing
Operations

9,054
2,312

11,366 (b)

(10)
8,119

$ 3,271

$ (637)

3,257

747
512

1,259

-
657

602

27%

23%

26%

32%

48%

27%

48%

37%

$7,636

$5,702

$13,338

$38,016

$25,658

$14,944

$18,497

$97,115

N/M
$38,189

29%

$148,642

$1,235
650
34%

$ 385
149
28%

$ 1,620
799
33%

$ 2,459
1,168

$ 1,084
1,143

32%

51%

$ 1,192
472
28%

643
616
49%

$ 5,378
3,399

39%

802
(622)
N/M

7,800
3,576

31%

(a) Results for 2007 include six months of The Bank of New York Mellon Corporation and six months legacy The Bank of New York Company, Inc.
(b) Consolidated results include FTE impact of $32 million in 2007.
(c)
(d)

Income before taxes divided by total revenue.
Includes average assets of discontinued operations of $53 million for 2007.

For the year ended Dec. 31, 2006—Legacy The Bank of New York Company, Inc. only

(dollar amounts in millions, presented
on an FTE basis)

Asset
Management

Wealth
Management

Total Asset
and Wealth
Management
Sector

Asset
Servicing

Issuer
Services

Clearing
Services

Treasury
Services

Total
Institutional
Services
Sector

Other
Segment

Total
Continuing
Operations

Fee and other revenue
Net interest revenue

Total revenue
Provision for credit losses
Noninterest expense

Income before taxes

Pre-tax operating margin (b)
Average assets (c)

Excluding intangible amortization:

Noninterest expense
Income before taxes
Pre-tax operating margin (b)

$ 357
15

372
-
237

$ 198
60

258
(2)
210

$ 555
75

$1,712
476

$ 961
258

$ 1,359
278

630
(2)
447

2,188
-
1,630

1,219
-
615

1,637
(4)
1,201

$ 135

$ 185

$ 558

$ 604

440

570
392

962
5
510

447

$ 4,602
1,404

6,006
1
3,956

$ 2,049

182
42

224
(19)
285

(42)

36%

19%

29%

26%

50%

27%

46%

34%

$1,073

$1,489

$2,562

$8,602

$2,009

$16,429

$16,278

$43,318

N/M
$50,598

$ 5,339
1,521

6,860 (a)
(20)
4,688

$ 2,192

32%

$96,478

$ 222
150
40%

$ 210
50
19%

$ 432
200
32%

$1,617
571
26%

$ 597
622
51%

$ 1,171
470
29%

510
447
46%

$ 3,895
2,110

35%

285
(42)
N/M

$ 4,612
2,268

33%

(a) Consolidated results include FTE impact of $22 million in 2006.
(b)
(c)

Income before taxes divided by total revenue.
Including average assets of discontinued operations of $10.364 billion for 2006, consolidated average assets were $106.842 billion for 2006.

Asset and Wealth Management Sector

Asset and Wealth Management fee revenue is
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. Assets under management were $928 billion at
Dec. 31, 2008, a decrease of 17% compared with
$1.12 trillion at Dec. 31, 2007. The decrease primarily

reflects broad declines in the equity markets and a
stronger U.S. dollar, which more than offset strong net
asset inflows in money market funds.

Performance fees are also earned in the Asset and
Wealth Management sector. These fees are generally
calculated as a percentage of a portfolio’s
performance in excess of a benchmark index or a peer
group’s performance.

The Bank of New York Mellon Corporation

Results of Operations (continued)

The overall level of AUM for a given period is
determined by:

Š
Š

the beginning level of AUM;
the net flows of new assets during the period
resulting from new business wins and existing
client enrichments reduced by losses and
withdrawals; and
the impact of market price appreciation or
depreciation, the impact of any acquisitions or
divestitures and foreign exchange rates.

These components are shown in the changes in market
value of AUM table below. The mix of AUM is
determined principally by client asset allocation
decisions among equities, fixed income, alternative
investments and overlay, and money markets. The
trend of this mix is shown in the AUM at period end,
by product type, table below.

Managed equity assets typically generate higher
percentage fees than money market and fixed-income
assets. Also, actively managed assets typically
generate higher management fees than indexed or
passively managed assets of the same type.

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 prevalent for institutional assets
where amounts we manage for individual clients are
typically large.

A key driver of organic growth in asset and wealth
management fees is the amount of net new AUM
flows. Overall market conditions are also key drivers
with a key long-term economic driver being the
growth rate of financial assets as measured by the
U.S. Federal Reserve. This measure encompasses both
net flows and market appreciation or depreciation in
the U.S. markets overall.

AUM at period-end, by product type

(in billions)

Money market
Equity securities
Fixed income securities
Alternative investments and overlay

Total AUM

AUM at period-end, by client type

(in billions)

Institutional
Mutual funds
Private client

Total AUM

2008
$398
266
192
72

$928

2008
$445
400
83

$928

2007
$ 296
460
218
147

$1,121

2007
$ 671
349
101

$1,121

Legacy The Bank of
New York Company, Inc. only

2006

$ 38
39
21
44

$142

2005

$ 33
37
20
25

$115

2004

$ 29
36
22
24

$111

Legacy The Bank of New York
Company, Inc. only

2006

$105
15
22

$142

2005

$ 82
11
22

$115

Changes in market value of AUM from Dec. 31, 2007 to Dec. 31, 2008 - by business segment

(in billions)

Market value of AUM at Dec. 31, 2007
Net inflows (outflows)
Long-term
Money market

Total net inflows
Net market depreciation (a)
Acquisitions/divestitures

Asset
Management

Wealth
Management

$1,035

$ 86

(45)
92

47
(216)
(7)

2
-

2
(19)
-

Market value of AUM at Dec. 31, 2008

$ 859 (b)

$ 69 (c)

$ 928

Includes the effect of changes in foreign exchange rates.

(a)
(b) Excludes $3 billion subadvised for the Wealth Management segment.
(c) Excludes private client assets managed in the Asset Management segment.

The Bank of New York Mellon Corporation

2004

$ 79
10
22

$111

Total

$1,121

(43)
92

49
(235)
(7)

Results of Operations (continued)

Asset Management segment

(dollar amounts in millions,
unless otherwise noted;
presented on an FTE basis)

Revenue:

Asset and wealth
management:

Mutual funds
Institutional clients
Private clients

Total asset and wealth

management revenue

Performance fees
Distribution and servicing
Other

Total fee and other

revenue

Net interest revenue

Total revenue
Noninterest expense (ex. intangible

amortization and support
agreement charges)

Income before taxes (ex. intangible

amortization and support
agreement charges)

Support agreement charges
Amortization of intangible assets

Income before taxes

Memo: Income before taxes (ex.

intangible amortization)
Pre-tax operating margin (ex.
intangible amortization)

Average assets

2008

2007 (a)

2008
vs.
2007

$ 1,288
1,052
170

$ 637
821
124

102%
28
37

2,510
83
371
(167)

2,797
79

2,876

1,582
93
193
(2)

1,866
19

1,885

59
(11)
92
N/M

50
316

2,065

1,235

811
335
255

221

650
-
148

25
N/M
72

$ 502

(56)%

476

$ 650

(27)%

17%

34%

$13,267

$7,636

74%

(a) Results for 2007 include six months of The Bank of New York

Mellon Corporation and six months of legacy The Bank of New
York Company, Inc.

Business description

BNY Mellon Asset Management is the umbrella
organization for all of our affiliated investment
management boutiques and is responsible, through
various subsidiaries, for U.S. and non-U.S. retail,
intermediary and institutional distribution of
investment management and related services. The
investment management boutiques offer a broad range
of equity, fixed income, cash and alternative/overlay
products. In addition to the investment subsidiaries,
BNY Mellon Asset Management includes BNY
Mellon Asset Management International, which is
responsible for the distribution of investment
management products internationally, and the Dreyfus
Corporation, which is responsible for U.S. distribution
of retail mutual funds, separate accounts and
annuities.

We are one of the world’s largest asset managers with
a top 10 position in both the U.S. and Europe and top
5 in tax-exempt institutional U.S. asset management.

In the first quarter of 2008, we acquired ARX, a
leading independent asset management business
headquartered in Rio de Janeiro, Brazil. Also in the
first quarter of 2008, we sold a portion of the
Estabrook Capital Management business which
reduced our AUM by $2.4 billion. On Oct. 1, 2008,
we sold the assets of Gannett Welsh & Kotler, an
investment management subsidiary with
approximately $8 billion in AUM. On Dec. 31, 2008,
we acquired the Australian (Ankura Capital) and U.K.
(Blackfriars Asset Management) businesses of our
asset management joint venture with WestLB.
Headquartered in Sydney, Australia, Ankura Capital
manages approximately AUS $1 billion, while
Blackfriars Asset Management, which is
headquartered in London, England, has AUM of $2.3
billion. The impact of these acquisitions is not
expected to be material to earnings per share.

The results of the Asset Management segment are
mainly driven by the period-end and average levels of
assets managed as well as the mix of those assets, as
previously shown. Results for this segment are also
impacted by sales of fee-based products such as fixed
and variable annuities and separately managed
accounts. In addition, performance fees may be
generated when the investment performance exceeds
various benchmarks and satisfies other criteria.
Expenses in this segment are mainly driven by
staffing costs, incentives, distribution and servicing
expense, and product distribution costs.

Review of financial results

In 2008, Asset Management had pre-tax income of
$221 million compared with pre-tax income of $502
million in 2007. Excluding intangible amortization,
pre-tax income was $476 million in 2008 compared
with $650 million in 2007. Results for 2008 were
reduced by $335 million of support agreement charges
primarily related to commingled cash funds and
money market funds and the severe declines in the
global equity markets in 2008, partially offset by the
merger with Mellon Financial.

Asset and wealth management revenue in the Asset
Management segment was $2.5 billion in 2008
compared with $1.6 billion in 2007. The increase
reflects the merger with Mellon Financial and strength

The Bank of New York Mellon Corporation

Results of Operations (continued)

in money market inflows, which more than offset
lower market values, long-term outflows and a
stronger U.S. dollar.

In 2008, approximately 50% of consolidated asset and
wealth management fees generated in the Asset
Management segment are from managed mutual
funds. These fees are based on the daily average net
assets of each fund and the basis point management
fee paid by that fund. Managed mutual fund fee
revenue was $1.3 billion in 2008 compared with $637
million in 2007. The increase resulted from the
merger with Mellon Financial and strong money
market inflows, reflecting a flight to quality as
customers looked for safe investments during the
market turbulence in 2008.

Performance fees were $83 million in 2008 compared
with $93 million in 2007. The decline was primarily
due to a lower level of fees generated from certain
equity and alternative strategies.

Distribution and servicing fees were $371 million in
2008 compared with $193 million in 2007. The
increase resulted from the merger with Mellon
Financial and strong money market inflows, partially
offset by redemptions in certain international funds.

Other fee revenue was a loss of $167 million in 2008
compared with a loss of $2 million in 2007. The year-
over-year decline was due to $86 million of seed
capital investment losses and write-downs related to
securities previously purchased from funds managed
by the investment boutiques.

The Asset Management segment generated 41% of
non-U.S. revenue in 2008.

Noninterest expense (excluding intangible
amortization and support agreement charges) was $2.1
billion in 2008 compared with $1.2 billion in 2007.
The increase compared with 2007 primarily resulted
from the merger with Mellon Financial, the
acquisition of ARX and the write-down of seed capital
investments related to a formerly affiliated hedge fund
manager, partially offset by overall expense
management efforts, including lower incentives, in
response to the current operating environment.

million in 2007 compared with $150 million in 2006.
Fee and other revenue increased $1.5 billion,
primarily due to the merger with Mellon Financial, net
new business and improved equity markets. The
increase in distribution and servicing fees reflects the
merger with Mellon Financial. The decrease in other
fee revenue principally reflects the lower market value
of seed capital investments in 2007. Noninterest
expense (excluding intangible amortization) increased
$1 billion in 2007 compared with 2006 primarily due
to the merger with Mellon Financial and higher
incentive compensation, temporary labor, technology,
legal expenses and the write-off of the remaining
interest in a hedge fund manager.

Wealth Management segment

(dollar amounts in millions, unless
otherwise noted; presented on an
FTE basis)

2008

2007 (a)

2008
vs.
2007

Revenue:

Asset and wealth management
Other

$ 404
19

39%

221

Total fee and other

revenue

Net interest revenue

Total revenue
Noninterest expense (ex. intangible

amortization and support
agreement charges)

Income before taxes (ex. intangible

amortization and support
agreement charges)

Support agreement charges
Amortization of intangible assets

Income before taxes

Memo: Income before taxes (ex.

intangible amortization)
Pre-tax operating margin (ex.
intangible amortization)

Average loans
Average assets
Average deposits
Market value of total client assets

under management and custody at
period-end (in billions)

563
61

624
200

824

423
111

534

48
80

565

385

259
15
54

190

149
-
28

$ 121

74
N/M
93

244

$ 149

64%

30%

28%

$ 4,938
10,044
7,554

$2,800
5,702
4,333

76%
76
74

139

$ 170

(18)%

(a) Results for 2007 include six months of The Bank of New York

Mellon Corporation and six months of legacy The Bank of New
York Company, Inc.

Business description

2007 compared with 2006

Income before taxes was $502 million in 2007,
compared with $135 million in 2006. Income before
taxes (excluding intangible amortization) was $650

In the Wealth Management segment, we offer a full
array of investment management, wealth and estate
planning and private banking solutions to help clients
protect, grow and transfer their wealth. Clients include
high net worth individuals and families, family offices

The Bank of New York Mellon Corporation

Results of Operations (continued)

and business enterprises, charitable gift programs and
endowments and foundations. BNY Mellon Wealth
Management is a top ten U.S. wealth manager with
$139 billion in client assets. We serve our clients
through an expansive network of offices in 16 states
and 3 countries.

The results of the Wealth Management segment are
driven by the level and mix of assets managed and
under custody and the level of activity in client
accounts.

Net interest revenue is determined by the level of
interest rate spread between loans and deposits.
Expenses of this segment are driven mainly by staff
expense in the investment management, sales, service
and support groups.

Review of financial results

Income before taxes was $190 million in 2008
compared with $121 million in 2007. Income before
taxes (excluding intangible amortization and support
agreement charges) was $259 million in 2008
compared with $149 million in 2007. Results
compared with 2007 reflect the merger with Mellon
Financial, net new business and well controlled
noninterest expense, partially offset by a $15 million
charge to support certain clients holding auction rate
securities recorded in 2008. Excluding this charge and
intangible amortization, Wealth Management
generated approximately 700 basis points of positive
operating leverage compared with 2007, driven by
business growth and expense management.

Total fee and other revenue was $624 million in 2008
compared with $423 million in 2007. The increase
resulted from the merger with Mellon Financial,
record new business, organic growth and higher
capital markets related fees, partially offset by sharp
declines in the equity markets in 2008.

Net interest revenue increased $89 million compared
with 2007, reflecting the merger with Mellon
Financial, higher deposit levels, improved deposit
spreads and higher loan levels due to growth in the
mortgage portfolio. Average loan levels were up $2.1
billion, or 76%, due to new business and the merger
with Mellon Financial.

Noninterest expense (excluding intangible
amortization and support agreement charges)
increased $180 million compared with 2007, primarily
reflecting the merger with Mellon Financial and the

annual merit salary increase, partially offset by
merger-related synergies and strong expense control.

Client assets under management were $139 billion at
Dec. 31, 2008, compared with $170 billion at Dec. 31,
2007. The decrease resulted from lower market levels,
partially offset by new business. Net long-term
inflows totaled $12 billion in 2008.

2007 compared with 2006

Income before taxes was $121 million in 2007
compared with $50 million in 2006. Excluding
intangible amortization, income before taxes increased
$99 million. Fee and other revenue increased $225
million due to the merger with Mellon Financial,
organic growth, record net new business and market
performance. Net interest revenue increased $51
million as a result of the merger with Mellon
Financial and increased deposit levels. Noninterest
expense (excluding intangible amortization) increased
$175 million due to the merger with Mellon Financial
as well as expenses associated with new distribution
channels.

Institutional Services Sector

As of Dec. 31, 2008, our assets under custody and
administration totaled $20.2 trillion compared with
$23.1 trillion at Dec. 31, 2007. The decrease in assets
under custody and administration primarily reflects
weaker market values and the impact of a stronger
U.S. dollar, which more than offset the benefit of new
business conversions. Equity securities were 25% and
fixed-income securities were 75% of the assets under
custody and administration at Dec. 31, 2008,
compared with 32% equity securities and 68% fixed-
income securities at Dec. 31, 2007. The shift in
composition of assets under custody from Dec. 31,
2007 to Dec. 31, 2008 was primarily due to a decrease
in equity valuations. Assets under custody and
administration at Dec. 31, 2008 consisted of assets
related to the custody, mutual funds, and corporate
trust businesses of $15.9 trillion, broker- dealer
services assets of $3.0 trillion, and all other assets of
$1.3 trillion.

Market value of securities on loan at Dec. 31, 2008
decreased to $341 billion, from $633 billion at
Dec. 31, 2007. The decrease reflects overall
de-leveraging in the financial markets and lower
market valuations resulting from the large declines in
the equity markets in 2008.

The Bank of New York Mellon Corporation

Results of Operations (continued)

Assets under custody and administration trend

Market value of assets under custody and administration at period-end

(in trillions)

Market value of securities on loan at period-end (in billions) (b)

Legacy The Bank of
New York Company, Inc. only

2008

2007

2006

2005

2004

$20.2 (a)
$ 341

$23.1 (a)
$ 633

$15.5
$ 399

$11.4
$ 311

$10.0
$ 232

(a)

Includes the assets under custody or administration of CIBC Mellon Global Securities Services Company, a joint venture with the
Canadian Imperial Bank of Commerce, of $697 billion at Dec. 31, 2008 and $989 billion at Dec. 31, 2007.

(b) Represents the total amount of securities on loan, both cash and non-cash, managed by the Asset Servicing segment.

The results of the Asset Servicing segment are driven
by a number of factors which include the level of
transactional activity, the extent of services provided
including custody, accounting, fund administration,
daily valuations, performance measurement and risk
analytics, securities lending and investment manager
backoffice outsourcing, and the market value of assets
under administration and custody. Market interest
rates impact both securities lending revenue and the
earnings on client cash balances. Broker-dealer fees
depend on the level of activity in the fixed income and
equity markets and the financing needs of customers,
which are typically higher when the equity and fixed-
income markets are active. Also, the use of tri-party
repo arrangements continues to remain a key revenue
driver in broker-dealer services. Foreign exchange
trading revenues are influenced by the volume of
client transactions and the spread realized on these
transactions, market volatility in major currencies, the
level of cross-border assets held in custody for clients,
the level and nature of underlying cross-border
investments and other transactions undertaken by
corporate and institutional clients. Segment expenses
are principally driven by staffing levels and
technology investments necessary to process
transaction volumes. Fees paid to sub-custodians are
driven by market values of global assets and related
transaction volumes.

We are one of the leading global securities servicing
providers with a total of $20.2 trillion of assets under
custody and administration at Dec. 31, 2008. We
continue to maintain our number one ranking in the
three major global custody surveys. We are one of the
largest providers of fund services in the world,
servicing $4.5 trillion in assets. We also service 49%
of the funds in the U.S. exchange-traded funds
marketplace. We are the largest custodian for U.S.
public pension plans. BNY Mellon Asset Servicing
services 46% of the top 50 endowments.

Asset Servicing segment

(dollar amounts in millions,
unless otherwise noted;
presented on an FTE basis)
Revenue:

Securities servicing

fees-asset servicing

Foreign exchange and other

trading activities

Other

Total fee and other

revenue

Net interest revenue

Total revenue
Noninterest expense (ex.

intangible amortization and
support agreement charges)

Income before taxes (ex.

intangible amortization and
support agreement charges)

Support agreement charges
Amortization of intangible assets
Income before taxes
Memo: Income before taxes ex.

intangible amortization
Pre-tax operating margin (ex.
intangible amortization)

Average assets
Average deposits
Securities lending revenue
Market value of securities on

2008

2007 (a)

2008
vs.
2007

$ 3,191

$ 2,280

40%

1,051
152

4,394
1,086
5,480

511
143

2,934
693
3,627

3,196

2,456

106
6

50
57
51

2,284
541
24
$ 1,719

1,171
3
15
$ 1,153

95
N/M
60
49%

$ 1,743

$ 1,168

49%

32%

$59,150
52,659
789

$38,016
33,629
368

56%
57
114

loan at period-end (in billions)

326

633

(48)

(a) Results for 2007 include six months of The Bank of New York

Mellon Corporation and six months of legacy The Bank of New
York Company, Inc.

Business description

The Asset Servicing segment includes global custody,
global fund services, securities lending, global
liquidity services, outsourcing, government securities
clearance, collateral management and credit-related
services and other linked revenues, principally foreign
exchange. Clients include corporate and public
retirement funds, foundations and endowments and
global financial institutions including banks, broker-
dealers, investment managers, insurance companies
and mutual funds.

The Bank of New York Mellon Corporation

Results of Operations (continued)

We are a leading custodian in the U.K. and service
30% of U.K. pensions. European asset servicing
continues to grow across all products, reflecting
significant cross-border investment interest and
capital flow. In securities lending, we are one of the
largest lenders of U.S. Treasury securities and
depositary receipts and service a lending pool of
$2.4 trillion in 30 markets around the world. We are
one of the largest global providers of performance and
risk analytics with $9.6 trillion in assets under
measurement.

Our broker-dealer services business is a leader in
global clearance, clearing equity and fixed income
transactions in more than 100 markets. We clear over
50% of U.S. Government securities transactions. We
are a leading collateral management agent with $1.8
trillion in tri-party balances worldwide at Dec. 31,
2008, up from $1.6 trillion at Dec. 31, 2007.

Review of financial results

Income before taxes was $1.7 billion in 2008
compared with $1.2 billion in 2007. The increase
compared with 2007 reflects the merger with Mellon
Financial, net new business, organic growth, higher
securities lending revenue and the acquisition of the
remaining 50% interest in the BNY Mellon Asset
Servicing B.V. Results in 2008 were also impacted by
$541 million of charges for support agreements
related to the support of various securities lending
customers, commingled cash sweep funds and a
commingled short-term NAV fund, as well as lower
market levels.

Total fee and other revenue increased $1.5 billion in
2008 compared with 2007 driven by the merger with
Mellon Financial, net new business, cross sells and
organic growth, higher securities lending revenue,
higher foreign exchange and other trading revenue
and the impact of the fourth quarter 2007 acquisition
of the remaining 50% interest in BNY Mellon Asset
Servicing B.V. This increase was partially offset by
lower market values.

Securities lending revenue increased $421 million
compared to 2007. The increase primarily reflects the
merger with Mellon Financial, favorable spreads in
the short-term credit markets and the acquisition of
the remaining 50% interest in BNY Mellon Asset
Servicing B.V. Market value of securities lent
decreased $307 billion compared with Dec. 31, 2007
reflecting overall de-leveraging in the financial
markets and lower market valuations.

Foreign exchange and other trading activity increased
$540 million compared with 2007, reflecting the
merger with Mellon Financial as well as significant
increases in currency volatility and higher client
volumes. On a daily basis, the Company monitors a
volatility index of global currency using a basket of
30 major currencies. In 2008, the volatility of this
index was above median for most of the year and
significantly above median in the fourth quarter. In
2007, the volatility of the index was below median in
the first half of the year, recovering to near median in
the second half of the year.

Net interest revenue increased $393 million compared
with 2007, primarily driven by the merger with
Mellon Financial, strong deposit growth and increased
deposit spreads. Deposit growth reflects the flight to
quality experienced by all segments of the Company,
as well as additional deposits received in 2007 as part
of the Acquired Corporate Trust Business.

The Asset Servicing segment generated 40% of
non-U.S. revenue in 2008.

Noninterest expense (excluding intangible
amortization and support agreement charges)
increased $740 million compared with 2007. The
increase in expenses reflects the merger with Mellon
Financial, the acquisition of the remaining 50%
interest in BNY Mellon Asset Servicing B.V., the
2008 annual merit salary increase, a $38 million
operational error and higher operating expenses to
support new business, organic growth, increased
foreign exchange income and higher transaction
volumes. Partially offsetting the increase were
merger-related synergies.

2007 compared with 2006

Income before taxes increased $595 million in 2007
compared with 2006. Total fee and other revenue in
this segment increased 71% in 2007 compared with
2006 primarily due to the merger with Mellon
Financial, increased transaction volumes related to
market volatility, new business and organic growth.
Securities lending fees increased in 2007 compared
with 2006 due to the merger with Mellon Financial,
higher loan balances and wider spreads. Revenues
from foreign exchange and other trading activity were
also up significantly reflecting the merger with
Mellon Financial, record customer volumes and
foreign currency volatility. Net interest revenue
increased $217 million in 2007 compared with 2006,
reflecting the merger with Mellon Financial, deposit

The Bank of New York Mellon Corporation

Results of Operations (continued)

growth and improved spreads. Noninterest expense
(excluding intangible amortization and support
agreement charges) increased $839 million compared
with 2006, primarily due to the merger with Mellon
Financial, higher staff expense in support of new
business, increased sub-custodian expenses related to
higher asset levels, higher joint venture pass-through
payments, higher expenses in support of growth
initiatives and a loss related to the purchase of SIV
securities from a commingled NAV fund.

Issuer Services segment

(dollar amounts in millions,
unless otherwise noted;
presented on an FTE basis)
Revenue:

Securities servicing

fees-issuer services

Other

Total fee and other

revenue

Net interest revenue

Total revenue
Noninterest expense (ex.

intangible amortization)

Income before taxes (ex.

intangible amortization)

Amortization of intangible assets
Income before taxes
Pre-tax operating margin

(ex. intangible amortization)

Average assets
Average deposits
Number of depositary receipt

2008

2007 (a)

2008
vs.
2007

$ 1,684
167

$ 1,560
100

8%
67

1,851
710
2,561

1,332

1,660
567
2,227

1,084

1,229
81
$ 1,148

1,143
75
$ 1,068

48%

51%

$35,169
$30,515

$25,658
$21,387

12
25
15

8
8
7%

37%
43

programs

2
(a) Results for 2007 include six months of The Bank of New York
Mellon Corporation and six months of legacy The Bank of
New York Company, Inc.

1,311

1,338

Business description

The Issuer Services segment provides a diverse array
of products and services to global fixed income and
equity issuers.

As the world’s leading provider of corporate trust and
agency services, the Company services more than $11
trillion in outstanding debt from 57 locations, in 19
countries, worldwide. Along with our subsidiaries and
affiliates, we are the number one overall provider of
corporate trust services for all major debt categories,
including conventional, structured and specialty debt.
We serve as the depositary for more than 1,300
sponsored American and Global Depositary Receipt
programs, with a 64% market share, acting in
partnership with leading companies from 63 countries.
In addition to top-ranked transfer agency services,

The Bank of New York Mellon Corporation

BNY Mellon Shareowner Services offers a
comprehensive suite of equity solutions ranging from
record keeping and corporate actions processing,
demutualizations, direct investment, dividend
reinvestment, proxy solicitation and employee stock
plan administration.

Fee revenue in the Issuer Services segment depends
on:

the volume of issuance of fixed income
securities;
depositary receipts issuance and cancellation
volume;
corporate actions impacting depositary receipts;
and
stock transfer, corporate actions and equity
trading volumes.

Expenses in the Issuer Services segment are driven by
staff, equipment, and space required to support the
services provided by the segment.

Review of financial results

Income before taxes was up 7% to $1.15 billion in
2008 from $1.07 billion in 2007. The increase reflects
the merger with Mellon Financial as well as growth in
Depositary Receipts and non-U.S. Corporate Trust,
partially offset by $49 million of credit monitoring
charges for lost tapes recorded in 2008.

Total fee and other revenue increased $191 million, or
12%, in 2008 compared with 2007, reflecting growth
in Depositary Receipts, Corporate Trust and
Shareowner Services fees. Depositary Receipts
benefited from increased corporate actions and new
business. The increase in Corporate Trust was driven
by an increase in non-U.S. Corporate Trust revenue as
well as market share gains. Corporate Trust is also
playing a vital role in supporting governments’
stabilization efforts in North America and Europe to
bring liquidity back to the financial markets. In 2008,
the U.S. Department of the Treasury selected the
Company as the sole provider of a broad range of
custodial and Corporate Trust services to support the
government’s TARP program. Also, in 2008, we
assisted in the issuance of $80 billion of government
guaranteed debt for 12 of the major financial
institutions across Europe. In 2009, BNY Trust
Company of Canada was appointed trustee, paying
agent and registrar for the restructuring of Canada’s
non-bank-sponsored asset-backed commercial paper
market. The increase in Shareowner Services fees was
due to the merger with Mellon Financial and an

Results of Operations (continued)

increased level of revenue from corporate actions. The
increase in other revenue was impacted by increased
revenue sharing related to the distribution of Dreyfus
products and higher foreign exchange trading revenue.

Net interest revenue increased $143 million in 2008
compared with 2007, primarily reflecting a significant
increase in deposits in both the Corporate Trust and
Shareowner Services businesses, driven by the
transition of deposits in 2007 related to the Acquired
Corporate Trust Business and increased client
volumes, as well as the merger with Mellon Financial.
Average deposits were $30.5 billion in 2008
compared with $21.4 billion in 2007.

The Issuer Services segment generated 40% of
non-U.S. revenue in 2008.

Noninterest expense (excluding intangible
amortization) increased $248 million in 2008
compared with 2007 reflecting the merger with
Mellon Financial, the credit monitoring charges
related to lost tapes recorded in Shareowner Services,
business growth and the impact of the second quarter
of 2008 annual merit salary increase, partially offset
by merger-related synergies.

2007 compared with 2006

Income before taxes was up 77% to $1.1 billion in
2007 from $604 million in 2006.

Total fee and other revenue increased $699 million in
2007 compared with 2006. Issuer services fees
exhibited strong growth compared with 2006. The
acquisition of the Acquired Corporate Trust Business
and the merger with Mellon Financial significantly
impacted comparisons of 2007 to 2006. Issuer
services fees increased reflecting higher Depositary
Receipts resulting from higher servicing and dividend
fees. The growth in Corporate Trust resulted from the
Acquired Corporate Trust Business, while growth in
Shareowner Services was due to the merger with
Mellon Financial.

Net interest revenue increased $309 million in 2007
compared with 2006, primarily reflecting the impact
of the Acquired Corporate Trust Business as well as
higher deposits in Shareowner Services.

Noninterest expense (excluding intangible
amortization) increased $487 million in 2007
compared with 2006, reflecting the impact of the
Acquired Corporate Trust Business, the merger with

Mellon Financial and expenses associated with
revenue growth in Depositary Receipts and
Shareowner Services.

Clearing Services segment

(dollar amounts in millions, unless
otherwise noted; presented on an FTE
basis)

2008

2007 (a)

2008
vs.
2007

Revenue:

Securities servicing

fees-clearing and execution
services

Other

Total fee and other

revenue

Net interest revenue

Total revenue
Noninterest expense (ex. intangible

amortization)

Income before taxes (ex. intangible

amortization)

Amortization of intangible assets

Income before taxes

Pre-tax operating margin (ex.
intangible amortization)

Average assets
Average active accounts

(in thousands)

Average margin loans
Average payable to customers and

$ 1,073
256

$ 1,186
174

(10)%
47

1,329
314

1,643

1,360
304

1,664

1,117

1,192

526
26

500

472
24

448

(2)
3

(1)

(6)

11
8

12%

32%

28%

$16,593

$14,944

11%

5,341
$ 5,415

5,119
$ 5,382

4
1

broker-dealers

5,495

5,113

(a) Results for 2007 include six months of The Bank of New York
Mellon Corporation and six months of legacy The Bank of
New York Company, Inc.

Business description

Our Clearing Services segment consists of the
Pershing clearing business and a 33.8% equity interest
in BNY ConvergEx which includes the B-Trade and
G-Trade execution businesses that were sold by the
Company to BNY ConvergEx on Feb. 1, 2008. The
B-Trade and G-Trade execution businesses
contributed approximately $215 million of revenue
and $45 million of pre-tax income in 2007. These
businesses were sold at book value.

Our Pershing LLC and Pershing Advisor Solutions
LLC subsidiaries provide financial institutions and
independent registered investment advisors with
operational support, trading services, flexible
technology, an expansive array of investment
solutions practice management support and service
excellence. Pershing services more than 1,150 retail
and institutional financial organizations and

The Bank of New York Mellon Corporation

Results of Operations (continued)

independent registered investment advisors who
collectively represent more than five million
investors.

Pershing Prime Services delivers an integrated suite of
prime brokerage solutions, including expansive access
to securities lending, dedicated client service,
powerful technology and reporting tools, robust cash
management products, global execution and order
management capabilities, and additional integrated
solutions of The Bank of New York Mellon
Corporation.

Through our affiliate, BNY ConvergEx, we provide
liquidity and execution management, investment
technologies and intermediary and clearing services to
more than 6,000 institutional investor clients in over
100 global markets. BNY ConvergEx provides a full
suite of global electronic, portfolio and sales trading
capabilities, executing more than 275 million U.S.
shares and approximately $672 million in non-U.S.
principal each day and clearing more than one million
trades daily.

Revenue in this segment includes broker-dealer,
registered investment advisor services, prime
brokerage services and electronic trading services,
which are primarily driven by:

Š
Š

trading volumes, particularly those related to
retail customers;
overall market levels; and
the amount of assets under administration.

A substantial amount of revenue in this segment is
generated from non-transactional activities, such as
asset gathering, mutual funds, money market funds
and retirement programs, administration and other
services.

Segment expenses are driven by staff, equipment and
space required to support the services provided by the
segment and the cost of execution and clearance of
trades.

Review of financial results

Income before taxes was $500 million in 2008
compared with $448 million in 2007. The increase
reflects growth in money market mutual fund fees,
partially offset by the first quarter 2008 sale of the
execution businesses.

Total fee and other revenue decreased 2% in 2008
compared with 2007. The decrease reflects the sale of
the execution businesses and a settlement received
($28 million) in 2007 for the early termination of a
contract, partially offset by strong growth in trading
activity along with growth in money market mutual
fund fees and record new business resulting from the
market disruptions in the second half of 2008.

Net interest revenue increased $10 million resulting
from higher customer balances and wider spreads.

Noninterest expense (excluding intangible
amortization) decreased $75 million in 2008
compared with 2007, reflecting the sale of the
execution businesses, partially offset by increased
expenses incurred in support of business growth.

2007 compared with 2006

Income before taxes increased $8 million in 2007
compared with 2006. Clearing and execution
servicing fees decreased $24 million compared with
2006 reflecting the BNY ConvergEx transaction
which was primarily offset by higher market activity
and volumes which increased clearing-related
revenues, as well as continued growth in money
market and mutual fund positions. Net interest
revenue increased $26 million compared with 2006,
primarily reflecting higher levels of customer
deposits, partially offset by the BNY ConvergEx
transaction. Noninterest expense (excluding intangible
amortization) increased $21 million in 2007 compared
with 2006, reflecting higher salaries and benefits,
clearing costs, bank technology charges and outside
services which more than offset the reduction in
expenses resulting from the BNY ConvergEx
transaction.

The Bank of New York Mellon Corporation

Results of Operations (continued)

Treasury Services segment

(dollar amounts in millions,
presented on an FTE basis)

Revenue:

Treasury services
Other

Total fee and other

revenue

Net interest revenue

Total revenue
Noninterest expense (ex.

intangible amortization)

Income before taxes (ex.

intangible amortization)

Amortization of intangible assets

Income before taxes

Pre-tax operating margin (ex.
intangible amortization)

Average loans
Average assets
Average deposits

2008

2007 (a)

501
474

975
726

328
419

747
512

1,701

1,259

814

887
27

860

643

616
14

602

52%

49%

$15,415
25,603
21,470

$13,127
18,497
14,458

2008
vs.
2007

53%
13

31
42

44
93

43%

17%
38
48

(a) Results for 2007 include six months of The Bank of New York
Mellon Corporation and six months of legacy The Bank of
New York Company, Inc.

Business description

The Treasury Services segment includes treasury
services, global payment services, working capital
solutions, capital markets business and large corporate
banking.

Treasury services revenue is directly influenced by the
volume of transactions and payments processed, loan
levels, types of service provided, net interest revenue
earned from deposit balances generated by activity
across our business operations and the value of the
credit derivatives portfolio. Treasury services revenue
is indirectly influenced by other factors including
market volatility in major currencies and the level and
nature of underlying cross-border investments and
other transactions undertaken by corporate and
institutional clients. Segment expenses are driven by
staff, equipment and space required to support the
services provided, as well as variable expenses such
as temporary staffing and operating services in
support of volume increases.

Treasury Services offers leading-edge technology,
innovative products, and industry expertise to help its
clients optimize cash flow, manage liquidity, and
make payments around the world in more than 100
different countries. We maintain a global network of

branches, representative offices and correspondent
banks to provide comprehensive payment services
including funds transfer, cash management, trade
services and liquidity management. We are one of the
largest funds transfer banks in the U.S., transferring
over $1.8 trillion daily via more than 170,000 wire
transfers.

Our corporate lending strategy is to focus on those
clients and industries that are major users of securities
servicing and treasury services. Revenue from our
lending activities is primarily driven by loan levels
and spreads over funding costs.

Review of financial results

Income before taxes was $860 million in 2008,
compared with $602 million in 2007. The increase
reflects the merger with Mellon Financial, higher fee
and other revenue and higher net interest revenue,
partially offset by an increase in expenses primarily
due to the merger with Mellon Financial.

Total fee and other revenue increased $228 million in
2008. Treasury services fees were up $173 million in
2008 reflecting the merger with Mellon Financial as
well as higher processing volumes in global payment
and cash management services. Other revenue
increased $55 million reflecting higher capital markets
related revenue.

The increase in net interest revenue compared with
2007 reflects the merger with Mellon Financial,
higher loan and deposit levels including increased
dollar clearing client activity in Asia and the Middle
East, and increased spreads.

Noninterest expense (excluding intangible
amortization) increased $171 million in 2008
compared with 2007, primarily due to the merger with
Mellon Financial, business growth and charges related
to auction rate securities in institutional accounts,
partially offset by merger-related synergies.

2007 compared with 2006

Income before taxes increased $155 million in 2007
compared to 2006. Total fee and other revenue
increased $177 million in 2007, reflecting higher
treasury services revenue and higher foreign exchange
and other trading activities revenue. Net interest
revenue increased $120 million in 2007 compared
with 2006, reflecting the merger with Mellon
Financial, higher deposit levels and wider spreads.
Noninterest expense (excluding intangible

The Bank of New York Mellon Corporation

Results of Operations (continued)

amortization) increased $133 million in 2007,
primarily reflecting the merger with Mellon Financial,
increased salaries, incentives and brokerage
commissions.

Other segment

(dollar amounts in millions,
presented on an FTE basis)

Revenue:

Fee revenue
Securities losses
Net interest revenue (expense)

Total revenue

Provision for credit losses
Noninterest expense (ex. restructuring
charge, intangible amortization and
M&I expenses)

Income (loss) before taxes (ex.

restructuring charge, intangible
amortization and M&I expenses)

Restructuring charge
Amortization of intangible assets
M&I expenses:

The Bank of New York Mellon

Corporation

Acquired Corporate Trust Business

Total M&I expenses

Income (loss) before taxes

Average assets
Average deposits

2008

2007 (a)

307
(1,536)
(142)

(1,371)
131

256
(192)
106

170
(10)

456

398

(1,958)
181
15

471
12

483

(218)
-
15

355
49

404

$ (2,637)

$ (637)

$50,131
$14,673

$38,189
$14,044

(a) Results for 2007 include six months of The Bank of New York
Mellon Corporation and six months of legacy The Bank of
New York Company, Inc.

Business description

In 2008, the financial results of M1BB and MUNB
were reclassified from the Wealth Management
segment to the Other segment. This change reflects
the sale of M1BB in June 2008, as well as our focus
on reducing non-core activities. All prior periods have
been reclassified.

The Other segment primarily includes:

Š
Š
Š
Š
Š

the results of the leasing portfolio;
corporate treasury activities;
the results of MUNB and M1BB;
business exits; and
corporate overhead.

The Bank of New York Mellon Corporation

Revenue primarily reflects:

Š
Š

net interest revenue from the leasing portfolio;
any residual interest income resulting from
transfer pricing algorithms relative to actual
results;
revenue from corporate and bank owned life
insurance; and
gains (losses) associated with valuation of
securities and other assets.

Noninterest expense includes:

Š M&I expenses;
Š
Š

the restructuring charge;
direct expenses supporting leasing, investing and
funding activities; and
certain corporate overhead not directly
attributable to the operations of other segments.

Review of financial results

Income before taxes was a loss of $2.6 billion in 2008
compared with a loss of $637 million in 2007.

The Other segment includes the following activity in
2008:

a $1.5 billion pre-tax loss associated with the
write-down of investments in the securities
portfolio;
a $489 million pre-tax loss related to the SILO/
LILO settlement recorded in net interest revenue.
Excluding this charge, net interest revenue
increased compared with 2007, reflecting the
changing interest rate environment on Corporate
Treasury allocations;
a $181 million restructuring charge related to our
previously announced global workforce
reduction program. This program is expected to
reduce our workforce by approximately 4%, or
1,800 positions. For further information, see
Note 13 of Notes to Consolidated Financial
Statements.

Š A provision for credit losses of $131 million in
2008 compared with a credit of $10 million in
2007. The increase reflects an increase in
nonperforming loans as well as higher net
charge-offs in 2008; and

Results of Operations (continued)

Š M&I expenses of $471 million associated with
the Mellon Financial merger. These expenses
include amounts for integration/conversion costs
($302 million), personnel related costs
($151 million) and one-time costs ($18 million).

2007 compared with 2006

Income before taxes decreased $595 million in 2007
compared with 2006. Total fee and other revenue
decreased $118 million compared with 2006,
reflecting a $192 million (pre-tax) securities loss
recorded in 2007. Net interest revenue increased $64
million in 2007 compared with 2006, due to the
merger with Mellon Financial and the positive impact
of the changing interest rate environment on corporate
treasury allocations. Noninterest expense (excluding
intangible amortization and M&I expenses) increased
$219 million in 2007 compared with 2006, primarily
due to the merger with Mellon Financial.

International operations

Our primary international activities consist of
securities servicing, asset management and global
payment services.

Our clients include some of the world’s largest
pension funds and institutions, local authorities,
treasuries, family offices and individual investors.
Through our global network of offices, we have
developed a deep understanding of local requirements
and cultural needs and we pride ourselves in providing
dedicated service through our multilingual sales,
marketing and client service teams.

We conduct business through subsidiaries, branches,
and representative offices in 34 countries. We have
major operational centers based in Brussels, Cork,
Dublin, Luxembourg, Singapore, throughout the
United Kingdom including London, Manchester,
Brentwood, Edinburgh and Poole, and Chennai and
Pune in India.

BNY Mellon Asset Servicing is a leading global
custodian. At Dec. 31, 2008, our cross-border assets
under custody were $7.5 billion compared with $10.0
billion at Dec. 31, 2007. This decrease primarily
reflects lower market values as the FTSE 100 and
MSCI EAFE® indices decreased 31% and 45%,
respectively.

BNY Mellon Asset Management operates on a multi-
boutique model bringing investors the skills of our
specialist boutique asset managers, which together
manage investments spanning virtually all asset
classes. We are one of the largest global asset
managers. In Europe, we are the 7th largest asset
manager active in the European marketplace and we
are the U.K.’s 12th largest mutual fund manager. We
have a rapidly growing presence in Asia and Latin
America and now rank among the top 20 foreign asset
managers in Japan.

At Dec. 31, 2008, approximately 18% of the
Company’s AUM were managed by our international
operations, compared with 23% in 2007. The decrease
primarily resulted from lower market values, which
more than offset new business wins.

We are the sponsor for more than 1,300 Depositary
Receipt programs for over 900 issuer clients in more
than 60 countries. We also provide corporate trust and
agency services for all major debt categories across
conventional, structured credit and specialty debt
through 18 non-U.S. locations.

We have over 50 years of 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 depending
on the state of market development. In emerging
markets, we lead with global payments and issuer
services, introducing other products as the markets
mature. For more established markets, our focus is on
global, not local, asset servicing products and
alternative investments.

We are a leading provider and major market maker in
the area of foreign exchange and interest-rate risk
management services, dealing in over 100 currencies.

The Bank of New York Mellon Corporation

Results of Operations (continued)

Our financial results, as well as our level of assets
under custody and management, are 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 to a lesser extent, the Euro. If the
U.S. Dollar depreciates against these currencies, the
translation impact is a higher level of fee revenue, net
interest revenue, operating expense and assets under
management and custody. Conversely, if the
U.S. Dollar appreciates, the translated levels of fee
revenue, net interest revenue, operating expense and
assets under management and custody will be lower.

International clients accounted for 37% of revenue
and 91% of income from continuing operations in
2008 compared with 32% of revenue and 37% of
income from continuing operations in 2007.
Excluding the impact of the SILO/LILO charges and
securities write-downs, international clients accounted
for 32% of revenue in 2008. Excluding the impact of
SILO/LILO charges, securities write-downs and
support agreement charges, international clients
accounted for 39% of income from continuing
operations in 2008. At Dec. 31, 2008, we had
approximately 8,000 employees in EMEA, 4,200
employees in APAC and 400 employees in other
global locations, primarily Brazil.

Foreign exchange rates
for one U.S. Dollar
(in millions)

Spot rate (at Dec. 31):
British pound
Euro

Yearly average rate:

British pound
Euro

2008

2007

2006

International financial data

$1.4626
1.3976

$1.9844
1.4594

$1.9591
1.3197

$1.8552
1.4713

$2.0018
1.3707

$1.8430
1.2562

Foreign activity includes asset and wealth
management and securities servicing fee revenue
generating businesses, foreign exchange trading
activity, loans and other revenue producing assets and
transactions in which the customer is domiciled
outside of the United States and/or the foreign activity
is resident at a foreign entity.

Foreign revenue, income before income taxes, net income and assets from foreign operations on a continuing
operations basis are shown in the table below:

International
operations

(in millions)

Revenues

2008

Income
before
taxes

Income
from
continuing
operations

2007 (a)

Income
before
taxes

Income
from
continuing
operations

Total
assets Revenues

Legacy The Bank of
New York Company, Inc. only
2006

Total
assets Revenues

Income
before
taxes

Income
from
continuing
operations

Total
assets

$ 8,650

$ 133

$ 123 (b) $183,565

$ 7,657 $2,041

$1,407 $137,179

$4,775 $1,605

$1,092 $ 71,053

3,601 (c) 1,176
338
292

794
607

859
247
213

49,037 (c) 2,780
3,527
553
1,383
344

743
247
194

Total foreign

5,002

1,806

1,319

53,947

3,677

1,184

509
172
139

820

52,722
5,209
2,546

60,477

1,517
338
208

2,063

423
104
38

565

286
72
26

384

24,855
4,204
3,076

32,135

Total

$13,652

$1,939

$1,442

$237,512

$11,334 $3,225

$2,227 $197,656

$6,838 $2,170

$1,476 $103,188

(a) Results for 2007 include six months of The Bank of New York Mellon Corporation and six months of legacy The Bank of New York

Company, Inc.

(b) Domestic income from continuing operations in 2008 was reduced by securities write-downs, SILO/LILO charges and support

agreement charges.

the U.K., which is 14% of total revenue and 11% of total assets.

In 2008, revenues from EMEA were $3.6 billion,
compared with $2.8 billion in 2007 and $1.5 billion in
2006. Revenues from EMEA were up 30% in 2008
compared to 2007. The increase in 2008 reflects the
impact of the acquisition of the remaining 50%
interest in BNY Mellon Asset Servicing B.V. and the

merger with Mellon Financial. Revenue from EMEA
in 2008 was spread across most of our segments.
Asset Servicing generated 48%, Asset Management
22%, Issuer Services 19% , Treasury Services 6% and
Clearing Services 5%. Net income from EMEA was
$859 million in 2008 compared with $509 million in

The Bank of New York Mellon Corporation

Domestic
Foreign:
EMEA
APAC
Other

Results of Operations (continued)

2007 and $286 million in 2006. Revenues from APAC
were $794 million in 2008 compared with $553
million in 2007 and $338 million in 2006. The
increase in APAC revenue in 2008 resulted from the
merger with Mellon Financial and new business.
Revenue from APAC in 2008 was generated by the
following segments: Asset Management 32%, Asset
Servicing 30%, Treasury Services 21%, Issuer
Services 15% and Clearing Services 2%. Net income
from APAC was $247 million in 2008 compared with
$172 million in 2007 and $72 million in 2006. Net
income from EMEA and APAC were driven by the
same factors affecting revenue. In addition, net
income from EMEA in 2008 compared with 2007 was
negatively impacted by the strength of the dollar
versus the British Pound. Conversely, net income
from EMEA in 2007 compared with 2006 was
positively impacted by the strength of the Euro and
British Pound versus the dollar.

Cross-border risk

Foreign assets are subject to general risks attendant to
the conduct of business in each foreign country,
including economic uncertainties and each foreign
government’s regulations. In addition, our foreign
assets may be affected by changes in demand or
pricing resulting from fluctuations in currency
exchange rates or other factors. Cross-border
outstandings include loans, acceptances, interest-
bearing deposits with other banks, other interest-
bearing investments, and other monetary assets which
are denominated in dollars or other non-local
currency. Also included are local currency
outstandings not hedged or funded by local
borrowings.

The table below shows our cross-border outstandings for the last three years where cross-border exposure exceeds
1.00% of total assets (denoted with “*”) or 0.75% of total assets (denoted with “**”).

Cross-border outstandings

(in millions)

2008:

Netherlands*
France*
Belgium*
United Kingdom*
Germany*
Ireland **

2007:

Netherlands*
Germany*
France*
United Kingdom*
Ireland*
Switzerland**

2006 – Legacy The Bank of New York Company, Inc. only:

Germany*
France*
United Kingdom*
Netherlands*
Canada*
Italy**
Switzerland**

Banks and
other financial
institutions

Public
sector

Commercial,
industrial
and other

Total
cross-border
outstandings

$2,459
2,865
2,579
2,386
2,285
1,153

$4,945
4,824
2,651
1,582
1,184
1,710

$4,241
2,197
1,211
653
723
992
767

-
140
-
-
-
-

-
178
150
-
5
-

$200
341
38
-
197
-
-

$1,888 (a)
90
288
430
277
1,167 (a)

$2,487
338
150
1,073
1,445
152

$ 402
35
1,025
753
233
17
121

$4,347
3,095
2,867
2,816
2,562
2,320

$7,432
5,340
2,951
2,655
2,634
1,862

$4,843
2,573
2,274
1,406
1,153
1,009
888

(a) Primarily European Floating Rate Notes.

Critical accounting estimates

Our significant accounting policies are described in the
Notes to Consolidated Financial Statements under
“Summary of Significant Accounting and Reporting
Policies”. Our more critical accounting estimates are
those related to the allowance for credit losses, fair

value of financial instruments and derivatives, other-
than-temporary impairment, goodwill and other
intangibles, and pension accounting. In addition to
“Summary of significant accounting and reporting
policies” in the Notes to Consolidated Financial
Statements, further information on policies related to
the allowance for credit losses can be found under

The Bank of New York Mellon Corporation

Results of Operations (continued)

“Asset quality and allowance for credit losses” in the
MD&A section. Further information on the valuation
of derivatives and securities where quoted market
prices are not available can be found under “Fair value
of financial instruments” in the Notes to Consolidated
Financial Statements. Further information on goodwill
and intangible assets can be found in “Goodwill and
intangibles” in the Notes to Consolidated Financial
Statements. Additional information on pensions can be
found in “Employee benefit plans” in the Notes to the
Consolidated Financial Statements.

Reserve for loan losses and reserve for unfunded
commitments

The allowance for credit losses and allowance for
lending related commitments consist of four elements:
(1) an allowance for impaired credits; (2) an allowance
for higher risk rated loans and exposures; (3) an
allowance for pass rated loans and exposures; and
(4) an unallocated allowance based on general
economic conditions and certain risk factors in our
individual portfolio and markets. Further discussion of
the four elements can be found under “Asset quality
and allowance for credit losses” in the Management’s
Discussion and Analysis section.

The allowance for credit losses represents
management’s estimate of probable losses inherent in
our credit portfolio. This evaluation process is subject
to numerous estimates and judgments. Probability of
default ratings are assigned after analyzing the credit
quality of each borrower/ counterparty and our
internal ratings are generally consistent with external
ratings agencies default databases. Loss given default
ratings are driven by the collateral, structure, and
seniority of each individual asset and are consistent
with external loss given default/recovery databases.
The portion of the allowance related to impaired
credits is based on the present value of expected
future cash flows; however, as a practical expedient, it
may be based on the credit’s observable market price.
Additionally, it may be based on the fair value of
collateral if the credit is collateral dependent. Changes
in the estimates of probability of default, risk ratings,
loss given default/recovery rates, and cash flows could
have a direct impact on the allocated allowance for
loan losses.

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.

The Bank of New York Mellon Corporation

We consider it difficult to quantify the impact of
changes in forecast on our allowance for credit losses.
Nevertheless, we believe the following discussion
may enable investors to better understand the
variables that drive the allowance for credit losses.

A key variable in determining the allowance is
management’s judgment in determining the size of the
unallocated allowance. At Dec. 31, 2008, the
unallocated allowance was $62 million, or 12% of the
total allowance. At Dec. 31, 2008, if the unallocated
allowance, as a percent of total allowance, was 5%
higher or lower, the allowance would have increased
approximately $32 million or decreased
approximately $26 million.

The credit rating assigned to each credit is another
significant variable in determining the allowance. If
each credit were rated one grade better, the allowance
would have decreased by $122 million, while if each
credit were rated one grade worse, the allowance
would have increased by $367 million. Similarly, if
the loss given default were one rating worse, the
allowance would have increased by $20 million, while
if the loss given default were one rating better, the
allowance would have decreased by $59 million. For
impaired credits, if the fair value of the loans were
10% higher or lower, the allowance would have
decreased or increased by $5 million, respectively.

Fair value of financial instruments

On Jan. 1, 2008, we adopted SFAS 157 and SFAS
159. For further information, see Note 2 to the Notes
to Consolidated Financial Statements.

SFAS 157 defines fair value, establishes a framework
for measuring fair value, and expands disclosures
about assets and liabilities measured at fair value. The
new standard provides a consistent definition of fair
value, which focuses on exit price, and prioritizes
within a measurement of fair value the use of market-
based inputs over entity-specific inputs. The standard
also establishes a three-level hierarchy for fair value
measurements based upon the transparency of inputs
to the valuation of an asset or liability as of the
measurement date. SFAS 157 nullifies the guidance in
EITF 02-3, which required deferral of profit at
inception of a derivative transaction in the absence of
observable data supporting the valuation technique.
The standard also eliminates large position discounts
for financial instruments quoted in active markets and
requires consideration of our own credit quality when
valuing liabilities.

Results of Operations (continued)

Fair value – Securities

Level 1

Recent quoted prices from exchange transactions are
used for debt and equity securities that are actively
traded on exchanges and for U.S. Treasury securities
and U.S. Government securities that are actively
traded in highly liquid over the counter markets. We
include these securities in Level 1 of the SFAS 157
hierarchy.

current market activity to generate evaluations for the
majority of issues that have not traded. They
discontinue pricing any specific security whenever
they determine there is insufficient observable data to
provide a good faith opinion on price. The pricing
sources did not discontinue pricing for any securities
in our investment securities portfolio at Dec. 31, 2008.

The prices provided by pricing sources are subject to
review and challenges by industry participants,
including ourselves.

Level 2

Level 3

For securities where quotes from recent transactions
are not available, we determine fair value primarily
based on pricing sources with reasonable levels of
price transparency that employ financial models or
obtain comparisons to similar instruments to arrive at
“consensus” prices. Model-based pricing performed
by the pricing sources uses observable inputs for
interest rates, paydowns, default rates, home price
appreciation or depreciation (severity), foreign
exchange rates, option volatilities and other factors.
Securities included in this category that are affected
by the lack of market liquidity include our Alt-A
residential mortgage-backed securities, prime
residential mortgage-backed securities, subprime
residential mortgage-backed securities, European
floating rate notes and commercial mortgage-backed
securities. In addition, we have significant
investments in more actively traded agency mortgage-
backed securities and the pricing sources derive the
prices for these securities largely from quotes they
obtain from three major inter-dealer brokers.

The pricing sources receive their daily observed trade
price and other information feeds from the interdealer
brokers.

For securities with bond insurance, the pricing sources
analyze the financial strength of the insurance
provider and include that information in the fair value
assessment determination for such securities.

The pricing sources provide an evaluation that
represents their good faith opinion, based on
information available, as to what a buyer in the
marketplace would pay for a security (typically in an
institutional round lot position) in a current sale.
Given that, on average, less than 1% of the
outstanding U.S. dollar debt trades on any given day,
the pricing sources generally draw parallels from

Where we have used our own cash flow models and
estimates to value the securities, we classify them in
Level 3 of the SFAS 157 hierarchy. Our Level 3
securities represent 1% of our securities recorded at
fair value and include certain asset-backed CDOs and
other retained interests in securitization transactions.

For details of our securities by SFAS 157 hierarchy
level, see Note 24 to the Notes to Consolidated
Financial Statements.

More than 99% of our securities are valued by pricing
sources with reasonable levels of price transparency.
Approximately 1% of our securities are priced based
on non-binding dealer quotes and are included in
Level 3 of the fair value hierarchy.

Fair value – Derivative financial instruments

Level 1

We include derivative financial instruments that are
actively traded on exchanges, principally foreign
exchange futures and forward contracts, in Level 1 of
the SFAS 157 hierarchy.

Level 2

The majority of our derivative financial instruments
are priced using the Company’s internal models which
use observable inputs for interest rates, pay-downs
(both actual and expected), foreign exchange rates,
option volatilities and other factors. The valuation
process takes into consideration factors such as
counterparty credit quality, liquidity, concentration
concerns, and results of stress tests. Substantially all
of our model-priced derivative financial instruments
are included in Level 2 of the SFAS 157 hierarchy.

The Bank of New York Mellon Corporation

Results of Operations (continued)

Level 3

Certain interest rate swaps with counterparties that are
highly structured entities require significant judgment
and analysis to adjust the value determined by
standard pricing models. These interest rate swaps are
included in Level 3 of the fair value hierarchy and
compose less than 1% of our derivative financial
instruments.

In order to test the appropriateness of the valuations,
we subject the models to review and approval by an
independent internal risk management function,
benchmark the models against similar instruments and
validate model estimates to actual cash transactions.
In addition, we perform detailed reviews and analyses
of profit and loss. Valuation adjustments are
determined and controlled by a function independent
of the area initiating the risk position. As markets and
products develop and the pricing for certain products
becomes more transparent, we refine our valuation
methods. Any changes to the valuation models are
reviewed by management to ensure the changes are
justified.

To confirm that our valuation policies are consistent
with exit price as prescribed by SFAS 157, we
reviewed our securities and derivative valuations
using recent transactions in the marketplace, pricing
services and the results of similar types of
transactions. As a result of maximizing observable
inputs as required by SFAS 157, in 2008 we began to
reflect external credit ratings as well as observable
credit default swap spreads for both ourselves as well
as 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. The cumulative effect of making
this derivative valuation adjustment was required by
SFAS 157 to be recorded in our earnings beginning in
the first quarter of 2008 and decreased foreign
exchange and other trading revenue $46 million in
2008.

For details of our derivative financial instruments by
SFAS 157 hierarchy level, see Note 24 to the Notes to
Consolidated Financial Statements.

Fair value option

SFAS 159 provides the option to elect fair value as an
alternative measurement for selected financial assets,
financial liabilities, unrecognized firm commitments,

The Bank of New York Mellon Corporation

and written loan commitments. Under SFAS 159, fair
value is used for both the initial and subsequent
measurement of the designated assets, liabilities and
commitments, with the changes in fair value
recognized in income. Effective Jan. 1, 2008, we
elected the fair value option for $390 million of
existing loans and unfunded loan commitments where
the related credit risks are partially managed utilizing
other financial instruments which are fair valued in
earnings and, as a result, we recorded a cumulative
effect decrease to retained earnings of $36 million.
Subsequently, $280 million was repaid in full;
accordingly, as of Dec. 31, 2008, only $110 million of
unfunded loan commitments were recorded at fair
value. These unfunded loan commitments are valued
using quotes from dealers in the loan markets, and we
include these in Level 3 of the SFAS 157 hierarchy.
See Note 25 to the Notes to Consolidated Financial
Statements for additional disclosure regarding SFAS
159. Also in 2008, we elected fair value accounting
for other short-term investments – U.S. government-
backed commercial paper ($5.6 billion) and
borrowings from Federal Reserve related to asset-
backed commercial paper ($5.6 billion). These
instruments are valued using pricing sources with
reasonable levels of price transparency, and are
included in Level 2 of the SFAS 157 hierarchy.

Fair value – Judgments

In times of illiquid markets and financial stress, actual
prices and valuations may significantly diverge from
results predicted by models. In addition, other factors
can affect our estimate of fair value, including market
dislocations, incorrect model assumptions, and
unexpected correlations.

These valuation methods could expose us to
materially different results should the models used or
underlying assumptions be inaccurate. See “Basis of
Presentation” in Note 1 to the Notes to Consolidated
Financial Statements.

Other-than-temporary impairment

We routinely conduct periodic reviews to identify and
evaluate each investment security that has an
unrealized loss to determine whether OTTI has
occurred. Almost all mortgage-backed securities
included in our investment securities portfolio are
valued using pricing sources with reasonable levels of
price transparency. Economic models, in conjunction
with pricing sources, are used to determine whether an
OTTI has occurred on these securities. Specifically,

Results of Operations (continued)

for each non-agency residential mortgage-backed
security in the investment portfolio (including but not
limited to those whose fair value is less than their
amortized cost basis), an extensive, regular review is
conducted to determine if an OTTI has occurred. The
scope of this review includes all factors relevant to a
possible finding that losses from the underlying
residential mortgages might directly impact the
investment security, including, among other elements:
a thorough evaluation of the credit quality and
performance of the security’s mortgage collateral; the
total credit enhancement, including the current level
of subordination protecting the security; a vintage-
and sector-specific estimation of the losses expected
from the underlying collateral; the timing and velocity
of these expected losses and their effect on the
projected future cash flows of the security; as well as
macro-economic considerations such as, most
pertinently, the current and expected decline in home
prices on both a national and regional basis. An
important driver in the value of mortgage-backed
securities in the market is peak-to-trough home
values. The peak-to-trough estimates are determined
by using several independent sources, including:
forecasts of future home price appreciation rates,
housing sales data, housing inventory levels, and other
significant housing market trends, as well as the
forward curve for interest rates. During 2008, housing
market indicators and the broader economy
deteriorated significantly. Therefore, in the fourth
quarter of 2008, we adjusted our modeling
assumptions to reflect this further deterioration.
Accordingly, we changed the modeling assumptions
on all Residential Mortgage-Backed Securities
(RMBS) with the primary changes being on the
default rates. In addition, to properly reflect the
declining value of homes in the current foreclosure
environment, the Company adjusted its RMBS loss
severity assumptions to decrease the amount it expects
to receive to cover the value of the original loan. If
principal and interest are not expected to be paid, we
record the difference between the carrying value and
the fair value as a charge to earnings. If actual
delinquencies, default rates and loss severity
assumptions worsen, we would expect additional
impairment losses to be recorded in future periods.

The HELOC portfolio holdings are regularly
evaluated for potential OTTI. The HELOC securities
are guaranteed, with credit enhancement provided by
a combination of excess spread, over-collaterali-
zation, subordination, and a note insurance policy
provided by a monoline insurer. For the HELOC
holdings, the rating is highly dependent upon the

rating of the monoline insurance provider. At Dec. 31,
2008, HELOCs with a face value of approximately
$707 million and a fair market value of approximately
$334 million are guaranteed by various monoline
insurers.

If a monoline insurer experiences a credit rating
downgrade and it is determined that the monoline
insurer may not be able to meets its obligations, the
HELOC holdings guaranteed by that insurer are
further evaluated based on the deal collateral and
structure without the insurer guarantee. Potential
losses are compared to the available total coverage
provided by excess spread, over-collateralization and
subordination for each bond to determine OTTI.

In addition, we assess OTTI for an appropriate subset
of our investment securities subject to EITF 99-20 and
as amended by FASB Staff Position EITF 99-20-1
“Amendments to the Impairment Guidance of EITF
Issue No. 99-20” by testing for an adverse change in
cash flows. Any unrealized loss on a security
identified as other than temporarily impaired under
EITF 99-20 analysis is charged to earnings.

Goodwill and other intangibles

We record all assets and liabilities acquired in
purchase acquisitions, including goodwill, indefinite-
lived intangibles, and other intangibles, at fair value as
required by SFAS Nos. 141 and 142 (“SFAS 141 and
SFAS 142”), “Business Combinations.” Goodwill
($15.9 billion at Dec. 31, 2008) and indefinite-lived
intangible assets ($2.7 billion at Dec. 31, 2008) are
not amortized but are subject to annual tests for
impairment or more often if events or circumstances
indicate 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
amount.

The initial recording of goodwill, indefinite-lived
intangibles, and other intangibles requires subjective
judgments concerning estimates of the fair value of
the acquired assets and liabilities. The goodwill
impairment test is performed in two phases. The first
step 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 exceeds its estimated fair
value, an additional procedure would be performed.

The Bank of New York Mellon Corporation

Results of Operations (continued)

That additional procedure would compare the implied
fair value of the reporting unit’s goodwill with the
carrying amount of that goodwill. An impairment loss
would be recorded to the extent that the carrying
amount of goodwill exceeds its implied fair value.

The carrying value of goodwill in each of the
Company’s business segments, which are our
reporting units under SFAS 142, was tested for
possible impairment in 2008 in accordance with SFAS
142, using market multiples of comparable
companies. In addition, material events and
circumstances that might be indicators of possible
impairment were assessed during interim periods.
These included the changing business climate,
regulatory and legal factors, the recoverability of
long-lived assets, changes in our competitors, and the
earnings outlook for the Company’s segments. No
goodwill impairment was indicated. Further, the
Company’s market capitalization exceeded its net
book value at the end of each quarter of 2008. Our
goodwill and intangible assets could be subject to
impairment in future periods if economic conditions
that impact our segments continue to worsen. Any
impairment would be a non-cash charge. Our tangible
common equity and regulatory capital would not be
impacted by such impairments.

Indefinite-lived intangible assets are evaluated for
impairment at least annually by comparing their fair
value to their carrying value. Other intangible assets
($3.2 billion at Dec. 31, 2008) are evaluated for
impairment if events and circumstances indicate a
possible impairment. Such evaluation of other
intangible assets is initially based on undiscounted
cash flow projections.

Fair value may be determined using: market prices,
comparison to similar assets, market multiples,
discounted cash flow analysis and other determinants.
Estimated cash flows may extend far into the future
and, by their nature, are difficult to determine over an
extended timeframe. Factors that may significantly
affect the estimates include, among others,
competitive forces, customer behaviors and attrition,
changes in revenue growth trends, cost structures and
technology, and changes in discount rates and specific
industry or market sector conditions. Other key
judgments in accounting for intangibles include useful
life and classification between goodwill and
indefinite-lived intangibles or other intangibles which
require amortization. See Note 5 of the Notes to

The Bank of New York Mellon Corporation

Consolidated Financial Statements for additional
information regarding intangible assets. At Dec. 31,
2008, we had $21.8 billion of goodwill, indefinite-
lived intangibles, and other intangible assets.

Pension accounting

BNY Mellon has defined benefit pension plans
covering approximately 24,700 U.S. employees and
approximately 3,400 non-U.S. employees.

The Bank of New York Mellon Corporation has three
qualified and several non-qualified defined benefit
pension plans in the U.S. and seven overseas. As of
Dec. 31, 2008, the U.S. plans accounted for 87% of
the projected benefit obligation. The pension credit for
The Bank of New York Mellon Corporation plans was
$20 million in 2008, compared with $4 million in
2007 (which includes six months of The Bank of New
York Mellon Corporation and six months of legacy
The Bank of New York Company, Inc. only) and $38
million of expense in 2006 (for legacy The Bank of
New York Company, Inc. only).

In addition to its pension plans, The Bank of New
York Mellon Corporation has an Employee Stock
Ownership Plan (“ESOP”). Benefits payable under the
legacy The Bank of New York Company, Inc. U.S.
qualified pension plan are offset by the equivalent
value of benefits earned under the ESOP.

A net pension credit of approximately $9 million is
expected to be recorded by the Company in 2009,
assuming currency exchange rates at Dec. 31, 2008.

Effective Jan. 1, 2009, the U.S. pension plans were
amended to change the benefit formula for
participants under age 50 as of Dec. 31, 2008 and for
new participants to a cash balance formula for service
earned on and after Jan. 1, 2009. This change was
made to unify the future benefits earned by the
employees of the legacy organizations. The change is
expected to have an insignificant impact on future
pension expense. Plan participants who were age 50
or older as of Dec. 31, 2008 will continue to earn
benefits under the formula of the legacy plan in which
they participated as of that date.

A number of key assumption and measurement date
values determine pension expense. The key elements
include the long-term rate of return on plan assets, the
discount rate, the market-related value of plan assets,
and the price used to value stock in the ESOP.

Results of Operations (continued)

Since 2006, these key elements have varied as
follows:

(dollars in millions, except per
share amounts)

Domestic plans:

Long-term rate of return

on plan assets

Discount rate
Market-related value of

plan assets (b)
ESOP stock price (b)
Net U.S. pension credit/

(expense)

All other net pension credit/

2009

2008

2007 (a)

2006 (a)

8.00% 8.00% 8.00%
6.38
6.38

6.00

7.88%
5.88

$3,651 $3,706 $1,352
33.12
34.85
47.15

$1,324
30.46

N/A $

39 $

16 (d) $ (26)

(expense)

N/A

(19)

(12) (e)

(12)

Total net pension credit/

(expense) (c)

N/A $

20 $

$ (38)

(a) Legacy The Bank of New York Company, Inc. only.
(b) Market-related value of plan assets are for the beginning of
the plan year. See “Summary of Significant Accounting and
Reporting Policies” in Note 1 of Notes to Consolidated
Financial Statements.

(d)

(e)

expense of $6 million in 2006.
Includes a $21 million credit for legacy Mellon Financial
plans based on a discount rate of 6.25% as of July 1, 2007,
and a long-term rate of return on plan assets of 8.25%.
Includes $4 million of expense for legacy Mellon Financial’s
foreign plans.

The discount rate for U.S. pension plans was
determined after reviewing a number of high quality
long-term bond indices whose yields were adjusted to
match the duration of the Company’s pension liability.
We also reviewed the results of several models that
matched bonds to our pension cash flows. After
reviewing the various indices and models, we selected
a discount rate of 6.38% as of Dec. 31, 2008.

The discount rates for foreign pension plans are based
on high quality corporate bonds rates in countries that
have an active corporate bond market. In those
countries with no active corporate bond market,
discount rates are based on local government bond
rates plus a credit spread.

Our expected long-term rate of return on plan assets is
based on anticipated returns for each applicable asset
class. Anticipated returns are weighted for the
expected allocation for each asset class. Anticipated
returns are based on forecasts for prospective returns
in the equity and fixed income markets, which should
track the long-term historical returns for these
markets.

We also consider the growth outlook for U.S. and
global economies, as well as current and prospective
interest rates.

The market-related value of plan assets also
influences the level of pension expense. Differences
between expected and actual returns are recognized
over five years to compute an actuarially derived
market-related value of plan assets. For the legacy
Mellon Financial plans, the market-related value of
assets was set equal to the assets’ market value as of
July 1, 2007. The averaging of actuarial gains and
losses for the legacy Mellon Financial plan assets will
be phased in over a five-year period beginning July 1,
2007.

Unrecognized actuarial gains and losses are amortized
over the future service period of active employees if
they exceed a threshold amount. The Company
currently has unrecognized losses which are being
amortized.

The annual impacts of hypothetical changes in the key
elements on pension costs are shown in the table
below.

Pension expense
(dollar amounts in millions,
except per share amounts)

Long-term rate of return on plan

assets

Change in pension expense
Discount rate
Change in pension expense
Market-related value of plan

assets

Change in pension expense

Increase in
pension expense

(Decrease) in
pension expense

(100) bp

(50) bp

50 bp

100 bp

$ 43.2

$ 21.6

$(21.5)

$(43.2)

(50) bp

(25) bp

25 bp

50 bp

$ 18.3

$ 7.6

$ (7.1)

$(15.0)

(20.0)% (10.0)% 10.0%
$(49.5)

$ 68.1

$145.0

ESOP stock price
Change in pension expense

$ (10)
$ 11.2

$
(5)
$ 5.5

$
5
$ (4.7)

Consolidated balance sheet review

20.0%
$(97.9)

$
10
$ (9.2)

In the second half of 2008, the size of our balance
sheet increased significantly, reflecting a large
increase in client deposits as clients reacted to the
volatile markets by seeking a safe haven for their
deposits. Asset levels peaked at $267.5 billion on
Sept. 30, 2008. At Dec. 31, 2008, total assets were
$237.5 billion, compared with $197.7 billion at
Dec. 31, 2007. Deposits totaled $159.7 billion at
Dec. 31, 2008 compared with $118.1 billion at
Dec. 31, 2007. Total assets averaged $210.0 billion in
2008 compared with $148.6 billion in 2007. Total
deposits

The Bank of New York Mellon Corporation

Results of Operations (continued)

averaged $127.0 billion in 2008 compared with $88.0
billion in 2007.

The higher level of client deposits received during the
second half of 2008 were placed in liquid funds with
either the Federal Reserve and other central banks or
in short-term deposits with large global banks. As a
result, our percentage of liquid assets to total assets
increased to 44% at Dec. 31, 2008 from 25% at
Dec. 31, 2007. At Dec. 31, 2008, we had
approximately $47 billion of liquid funds with large
global banks and cash of $58 billion (including
approximately $53 billion on deposit with the Federal
Reserve and other central banks) for a total of
approximately $105 billion of available funds. This
compares with available funds of $50 billion at
Dec. 31, 2007.

Included in total assets at Dec. 31, 2008 was $5.6
billion of U.S. government-backed commercial paper
funded by borrowings from the Federal Reserve Bank
under its ABCP MMMF Program. The ABCP
Program was implemented in the third quarter of 2008
by the Federal Reserve Bank to help restore liquidity
to the ABCP markets and thereby help money market
funds meet demand for redemptions.

Included in interest-bearing deposits with banks at
Dec. 31, 2008 was approximately $3 billion of
certificates of deposits (“CDs”) purchased from
money market mutual funds managed by Dreyfus.
During the second half of 2008, the Company
purchased approximately $21 billion of CDs from the
money market mutual funds. Approximately $18
billion of these CDs were repaid in the fourth quarter
of 2008. When the securities mature in 2009, no gain
or loss is expected to be recorded.

Investment securities were $39.4 billion or 17% of
total assets at Dec. 31, 2008, compared with $48.7
billion or 25% of total assets at Dec. 31, 2007. The
decrease in investment securities primarily relates to
higher unrealized securities losses as well as
paydowns in the mortgage-backed securities portfolio.

Loans were $43.4 billion or 18% of total assets at
Dec. 31, 2008, compared with $50.9 billion or 26% of
total assets at Dec. 31, 2007. The decrease in loan
levels was primarily due to the implementation of our
institutional credit strategy to reduce targeted
exposure (discussed further on page 53) and the sale
of M1BB in 2008.

Trading assets were $11.1 billion at Dec. 31, 2008
compared with $6.4 billion at Dec. 31, 2007. Trading

The Bank of New York Mellon Corporation

liabilities were $8.1 billion at Dec. 31, 2008 compared
with $4.6 billion at Dec. 31, 2007. The increase in
both trading assets and trading liabilities resulted from
extreme volatility in the currency markets.

Total shareholders’ equity was $28.1 billion at
Dec. 31, 2008 compared with $29.4 billion at Dec. 31,
2007. The decrease reflects higher unrealized
mark-to-market losses in the investment securities
portfolio, partially offset by the issuance of the Series
B preferred stock and earnings retention.

Investment securities

The following table shows the distribution of our
securities portfolio:

Investment securities (at fair value)
(in millions)

Dec. 31,
2008

Dec. 31,
2007

Fixed income securities:

Mortgage and asset-backed

securities
Corporate debt
Short-term money market

instruments

U.S. government obligations
U.S. government agencies
State and political subdivisions
Other foreign debt

$32,081
1,678

$44,933
560

106
781
1,299
1,076
10

450
438
778
721
298

Subtotal fixed income securities

37,031

48,178

Equity securities:

Money market or fixed income funds
Other

Subtotal equity securities

1,325
41

1,366

407
104

511

Total investment securities – fair value
Total investment securities – carrying value

$38,397
$39,435

$48,689
$48,698

At Dec. 31, 2008, the carrying value of our investment
securities portfolio was $39.4 billion compared with
$48.7 billion at Dec. 31, 2007. Average investment
securities were $44.4 billion in the 2008 compared
with $35.4 billion in 2007.

In 2008, we reassessed the classification of certain
asset-backed and mortgage-backed securities and
reclassified $6.1 billion at fair value of our
available-for-sale securities to held-to-maturity. The
related unrealized pretax loss on these securities was
$564 million at Dec. 31, 2008. The accumulated other
comprehensive income (“OCI”) remained in OCI and
is being amortized as a yield adjustment through
earnings over the remaining terms of the securities.

We consider the held-to-maturity classification to be
more appropriate because we have the ability and the
intent to hold the securities to maturity.

Results of Operations (continued)

The following table provides the detail of our securities portfolio.

Securities portfolio
Dec. 31, 2008

(dollar amounts in millions)

Watch list:
Alt-A RMBS
Prime/Other RMBS
Subprime RMBS
Commercial MBS
ABS CDOs
Credit cards
Trust preferred securities
Home equity lines of credit
SIV securities
Other

Total watch list (c)

Agencies
European floating rate notes
Other

Amortized
Cost

Fair
Value

Fair Value
as % of
Amortized

Cost (a)

Portfolio
Aggregate
Unrealized
Gain/(Loss)

Year-to-date
Change in
Unrealized
Gain/(Loss)

Life-to-
date
Impairment

Charge (b)

Ratings (d)

AAA AA

A Other

$ 7,499 $ 4,735
5,004
987
2,137
19
524
41
334
109
261
14,151

6,785
1,578
2,846
35
747
100
558
126
396
20,670

11,561
7,582
6,198

11,621
6,411
6,214

53%
74
60
75
5
67
32
46
49
59
62

101
85
100

$(2,764)
(1,781)
(591)
(709)
(16)
(223)
(59)
(224)
(17)
(135)
(6,519)

60
(1,171)
16

$(2,630)
(1,741)
(456)
(713)
71
(223)
(59)
(224)
12
(126)
(6,089)

26
(988)
47

$1,397
15
68
22
141
35
28
173
95
46
2,020

53% 12% 12% 23%
75
22
98
30
-
-
-
40
8
62

7
7
1
69
-
32
76
36
80
14

7
16
-
-
94
-
1
13
5
11

11
55
1
1
6
68
23
11
7
13

-
-
-

100
98
72

-
2
7

-
-
6

-
-
15

Total

$46,011 $38,397

80%

$(7,614)

$(7,004)

$2,020

81% 6% 5%

(a) Amortized cost before impairments.
(b) Life-to-date impairment charges include $301 million associated with the consolidation of TRFC in December 2007 and $45 million

associated with the consolidation of Old Slip in December 2008.

(c) The “Watch list” includes those securities we view as having a higher risk of additional impairment charges.
(d) Subsequent to Dec. 31, 2008, the rating agencies downgraded the ratings on approximately 7.7% of the securities portfolio.

The unrealized net of tax loss on our total securities
available for sale portfolio was $4.1 billion at Dec. 31,
2008. The unrealized net of tax loss includes $56
million related to securities available for sale for
which the valuation fell within Level 3 of the SFAS
157 hierarchy. See Note 24 in the Notes to
Consolidated Financial Statements for an explanation
of SFAS 157 fair value hierarchy. The unrealized net
of tax loss at Dec. 31, 2007 was $342 million. The
unrealized net of tax loss increased in 2008 compared
with 2007 due to wider credit spreads reflecting
market illiquidity. At Dec. 31, 2008, the securities in
our portfolio continued to remain highly rated, with
87% rated AAA/AA. We continue to have the ability
and intent to hold our investment securities until any
temporary impairment is recovered, or until maturity.

We routinely test our investment securities for OTTI.
(See “Critical estimates” for additional disclosure
regarding OTTI.) In 2008, the housing market
indicators and the broader economy deteriorated
significantly. As a result, during 2008, we adjusted
our modeling assumptions to reflect this deterioration.
Accordingly, we changed the modeling assumptions
on all Residential Mortgage-Backed Securities
(“RMBS”) with the primary changes being on the
default rates. In addition, to properly reflect the
declining value of homes in the current foreclosure
environment, the Company adjusted its RMBS loss

severity assumptions to decrease the amount it expects
to receive to cover the value of the original loan. As a
result of these adjustments to our assumptions, a
larger number of securities (primarily Alt-A)
generated an expected loss and consequently, we
recorded an impairment charge and wrote down to
current market value certain securities, resulting in a
pre-tax securities loss of $1.6 billion.

The life-to-date expected incurred loss included in
securities write-downs recorded through Dec. 31,
2008 is estimated to be approximately $535 million.
The difference between the expected incurred loss and
the total impairment charges is largely driven by the
market illiquidity relating to mortgage-backed
securities. The underlying market discount rate rose
throughout 2008, particularly during the fourth
quarter, and accounted for the gap between the
expected incurred loss and the impairment charges.
The expected incurred loss is determined based on a
projected principal write-down of a mortgage-backed
security that occurs when the losses on the underlying
mortgage pool are expected to be large enough to
cause a reduction in the total mortgage contractual
amount of principal that the Company is entitled to
receive pursuant to terms of the security. Securities
with an unrealized loss that is determined to be other-
than-temporary are written down to fair value, with
the write-down recorded as a recognized loss in

The Bank of New York Mellon Corporation

Results of Operations (continued)

securities gains (losses). A portion of the difference
between the expected incurred loss and fair market
value loss is accreted into interest revenue over
management’s best estimate of the remaining life of
the security.

The following table provides pre-tax securities losses
by type, as well as the expected incurred loss by
security.

Securities portfolio losses

Life-to-date

(in millions)

Alt-A RMBS
Prime/Other RMBS
Subprime RMBS
Commercial MBS
ABS CDOs
Credit cards
Trust preferred securities
Home equity lines of credit
SIV securities
Other

Total

Expected
incurred
loss

$182
-
-
-
126
-
4
82
95
46
$535

Impairment

charges (a)
$1,397
15
68
22
141
35
28
173
95
46
$2,020

(a)

Includes $45 million associated with the consolidation of Old
Slip in 2008 and $301 million associated with the
consolidation of TRFC in 2007. Excludes $184 million of
impairment charges related to securities transferred to the
trading portfolio in 2008. These securities had a fair value of
$5 million at Dec. 31, 2008.

If the expected performance of the underlying
collateral of any or all of these securities deteriorates,
additional impairments may be recorded against such
securities in future periods, as necessary.

At the time of purchase, 100% of our Alt-A portfolio
was rated AAA. At Dec. 31, 2008, this portfolio had
migrated to 53% AAA-rated, 12% AA-rated, 12%
A-rated and 23% other. At the time of purchase, the
portfolio’s weighted-average FICO score was 715 and
its weighted-average LTV was 74%.

Approximately 50% of the total portfolio is supported
by better performing fixed-rate collateral and the
portfolio’s weighted-average current credit
enhancement is approximately 13%. The unrealized
loss on the Alt-A portfolio at Dec. 31, 2008 was $2.8
billion. At Dec. 31, 2008 approximately 2.3% of the
Alt-A portfolio consisted of pay-option adjustable rate
mortgage collateral (“option ARMS”). Securities for
which option ARMs were all or a portion of the
underlying collateral were rated AAA (77%) and AA
(23%).

The Bank of New York Mellon Corporation

The table below shows the vintages of our Alt-A,
prime mortgage, subprime mortgage and commercial
mortgage-backed securities portfolios at Dec. 31,
2008.

Amortized
cost

Fair
value

Life-to-date
impairment
charges

Fair value
as a % of
amortized

cost (a)

Vintages at Dec. 31,
2008

(in millions)

Alt-A vintage

2007
2006
2005
2004 and earlier

Total
Prime mortgage

2007
2006
2005
2004 and earlier

Total

Subprime mortgage

$1,954
2,434
2,314
797
$7,499

$2,137
1,374
1,888
1,386
$6,785

Total

2007
2006
2005
2004 and earlier

$ 127
170
233
1,048
$1,578
Commercial mortgage-backed
$ 893
697
581
675
$2,846

2007
2006
2005
2004 and earlier

Total

$1,208
1,418
1,539
570
$4,735

$1,488
934
1,423
1,159
$5,004

83
109
111
684
$ 987

$ 609
487
411
630
$2,137

$ 618
536
243
-
$1,397

3
-
-
12
15

29
26
1
12
68

12
10
-
-
22

47%
48
60
72
53%

70%
68
75
83
74%

53%
56
47
65
60%

67%
69
71
93
75%

(a) Fair value as a percentage of amortized cost before

impairment.

At Dec. 31, 2008, the fair value of our subprime
mortgage securities portfolio was $987 million with
77% of the portfolio rated AA or higher. The
weighted-average current credit enhancement on this
portfolio was approximately 34% at Dec. 31, 2008.

At Dec. 31, 2008, the fair value of our total ABS
CDOs was $24 million. The fair value of this
portfolio, net of OTTI, was 5% of par at Dec. 31,
2008. At Dec. 31, 2008, $5 million of ABS CDOs are
included in trading assets and $19 million are included
in securities available-for-sale. The CDO securities
are included in Level 3 in the fair value hierarchy as
described in Note 24 to the Notes to Consolidated
Financial Statements.

The HELOC securities are tested for impairment
based on the quality of the underlying security and the
condition of the monoline insurer providing credit
support. Securities were deemed impaired if we
expected they would not be repaid in full without the

Results of Operations (continued)

support of the insurer and the insurer was rated below
investment grade. The HELOC securities write-downs
in 2008 ($104 million) resulted from both
deterioration of specific securities combined with
weakening credit support due to below investment
grade ratings of certain bond insurers.

At Dec. 31, 2008, our portfolio included $126 million,
at amortized cost, of SIV securities. These securities
were carried at 49% of par. On Jan. 8, 2008, we were
notified of an enforcement action against one of the
SIV securities held in our portfolio. This enforcement
action will likely result in the liquidation of that SIV.
We expect to receive an in-kind vertical slice of the
underlying assets held by the SIV upon liquidation.
The underlying assets held by the SIV were rated 50%
AAA, 14% AA, 18% A and 18% other at Dec. 31,
2008.

At Dec. 31, 2008, the fair value of the SIV securities
was determined by reviewing the assets underlying
the securities. The underlying assets were priced
primarily using broker quotes and vendor prices. The
SIV securities are included in Level 3 in the fair value
hierarchy as described in Note 24 to the Notes to
Consolidated Financial Statements.

The following tables show the geographic location
and ratings of the fair value of the European floating
rate notes.

Fair value
(dollars in
millions)

RMBS
Other

Total

RMBS
Other

Total

United
Kingdom

$2,298
449

$2,747
AAA

Netherlands

Other

Total

$1,472
85

$1,557
AA

$1,540
567

$2,107
A

$5,310
1,101

$6,411
Other

98%
96

98%

2%
3

-%
1

-%
-

For $78 million of SIV securities in the
available-for-sale portfolio, we are recording interest
on a cash basis.

No material gains or losses were recorded on
securities sold from the available-for-sale portfolio in
2008.

Included in our securities portfolio are the following
securities that have a credit enhancement through a
guarantee by a monoline insurer:

Investment securities guaranteed
by monoline insurers
(in millions)

Municipal securities
Mortgage-backed securities
Home equity lines of credit securities
Other asset-backed securities

Total fair value

Amortized cost less write-downs

Mark-to-market unrealized gain/(loss)

Dec. 31,
2008

Dec. 31,
2007

$ 591
171
334
7

$ 660
250
779
10

$1,103 (a) $1,699

$1,384

$1,616

(pre-tax)

$ (281)

(a) The par value guaranteed by the monoline insurers was $1.5

billion.

At Dec. 31, 2008, these securities were rated 22%
AAA, 28% AA, 25% A, and 25% other. In all cases,
when purchasing the securities, we reviewed the credit
quality of the underlying securities, as well as the
insurer.

The Bank of New York Mellon Corporation

Results of Operations (continued)

The following table shows the maturity distribution by carrying amount and yield (not on a tax equivalent basis) of
our securities portfolio at Dec. 31, 2008.

Securities portfolio

U.S.
government

U.S.
government
agency

States and
political
subdivisions

Other bonds,
notes and
debentures

Mortgage/
asset-backed
and equity
securities

(dollars in millions)

Amount Yield (a) Amount Yield (a) Amount Yield (a) Amount Yield (a) Amount Yield (a)

Total

Securities held-to-maturity:
One year or less
Over 1 through 5 years
Over 5 through 10 years
Over 10 years
Mortgage-backed securities
Equity securities
Total

Securities available-for-sale:
One year or less
Over 1 through 5 years
Over 5 through 10 years
Over 10 years
Mortgage-backed securities
Asset-backed securities
Equity securities
Total

-
-
-
-
-
-
-

-% $
-
-
-
-
-
-% $

-
-
-
-
-
-
-

-%
-
-
-
-
-
-%

$213 2.08% $
477 2.66
91 3.81
-
-
-
-

-
-
-
-

-
1,299 2.92
-
-
-
-
-
-
-
-
-
-

$781 2.62% $1,299 2.92%

-
3
13
177
-
-
$193

$ 23
31
257
572
-
-
-
$883

(a) Yields are based upon the amortized cost of securities.
(b)

Includes $78 million, for which we are recording interest on a cash basis.

-% $

6.46
6.68
6.69
-
-

6.69% $

4 2.09%
-
-
-
-
-
4 2.09%

-
-
-
-
-

$-
-
-
-
7,171
3
7,174

4
-% $
3
-
13
-
177
-
7,171
4.81
3
4.13
4.81% $ 7,371

8.77% $ 232 4.41%
9.63
4.98
10.15
-
-
-

-% $
-
-
-
-
-
-
-
24,375
3.76
1,573 (b) 4.14
1.20
1,363
3.68
9.85% $1,790 3.65% 27,311

1,027 4.07
180 5.10
351 2.00
-
-
-

468
2,834
528
923
24,375
1,573
1,363
$32,064

-
-
-

We also have equity investments categorized as other
assets (bracketed amounts indicate carrying values).
Included in other assets are joint ventures and other
equity investments ($1.3 billion), strategic
investments related to asset management ($272
million), Federal Reserve Bank stock ($342 million),
private equity investments ($209 million), and tax
advantaged low-income housing investments ($300
million).

million, and leveraged bond funds of $11 million. Fair
values for private equity funds are generally based
upon information provided by fund sponsors and our
knowledge of the underlying portfolio while
mezzanine financing and direct equity investments are
based upon Company models. In 2008, we had an
average invested balance of $239 million in private
equity. Investment income and interest income were
less than $1 million in 2008.

Our equity investment in Wing Hang had a fair value
of $345 million (book value of $279 million) at Dec.
31, 2008. An agreement with certain other
shareholders of Wing Hang prohibits the sale of this
interest without their permission. We received
dividends from Wing Hang of $26 million, $17
million, and $18 million in 2008, 2007 and 2006,
respectively.

Private equity activities consist of investments in
private equity funds, mezzanine financings, and direct
equity investments. Consistent with our policy to
focus on our core activities, we continue to reduce our
exposure to these activities. The carrying and fair
value of our private equity investments was $209
million at Dec. 31, 2008, down $60 million from $269
million at Dec. 31, 2007. At Dec. 31, 2008, private
equity investments consisted of investments in private
equity funds of $187 million, direct equity of $11

At Dec. 31, 2008, we had $41 million of unfunded
investment commitments to private equity funds and
partnerships. The timing of future cash requirements
to fund such commitments is generally dependent on
the investment cycle. This cycle, the period over
which privately-held companies are funded by private
equity investors and ultimately sold, merged, or taken
public through an initial public offering, can vary
based on overall market conditions as well as the
nature and type of industry in which the companies
operate. If unused, the commitments expire between
2010 and 2013.

Commitments to private equity limited partnerships
may extend beyond the expiration period shown
above to cover certain follow-on investments, claims
and liabilities, and organizational and partnership
expenses.

The Bank of New York Mellon Corporation

Results of Operations (continued)

Loans

Total loans
(in billions)

Period-end:

Non-margin
Margin

Total

Yearly average: (a)

Non-margin
Margin

Dec. 31,

2008

2007 (a)

$39.4
4.0

$43.4

$45.7
5.2

$50.9

$42.7
5.4

$36.1
5.4

Total

$41.5
(a) The yearly average for 2007 includes six months of The Bank
of New York Mellon Corporation and six months of legacy
The Bank of New York Company, Inc.

$48.1

Total loans were $43.4 billion at Dec. 31, 2008,
compared with $50.9 billion at Dec. 31, 2007. The
decrease in total loans primarily reflects a decrease in
loans to broker-dealers, overdrafts, margin loans and
lease financings, partially offset by an increase in
wealth management loans and mortgages.

Average total loans were $48.1 billion in 2008
compared with $41.5 billion in 2007. The increase in
average loans primarily resulted from increased
overdrafts and broker-dealer loans, including the
impact of the liquidity crisis in the second half of

2008, as well as the merger with Mellon Financial. At
Dec. 31, 2008, we had no exposure to SIVs in our
loan portfolio.

We have implemented the following institutional
credit strategies:

Š We increased our targeted exposure reduction to
$14 billion from the original target of $4.5
billion and the third quarter 2008 revised target
of $10 billion.
– As of Dec. 31, 2008, we have achieved

approximately $10 billion of the increased
targeted exposure reduction.

Š Focus on investment grade names to support

cross selling.

Š Avoid single name/industry concentrations,
using credit default swaps as appropriate.

Š Exit high risk portfolios.

The anticipated impact of this strategy will include
lower expected credit losses and a decrease in the
volatility of the provision for credit losses through the
credit cycle, together with a modest reduction in net
interest revenue and associated capital markets fees.

The following table provides details on our credit
exposures and outstandings at Dec. 31, 2008
compared with Dec. 31, 2007.

Total exposure – consolidated

(in billions)

Non-margin loans:

Financial institutions
Commercial

Subtotal institutional

Wealth management loans and mortgages
Commercial real estate
Lease financing
Other residential mortgages
Overdrafts
Other

Subtotal non-margin loans

Margin loans

Total

Dec. 31, 2008
Unfunded
commitments

Total
exposure

Loans

Dec. 31, 2007
Unfunded
commitments

Total
exposure

$23.2
24.9

$34.2
31.2

$14.1
6.0

$32.2
27.8

$ 46.3
33.8

48.1
2.3
1.7
0.1
0.1
-
0.3

52.6
-

65.4
7.6
4.8
4.1
2.6
7.0
0.5

92.0
4.0

20.1
4.5
3.0
4.9
3.1
9.7
0.4

45.7
5.2

60.0
1.9
1.7
0.1
-
-
0.3

64.0
-

80.1
6.4
4.7
5.0
3.1
9.7
0.7

109.7
5.2

Loans

$11.0
6.3

17.3
5.3
3.1
4.0
2.5
7.0
0.2

39.4
4.0

$43.4

$52.6

$96.0

$50.9

$64.0

$114.9

At Dec. 31, 2008, total exposures were $96.0 billion, a
reduction of $18.9 billion compared with 2007,
reflecting our previously mentioned institutional
credit strategy to reduce risk in our portfolio. Our

financial institutions and commercial portfolios
comprise our largest concentrated risk. These
portfolios make up 68% of our total lending exposure.

The Bank of New York Mellon Corporation

Results of Operations (continued)

Financial institutions

The diversity of the financial institutions portfolio is shown in the following table.

Financial institutions
portfolio exposure
(dollar amounts in billions)

Insurance
Securities industry
Asset managers
Banks
Government
Other

Total

Dec. 31, 2008

Unfunded
commitments

Total
exposure

% Inv
grade

% due
<1 yr

Loans

Dec. 31, 2007
Unfunded
commitments

Total
exposure

$ 6.4
2.9
5.5
2.4
3.0
3.0

$23.2

$ 7.0
6.9
6.3
5.9
4.4
3.7

$34.2

98%
94
92
63
99
89

90%

26% $ 0.2
92
6.9
86
1.2
87
4.2
42
0.1
53
1.5
66% $14.1

$ 7.2
5.2
9.9
3.2
3.2
3.5

$32.2

$ 7.4
12.1
11.1
7.4
3.3
5.0

$46.3

Loans

$ 0.6
4.0
0.8
3.5
1.4
0.7

$11.0

The financial institutions portfolio exposure was
$34.2 billion at Dec. 31, 2008, compared to
$46.3 billion at Dec. 31, 2007. The change from Dec.
31, 2007 reflects a decrease in nearly all exposure
categories. Exposures to financial institutions are high
quality with 90% meeting the investment grade
equivalent criteria of our rating system. These
exposures are generally short-term, with 66% expiring
within one year, and are frequently secured by
securities that we may hold in custody on behalf of
those financial institutions. For example, securities
industry and asset managers often borrow against
marketable securities held in custody.

Exposure to banks is largely to investment grade
counterparties in developed countries.
Non-investment grade bank exposures are short term
in nature supporting our global trade finance and U.S.
dollar clearing businesses in developing countries
globally. As a conservative measure, our internal
credit rating classification for international

Commercial

counterparties caps the rating based upon the
sovereign rating of the country where the counterparty
resides regardless of the credit rating of the
counterparty or the underlying collateral.

The asset manager portfolio exposures are high
quality with 92% meeting our investment grade
equivalent ratings criteria. These exposures are
generally short-term liquidity facilities with the vast
majority to regulated mutual funds. At Dec. 31, 2008,
we had no lending exposure to SIVs.

At Dec. 31, 2008, insurance exposure in the table
above included $122 million of direct credit exposure
to five monoline financial guaranty insurers, down
49% from $240 million at Dec. 31, 2007. We also
extend facilities which provide liquidity, primarily for
variable rate tax exempt securities wrapped by
monoline insurers. The credit approval for these
facilities is based on an assessment of the underlying
tax exempt issuer and is not solely dependent upon the
monoline.

The diversity of the commercial portfolio is shown in the following table.

Commercial portfolio exposure

Dec. 31, 2008

(dollar amounts in billions)

Loans

Unfunded
commitments

Total
exposure

% Inv
grade

% due
<1 yr

Loans

Media and telecom
Manufacturing
Energy and utilities
Services and other

Total

$1.1
1.5
1.7
2.0

$6.3

$ 2.3
7.9
6.1
8.6

$24.9

$ 3.4
9.4
7.8
10.6

$31.2

58%
81
93
76

80%

16% $1.4
21
1.9
10
1.0
32
1.7
21% $6.0

Dec. 31, 2007
Unfunded
commitments

Total
exposure

$ 2.8
9.2
6.4
9.4
$27.8

$ 4.2
11.1
7.4
11.1
$33.8

The Bank of New York Mellon Corporation

Results of Operations (continued)

The commercial portfolio exposure decreased to $31.2
billion at Dec. 31, 2008, from $33.8 billion at Dec. 31,
2007, primarily reflecting decreased exposure to the
manufacturing industry (including $1.2 billion due to
the sale of M1BB) and media and telecom. Our goal is
to migrate towards a predominantly investment grade
portfolio, with targeted exposure reductions over the
next several years.

We continue to actively monitor automotive industry
exposure given ongoing weakness in the domestic
automotive industry. At Dec. 31, 2008, total
exposures in our automotive portfolio included $224
million of secured exposure to two of the big three
U.S. automotive manufacturers and a total of $169
million to 7 suppliers.

The table below summarizes the percent of the
financial institutions and commercial exposures that
are investment grade:

Percent of the portfolios
that are investment grade

Financial institutions
Commercial

Dec. 31,
2008

Dec. 31,
2007

90%
80%

88%
82%

Wealth management loans and mortgages

Wealth management loans and mortgages are
primarily composed of loans to high-net-worth
individuals secured by marketable securities, and
jumbo mortgages.

Commercial real estate

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 include both construction
facilities and medium-term loans. 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 flow, and
supported by appraisals and a knowledge of local
market conditions. Development loans are structured
with moderate leverage, and in most instances,
involve some level of recourse to the developer. Our
commercial real estate exposure totaled $4.8 billion at
Dec. 31, 2008 compared with $4.7 billion at Dec. 31,
2007. The modest increase primarily resulted from
loans secured by residential and office buildings and
loans to investment grade and real estate investment
trusts (“REITs”). At Dec. 31, 2008, approximately
75% of our commercial real estate portfolio is

secured. The secured portfolio is diverse by project
type with approximately 45% secured by residential
buildings, approximately 25% secured by office
buildings, 9% secured by retail properties, and
approximately 21% by other categories.
Approximately 92% of the unsecured portfolio is
allocated to REITs under revolving credit agreements.

At Dec. 31, 2008, our commercial real estate portfolio
is comprised of the following concentrations: New
York metro – 35%; Florida – 23%; investment grade
REITs – 23% and other – 19%. Given the weakness in
the South Florida real estate markets, we have
experienced credit deterioration in the portfolio and
expect this trend to continue during 2009.

Lease financings

We utilize the leasing portfolio as part of our tax cash
flow management strategy. The leasing portfolio
consisted of non-airline exposures of $3.9 billion and
$241 million of airline exposures at Dec. 31, 2008.
Approximately 91% of the non-airline exposure is
investment grade, or investment grade equivalent.

At Dec. 31, 2008, the non-airline portion of the
leasing portfolio consisted of $3.9 billion of exposures
backed by well-diversified assets, primarily large-
ticket transportation equipment. The largest
component is rail, consisting of both passenger and
freight trains. Assets are both domestic and foreign-
based, with primary concentrations in the United
States and European countries. Excluding airline
leasing, counterparty rating equivalents at Dec. 31,
2008, were as follows:

Š
Š
Š
Š

28% of the counterparties are AA or better;
42% are A;
21% are BBB, and
9% are non-investment grade

At Dec. 31, 2008, our $241 million of exposure to the
airline industry consisted of a $19 million real estate
lease exposure as well as the airline-leasing portfolio
which included $85 million to major U.S. carriers,
$121 million to foreign airlines and $16 million to
U.S. regionals.

In 2008, the airline industry continued to face
challenging operating conditions. A weaker economic
outlook for 2009 had a dampening effect on aircraft
values in the secondary market. Because of these
factors, we continue to maintain a sizable allowance
for loan losses against these exposures and to closely
monitor the portfolio.

The Bank of New York Mellon Corporation

Results of Operations (continued)

Other residential mortgages

Overdrafts

The other residential mortgage portfolio primarily
consists of 1- 4 family residential mortgage loans. At
Dec. 31, 2008, we had less than $15 million in
subprime mortgages included in this portfolio. The
subprime loans were issued to support our
Community Reinvestment Act requirements.

Overdrafts primarily relate to custody and securities
clearance clients. Overdrafts occur on a daily basis in
the custody and securities clearance business and are
generally repaid within two business days.

Other loans

Other loans are composed largely of Community
Development Corporation and non-mortgage
Community Reinvestment Act loans.

Loans by product

The following table shows trends in the loans outstanding at year-end on a continuing operations basis over the
last five years based on a product analysis.

Loans by product – at year end
(in millions)

Domestic:
Commercial and industrial loans
Real estate loans:

Construction and land development
Other, principally commercial mortgages
Collateralized by residential properties

Banks and other financial institutions
Loans for purchasing or carrying securities
Lease financings

Less: Unearned income on lease financings

Wealth loans
Margin loans
Other

Total domestic

Foreign:
Commercial and industrial loans
Banks and other financial institutions
Lease financings

Less: Unearned income on lease financings

Government and official institutions
Other

Total foreign

Less: Allowance for loan losses

Net loans

International loans

We have credit relationships in the international
markets, particularly in areas associated with our
securities servicing and trade finance. Excluding lease
financings, these activities resulted in outstanding
international loans of $7.9 billion and $11.7 billion at
Dec. 31, 2008 and 2007, respectively. This decrease
primarily resulted from a lower level of overdrafts
related to custody and securities clearance clients.

The Bank of New York Mellon Corporation

Legacy The Bank of New York
Company, Inc. only

2008

2007

2006

2005

2004

$ 6,537

$ 6,553

$ 4,814

$ 3,676

$ 3,411

812
1,197
5,489
3,376
4,099
2,754
(902)
1,866
3,977
4,152

772
1,789
4,806
3,737
6,208
3,206
(1,174)
1,857
5,210
3,314

284
422
3,815
2,494
7,114
3,032
(832)
266
5,167
1,336

324
554
2,710
2,266
4,935
3,262
(938)
378
6,089
946

284
863
1,983
1,323
3,028
3,595
(1,072)
431
6,059
548

33,357

36,278

27,912

24,202

20,453

668
4,714
4,088
(1,934)
1,437
1,064

10,037
(415)

913
8,940
5,811
(2,876)
312
1,553

14,653
(327)

1,111
5,350
5,802
(2,504)
9
113

9,881
(287)

1,184
4,196
5,816
(2,615)
101
43

8,725
(326)

793
3,939
5,871
(2,731)
42
8

7,922
(491)

$42,979

$50,604

$37,506

$32,601

$27,884

At Dec. 31, 2008, our emerging markets exposures,
which are primarily included in foreign loans in the
table above, totaled approximately $5.1 billion. These
exposures consisted primarily of short-term loans, and
a $279 million investment in Wing Hang, which is
located in Hong Kong. This compares with emerging
market exposure of $5.9 billion in 2007, including an
investment of $275 million in Wing Hang.

Results of Operations (continued)

Maturity of loan portfolio

The following table shows the maturity structure of our loan portfolio at Dec. 31, 2008.

Maturity of loan portfolio (a)

(in millions)

Domestic:
Real estate, excluding loans collateralized by 1-4 family residential properties
Commercial and industrial loans
Loans for purchasing or carrying securities
Margin loans
Other, excluding loans to individuals and those collateralized by 1-4 family residential

properties

Subtotal

Foreign

Total

Within
1 year

859
1,119
3,894
3,977

5,931

15,780
6,990

Between
1 and 5
years

After
5 years

$ 805
5,148
205
-

1,487

7,645
887

$345
270
-
-

110

725
2

Total

$ 2,009
6,537
4,099
3,977

7,528

24,150
7,879

$22,770

$8,532 (b)

$727 (b) $32,029

(a) Excludes loans collateralized by residential properties, lease financings and wealth loans.
(b) Variable rate loans due after one year totaled $8.960 billion and fixed rate loans totaled $299 million.

Asset quality and allowance for credit losses

Over the past several years, we have improved our
risk profile through greater focus on clients who are
active users of our non-credit services,
de-emphasizing broad-based loan growth. Our
primary exposure to the credit risk of a customer
consists of funded loans, unfunded formal contractual
commitments to lend, standby letters of credit and
overdrafts associated with our custody and securities
clearance businesses.

The role of credit has shifted to one that complements
our other services instead of as a lead product. Credit
solidifies customer relationships and, through a
disciplined allocation of capital, can earn acceptable
rates of return as part of an overall relationship.

We have implemented an institutional credit strategy
to reduce exposures that no longer meet risk/return
criteria, including an assessment of overall
relationship profitability. In addition, we make use of
credit derivatives and other risk mitigants as economic
hedges of portions of the credit risk in our portfolio.
The effect of these transactions is to transfer credit
risk to creditworthy, independent third parties.

The Bank of New York Mellon Corporation

Results of Operations (continued)

Activity in allowance for credit losses

The following table details changes in our allowance for credit losses for the last five years:

Allowance for credit losses activity

(dollar amounts in millions)

Loans outstanding, Dec. 31,
Average loans outstanding
Allowance for credit losses:
Balance, Jan. 1,
Domestic
Foreign
Unallocated

Total

Charge-offs:

Commercial
Commercial real estate
Other residential mortgage
Foreign
Leasing
Wealth management
Other

Total charge-offs
Recoveries:

Commercial
Foreign
Leasing
Other

Total recoveries

Net charge-offs
Provision
Acquisitions/dispositions and other

Balance, Dec. 31,
Domestic
Foreign
Unallocated

Total allowance, Dec. 31,

Allowance for loan losses
Allowance for lending related commitments
Net charge-offs to average loans outstanding
Net charge-offs to total allowance for credit losses
Total allowance for credit losses to year-end loans outstanding
Allowance for loan losses to year-end loans outstanding

Legacy The Bank of
New York Company, Inc. only

2008

2007 (a)

2006

2005

2004

$43,394
48,132

$50,931
41,515

$37,793
33,612

$32,927
32,069

$28,375
30,627

354
24
116

494

(30)
(15)
(20)
(17)
-
(1)
-

(83)

2
4
3
1

(73)
131
(23)

461
6
62

529

415
114
0.15%
13.80
1.22
0.96

328
7
102

437

(22)
-
-
(19)
(36)
-
(1)

(78)

1
1
13
-

(63)
(10)
130

354
24
116

494

327
167
0.15%
12.75
0.97
0.64

363
11
96

470

(27)
-
-
(2)
-
-
-

(29)

3
7
4
2

(13)
(20)
-

328
7
102

437

287
150
0.04%
2.97
1.16
0.76

481
27
119

627

(144)
-
-
(10)
-
-
-

(154)

1
3
-
-

(150)
(7)
-

363
11
96

470

326
144
0.47%
31.91
1.43
0.99

500
70
113

683

(21)
-
-
(28)
(3)
-
(5)

(57)

2
3
-
-

(52)
(4)
-

481
27
119

627

491
136
0.17%
8.29
2.21
1.73

(a) Charge-offs, recoveries and the provision for 2007 include six months of The Bank of New York Mellon Corporation and six months of

the legacy The Bank of New York Company, Inc.

Net charge-offs were $73 million in 2008, $63 million
in 2007, and $13 million in 2006. Net charge-offs in
2008 included $20 million of residential mortgages,
$15 million related to commercial real estate
exposure, $17 million related to foreign SIV
exposures, $13 million to a newspaper publication and
$7 million to a retail trade customer. Net charge-offs
in 2007 included $23 million related to the sale of

leased aircraft, $19 million related to foreign SIV
exposure and $13 million related to an investment
fund.

The provision for credit losses was $131 million in
2008, compared with a credit of $10 million in 2007
and a credit of $20 million in 2006. The increase in
the provision in 2008 compared with 2007 primarily

The Bank of New York Mellon Corporation

Results of Operations (continued)

reflects a higher level of nonperforming assets, as well
as higher net charge-offs in 2008.

The total allowance for credit losses was $529 million
and $494 million at year-end 2008 and 2007,
respectively. The increase in the allowance for credit
losses reflects a higher level of nonperforming assets.
The ratio of the total allowance for credit losses to
year-end non-margin loans was 1.34% and 1.08% at
Dec. 31, 2008 and 2007. The ratio of the allowance
for loan losses to year-end non-margin loans was
1.05% and 0.72% at Dec. 31, 2008 and 2007. The
growth in these ratios resulted from a decrease in
non-margin loans and additional reserves held on
higher risk rated loans and mortgages.

We had $4.0 billion and $5.2 billion of secured
margin loans on our balance sheet at Dec. 31, 2008
and 2007. We have rarely suffered a loss on these
types of loans and do not allocate any of our
allowance for credit losses to these loans. As a result,
we believe that the ratio of total allowance for credit
losses to non-margin loans is a more appropriate
metric to measure the adequacy of the reserve.

Our total allowance for credit losses at year-end 2008
equated to approximately 8.4 times the average
charge-offs and 10.7 times the average net charge-offs
for the last three years. Because historical charge-offs
are not necessarily indicative of future charge-off
levels, we also give consideration to other risk
indicators when determining the appropriate
allowance level.

The allowance for loan losses and the allowance for
unfunded commitments consist of four elements:

Š
Š
Š

an allowance for impaired credits (nonaccrual
loans over $1 million);
an allowance for higher risk rated credits;
an allowance for pass rated credits, and
an unallocated allowance based on general
economic conditions and risk factors in our
individual markets.

The first element, impaired credits, is based on
individual analysis of all nonperforming loans over $1
million. The allowance is measured by the difference
between the recorded value of impaired loans and
their impaired value. Impaired value is either the
present value of the expected future cash flows from
the borrower, the market value of the loan, or the fair
value of the collateral.

The second element, higher risk rated credits, is based
on the assignment of loss factors for each specific risk
category of higher risk credits. We rate each credit in
our portfolio that exceeds $1 million and assign the
credits to specific risk pools. A potential loss factor is
assigned to each pool, and an amount is included in
the allowance equal to the product of the amount of
the loan in the pool and the risk factor. Reviews of
higher risk rated loans are conducted quarterly and the
loan’s rating is updated as necessary. We prepare a
loss migration analysis and compare our actual loss
experience to the loss factors on an annual basis to
attempt to ensure the accuracy of the loss factors
assigned to each pool.

The third element, pass rated credits, is based on our
expected loss model. Borrowers are assigned to pools
based on their credit ratings. The expected loss for
each loan in a pool incorporates the borrower’s credit
rating, loss given default rating and maturity. The loss
given default incorporates a recovery expectation. The
borrower’s probability of default is derived from the
associated credit rating. Borrower ratings are
reviewed at least semi-annually and are periodically
mapped to third party databases, including rating
agency and default and recovery databases, to ensure
ongoing consistency and validity. Commercial loans
over $1 million are individually analyzed before being
assigned a credit rating. We also apply this technique
to our leasing and wealth management portfolios. At
our subsidiary banks that provide credit to small
businesses, exposures are pooled and reserves are
established based on historical portfolio losses.

The fourth element, the unallocated allowance, is
based on management’s judgment regarding the
following factors:

Š Economic conditions including duration of the

current cycle;

Š Past experience including recent loss

experience;

Š Credit quality trends;
Š Collateral values;
Š Volume, composition, and growth of the loan

portfolio;

Š Specific credits and industry conditions;
Š Results of bank regulatory and internal credit

exams;

Š Geopolitical issues and their impact on the

economy; and

Š Volatility and model risk.

The Bank of New York Mellon Corporation

Results of Operations (continued)

Based on an evaluation of these four elements,
including individual credits, historical credit losses,
and global economic factors, we have allocated our
allowance for credit losses on a continuing operations
basis as follows:

Allocation of allowance
for credit losses

Commercial
Other residential mortgages
Commercial real estate
Wealth management loans

and mortgages

Foreign
Unallocated

Total

Legacy The Bank
of New York
Company, Inc. only
2004
2005
2006

2008 2007

57% 57% 67% 69% 71%
15
4
10
2

4
2

5
7

5
2

5
1
12

3
5
23

2
2
23

5
2
17

3
4
16

100% 100% 100% 100% 100%

Nonperforming assets at Dec. 31

(dollar amounts in millions)

Loans:

Commercial real estate
Other residential mortgages
Commercial
Wealth management
Foreign
Other

Total nonperforming loans

Other assets owned

Total nonperforming assets

Nonperforming assets ratio
Allowance for loan losses/nonperforming loans
Allowance for loan losses/nonperforming assets
Total allowance for credit losses/nonperforming loans
Total allowance for credit losses/nonperforming assets

Nonperforming assets increased by $102 million to
$292 million at Dec. 31, 2008. The increase relates
principally to a net $84 million increase in
commercial real estate loans, primarily in Florida, a
$79 million increase in other residential mortgages
and a $19 million loan to a newspaper publisher,
partially offset by $91 million of paydowns and $17
million of charge-offs on loans to foreign SIVs.
Nonperforming assets are expected to increase in
2009.

The Bank of New York Mellon Corporation

The allocation of allowance for credit losses is
inherently judgmental, and the entire allowance for
credit losses is available to absorb credit losses
regardless of the nature of the loss. The unallocated
allowance for credit losses was 12% at Dec. 31, 2008,
a decrease from 23% at Dec. 31, 2007. The
unallocated allowance reflects various factors in the
current credit environment and is also available to,
among other things, absorb further deterioration
across all of our portfolios resulting from the current
economic environment.

Nonperforming assets

The following table shows the distribution of
nonperforming assets at the end of each of the last five
years.

Legacy The Bank of
New York Company, Inc. only

2008

2007

2006

2005

2004

$ 124
99
60
1
-
-

284
8

40
20
39
-
87
-

186
4

$ 292

$ 190

-
2
26
-
9
-

37
1

-
-
12
-
13
1

26
13

-
-
121
-
28
1

150
1

$ 151

0.7%

0.4%

0.1%

0.7%

146.1
142.1
186.3
181.2

175.8
172.1
265.6
260.0

775.7
755.3
1,181.1
1,150.0

1,253.8
835.9
1,807.7
1,205.1

327.3
325.2
418.0
415.2

Nonperforming assets activity
(in millions)

Balance at beginning of year

Additions
Charge-offs
Paydowns/sales
Other

2008

2007 (a)

$190
251
(61)
(91)
3

$ 38
215
(33)
(36)
6

Balance at end of year
(a) The balance at the beginning of 2007 reflects legacy The

$292

$190

Bank of New York Company, Inc. only.

Results of Operations (continued)

The following table shows loans past due 90 days or
more and still accruing interest.

Past due loans at year-end

(in millions)

Domestic:

Consumer
Commercial

Total domestic
Foreign banks

Legacy The Bank
of New York
Company, Inc. only
2004
2005
2006

2008 2007

$ 27 $
315

-
343

342
-

343
-

$ 9
7

16
-

$2
7

9
-

$7
1

8
-

Total past due loans

$342 $343

$16

Past due loans at Dec. 31, 2008 were primarily
comprised of loans to an asset manager that has filed
for bankruptcy. (See Legal proceedings). These loans
are well secured, largely by cash and high grade fixed
income securities, and are in the process of collection.

Deposits

Deposits on our balance sheet increased significantly
during the market turmoil that began in
mid-September 2008, reflecting clients seeking a safe
haven during the volatile markets. As a result, total
deposits were $159.7 billion at year-end 2008, an
increase of 35% compared with $118.1 billion at
Dec. 31, 2007.

Noninterest-bearing deposits were $55.8 billion at
Dec. 31, 2008, compared with $32.4 billion at Dec.
31, 2007. Interest-bearing deposits were $103.9
billion at Dec. 31, 2008, compared with $85.8 billion
at Dec. 31, 2007.

The aggregate amount of deposits by foreign
customers in domestic offices was $16 billion and
$7.3 billion at Dec. 31, 2008 and 2007, respectively.

Deposits in foreign offices totaled approximately $71
billion at Dec. 31, 2008. The majority of these
deposits were in amounts in excess of $100,000 and
were primarily overnight foreign deposits.

The following table shows the maturity breakdown of
domestic time deposits of $100,000 or more at
Dec. 31, 2008.

Deposits > $100,000 at
Dec. 31, 2008
(in millions)

Certificates
of deposits

Other
time
deposits

Total

3 months or less
Between 3 and 6 months
Between 6 and 12 months
Over 12 months

$ 555 $25,593 $26,148
465
326
770

465
326
770

-
-
-

Total

$2,116 $25,593 $27,709

Other borrowings

We fund ourselves primarily through deposits and
other borrowings, which are comprised of federal
funds purchased and securities sold under repurchase
agreement, payables to customers and broker-dealers,
other borrowed funds and long-term debt. At Dec. 31,
2008, we had $138 million of commercial paper
compared with $4.1 billion at Dec. 31, 2007. The
decrease primarily relates to commercial paper
recorded in connection with the consolidation of
TRFC in the fourth quarter of 2007. The TRFC
commercial paper was eliminated in the first quarter
of 2008. Federal funds purchased and securities sold
under repurchase agreements were $1.4 billion at Dec.
31, 2008, compared with $2.2 billion at Dec. 31,
2007. Payables to customers and broker-dealers were
$9.3 billion at Dec. 31, 2008 and $7.6 billion at Dec.
31, 2007. The increase to payables to customers and
broker-dealers related to customers of our Pershing
subsidiary as customers liquidated funds during the
volatile markets in 2008. Other borrowed funds were
$755 million at Dec. 31, 2008, compared with $1.8
billion at Dec. 31, 2007. Other borrowed funds consist
primarily of extended federal funds purchased and
amounts owed to the U.S. Treasury.

As previously described, we also participate in the
Federal Reserve’s ABCP Program that was
implemented in the third quarter of 2008. Eligible
borrowers may borrow funds under the ABCP
program in order to fund the purchase of eligible
ABCP from an MMMF. At Dec. 31, 2008, we
borrowed $5.6 billion under this program that was
used to purchase $5.6 billion of U.S. government-
backed commercial paper.

The Bank of New York Mellon Corporation

Results of Operations (continued)

See “Liquidity and dividends” below for a discussion
of long-term debt.

Information related to federal funds purchased and
securities sold under repurchase agreements in 2008,
2007 and 2006 is presented in the table below.

Federal funds purchased and
securities sold under repurchase
agreements
(dollar amounts in millions)

Maximum month-end balance
Average daily balance
Average rate during the year
Balance at Dec. 31
Average rate at Dec. 31

2008

2007

2006 (a)

$11,788
5,140
1.12% 4.30%

$8,496
2,890

$ 1,372

$2,193

0.14% 3.54%

$2,079
2,237
4.65%

$ 790

4.18%

(a) Legacy The Bank of New York Company, Inc. only.

Information related to other borrowed funds in 2008,
2007 and 2006 is presented in the table below.

Other borrowed funds
(includes commercial paper)
(dollar amounts in millions)

Maximum month-end balance
Average daily balance
Average rate during the year
Balance at Dec. 31
Average rate at Dec. 31

2008

2007

2006 (a)

$3,029
3,259
2.77% 3.59%

$5,919
2,523

$ 893

$5,919

1.04% 3.07%

$2,219
2,091
4.77%

$1,625

3.39%

(a) Legacy The Bank of New York Company, Inc. only.

Information related to borrowings from Federal
Reserve related to asset-backed commercial paper in
2008 is presented in the table below.

Borrowings from Federal Reserve related
to asset-backed commercial paper
(dollar amounts in millions)

Maximum month-end balance
Average daily balance
Average rate during the year
Balance at Dec. 31
Average rate at Dec. 31

Support agreements

2008

$10,865
2,348
2.25%

$ 5,591

2.92%

In 2008, we recorded support agreement charges of
$894 million (pre-tax), or $0.46 per share.

In response to market events in 2008, we voluntarily
provided support to clients invested in money market
mutual funds, cash sweep funds and similar collective
funds, managed by our affiliates, impacted by the
Lehman bankruptcy. The support agreements related to:

five commingled cash funds used primarily for
overnight custody cash sweeps;

The Bank of New York Mellon Corporation

the BNY Mellon Institutional Cash Reserve
Fund used for the reinvestment of cash collateral
within our securities lending business; and
four Dreyfus money market funds.

These support agreements are designed to enable
these funds with Lehman holdings to continue to
operate at a stable share price of $1.00. Support
agreement charges in 2008 primarily reflect our
estimate of the potential liability of Lehman at a value
of 9.75% at Dec. 31, 2008.

Additionally, the following support agreements were
also executed in 2008:

Š An agreement covering SIV exposures in a

Sterling-denominated NAV fund in the Asset
Management segment;

Š An agreement for a commingled short-term

NAV fund covering securities related to Whistle
Jacket Capital/White Pine Financial, LLC in the
Asset Servicing segment; and

Š Agreements providing support to a collective
investment pool in the Asset Management
segment.

At Dec. 31, 2008, our additional potential maximum
exposure to support agreements was $244 million,
based on the securities subject to these agreements
being valued at zero and the NAV of the related funds
declining below established thresholds. This exposure
includes agreements covering Lehman securities
($197 million), as well as other client support
agreements ($47 million). Future realized support
agreement charges will principally depend on the
price of Lehman securities, fund performance and the
number of clients that accept our offer of support.

In 2008, we also offered to support certain clients
holding auction rate securities in the Wealth
Management and Treasury Services segments.

Liquidity and dividends

We maintain our liquidity through the management of
our assets and liabilities, utilizing worldwide financial
markets. The diversification of liabilities reflects our
efforts to maintain flexibility of funding sources under
changing market conditions. Stable core deposits from
our securities servicing, wealth management and
treasury services businesses are generated through our
diversified network and managed with the use of trend
studies and deposit pricing. The use of derivative

Results of Operations (continued)

products such as interest rate swaps and financial
futures enhances liquidity by enabling us to issue
long-term liabilities with limited exposure to interest
rate risk. Liquidity also results from the maintenance
of a portfolio of assets that can be easily sold and the
monitoring of unfunded loan commitments, thereby
reducing unanticipated funding requirements.
Unrealized losses in the securities portfolio have not
had an adverse impact on our liquidity. Liquidity is
managed on both a consolidated basis and at The
Bank of New York Mellon Corporation parent
company (“Parent”).

The market turmoil that began in mid-September 2008
resulted in a significant increase in our liquid assets.
At Dec. 31, 2008, we had approximately $47 billion
of liquid funds and $58 billion of cash (including
approximately $53 billon on deposit with the Federal
Reserve and other central banks) for a total of
approximately $105 billion of available funds. This
compares with available funds of $50 billion at
Dec. 31, 2007. Our liquid assets to total assets were
44% at Dec. 31, 2008 compared with 25% at Dec. 31,
2007. This increase primarily reflects a significantly
higher level of client deposits, reflecting client
reactions to market volatility.

On an average basis for 2008 and 2007, non-core
sources of funds such as money market rate accounts,
certificates of deposit greater than $100,000, federal
funds purchased and other borrowings were $25.0
billion and $19.8 billion. The increase primarily
reflects the merger with Mellon Financial. Average
foreign deposits, primarily from our European-based
securities servicing business, were $68.8 billion in
2008 compared with $50.3 billion in 2007. The
increase in foreign deposits reflects greater liquidity
from our corporate trust and asset servicing
businesses, the merger with Mellon Financial and the
transition of deposits during 2007 related to the
Acquired Corporate Trust Business. Domestic savings
and other time deposits averaged $7.4 billion in 2008
compared with $1.6 billion in 2007. The increase
reflects the merger with Mellon Financial and a large
government agency deposit that was placed with the
Company in the first half of 2008. A significant
reduction in our securities servicing businesses would
reduce our access to deposits.

Average payables to customers and broker-dealers
were $5.5 billion in 2008 and $5.1 billion in 2007.
Long-term debt averaged $16.4 billion in 2008 and
$12.3 billion in 2007. The increase in long-term debt

primarily reflects the merger with Mellon Financial,
partially offset by maturities in 2008. Average
noninterest-bearing deposits increased to $34.2 billion
in 2008 from $21.7 billion in 2007, primarily
reflecting the merger with Mellon Financial, as well
as the substantial increase in customer deposits in the
second half of 2008, reflecting a flight to quality.

We have entered into two modest securitization
transactions. See Note 17 of Notes to Consolidated
Financial Statements. These transactions have not had
a significant impact on our liquidity or capital.

The Parent has five major sources of liquidity:

Š
Š
Š
Š

cash on hand;
dividends from its subsidiaries;
the commercial paper market;
a revolving credit agreement with third party
financial institutions; and
access to the capital markets.

At Dec. 31, 2008, our bank subsidiaries had the ability
to pay dividends of approximately $1.8 billion to the
Parent without the need for a regulatory waiver. This
dividend capacity would increase in 2009 to the extent
of the banks’ net income less dividends. At Dec. 31,
2008, nonbank subsidiaries of the Parent had liquid
assets of approximately $0.9 billion. These assets
could be liquidated and the proceeds delivered by
dividend or loan to the Parent.

Restrictions on our ability to obtain funds from our
subsidiaries are discussed in more detail in Note 22 of
Notes to Consolidated Financial Statements.

In 2008 and 2007, the Parent’s average commercial
paper borrowings were $34 million and $73 million,
respectively. The Parent had cash of $5.0 billion at
Dec. 31, 2008, compared with $4.3 billion at Dec. 31,
2007. Commercial paper outstandings issued by the
Parent were $16 million and $65 million at Dec. 31,
2008 and 2007, respectively. Net of commercial paper
outstanding, the Parent’s cash position at Dec. 31,
2008 increased by $0.7 billion compared with
Dec. 31, 2007. The increase in cash held by the Parent
reflects the issuance of the Series B preferred stock
and warrant to purchase common shares, partially
offset by repayments of long-term debt that matured
in 2008. The Parent’s liquidity target is to have
sufficient cash on hand to meet its obligations over the
next 12 months without the need to take dividends
from its banks or issue debt.

The Bank of New York Mellon Corporation

Results of Operations (continued)

We currently have a $226 million credit agreement
with 10 financial institutions that matures in October
2011. The fee on this facility depends on our credit
rating and at Dec. 31, 2008 was 6 basis points. The
credit agreement requires us to maintain:

Š
Š

shareholder’s equity of $5 billion;
a ratio of Tier I capital plus the allowance for
credit losses to nonperforming assets of at least
2.5;
a double leverage ratio less than 1.3; and
adequate capitalization of all our banks for
regulatory purposes.

We are currently in compliance with these covenants.
There were no borrowings under this facility at
Dec. 31, 2008.

We also have the ability to access the capital markets.
In July 2007, we filed an S-3 shelf registration
statement with the SEC covering the issuance of an
unlimited amount of debt, common stock, preferred
stock and trust preferred securities. Access to the
capital markets is partially dependent on our credit
ratings, which, as of Dec. 31, 2008, were as follows:

Debt ratings at Dec. 31, 2008

Parent:

Long-term senior debt
Subordinated debt

The Bank of New York Mellon:
Long-term senior debt
Long-term deposits

BNY Mellon, N.A.:

Long-term senior debt
Long-term deposits

Standard
&

Moody’s

Poor’s Fitch

Dominion
Bond
Rating
Service

Aa2
Aa3

Aaa
Aaa

AA-
A+

AA- AA (low)
A (high)

A+

AA
AA

AA-
AA

AA
AA

Outlook

Stable

Stable Stable

Stable (a)

(long-term)

(a) On Jan. 22, 2009, Dominion Bond Rating Service changed

our outlook from positive to stable.

In January 2009, the rating agencies affirmed all
ratings of the Company and its subsidiaries.

The Parent’s major uses of funds are payment of
dividends, principal and interest on its borrowings,
acquisitions, and additional investment in its
subsidiaries.

The Parent has $925 million of long-term debt that
will become due in 2009. In 2008, we called $417
million of subordinated debt and $309 million of trust
preferred securities, and $250 million of subordinated
debt matured. Also, $2.8 billion of senior debt

The Bank of New York Mellon Corporation

matured. In addition, the Parent has the option to call
$843 million of subordinated debt in 2009, which it
expects to call and refinance if market conditions are
favorable.

We also had $250 million of long-term debt issued by
the Bank that matured in 2008.

The Company participates in the FDIC’s Temporary
Liquidity Guarantee Program. At Dec. 31, 2008, the
Company was eligible to issue approximately $600
million of FDIC-guaranteed debt under this program.

Long-term debt decreased to $15.9 billion at Dec. 31,
2008 from $16.9 billion at Dec. 31, 2007. In 2008, we
issued $257 million of medium-term subordinated
notes bearing interest at rates from 5.05% to 6.25%.
These notes, which qualify as Tier II capital, are due
in 2023 and 2033.

In 2008, we issued $2.4 billion of senior debt,
summarized in the following table:

Senior debt issuances
(in millions)

3-month LIBOR + 40 bps senior notes due 2010
4.5% senior medium-term notes due 2013
5.125% senior medium-term notes due 2013

Total senior debt issuances

2008

$ 900
750
750

$2,400

We have $850 million of junior subordinated
debentures that are callable in 2009. These securities
qualify as Tier I Capital. We have not yet decided if
we will call these securities. The decision to call will
be based on interest rates, the availability of cash and
capital, and regulatory conditions. If we call the trust
preferred securities, we expect to replace them with
new trust preferred securities or senior or
subordinated debt. See discussion of qualification of
trust preferred securities as capital in “Capital.”

Double leverage is the ratio of investment in
subsidiaries divided by our consolidated equity plus
trust preferred securities. Our double leverage ratio at
Dec. 31, 2008, 2007, and 2006 was 98.34%, 98.89%,
and 102.86%, respectively. Our target double leverage
ratio is a maximum of 120%. The double leverage
ratio is monitored by regulators and rating agencies
and is an important constraint on our ability to invest
in our subsidiaries and expand our businesses.

Pershing LLC, an indirect subsidiary of the Company,
has committed and uncommitted lines of credit in
place for liquidity purposes. The committed line of

Results of Operations (continued)

credit of $725 million extended by eleven financial
institutions matures in March 2009. In 2008, the
average borrowing against this line of credit was $252
million. Additionally, Pershing has another committed
line of credit for $125 million extended by one
financial institution that matures in September 2009.
The average borrowing against this line of credit was
$18 million during 2008. Pershing LLC has five
separate uncommitted lines of credit, amounting to
$1.125 billion in aggregate. In 2008, average daily
borrowing under these lines was $161 million in
aggregate.

Pershing Limited, an indirect U.K.-based subsidiary
of the Company, has committed and uncommitted
lines in place for liquidity purposes, which are
guaranteed by the Parent. The committed lines of
credit of $275 million extended by four financial
institutions mature in March 2009. In 2008, the
average daily borrowing against this line of credit was
$4 million. Pershing Limited has three separate
uncommitted lines of credit amounting to $250
million in aggregate. In 2008, average daily
borrowing under these lines was $95 million in
aggregate.

Statement of cash flows

Cash provided by operating activities was $2.9 billion
in 2008, compared with $4.0 billion provided in 2007
and $3.9 billion provided in 2006. In 2008, earnings
were a significant source of funds. The cash flows
from operations in 2007 were principally the results of
earnings and changes in trading activities. The cash
flows used for operations in 2006 were principally the
result of earnings, the gain on the sale of the Retail
Business and changes in trading activities.

Contractual obligations at Dec. 31, 2008

(in millions)

Deposits without a stated maturity
Term deposits
Borrowing from Federal Reserve Bank
Federal funds purchased and securities sold under repurchase agreements
Payables to customers and broker-dealers
Other borrowed funds
Long-term debt (a)
Operating leases
Unfunded pension and post retirement benefits
Capital leases

Total contractual obligations

(a)

Including interest.

In 2008, cash used for investing activities was $56.0
billion compared to $21.6 billion used for investing
activities in 2007 and $6.3 billion used for investing
activities in 2006. In 2008, interest-bearing deposits at
the Federal Reserve and other central banks and
interest-bearing deposits with banks were a significant
use of funds, and federal funds sold and securities
purchased under resale agreements and loans to
customers were a significant source of funds. In 2007
and 2006, cash was used to increase our investment in
securities. Interest-bearing deposits, loans to
customers and Federal funds sold and securities
purchased under resale agreements were uses of funds
in 2007 and 2006.

In 2008, cash provided by financing activities was
$51.8 billion as compared to $21.5 billion provided by
financing activities in 2007 and $2.5 billion provided
by financing activities in 2006. In 2008, the primary
source of funds was deposits and other funds
borrowed, partially offset by use of funds for the
repayments of long-term debt and commercial paper.
The increase in deposits primarily reflects the market
turmoil that began in mid-September 2008, reflecting
clients seeking a safe haven during the volatile
markets. In 2007 and 2006, sources of funds included
deposits and the issuance of long-term debt.

Commitments and obligations

We have contractual obligations to make fixed and
determinable payments to third parties as indicated in
the table below. The table excludes certain obligations
such as trade payables and trading liabilities, where
the obligation is short-term or subject to valuation
based on market factors.

Payments due by period

Less than
1 year

1-3 years

3-5 years

Over
5 years

4,603
98,724
5,591
1,372
9,274
893
1,913
319
64
19

-
442
-
-
-
-
4,338
589
83
18

- $

14
-
-
-
-
5,252
468
83
-

-
74
-
-
-
-
11,473
1,268
188
-

Total

4,603
99,254
5,591
1,372
9,274
893
22,976
2,644
418
37

$147,062

$122,772

$5,470

$5,817 $13,003

The Bank of New York Mellon Corporation

Results of Operations (continued)

We have entered into fixed and determinable commitments as indicated in the table below:

Other commitments at Dec. 31, 2008

(in millions)

Securities lending indemnifications
Lending commitments
Standby letters of credit
Commercial letters of credit
Investment commitments (a)
Purchase obligations (b)
Support agreements

Total commitments

Amount of commitment expiration per period
Over
Less than
5 years
1 year

3-5 years

1-3 years

Total

$325,975
38,822
13,084
705
344
900
244

$325,975
14,095
7,778
697
1
313
-

-
13,111
4,114
8
37
417
244

-
11,076
1,163
-
4
137
-

$380,074

$348,859

$17,931

$12,380

$
-
540
29
-
302
33
-

$904

(a)

Includes venture capital, community reinvestment act, and other investment-related commitments. Commitments to venture capital
limited partnerships may extend beyond expiration period shown to cover certain follow-on investments, claims and liabilities, and
organizational and partnership expenses.

(b) Purchase obligations are defined as agreements to purchase goods or services that are enforceable and legally binding and specify all

significant terms

In addition to the amounts shown in the table above,
at Dec. 31, 2008 $189 million of unrecognized tax
benefits have been recorded as liabilities in
accordance with FIN-48. Related to these
unrecognized tax benefits, we have also recorded a
liability for potential interest of $45 million. At this
point, it is not possible to determine when these
amounts will be settled or resolved.

Off-balance sheet arrangements

Off-balance sheet arrangements required to be
discussed in this section are limited to guarantees,
retained or contingent interests, support agreements,
certain derivative instruments related to our common
stock, and obligations arising out of unconsolidated
variable interest entities. For the Company, these
items include certain credit guarantees and
securitizations. Guarantees include: lending-related
guarantees issued as part of our corporate banking
business; securities lending indemnifications issued as
part of our servicing and fiduciary businesses and
support agreements issued to customers in our asset
servicing and asset management business.

We have issued guarantees as indicated in the table
below:

Guarantees at Dec. 31, 2008

(in millions)

Standby letters of credit
Commercial letters of credit
Securities lending

indemnifications
Support agreements

Typical revenue
based on notional
(basis points)

5-300
37.5-300

11-22
-

Notional

$13,084
705

325,975
244

The Bank of New York Mellon Corporation

Standby letters of credit totaled $13.1 billion at
Dec. 31, 2008, a decrease of $729 million compared
with Dec. 31, 2007. Standby letters of credit and
foreign and other guarantees are used by the customer
as a credit enhancement and typically expire without
being drawn upon.

A commercial letter of credit is normally a short-term
instrument used to finance a commercial contract for
the shipment of goods from a seller to a buyer.
Although the commercial letter of credit is contingent
upon the satisfaction of specified conditions, it
represents a credit exposure if the buyer defaults on
the underlying transaction. As a result, the total
contractual amounts do not necessarily represent
future cash requirements. Commercial letters of credit
totaled $705 million at Dec. 31, 2008, compared with
$1.2 billion at Dec. 31, 2007.

A securities lending transaction is a fully
collateralized transaction in which the owner of a
security agrees to lend the security through an agent
(The Bank of New York Mellon) to a borrower,
usually a broker/dealer or bank, on an open, overnight
or term basis, under the terms of a prearranged
contract, which generally matures in less than 90 days.
We recorded $789 million of fee revenue from
securities lending transactions in 2008 compared with
$366 million in 2007. Securities are lent with and
without indemnification against broker default.
Custodian securities lent with indemnification against
broker default of return of securities totaled
$325 billion at Dec. 31, 2008, a $293 billion decrease
compared with Dec. 31, 2007.

Results of Operations (continued)

The decrease reflects overall de-leveraging in the
financial markets and lower market valuations
resulting from the large declines in the equity markets
in 2008.

Securities lending transactions were primarily
collateralized at 102% by cash and U.S. government
securities, which is monitored daily, thus reducing
credit risk. Market risk can also arise in securities
lending transactions. These risks are controlled
through policies limiting the level of risk that can be
undertaken.

We expect many of these guarantees to expire without
the need to advance any cash. The revenue associated
with guarantees frequently depends on the credit
rating of the obligor and the structure of the
transaction, including collateral, if any.

At Dec. 31, 2008, potential exposure to support
agreements was $244 million. Support agreement
exposure is based on the securities subject to these
agreements being valued at zero and the NAV of the
related funds declining below established thresholds.
This exposure includes agreements covering Lehman
securities, as well as other client support agreements.
Future realized support agreement charges will
principally depend on the price of Lehman securities,
fund performance and the number of clients that
accept our offer of support.

We provided services to two qualifying special-
purpose entities (“QSPEs”) at Dec. 31, 2008. All of
our securitizations are QSPEs as defined by SFAS
No. 140, “Accounting for Transfers and Servicing of
Financial Assets and Extinguishment of Liabilities,”
which, by design, are passive investment vehicles and
therefore, we do not consolidate them. See Note 17 of
Notes to Consolidated Financial Statements for
additional information.

Asset-backed commercial paper securitizations

In December 2008, we called the first loss notes of
Old Slip, triggering the consolidation of Old Slip. In
December 2007, we called the first loss notes of
TRFC, resulting in the consolidation of TRFC. See
page 23 for a further discussion of both of these
transactions.

Capital

Capital data
(dollar amounts in millions
except per share amounts;
common shares in
thousands)
Total shareholders’ equity

to assets ratio

Total shareholders’ equity $
Tier I capital ratio (b)
Total (Tier I plus Tier II)

capital ratio

Leverage capital ratio
Tangible common equity
Tangible common equity

to assets ratio (c)

Adjusted tangible common

equity to assets
ratio (c)(d)

Book value per common

Tangible book value per

common share

Dividend per common

Dividend yield
Closing common stock

price per common share $
$

Market capitalization
Common shares
outstanding

Dec. 31,
2008

Dec. 31,
2007

Dec. 31,

2006 (a)

11.8%

14.9%

11.1%

28,050

29,403

$ 11,429

13.3%

17.1%
6.9%

9.3%

8.2%

13.2%
6.5%

12.5%
6.7%

5,950

9,171

5,514

3.8%

5.2%

5.7%

4.5%

5.6%

5.7%

22.00

5.18

0.96

3.4%

28.33
32,536

$
$

25.66

8.00

0.95

1.9%

16.03

7.73

0.91

2.2%

48.76
55,878

$
41.73
$ 29,761

1,148,467

1,145,983

713,079

(a) Legacy The Bank of New York Company, Inc. only.
(b)

In 2008, the Company established a consolidated target
minimum Tier I capital ratio of 10.00%.

(c) Common equity less goodwill and intangible assets adjusted
for deferred tax liabilities associated with non-tax deductible
identifiable intangible assets and tax deductible goodwill,
divided by total assets less goodwill and intangible assets.
The deferred tax liability associated with non-tax deductible
intangible assets and tax deductible goodwill totaled $2.4
billion, $2.5 billion and $546 million, respectively. See page
80 for a reconciliation of this ratio.

(d) Certain rating agencies include a portion of the Series B

preferred stock and trust preferred securities when assessing
the capital strength of the Company. Accordingly, we
calculated the adjusted tangible common equity to assets
ratio by including a portion of the Series B preferred and
trust preferred securities.

The decrease in total shareholders’ equity compared with
Dec. 31, 2007 primarily resulted from a $4.1 billion
unrealized net of tax loss on our total securities portfolio
at Dec. 31, 2008. The unrealized net of tax loss at Dec. 31,
2007 was $342 million. The decrease in total
shareholders’ equity was partially offset by the issuance of
the Series B preferred stock and warrant to purchase
common stock to the U.S. Treasury, as well as earnings
retention. During 2008, we retained $286 million of
earnings. Accumulated other comprehensive income
declined $4.9 billion reflecting the decrease in the fair
value of the securities portfolio and a decrease in the
funded status of our defined benefit plans.

The Bank of New York Mellon Corporation

Results of Operations (continued)

In January 2009, we declared a quarterly common stock
dividend of $0.24 per common share that was paid on
Feb. 3, 2009, to shareholders of record as of the close of
business on Jan. 23, 2009.

The Tier I capital ratio varies depending on the size of
the balance sheet at quarter-end. The balance sheet size
fluctuates from quarter to quarter 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.

Our Tier I capital ratio was 13.3% at Dec. 31, 2008,
compared with 9.3% at Dec. 31, 2007. The capital ratios
at Dec. 31, 2008 compared with Dec. 31, 2007 reflect the
benefit we received from the $3 billion of Series B
preferred stock and a warrant issued to the U.S. Treasury
in October of 2008 and a lower level of risk adjusted
assets. At Dec. 31, 2008, our total assets were $237.5
billion compared with $197.7 billion at Dec. 31, 2007.
The higher level of assets primarily resulted from higher
client deposits, reflecting client reaction to market
volatility. The increase in assets had no impact on the Tier
I capital ratio as the assets were primarily placed in cash
or highly liquid assets that are assigned a zero risk
weighting by the regulators.

A billion dollar change in risk-weighted assets changes
the Tier I ratio by 11 basis points while a $100 million
change in common equity changes the Tier I ratio by 9
basis points.

In a non-taxable business combination, such as our
merger with Mellon Financial, deferred tax liabilities are
recorded in relation to identifiable intangible assets. The
recording of this deferred tax liability results in an
increase in goodwill equal to the amount of the deferred
tax liability. Bank regulators and rating agencies adjust
equity upward for the amount of this deferred tax
liability since it is a liability for accounting purposes and
will never require a cash settlement unless a sale occurs.

In the fourth quarter of 2008, the regulatory agencies
issued a final rule allowing tax deductible goodwill,
which must be deducted from Tier I capital, to be
reduced by the amount of any associated deferred tax
liability. This change permits banking organizations to
reflect the maximum exposure to loss in the event such
goodwill is impaired or no longer recognized for
financial reporting purposes. The deferred tax liability
associated with the Company’s deductible goodwill was
$599 million at Dec. 31, 2008. This change resulted in a
52 basis point increase to the Company’s Tier I capital at
Dec. 31, 2008.

Our tangible common equity to assets ratio was 3.8%
at Dec. 31, 2008, down from 5.2% at Dec. 31, 2007.

The Bank of New York Mellon Corporation

Our adjusted tangible common equity to assets ratio,
which includes a portion of the Series B preferred
stock and trust preferred securities, was 4.5% at
Dec. 31, 2008 compared with 5.6% at Dec. 31, 2007.
The decrease in both of these ratios compared with the
prior year primarily resulted from the higher level of
unrealized net of tax loss on our securities portfolio.

Troubled Asset Relief Program

On Oct. 14, 2008, the U.S. government announced the
TARP CPP under the EESA. The intention of this
program is to encourage U.S. financial institutions to
build capital, to increase the flow of financing to U.S.
businesses and consumers and to support the U.S.
economy. On Oct. 14, 2008, the Company announced
that it would be part of the initial group of nine
institutions in which the U.S. Treasury would
purchase an equity stake. Since Oct. 14, 2008, the
U.S. Treasury purchased an equity position in many
other institutions.

The Company agreed to issue and sell to the U.S.
Treasury preferred stock and a warrant to purchase
shares of common stock in accordance with the terms
of the CPP for an aggregate purchase price of $3
billion. As a result, on Oct. 28, 2008, we issued Fixed
Rate Cumulative Perpetual Preferred Stock, Series B
($2.779 billion) and a warrant for common stock
($221 million), as described below, to the U.S.
Treasury. The Series B preferred stock will pay
cumulative dividends at a rate of 5% per annum until
the fifth anniversary of the date of the investment and
thereafter at a rate of 9% per annum. Dividends will
be payable quarterly in arrears on March 20, June 20,
Sept. 20 and Dec. 20 of each year. The Series B
preferred stock can only be redeemed within the first
three years with the proceeds of at least $750 million
from one or more qualified equity offerings. After
Dec. 20, 2011, the Series B preferred stock may be
redeemed, in whole or in part, at any time at our
option at a price equal to 100% of the issue price plus
any accrued and unpaid dividends. Redemption of the
Series B preferred stock at any time will be subject to
the prior approval of the Federal Reserve. Under
ARRA, enacted Feb. 17, 2009, the U.S. Treasury,
subject to consultation with the appropriate Federal
banking agency, is required to permit a TARP
recipient to repay any assistance previously provided
under TARP to such financial institution, without
regard to whether the financial institution has replaced
such funds from any other source or to any waiting
period. When such assistance is repaid, the U.S.
Treasury is required to liquidate warrants associated

Results of Operations (continued)

with such assistance at the current market price. The
Series B Preferred Stock qualifies as Tier I capital.

Š Pay any dividend on our common stock other
than regular quarterly dividends of not more
than our current quarterly dividend of $0.24 per
share; or

Š Redeem, purchase or acquire any shares of

In addition, until such time as the U.S. Treasury
ceases to own any debt or equity securities of the
Company acquired pursuant to the Oct. 28, 2008
closing or exercise of the warrant described below, the
Company must ensure that its compensation, bonus,
incentive and other benefit plans, arrangements and
agreements (including so-called golden parachute,
severance and employment agreements (collectively,
“Benefit Plans”) with respect to its Senior Executive
Officers)) comply with Section 111(b) of the EESA as
implemented by any guidance and regulations issued
and in effect on Oct. 28, 2008, as well as the ARRA
legislation enacted in February 2009. ARRA has
revised several of the provisions in the EESA with
respect to executive compensation and has enacted
additional compensation limitations on TARP
recipients. The provisions include new limits on the
ability of TARP recipients to pay or accrue bonuses,
retention awards, or incentive compensation to at least
the 20 next most highly-compensated employees in
addition to the Company’s Senior Executive Officers,
a prohibition on golden parachute payments on such
Senior Executive Officers and the next five most
highly-compensated employees, a clawback of any
bonus, retention or incentive awards paid to any

Senior Executive Officer or any of the next 20 most
highly-compensated employees based on materially
inaccurate earnings, revenues, gains or other criteria, a
required policy restricting excessive or luxury
expenditures, and a requirement that TARP recipients
implement a non-binding “say-on-pay” shareholder
vote on executive compensation.

In connection with the issuance of the Series B
preferred stock, we issued a warrant to purchase
14,516,129 shares of our common stock to the U.S.
Treasury. The warrant has a 10-year term and an
exercise price of $31.00 per share. The warrant is
immediately exercisable, in whole or in part. Exercise
must be on a cashless basis unless the Company
agrees to a cash exercise. However, the U.S. Treasury
has agreed that it will not transfer or exercise the
warrant for more than 50% of the shares covered until
the earlier of (i) the date on which we receive
aggregate gross proceeds of not less than $3 billion
from one or more qualified equity offerings, and
(ii) Dec. 31, 2009. If the Company completes one or
more qualified equity offerings on or prior to Dec. 31,
2009 that results in the Company receiving aggregate
gross proceeds of not less than $3 billion, the number
of shares of common stock originally covered by the
warrant will be reduced by one-half. The U.S.
Treasury will not exercise voting power associated
with any shares underlying the warrant. The warrants
will be classified as permanent equity under GAAP.

The proceeds from the Series B preferred stock have
been utilized to improve the flow of funds in the
financial markets. Specifically, we have:

Š Purchased debt securities of other financial

institutions, which helps increase the amount of
funds available to lend to consumers and
businesses.

Š Continued to make loans to other financial
institutions through the interbank lending
market.

All of these efforts address the need to improve
liquidity in the financial system and are consistent
with our business model which is focused on
institutional clients.

The Bank of New York Mellon Corporation

Results of Operations (continued)

Stock repurchase programs

Share repurchases during fourth quarter 2008

(common shares
in thousands)
October 2008
November 2008
December 2008
Fourth quarter 2008

Total
Average
shares
price per
repurchased
share
3
$33.01
-
-
27.65
28
31 (a) $ 28.28

Total
shares
repurchased
as part of a
publicly
announced
plan
-
-
-
-

(a) These shares were purchased at a purchase price of less than

$1 million from employees, primarily in connection with the
employees’ payment of taxes upon the vesting of restricted
stock.

On Dec. 18, 2007, the Board of Directors of the
Company authorized the repurchase of up to
35 million shares of common stock. This authorization
was in addition to the authority to repurchase up to
6.5 million shares previously approved by the
Executive Committee of the Board of Directors on
Aug. 8, 2007 which was completed during the first
quarter of 2008. There were no shares repurchased
under the Dec. 18, 2007 program in the fourth quarter
of 2008.

At Dec. 31, 2008, 33.8 million shares were available
for repurchase under the December 2007 program.
There is no expiration date on this repurchase
program.

Capital adequacy

Regulators establish certain levels of capital for bank
holding companies and banks, including the Company
and our bank subsidiaries, in accordance with
established quantitative measurements. For the Parent
to maintain its status as a financial holding company,
our bank subsidiaries must, among other things,
qualify as well capitalized. In addition, major bank
holding companies such as the Parent are expected by
the regulators to be well capitalized.

As of Dec. 31, 2008 and 2007, the Parent and our
bank subsidiaries were considered well capitalized on
the basis of the ratios (defined by regulation) of Total
and Tier I capital to risk-weighted assets and leverage
(Tier I capital to average assets), which are shown as
follows:

Consolidated and primary bank
subsidiaries capital ratios

Tier I (a)
Total capital (b)
Leverage

Dec. 31, 2008

Dec. 31, 2007

Guidelines

The Bank of
New York

Consolidated

Mellon Consolidated

The Bank of
New York

Mellon
Bank, N.A.

Well
Capitalized

Adequately
Capitalized

13.3%
17.1
6.9

11.3%
14.8
5.9

9.3%
13.2
6.5

8.2%
11.8
5.6

8.5%
12.1
8.1

6%
10
5

4%
8
3

(a) Tier I capital consists, generally, of common equity, trust-preferred securities (subject to limitations in 2009), and certain qualifying

preferred stock, less goodwill and most other intangibles, net of associated deferred tax liabilities. Beginning in 2008, the Series B
preferred stock issued to the U.S. Treasury as part of the TARP capital purchase program is included in Tier I capital.

(b) Total capital consists of Tier I capital plus Tier II capital. Tier II capital consists, generally, of certain qualifying preferred stock and

subordinated debt and a portion of the allowance for credit losses.

If a bank holding company or bank fails to qualify as
“adequately capitalized”, regulatory sanctions and
limitations are imposed. At Dec. 31, 2008, the
amounts of capital by which the Company and our
primary bank subsidiary, The Bank of New York
Mellon exceed the well-capitalized guidelines are as
follows:

Capital above guidelines
at Dec. 31, 2008
(in millions)

Tier I Capital
Total Capital
Leverage

Consolidated

$8,453
8,173
4,244

The Bank of
New York
Mellon

$5,208
4,698
1,637

At Dec. 31, 2008, we had approximately $1.7 billion
of trust preferred securities outstanding, net of
issuance costs. On March 1, 2005, the Board of
Governors of the Federal Reserve System adopted a
final rule that allows the continued limited inclusion
of trust preferred securities in the Tier I capital of
bank holding companies. Under the final rule effective
March 31, 2009, we will be subject to a 15% limit in
the amount of trust preferred securities that can be
included in Tier I capital, net of goodwill, less any
related deferred tax liability. We expect all of our trust
preferred securities to qualify as Tier I capital at
March 31, 2009.

The Bank of New York Mellon Corporation

Results of Operations (continued)

The following tables present the components of our risk-based capital and risk-adjusted assets at Dec. 31, 2008
and 2007.

Risk-based and leverage
capital ratios (a)
(in millions)

Tier I capital:

Common shareholders’ equity
Series B preferred stock
Trust-preferred securities
Adjustments for:

Goodwill and other intangibles (b)
Pensions
Securities valuation allowance
Merchant banking investment

Total Tier I capital

Qualifying unrealized equity security gains
Qualifying subordinate debt
Qualifying allowance for credit losses

Tier II capital

Total risk-based capital

Total risk-adjusted assets

Dec. 31,

2008

2007

$ 25,264
2,786
1,654

$ 29,403
-
2,030

(19,312)
1,010
4,035
(35)

15,402
-
3,823
529
4,352

(20,718)
246
339
(41)

11,259
2
4,257
494

4,753

$ 19,754

$ 16,012

$115,811

$120,866

(a) On a regulatory basis.
(b) Reduced by a deferred tax liability of $1.84 billion at Dec. 31, 2008 and $2.01 billion at Dec. 31, 2007 associated with non-tax

deductible intangible assets and a deferred tax liability of $599 million at Dec. 31, 2008 associated with tax deductible goodwill.

Components of risk adjusted assets at year-end (a)

2008

2007

(in millions)

Assets:
Cash, due from banks and interest-bearing deposits in banks
Securities
Trading assets
Fed funds sold and securities purchased under resale agreements
Loans
Allowance for loan losses
Other assets

Total assets

Off-balance sheet exposure:
Commitments to extend credit
Securities lending
Standby letters of credit and other guarantees
Interest rate contracts
Foreign exchange contracts
Equity derivative contracts

Total off-balance sheet exposure

Market risk equivalent assets
Allocated transfer risk reserve

Total risk-adjusted assets

(a) On a regulatory basis.

Balance
sheet/
notional
amount

$ 102,914
39,435
11,102
2,000
43,394
(415)
39,082

Risk
adjusted
balance

8,728
17,115
-
8
30,453
-
20,817

Balance
sheet/
notional
amount

40,947
48,698
6,420
9,108
50,931
(327)
41,879

Risk
adjusted
balance

8,096
12,437
-
1,590
36,954
-
20,149

$ 237,512

$ 77,121

$ 197,656

$ 79,226

39,441
326,602
16,515
879,235
243,822
14,396

$ 12,063
530
13,121
7,204
2,780
464

49,664
618,487
17,609
792,601
323,648
11,733

$ 15,313
8,043
13,044
2,528
1,401
197

$1,520,011

$ 36,162

$1,813,742

$ 40,526

2,528
-

$115,811

1,114
-

$120,866

The Bank of New York Mellon Corporation

Results of Operations (continued)

Capital framework

The U.S. federal bank regulatory agencies’ risk-based
capital guidelines are based upon the 1988 Capital
Accord of the Basel Committee on Banking
Supervision (the “Basel Committee”). The Basel
Committee issued, in June 2004, and updated in
November 2005, a revised framework for capital
adequacy commonly known as the New Accord (the
“New Accord” or “Basel II”) that would set capital
requirements for operational risk and refine the
existing capital requirements for credit risk.

In the United States, U.S. regulators are mandating the
adoption of the New Accord for “core” banks. The
Company and its depository institution subsidiaries
are “core” banks. The only approach available to
“core” banks is the Advanced Internal Ratings Based
(“A-IRB”) approach for credit risk and the Advanced
Measurement Approach (“AMA”) for operational
risk.

The U.S. regulatory agencies published on Dec. 7,
2007, the U.S. Basel II final rule in the Federal
Register. The final rule became effective on April 1,
2008. Under the final rule, 2008 was the first possible
year for a bank to begin its parallel run and 2009 is the
first possible year for a bank to begin its first of three
transitional floor periods.

In the U.S., we are currently working towards
implementing Basel II, A-IRB and AMA approaches
within the required deadlines. Beginning Jan. 1, 2008
we implemented the Basel II Standardized Approach
in the United Kingdom, Belgium and Luxembourg.
We maintain an active dialogue with U.S. and
international regulatory jurisdictions to facilitate a
smooth Basel II reporting process.

We believe Basel II will not constrain our current
business practices and that using the advanced
approaches, given our portfolio, could result in a
reduction of risk-weighted assets notwithstanding the
leverage ratio requirement.

Risk management

The understanding, identification and management of
risk are essential elements for the successful
management of the Company.

The Bank of New York Mellon Corporation

Our primary risk exposures are:

Type of risk Description

Credit

Market

The possible loss we would suffer if any of our
borrowers or other counterparties were to
default on their obligations to us. Credit risk
arises primarily from lending, trading, and
securities servicing activities.

The risk of loss due to adverse changes in the
financial markets. Market risk arises from
derivative financial instruments, such as futures,
forwards, swaps and options, and other financial
instruments, including loans, securities,
deposits, and other borrowings. Our market
risks are primarily interest rate and foreign
exchange risk, equity risk and credit risk.

Operational The risk of loss resulting from inadequate or
failed internal processes, human factors and
systems, or from external events.

Risk management and oversight begins with the
Board of Directors and two key Board committees:
the Risk Committee and the Audit and Examining
Committee (the “A&E Committee”).

The Risk Committee is comprised of independent
directors and meets on a regular basis to review and
assess our risks, and to control processes with respect
to such risks, and our risk management and fiduciary
policies and activities. The delegation of policy
formulation and day-to-day oversight is to our Chief
Risk Officer, who, together with the Chief Auditor
and Chief Compliance Officer, helps ensure an
effective risk management structure. The functions 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 A&E Committee is also comprised of
independent directors, all of whom have been
determined by the Board to be financially literate
within the meaning of the NYSE listing standards as
interpreted by the Board, and two of whom have been
determined (based upon education and experience as a
principal accounting or financial officer or public
accountant, or experience actively supervising a
principal accounting or financial officer or public
accountant) to be audit committee financial experts as
set out in the rules and regulations under the
Exchange Act, and to have accounting or related
financial management expertise as such qualification

Results of Operations (continued)

under the NYSE listing standards as interpreted by the
Board. The A&E Committee meets on a regular basis
to perform, among other things, an oversight review
of the integrity of our 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 our internal audit function. The
A&E Committee also reviews management’s
assessment of the adequacy of internal controls. The
functions of the A&E Committee are described in
more detail in its charter, a copy of which is available
on our website, www.bnymellon.com.

The Senior Risk Management Committee is the
senior-most management body that approves the
Company’s risk appetite and tolerances and sets
strategic direction and policy and provides oversight
for the risk management, compliance and ethics
framework.

Our risk management framework is designed to:

Š Provide that risks are identified, monitored,

reported, and priced properly;

Š Define and communicate the types and amount

of risk to take;

Š Communicate to the appropriate management
level, the type and amount of risk taken;

Š Maintain a risk management organization that is
independent of the risk taking activities; and
Š Promote a strong risk management culture that

encourages a focus on risk-adjusted
performance.

Credit risk

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
maximum maturity of credit extended. For credit
exposures driven by changing market rates and prices,
exposure measures include an add-on for such
potential changes.

We manage credit risk at both the individual
exposure level as well as at the portfolio level.
Credit risk at the individual exposure level is
managed through our credit approval system of
Divisional Portfolio Managers (“DPMs”) and the
Chief Credit Officer (“CCO”). The DPMs and CCO
are responsible for approving the size, terms and
maturity of all credit exposures as well as the

ongoing monitoring of the exposures. In addition,
they are responsible for assigning and maintaining
the risk ratings on each exposure.

Credit risk management at the portfolio level is
supported by the Portfolio Management Division
(“PMD”) within the Risk Management and
Compliance Sector. The PMD is responsible for
calculating two fundamental credit measures. First, we
project a statistically expected credit loss, used to help
determine the appropriate loan loss reserve and to
measure customer profitability. Expected 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 corporate banking, where most of
our credit risk is created, unfunded commitments are
assigned a usage given default percentage. Borrowers/
Counterparties are assigned ratings by DPMs and the
CCO on an 18-grade scale, which translates to a
scaled probability of default. Additionally,
transactions are assigned loss-given-default ratings
(on a 12-grade scale) that reflect the transactions’
structures including the effects of guarantees,
collateral, and relative seniority of position.

The second fundamental measurement of credit risk
calculated by the PMD is called economic capital. Our
economic capital model estimates the capital required
to support the overall credit risk portfolio. Using a
Monte Carlo simulation engine and measures of
correlation among borrower defaults, the economic
model examines extreme and highly unlikely
scenarios of portfolio credit loss in order to estimate
credit related capital, and then allocates that capital to
individual borrowers and exposures. The credit related
capital calculation supports a second tier of policy
standards and limits by serving as an input to both
profitability analysis and concentration limits of
capital at risk with any one borrower, industry or
country.

The PMD is responsible for the calculation
methodologies and the estimates of the inputs used in
those methodologies for the determination of expected
loss and economic capital. These methodologies and
input estimates are regularly evaluated to ensure their
appropriateness and accuracy. As new techniques and
data become available, the PMD attempts to
incorporate, where appropriate, those techniques or
data.

Credit risk is intrinsic to much of the banking business
and necessary to its smooth functioning. However, the

The Bank of New York Mellon Corporation

Results of Operations (continued)

Company 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, credit derivatives, and active
collateralization and netting agreements. In addition,
we have a separate Credit Risk Review group, which
is part of Internal Audit, made up of experienced loan
review officers who perform timely reviews of the
loan files and credit ratings assigned to the loans.

Market risk

Our market risk governance structure includes two
committees comprised of senior executives who
review market risk activities, risk measurement
methodologies and risk limits, approve new products
and provide direction for our market risk profile. The
Asset/Liability Management Committee oversees the
market risk management process for interest rate risk
related to asset/liability management activities. The
Market Risk Committee oversees the market risk
management process for trading activities, including
foreign exchange risk. Both committees are supported
by a comprehensive risk management process that is
designed to help identify, measure, and manage
market risk, as discussed under “Trading activities and
risk management” and “Asset/liability management”
below and in Note 27 of Notes to Consolidated
Financial Statements.

Operational risk

Overview

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
the internal control system and compliance
requirements, fraud by employees or persons outside
the Company or business interruption due to system
failures or other events. Operational risk also includes
potential legal or regulatory actions that could arise as
a result of noncompliance with applicable laws and/or
regulatory requirements. In the case of an operational
event, we could suffer a financial loss as well as
damage to our reputation.

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

The Bank of New York Mellon Corporation

manage operational risk at appropriate levels given
our financial strength, the business environment and
markets in which we operate, the nature of our
businesses, and considering factors such as
competition and regulation. Our internal auditors and
internal control group monitor and test the overall
effectiveness of the internal control and financial
reporting systems on an ongoing basis.

We have also established procedures that are designed
to ensure that policies relating to conduct, ethics and
business practices are followed on a uniform basis.
Among the procedures designed to ensure
effectiveness are our “Code of Conduct”, “Know
Your Customer”, and compliance training programs.

Operational risk management

We have established operational risk management as
an independent risk discipline. The Operational Risk
Management (“ORM”) Group reports to the Chief
Risk Officer. The organizational framework for
operational risk is based upon a strong risk culture
that incorporates both governance and risk
management activities comprising:

Š Board Oversight and Governance—The Risk

Committee of the Board approves and oversees
our operational risk management strategy in
addition to credit and market risk. The Risk
Committee meets regularly to review and
approve operational risk management initiatives,
discuss key risk issues, and review the
effectiveness of the risk management systems.

Š Business Line Accountability—Business

managers are responsible for maintaining an
effective system of internal controls
commensurate with their risk profiles and in
accordance with the Company policies and
procedures.

Š ORM Group—The ORM Group is responsible
for developing risk management policies and
tools for assessing, measuring, monitoring and
managing operational risk for the Company. The
primary objectives of the ORM group are to
promote effective risk management, identify
emerging risks, create incentives for generating
continuous improvement in controls, and to
optimize capital.

Global compliance

Our global compliance function provides leadership,
guidance, and oversight to help business units identify

Results of Operations (continued)

applicable laws and regulations and implement
effective measures to meet the specific requirements.
Compliance takes a proactive approach by
anticipating evolving regulatory standards and
remaining aware of industry best practices, legislative
initiatives, competitive issues, and public expectations
and perceptions. The function uses its global reach to
disseminate information about compliance-related
matters throughout the Company. The Chief
Compliance and Ethics Officer reports to the Chief
Risk Officer, is a member of all critical committees of
the Company and provides regular updates to the
A&E Committee of the Board of Directors.

Internal audit

Our internal audit function reports directly to the A&E
Committee of the Board of Directors. Internal audit
utilizes a risk-based approach to its audit activity
covering the risks in the operational, compliance,
regulatory, technology, fraud, processing and other
key risk areas of the Company. Internal Audit has
unrestricted access to the Company and regularly
participates in key committees of the Company.

Economic capital

The Company has implemented a methodology to
quantify economic capital. We define economic
capital as the capital required to protect against
unexpected economic losses over a one-year period at
a level consistent with the solvency of a firm with a
target debt rating. We quantify economic capital
requirements for the risks inherent in our business
activities using statistical modeling techniques and
then aggregate them at the consolidated level. A
capital reduction, or diversification benefit, is applied
to reflect the unlikely event of experiencing an
extremely large loss in each type of risk at the same
time. Economic capital levels are directly related to
our risk profile. As such, it has become a part of our
internal capital assessment process and, along with
regulatory capital, is a key component to ensuring that
the actual level of capital is commensurate with our
risk profile, and is sufficient to provide the financial
flexibility to undertake future strategic business
initiatives.

The framework and methodologies to quantify each of
our risk-types have been developed by the PMD and
are designed to be consistent with our risk
management principles. The framework has been
approved by senior management and has been
reviewed by the Risk Committee of the Board of
Directors. Due to the evolving nature of quantification
techniques, we expect to continue to refine the
methodologies used to estimate our economic capital
requirements.

Trading activities and risk management

Our trading activities are focused on acting as a
market maker for our customers. The risk from these
market making activities and from our own positions
is managed by our traders and limited in total
exposure as described below.

We manage trading risk through a system of position
limits, a value-at-risk (“VAR”) methodology based on
a Monte Carlo simulation, stop loss advisory triggers,
and other market sensitivity measures. Risk is
monitored and reported to senior management by a
separate unit on a daily basis. Based on certain
assumptions, the VAR methodology is designed to
capture the potential overnight pre-tax dollar loss
from adverse changes in fair values of all trading
positions. The calculation assumes a one-day holding
period for most instruments, utilizes a 99% confidence
level, and incorporates the non-linear characteristics
of options. The VAR model is the basis for the
economic capital calculation, which is allocated to
lines of business for computing risk-adjusted
performance.

As the VAR methodology does not evaluate risk
attributable to extraordinary financial, economic or
other occurrences, the risk assessment process
includes a number of stress scenarios based upon the
risk factors in the portfolio and management’s
assessment of market conditions. Additional stress
scenarios based upon historic market events are also
performed. Stress tests, by their design, incorporate
the impact of reduced liquidity and the breakdown of
observed correlations. The results of these stress tests
are reviewed weekly with senior management.

The Bank of New York Mellon Corporation

Results of Operations (continued)

The following tables indicate the calculated VAR
amounts for the trading portfolio for the years ended
Dec. 31, 2008 and 2007.

VAR (a)

2008

(in millions)

Average Minimum Maximum Dec. 31

Interest rate
Foreign exchange
Equity
Credit
Diversification
Overall portfolio

VAR

$ 6.6
2.1
3.4
4.7
(6.7)
10.1

$ 2.5
0.8
1.0
1.9
N/M
4.6

$14.6
5.7
9.8
10.7
N/M
18.9

$ 4.9
1.5
8.7
7.5
(7.9)
14.7

2007 (b)

(in millions)

Average Minimum Maximum Dec. 31

Interest rate
Foreign exchange
Equity
Credit
Commodities
Diversification
Overall portfolio

$ 4.0
1.6
2.3
2.7
2.0
(3.3)
9.3

$ 1.9
1.0
1.0
0.5
-
N/M
3.0

$ 9.5
4.1
6.6
8.0
3.7
N/M
16.3

$ 5.7
1.4
1.4
5.6
-
(5.3)
8.8

(a) VAR figures do not reflect the impact of the credit valuation

adjustment resulting from the adoption of FAS 157.

(b) Results for 2007 include six months of The Bank of New York
Mellon Corporation and six months of legacy The Bank of
New York Company, Inc.

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

During 2008, interest rate risk generated 39% of
average VAR, credit risk generated 28% of average
VAR, equity risk generated 20% of average VAR, and
foreign exchange risk accounted for 13% of average
VAR. During 2008, our daily trading loss exceeded
our calculated VAR amount of the overall portfolio on
two occasions.

Foreign exchange and other trading-
counterparty risk ratings profile (a)

Rating

AAA to AA-
A+ to A-
BBB+ to BBB-
Noninvestment grade

methodology.

The Bank of New York Mellon Corporation

Foreign exchange and other trading

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

As required by SFAS 157, in the first quarter of 2008
we began to reflect external credit ratings as well as
observable credit default swap spreads for both
ourselves as well as 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. In
addition, in cases where a counterparty is deemed
impaired, further analyses are performed to value such
positions.

At Dec. 31, 2008, our over-the-counter (“OTC”)
derivative assets of $10.5 billion included a credit
valuation adjustment (“CVA”) deduction of $90
million, including $84 million related to the declining
credit quality of CDO counterparties. Our OTC
derivative liabilities of $8.1 billion included an
increase to revenue of $44 million related to our own
credit spread. These adjustments decreased foreign
exchange and other trading activities revenue by $46
million in 2008.

The table below summarizes the risk ratings for our
foreign exchange and interest rate derivative
counterparty credit exposure. The decrease in the
highest ratings category reflects the credit ratings
decline of several large financial institution
counterparties.

Dec. 31,
2007

Quarter ended
June 30,
2008

March 31,
2008

Sept. 30,
2008

Dec. 31,
2008

73%
12
10
5

61%
18
13
8

52%
20
17
11

57%
23
8
12

51%
35
7
7
100%

Total
(a) Represents credit rating agency equivalent of internal credit ratings. Prior period percentages have been revised to reflect the current

100%

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 are interest rate risk and foreign exchange
risk. Our primary market risk is exposure to
movements in U.S. dollar interest rates and certain
foreign currency interest rates. We actively manage
interest rate sensitivity and use earnings simulation
and discounted cash flow models to identify interest
rate exposures.

An earnings simulation model is the primary tool used
to assess changes in pre-tax net interest revenue. The
model incorporates management’s assumptions
regarding interest rates, balance changes on core
deposits, market spreads, changes in the prepayment
behavior of loans and securities and the impact of
derivative financial instruments used for interest rate
risk management purposes. These assumptions have
been developed through a combination of historical
analysis and future expected pricing behavior and are
inherently uncertain. As a result, the earnings
simulation model cannot precisely estimate net
interest revenue or the impact of higher or lower
interest rates on net interest revenue. Actual results
may differ 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.

We evaluate the effect on earnings by running various
interest rate ramp scenarios from a baseline scenario.
These scenarios are reviewed to examine the impact
of large interest rate movements. 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 following table shows net interest revenue
sensitivity for the Company:

Estimated changes in net interest revenue

(dollar amounts in millions)

up 200 bps vs. baseline
up 100 bps vs. baseline

Dec. 31, 2008

$481
252

16.8%
8.8

The baseline scenario’s Fed Funds rate in the Dec. 31,
2008 analysis was 0.25%. The 100 basis point ramp
scenarios assume short-term rates change 25 basis
points in each of the next four quarters and the 200

basis point ramp scenarios assume a 50 basis point per
quarter change. Both the up 100 basis point and the up
200 basis point Dec. 31, 2008 scenarios assume a
steepening of the yield curve with 10-year rates rising
136 and 236 basis points, respectively. These
scenarios do not reflect strategies that management
could employ to limit the impact as interest rate
expectations change. The previous table relies on
certain critical assumptions regarding the balance
sheet and depositors’ behavior related to interest rate
fluctuations and the prepayment and extension risk in
certain of our assets. To the extent that actual behavior
is different from that assumed in the models, there
could be a change in interest rate sensitivity.

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 interest rates. The aggregation of these discounted
cash flows is the Economic Value of Equity (“EVE”).
The following table shows how the EVE would
change in response to changes in interest rates:

Estimated changes in EVE at Dec. 31, 2008

Rate change:
up 200 bps vs. baseline
up 100 bps vs. baseline

4.1%
2.2

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

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 fixed income investment portfolio, which will
be reflected through a reduction in other
comprehensive income in our shareholders’ equity,
thereby affecting our tangible common equity
(“TCE”) ratios. Under current accounting rules, to the
extent FAS 159 is not applied, there is no
corresponding change on our fixed liabilities, even
though economically these liabilities are more
valuable as rates rise.

We project the impact of this change using the same
interest rate shock assumptions described earlier and
compare the projected mark-to-market on the
investment securities portfolio at Dec. 31, 2008, under
the higher rate environments versus a stable rate

The Bank of New York Mellon Corporation

Results of Operations (continued)

scenario. The table below shows the impact of a
change in interest rates on the TCE ratio:

Estimated changes in the adjusted TCE ratio at Dec. 31, 2008
(in basis points)

up 200 bps vs. baseline
up 100 bps vs. baseline

(58)
(32)

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. The
foreign exchange risk related to the interest rate
spread on foreign currency-denominated asset/liability
positions is managed as part of our trading activities.
We use forward foreign exchange contracts to protect
the value of our net investment in foreign operations.
At Dec. 31, 2008, net investments in foreign
operations totaled approximately $6.2 billion and
were spread across 14 foreign currencies.

Business continuity

We are prepared for events that could damage our
physical facilities, cause delay or disruptions to
operational functions, including telecommunications
networks, or impair our clients, vendors, and
counterparties. Key elements of our business
continuity strategies are extensive planning and
testing, and diversity of business operations, data
centers and telecommunications infrastructure.

We have established multiple geographically diverse
locations for our funds transfer and broker-dealer
services operational units, which provide redundant
functionality to facilitate uninterrupted operations.

Our securities clearing, mutual fund accounting and
custody, securities lending, master trust, Unit
Investment Trust, corporate trust, stock transfer, item
processing, wealth management and treasury units
have common functionality in multiple sites designed
to facilitate continuance of operations or rapid
recovery. In addition, we have recovery positions for
over 12,500 employees on a global basis of which
over 6,000 are proprietary.

We continue to enhance geographic diversity for
business operations by moving additional personnel to

The Bank of New York Mellon Corporation

growth centers outside of existing major urban
centers. We replicate 100% of our critical production
computer data to multiple recovery data centers.

We have an active telecommunications diversity
program. All major buildings and data centers have
diverse telecommunications carriers. The data centers
have multiple fiber optic rings and have been designed
so that there is no single point of failure. All major
buildings have been designed with diverse
telecommunications access and connect to at least two
geographically dispersed connection points. We have
an active program to audit circuits for route diversity
and to test customer back-up connections.

In 2003, the Board of Governors of the Federal Reserve
System, the Office of the Comptroller of the Currency
and the Securities and Exchange Commission jointly
published the Interagency Paper, “Sound Practices to
Strengthen the Resilience of the U.S. Financial
System” (“Sound Practices Paper”). The purpose of the
document was to define the guidelines for the financial
services industry and other interested parties regarding
“best practices” related to business continuity planning.
Under these guidelines we are a key clearing and
settlement organization required to meet a higher
standard for business continuity.

We believe we have substantially met all of the
requirements of the Sound Practices Paper. As a core
clearing and settlement organization, we believe that
we are at the forefront of the industry in improving
business continuity practices.

We are committed to seeing that requirements for
business continuity are met not just within our own
facilities, but also within those of vendors and service
providers whose operation is critical to our safety and
soundness. To that end, we have a Service Provider
Management Office whose function is to review new
and existing service providers and vendors to see that
they meet our standards for business continuity, as
well as for information security, financial stability,
personnel practices, etc.

We have developed a comprehensive plan to prepare
for the possibility of a flu pandemic, which anticipates
significant reduced staffing levels and will provide for
increased remote working by staff for one or more
periods lasting several weeks.

Although we are committed to observing best
practices as well as meeting regulatory requirements,
geopolitical uncertainties and other external factors
will continue to create risk that cannot always be
identified and anticipated.

Supplemental Information (unaudited)

Supplemental information – Explanation of
non-GAAP financial measures

Reported amounts are presented in accordance with
GAAP. We believe that this supplemental non-GAAP
information is useful to the investment community in
analyzing the financial results and trends of our
business. We believe they facilitate comparisons

with prior periods and reflect the principal basis on
which our management internally monitors financial
performance. These non-GAAP items also are
excluded from our segment measures used internally
to evaluate segment performance because
management does not consider them particularly
relevant or useful in evaluating the operating
performance of our business segments.

Return on common equity and tangible common equity

(dollars in millions)

Net income before extraordinary loss
Add: Intangible amortization

Net income before extraordinary loss excluding intangible amortization
Add: M&I expenses

Restructuring charge

Net income before extraordinary loss excluding intangible amortization,

M&I expenses and the restructuring charge

Average common shareholders’ equity
Less: Average goodwill

Average intangible assets

Add: Deferred tax liability – tax deductible goodwill

Deferred tax liability – non-tax deductible intangible assets

Average tangible common shareholders’ equity

Return on tangible common equity before extraordinary loss – GAAP
Return on tangible common equity before extraordinary loss excluding

M&I expenses and restructuring charge

Return on common equity before extraordinary loss – GAAP
Return on common equity before extraordinary loss excluding

M&I expenses, the restructuring charge and intangible amortization

2008

$ 1,412
297

1,709
288
107

$ 2,104

$28,212
16,525
5,896
599
1,841

$ 8,231

20.8%

25.6%

5.0%

7.5%

2007 (a)

$ 2,219
197

2,416
238
-

$ 2,654

$20,234
10,739
3,769
495
2,006

$ 8,227

29.4%

32.3%

11.0%

13.1%

Legacy the Bank of
New York Company, Inc. only
2006

2005

2004

$ 2,847
50

2,897
72
-

$ 2,969

$10,333
4,394
772
384
162

$ 5,713

$1,571
27

1,598
-
-

$1,598

$9,473
3,772
568
303
-

$5,436

$1,440
23

1,463
-
-

$1,463

$8,797
3,596
552
217
-

$4,866

50.7%

29.4%

30.1%

52.0%

27.6%

29.4%

16.6%

30.1%

16.4%

28.7%

16.9%

16.6%

Reconciliation of net income and
EPS – GAAP to Non-GAAP
(in millions, except per common share amounts)

Net income – GAAP
Discontinued operations income (loss)
Extraordinary loss on consolidation of commercial

paper conduits, net of tax

Continuing operations

M&I expenses

2008

Net income

$1,386
3

1,409
288

EPS

$1.20
-

0.02

1.22
0.25

2007 (a)

2006 (a)

Net Income

EPS

Net income

$2,039
(8)

$ 2.18
(0.01)

180

2,227
238

0.19

2.38
0.25

$2,847
1,371

1,476
72

$1,548

EPS

$3.94
1.90

2,04
0.10

$2.14

Continuing operations excluding M&I expenses

$1,697

$1.47

$2,465

$ 2.64 (b)

Reconciliation of percent of non-U.S. revenue (FTE)
(dollars in millions)

Total foreign revenue – FTE
Total domestic revenue – FTE

Total revenue – FTE – GAAP

Add: Securities write-downs
Add: SILO/LILO

Total revenue – FTE – Non-GAAP

Percent of Non-U.S. revenue – GAAP
Percent of Non-U.S. revenue – Non-GAAP

2008

$ 5,002
8,712

13,714
1,628
489

$15,831

36%
32

2007 (a)

$ 3,677
7,689

11,366
201
-

$11,567

32%
32

(a) Results for 2007 include six months of The Bank of New York Mellon Corporation and six months of legacy The Bank of New York Company,

Inc. Results for 2006 reflect legacy The Bank of New York Company, Inc. only.

(b) Does not foot due to rounding.

The Bank of New York Mellon Corporation

Supplemental Information (unaudited) (continued)

Reconciliation of income from continuing operations before income taxes –
pre-tax operating margin (FTE)
(dollars in millions)

Income from continuing operations before income taxes – GAAP
FTE increment

Income from continuing operations before income taxes (FTE)
M&I expenses
Restructuring charge
Intangible amortization

Income from continuing operations before income taxes (FTE) excluding M&I expenses,

the restructuring charge and intangible amortization

Fee and other revenue – GAAP

Add: FTE increment – Fee and other revenue

Net interest revenue – GAAP

Add: FTE increment – Net interest revenue

Total revenue (FTE)

2007 (a)

2006 (a)

2008

$ 1,939
62

2,001
483
181
482

$ 3,225
32

3,257
404
-
319

$ 3,147

$ 3,980

$10,701
40
2,951
22

$13,714

.$ 9,034
20
2,300
12

$ 11,366

$2,170
22

2,192
106
-
76

$2,374

$5,339
-
1,499
22

$6,860

Pre-tax operating margin (FTE) (b)
Pre-tax operating margin (FTE) (b) excluding M&I expenses, the restructuring charge,

and intangible amortization

15%

23%

29%

35%

32%

35%

(a) Results for 2007 include six months of The Bank of New York Mellon Corporation and six months of legacy The Bank of New York Company,

Inc. Results for 2006 reflect legacy The Bank of New York Company, Inc. only.
Income before taxes divided by total revenue.

(b)

Reconciliation of tangible common shareholders’ equity to assets and adjusted tangible common
shareholders’ equity to assets
(dollars in millions)

Common shareholders’ equity at period end
Less: Goodwill

Intangible assets

Add: Deferred tax liability – tax deductible goodwill

Deferred tax liability – non-tax deductible intangible assets

Tangible common shareholders’ equity at period end
Add: Series B preferred and trust preferred securities included by certain rating agencies

Adjusted tangible common shareholders’ equity at period end

Total assets at period end
Less: Goodwill

Intangible assets
Cash on deposit with the Federal Reserve and other central banks (b)
U.S. Government-backed commercial paper (b)

Tangible total assets at period end
Tangible common shareholders’ equity to assets
Adjusted tangible common shareholders’ equity to assets

(a) Results for 2006 reflect legacy The Bank of New York Company, Inc. only.
(b) Assigned a zero percent risk weighting by the regulators.

2008

2007

2006 (a)

$ 25,264
15,898
5,856
599
1,841

5,950
1,124

$ 29,403
16,331
6,402
495
2,006

9,171
673

$ 11,429
5,008
1,453
384
162

5,514
-

7,074

9,844

5,514

$237,512
15,898
5,856
53,278
5,629

$197,656
16,331
6,402
80
-

$103,206
5,008
1,453
-
-

$156,851

$174,843

$ 96,745

3.8%
4.5%

5.2%
5.6%

5.7%
5.7%

The Bank of New York Mellon Corporation

Supplemental Information (unaudited) (continued)

Supplemental information – Rate/volume analysis

Rate/Volume analysis (a)

(dollar amounts in millions, presented on an FTE basis)
Interest revenue
Interest-earning assets:

Interest-bearing deposits with banks (primarily foreign banks)
Interest-bearing deposits with the Federal Reserve and other central

banks

Other short-term investments – U.S. government-backed commercial

paper

Federal funds sold and securities under resale agreements
Margin loans
Non-margin loans:

Domestic offices:
Consumer
Commercial
Foreign offices

Total non-margin loans

Securities:

U.S. government obligations
U.S. government agency obligations
Obligations of states and political subdivisions
Other securities:

Domestic offices
Foreign offices

Total other securities

Trading securities:
Domestic offices
Foreign offices

Total trading securities
Total securities
Total interest revenue

Interest expense
Interest-bearing deposits
Domestic offices:

Money market rate accounts
Savings
Certificates of deposits of $100,000 & over
Other time deposits

Total domestic

Foreign offices:

Banks
Government & official institutions
Other

Total foreign
Total interest-bearing deposits

2008 over (under) 2007

2007 over (under) 2006

Due to change in

Average
balance

Average
rate

Net
change

Average
balance

Average
rate

Net
change

$ 790

$ (280)

$ 510

$ 606

$ 98

$ 704

71
35
2

90
137
79
306

11
194
26

180
44
224

-
(175)
(151)

(42)
(826)
(209)
(1,077)

(5)
(78)
3

(55)
56
1

22
(33)
(11)
444
$1,675

(3)
(13)
(16)
(95)
$(1,778)

75
6
(35)
129
175

65
10
460
535
710
59

$ (285)
(8)
(56)
(64)
(413)

(239)
(30)
(641)
(910)
(1,323)
(127)

71
(140)
(149)

48
(689)
(130)
(771)

6
116
29

125
100
225

19
(46)
(27)
349
$(103)

$(210)
(2)
(91)
65
(238)

(174)
(20)
(181)
(375)
(613)
(68)

-
148
1

102
186
127
415

4
197
20

234
228
462

20
(103)
(83)
600
$1,770

$ 181
3
(67)
26
143

108
16
501
625
768
29

-
12
1

8
20
(8)
20

-
24
(2)

41
21
62

-
160
2

110
206
119
435

4
221
18

275
249
524

(3)
19
16
100
$231

17
(84)
(67)
700
$2,001

$ 23
7
9
8
47

7
4
129
140
187
(8)

$ 204
10
(58)
34
190

115
20
630
765
955
21

(18)
9
(9)
-
10
233
$1,210
$ 791

Federal funds purchased and securities sold under repurchase agreements
Other borrowed funds:
Domestic offices
Foreign offices

Total other borrowed funds

Borrowings from Federal Reserve related to ABCP
Payables to customers and broker-dealers
Long-term debt

(25)
3
(22)
-
3
15
$175
Total interest expense
Changes in net interest revenue
$ 56
(a) Changes which are solely due to balance changes or rate changes are allocated to such categories on the basis of the respective

(33)
9
(24)
-
(120)
(213)
$(1,807)
29
$

7
6
13
-
7
218
$1,035
$ 735

18
5
23
53
12
186
$1,043
$ 632

(15)
14
(1)
53
(108)
(27)
$(764)
$ 661

percentage changes in average balances and average rates. Changes in interest revenue or interest expense arising from the combination
of rate and volume variances are allocated proportionately to rate and volume based on their relative absolute magnitudes

The Bank of New York Mellon Corporation

Recent Accounting Developments

SFAS No. 160—Noncontrolling Interests and
EITF 08-10—Selected SFAS No. 160 implementation
questions

In December 2007, the FASB issued SFAS No. 160
(“SFAS 160”), “Noncontrolling Interests in
Consolidated Financial Statements, an amendment of
ARB No. 51.” SFAS 160 amends ARB No. 51 to
establish accounting and reporting standards for the
noncontrolling interest in a subsidiary (i.e., minority
interest) and for the deconsolidation of a subsidiary.
This statement applies to all entities that prepare
consolidated financial statements. This statement
clarifies that a noncontrolling interest in a subsidiary
is to be part of the equity of the controlling group and
is to be reported on the balance sheet within the equity
section separately from the Company as a distinct
item. The equity section of the balance sheet will be
required to present equity attributable to both
controlling and noncontrolling interests. The carrying
amount of the noncontrolling interest is adjusted to
reflect the change in ownership interest, and any
difference between the amount by which the
noncontrolling interests are adjusted and the fair value
of the consideration paid or received is recognized
directly in equity attributable to the noncontrolling
interest (i.e., as additional paid-in capital). Any
transaction that results in the loss of control of a
subsidiary is considered a remeasurement event with
any retained interest remeasured at fair value. The
gain or loss recognized in income includes both the
realized gain or loss related to the portion of the
ownership interest sold and the gain or loss on the
remeasurement to fair value of the retained interest.

We adopted SFAS 160 on Jan. 1, 2009. This statement
is to be applied prospectively as of Jan. 1, 2009,
except for the presentation requirements. Presentation
and disclosure requirements are to be applied
retroactively for all periods presented. At Jan. 1, 2009,
$4.5 million of minority interest liabilities was
reclassified from liabilities to equity on our balance
sheet. For acquisitions completed after Jan. 1, 2009,
where less than 100% of the entity is purchased, the
purchase price and goodwill will need to be allocated
between controlling and non-controlling interests.

SFAS No. 141 (revised)—Business Combinations

In December 2007, the FASB issued SFAS No. 141
(revised 2007) (“SFAS 141(R)”), “Business
Combinations.” SFAS 141(R) requires all acquisitions
of businesses to be measured at the fair value of the
business acquired rather than the cost allocation

The Bank of New York Mellon Corporation

process specified in SFAS No. 141. Upon adoption,
SFAS 141(R) will not have a significant impact on
our financial position and results of operations.
However, any business combination entered into
beginning in 2009 may significantly impact our
financial position and results of operations compared
with how it would have been recorded under prior
GAAP. Earnings volatility could result, depending on
the terms of the acquisition. This statement requires
deal costs, such as legal, investment banking, and due
diligence costs to be expensed as incurred, lowers the
threshold for recording acquisition contingencies and
requires contingencies to be measured at fair value.
This statement applies to business combination
transactions completed subsequent to Dec. 31, 2008.

SFAS No. 161—Disclosures about Derivative
Instruments and Hedging Activities

In March 2008, the FASB issued SFAS No. 161,
“Disclosures about Derivative Instruments and
Hedging Activities—an amendment of FASB
Statement No. 133”. SFAS No. 161 requires entities
to disclose the fair value of derivative instruments and
their gains or losses in tabular format and information
about credit-risk-related contingent features in
derivative agreements, counterparty credit risk, and
strategies and objectives for using derivative
instruments. Entities are required to provide enhanced
disclosures about how and why an entity uses
derivative instruments, how derivative instruments
and related hedged items are accounted for under
Statement 133 and how derivative instruments and
related hedged items affect an entity’s financial
position, financial performance and cash flows. We
adopted the disclosure requirements of SFAS 161 as
of Dec. 31, 2008.

FSP No. SFAS 142-3—Useful life of intangible assets

In April 2008, the FASB issued FASB Staff Position
No. SFAS 142-3 (“FSP 142-3”), “Determination of
the Useful Life of Intangible Assets”. FSP 142-3
amends the factors that should be considered in
developing renewal or extension assumptions used to
determine the useful life of a recognized intangible
asset under SFAS No. 142. For a recognized
intangible asset, an entity shall disclose information
that enables users of financial statements to assess the
extent to which the expected future cash flows
associated with the asset are affected by the entity’s
intent and/or ability to review or extend the
arrangement. FSP 142-3 was effective Jan. 1, 2009.
The impact of this FSP should be minimal to the

Recent Accounting Developments (continued)

Company as we currently consider the pattern of
customer renewals or extensions when we use cash
flows to assign fair values and related useful lives to
intangible assets.

IFRS

International Financial Reporting Standards (IFRS)
are a set of standards and interpretations adopted by
the International Accounting Standards Board. The
SEC is currently considering a potential IFRS
adoption process in the U.S., which would, in the near
term, provide certain domestic issuers with an
alternative accounting method and ultimately could
replace U.S. GAAP reporting requirements with IFRS
reporting requirements. The intention of this adoption
would be to provide the capital markets community
with a single set of high-quality, globally accepted
accounting standards. The adoption of IFRS for U.S.
companies with global operations would allow for
streamlined reporting, allow for easier access to
foreign capital markets and investments, and facilitate

cross-border acquisitions, ventures or spin-offs. In
November 2008, the SEC proposed a “roadmap” for
phasing in mandatory IFRS filings by U.S. public
companies beginning for years ending on or after
December 15, 2014. The roadmap is conditional on
progress towards milestones that would demonstrate
improvements in both the infrastructure of
international standard setting and the preparation of
the U.S. financial reporting community. The SEC will
monitor progress of these milestones between now
and 2011, when the SEC plans to consider requiring
U.S. public companies to adopt IFRS. The SEC had
initially allowed for a 60-day comment period on its
roadmap proposal, ending Feb. 19, 2009. However, in
February 2009, the SEC extended the comment period
to April 20, 2009.

Adoption of new accounting standards

For a discussion of the adoption of new accounting
standards, see Note 2 of Notes to Consolidated
Financial Statements.

The Bank of New York Mellon Corporation

Selected Quarterly Data (unaudited)

(dollar amounts in millions, except per share amounts)

Dec. 31

Sept. 30

June 30 March 31

Dec. 31

Sept. 30

June 30 (a) March 31 (a)

Quarter ended

2008

2007

2,931
669

3,600
-
2,706

1,580
452

2,032
(15)
1,389

1,475
427

1,902
(15)
1,272

Consolidated income statement
Total fee and other revenue
Net interest revenue

Total revenue
Provision for credit losses
Noninterest expense

Income (loss) from continuing operations before income

taxes and extraordinary (loss)
Provision (benefit) for income taxes

Income from continuing operations
Income (loss) from discontinued operations, net of tax

Income before extraordinary (loss) and preferred

dividends

Extraordinary (loss) on consolidation of commercial

paper conduits, net of tax

Net income
Preferred dividends

Net income applicable to common stock
Basic earnings per share
Continuing operations
Discontinued operations

Income before extraordinary (loss)
Extraordinary (loss)

Net income applicable to common stock

Diluted earnings per share
Continuing operations
Discontinued operations

Income before extraordinary (loss)
Extraordinary (loss)

1,816
1,070

2,886
60
2,875

2,923
703

3,626
30
3,332

2,982
411

3,393
25
2,754

(49)
(135)

86
1

(26)

61
(33)

0.05
-

0.05
(0.02)

0.02 (b) $

0.05
-

0.05
(0.02)

264
(41)

305
(2)

303

303
-

303

0.27
-

0.27

0.26
-

0.26

614
312

302
7

309

309
-

309

0.27
0.01

0.27 (b)
-

0.27

0.26
0.01

0.27
-

0.27

2,980
767

3,747
16
2,621

1,110
361

749
(3)

746

746
-

746

0.66
-

0.66

0.65
-

0.65

3,047
752

3,799
20
2,752

1,027
327

700
-

700

(180)

520
-

520

0.62
-

0.62
(0.16)

0.46

0.61
-

0.61
(0.16)

894
252

642
(2)

640

640
-

640

0.57
-

0.57

0.56
-

0.56

Net income applicable to common stock

0.02 (b) $

0.45

658
210

448
(3)

445

445
-

445

0.63
-
0.62 (b)
-

0.62

0.62
-

0.62

645
208

437
(3)

434

434
-

434

0.61
-

0 .61
-

0.61

0.61
-
0.60 (b)
-

0.60

$ 13,546
25,141
35,953
79,075
102,041
58,765
8,888
11,277

$ 78,680
42,859
49,889
183,876
243,962
148,849
15,467
28,771

$ 43,999
45,325
46,983
144,290
198,827
120,315
15,993
27,996

$ 43,361
46,999
47,151
144,255
195,997
119,607
16,841
28,507

$ 38,658
49,765
48,496
145,118
200,790
119,121
17,125
29,551

$ 37,107
49,310
47,109
140,622
192,987
114,727
15,510
29,136

$ 34,461
48,039
45,517
133,521
183,828
107,336
14,767
28,669

$ 20,558
26,836
37,317
90,557
114,323
68,944
10,042
11,566

2.34%
0.8%
(1)%

1.96%
4.3%
8%

1.16%
4.3%
18%

2.14%
10.2%
30%

2.16%
9.5%
27%

2.02%
8.9%
25%

2.01%
15.5%
32%

2.18%
15.7%
34%

Average balances
Interest-bearing deposits with banks
Securities
Loans
Total interest-earning assets
Total assets
Deposits
Long-term debt
Total shareholders’ equity

Net interest margin (FTE)
Annualized return on common equity (c)
Pre-tax operating margin (FTE) (c)
Common stock data (d)
Market price per share range:

High
Low
Average
Period end close

36.07
20.49
28.80
28.33
0.24
$ 32,536

43.00
21.33
35.62
32.58
0.24
$ 37,388

46.89
36.92
42.71
37.83
0.24
$ 43,356

49.40
38.70
45.32
41.73
0.24
$ 47,732

50.26
42.93
46.88
48.76
0.24
$ 55,878

46.93
38.30
42.91
44.14
0.24
$ 50,266

44.67
40.78
43.21
43.93
0.23
$ 31,495

45.91
40.40
43.01
42.98
0.23
$ 30,750

Dividends per share
Market capitalization (e)
(a) Legacy The Bank of New York Company, Inc. only.
(b) Amount does not foot due to rounding.
(c) Continuing operations basis.
(d) At Dec. 31, 2008, there were 29,428 shareholders registered with our stock transfer agent, compared with 28,904 at Dec. 31, 2007 and 24,546 at

Jan 31, 2007. In addition, there were approximately 41,661 of the Company’s employees at Dec. 31, 2008, who participated in the Company’s 401(k)
Retirement Savings Plans. All shares of the Company’s common stock held by the Plans for its participants are registered in the names of Wachovia
Corporation, Fidelity Management Trust Company and The Bank of New York Mellon Corporation, as trustee.

(e) At period end.

The Bank of New York Mellon Corporation

Forward-Looking Statements

Some statements in this document are forward-
looking. These include all statements about the future
results of the Company; projected business growth,
statements with respect to the merger of The Bank of
New York Company, Inc. and Mellon Financial with
and into the Company; expectations with respect to
operations after the merger; the Company’s plans and
long term financial goals; expectations with respect to
reductions in our workforce; expectations with respect
to our expenses; the impact of changes in the value of
market indices; expectations with respect to fees and
assets; factors affecting the performance of our
segments; statements on our corporate lending
strategy; statements on our targeted customers;
descriptions of our critical accounting estimates,
including management’s estimates of probable losses;
management’s judgment in determining the size of
unallocated allowances, the effect of credit ratings on
allowances, estimates and cash flow models;
judgments and analyses with respect to interest rate
swaps, estimates or fair value, other-than-temporary
impairment, goodwill and other intangibles; and long-
term financial goals, objectives and strategies. In
addition, these forward-looking statements relate to:
expected annual expense synergies; total M&I costs;
the expected increase in the percentage of revenue and
income from outside the U.S.; and in the level of fee
revenue per employee; reasons why our businesses are
compatible with our strategies and goals; growth in
our segments and assets; globalization of the
investment process; targeted capital ratios; the impact
of the events in the global markets in 2008, the
Treasury’s extension of certain programs created to
address those events and expenses incurred with
respect to these programs; deposit levels; expectations
with respect to earnings per share; assumptions with
respect to pension plans, including discount rates,
expected future returns, contributions and benefit
payments; statements with respect to our intent to hold
securities until maturity; assumptions with respect to
residential mortgage-backed securities; expected
losses included in securities write-downs and
impairments; expectations with respect to our SIV
securities; expectations with respect to our future
exposure to private equity activities; statements on our
fund commitments and institutional credit strategies;
goals with respect to our commercial portfolio;
descriptions of our allowance for credit losses and
loan losses; descriptions of our exposure to support
agreements; statements with respect to our liquidity
targets; expectations with respect to capital, including
anticipated repayment and call of outstanding debt
and issuance of replacement securities; statements on
our target double leverage ratio expectations with

respect to securities lending guarantees expiring
without the need to advance cash; expectations with
respect to the well-capitalized status of the Company
and its bank subsidiaries; the effects of the
implementation of Basel II; compliance with the
requirements of the Sound Practices Paper;
descriptions of our risk management framework;
quantifications of our economic capital; statements
with respect to our risk management methodologies
and descriptions of our earnings simulation models
and assumptions; statements with respect to our
disaster preparedness and our business continuity
plans; additional consideration with respect to
acquisitions and effect of geopolitical factors and
other external factors; timing and impact of adoption
of recent accounting pronouncements; ability to
realize benefit of deferred tax assets including
carryovers; calculations of the fair value of our option
grants; statements with respect to unrecognized
compensation costs; our assessment of the adequacy
of our accruals for tax liabilities; amount of dividends
bank subsidiaries can pay without regulatory waiver;
the expected outcome and impact of judgments and
settlements, if any, arising from pending or potential
legal or regulatory proceedings, including the claims
raised by The Federal Customs Service of The
Russian Federation and matters relating to the
information returns and withholding tax.

In this report, any other report, any press release or
any written or oral statement that the Company or its
executives may make, words such as “estimate,”
“forecast,” “project,” “anticipate,” “confident,”
“target,” “expect,” “intend,” “seek,” “believe,” “plan,”
“goal,” “could,” “should,” “may,” “will,” “strategy,”
“synergies,” “opportunities,” “trends” and words of
similar meaning, signify forward-looking statements.

Factors that could cause the Company’s results to
differ materially from those described in the forward-
looking statements, as well as other uncertainties
affecting future results and the value of the
Company’s stock and factors which represent risks
associated with the business and operations of the
Company, can be found in the “Risk Factors” section
of the Company’s annual report on Form 10-K for the
year ended Dec. 31, 2008, and any subsequent reports
filed with the Securities and Exchange Commission
(the “Commission”) by the Company pursuant to the
Securities Exchange Act of 1934, as amended (the
“Exchange Act”).

Forward-looking statements, including discussions
and projections of future results of operations and

The Bank of New York Mellon Corporation

Forward-Looking Statements (continued)

discussions of future plans contained in the MD&A,
are based on management’s current expectations and
assumptions that involve risks and uncertainties and
that are subject to change based on various important
factors (some of which are beyond the Company’s
control), including adverse changes in market
conditions and the timing of such changes, and the
actions that management could take in response to
these changes. Actual results may differ materially
from those expressed or implied as a result of these
risks and uncertainties and the risks and uncertainties
described in the documents referred to in the
preceding paragraph. The “Risk Factors” discussed in
the Form 10-K could cause or contribute to such

differences. Investors should consider all risks
mentioned elsewhere in this document and in
subsequent reports filed by the Company with the
Commission pursuant to the Exchange Act, as well as
other uncertainties affecting future results and the
value of the Company’s stock.

All forward-looking statements speak only as of the
date on which such statements are made, and the
Company undertakes no obligation to update any
statement to reflect events or circumstances after the
date on which such forward-looking statement is
made or to reflect the occurrence of unanticipated
events.

The Bank of New York Mellon Corporation

Glossary

Accumulated Benefit Obligation (“ABO”)—The
actuarial present value of benefits (vested and
non-vested) attributed to employee services rendered.

transaction. The service includes verification of
securities eligibility and maintenance of margin
requirements.

Adjusted tangible common shareholders’ equity to
assets—Common shareholders’ equity less goodwill
and intangible assets adjusted for deferred tax
liabilities associated with non-tax deductible
identifiable intangible assets and tax deductible
goodwill, plus a portion of the Series B preferred
stock and trust preferred securities divided by total
assets less goodwill, intangible assets, cash on deposit
with the Federal Reserve and other central banks and
U.S. government-backed commercial paper.

Alt-A Securities—A mortgage risk categorization
that falls between prime and subprime. Borrowers
behind these mortgages will typically have clean
credit histories but the mortgage itself will generally
have issues that increase its risk profile such as
inadequate documentation of the borrower’s income
or higher loan-to-value and debt-to-income ratios.

Alternative investments—Usually refers to
investments in hedge funds, leveraged loans,
subordinated and distressed debt, real estate and
foreign currency overlay. Many hedge funds pursue
strategies that are uncommon relative to mutual funds.
Examples of alternative investment strategies are:
long-short equity, event driven, statistical arbitrage,
fixed income arbitrage, convertible arbitrage, short
bias, global macro, and equity market neutral.

APAC—Asia-Pacific region.

Assets under custody and administration—Assets
held in a fiduciary capacity for which various services
are provided such as; custody, accounting,
administration valuations and performance
measurement. These assets are not on our balance
sheet.

Assets under management—Assets held in a
fiduciary capacity that are either actively or passively
managed. These assets are not on our balance sheet.

bp – basis point.

Collateralized Debt Obligations (“CDOs”)—A type
of asset-backed security and structured credit product
constructed from a portfolio of fixed-income assets.
CDOs are divided into different tranches and losses
are applied in reverse order of seniority.

Credit derivatives—Contractual agreements that
provide insurance against a credit event of one or
more referenced credits. The nature of the credit event
is established by the buyer and seller at the inception
of the transaction, such events include bankruptcy,
insolvency and failure to meet payment obligations
when due. The buyer of the credit derivative pays a
periodic fee in return for a contingent payment by the
seller (insurer) following a credit event.

Credit risk—The risk of loss due to borrower or
counterparty default.

Cross-currency swaps—Contracts that generally
involve the exchange of both interest and principal
amounts in two different currencies. Also, see interest
rate swaps in this glossary.

Depositary Receipts (“DR”)—A negotiable security
that generally represents a non-U.S. company’s
publicly traded equity. Although typically
denominated in U.S. dollars, DRs can also be
denominated in Euros. DRs are eligible to trade on all
U.S. stock exchanges and many European stock
exchanges. American depositary receipts (“ADR”)
trade only in the U.S.

Derivative—A contract or agreement whose value is
derived from changes in interest rates, foreign
exchange rates, prices of securities or commodities,
credit worthiness for credit default swaps or financial
or commodity indices.

Discontinued operations—The operating results of a
component of an entity, as defined by SFAS No. 144,
that are removed from continuing operations when
that component has been disposed of or it is
management’s intention to sell the component.

Collateral management—A comprehensive program
designed to simplify collateralization and expedite
securities transfers for buyers and sellers. The
Company acting as an independent collateral manager
is positioned between the buyer and seller to provide a
convenient, flexible, and efficient service to ensure
proper collateralization throughout the term of the

Double leverage—The situation that exists when a
holding company’s equity investments in wholly-
owned subsidiaries (including goodwill and
intangibles) exceed its equity capital. Double leverage
is created when a bank holding company issues debt
and downstreams the proceeds to a subsidiary as an
equity investment.

The Bank of New York Mellon Corporation

Glossary (continued)

Economic Value of Equity (“EVE”)—An
aggregation of discounted future cash flows of assets
and liabilities over a long-term horizon.

defining acceptable practices in preparing financial
statements in the U.S. The FASB is the primary
source of accounting rules.

EMEA—Europe, the Middle East and Africa.

Exchange Traded Fund (“ETF”)—Each share of an
ETF tracks a basket of stocks in some index or
benchmark, providing investors with a vehicle that
closely parallels the performance of these benchmarks
while allowing for intraday trading.

Expected incurred loss—The principal amount of
securities that is not expected to be repaid, generally
due to credit losses. May refer to the amount of
incurred loss that occurs during a period or the
amount resident in a portfolio at a point in time.

FASB—Financial Accounting Standards Board.

FICO score—A type of credit score that makes up a
substantial portion of the credit report that lenders use
to assess an applicant’s credit risk and whether to
extend a loan. The FICO score assesses an applicant’s
payment history, current level of indebtedness, types
of credit used, length of credit history and new credit
to determine credit risk.

Foreign currency options—Similar to interest rate
options except they are based on foreign exchange
rates. Also, see interest rate options in this glossary.

Foreign currency swaps—An agreement to
exchange stipulated amounts of one currency for
another currency at one or more future dates.

Foreign exchange contracts—Contracts that provide
for the future receipt or delivery of foreign currency at
previously agreed-upon terms.

Forward rate agreements—Contracts to exchange
payments on a specified future date, based on a
market change in interest rates from trade date to
contract settlement date.

Fully Taxable Equivalent (“FTE”)—Basis for
comparison of yields on assets having ordinary
taxability with assets for which special tax exemptions
apply. The FTE adjustment reflects an increase in the
interest yield or return on a tax-exempt asset to a level
that would be comparable had the asset been fully
taxable.

Generally Accepted Accounting Principles
(“GAAP”)—Accounting rules and conventions

The Bank of New York Mellon Corporation

Granularity—Refers to the amount of concentration
in the credit portfolio due to large individual
exposures. One measure of granularity is the amount
of economic capital attributable to an exposure. As the
average economic capital per exposure declines, the
portfolio is considered to be more granular.

Hedge fund—A fund, usually used by wealthy
individuals and institutions, which is allowed to use
aggressive strategies that are unavailable to mutual
funds, including selling short, leverage, program
trading, swaps, arbitrage, and derivatives. Hedge
funds are exempt from many of the rules and
regulations governing mutual funds, which allow
them to accomplish aggressive investing goals. Legal
requirements in many countries allow only certain
sophisticated investors to participate in hedge funds.

Home Equity Line of Credit (“HELOC”)—A line
of credit extended to a homeowner who uses the
borrower’s home as collateral.

Impairment—When an asset’s market value is less
than its carrying value.

Interest rate options, including caps and floors—
Contracts to modify interest rate risk in exchange for
the payment of a premium when the contract is
initiated. As a writer of interest rate options, we
receive a premium in exchange for bearing the risk of
unfavorable changes in interest rates. Conversely, as a
purchaser of an option, we pay a premium for the
right, but not the obligation, to buy or sell a financial
instrument or currency at predetermined terms in the
future.

Interest rate sensitivity—The exposure of net
interest income to interest rate movements.

Interest rate swaps—Contracts in which a series of
interest rate flows in a single currency is exchanged
over a prescribed period. Interest rate swaps are the
most common type of derivative contract that we use
in our asset/liability management activities. An
example of a situation in which we would utilize an
interest rate swap would be to convert our fixed-rate
debt to a variable rate. By entering into the swap, the
principal amount of the debt would remain
unchanged, but the interest streams would change.

Glossary (continued)

Investment grade loans and commitments—Those
where the customer has a Moody’s long-term rating of
Baa3 or better; and/or a Standard & Poor’s long-term
rating of BBB- or better; or if unrated, an equivalent
rating using our internal risk ratings.

Joint venture—A company or entity owned and
operated by a group of companies for a specific
business purpose, no one of which has a majority
interest.

Lease-In-Lease-Out (“LILO”) transaction—A
transaction in which a person or entity leases property
from the owner for a specified time period and then
leases the property back to that owner for a shorter
time period. The obligations of the property owner as
sublessee are usually secured by deposits, letters of
credit, or marketable securities.

Leverage ratio—Tier I Capital divided by leverage
assets. Leverage assets are defined as quarterly
average total assets, net of goodwill, intangibles and
certain other items as required by the Federal Reserve.

Liquidity risk—The risk of being unable to fund our
portfolio of assets at appropriate maturities and rates,
and the risk of being unable to liquidate a position in a
timely manner at a reasonable price.

Loans for purchasing or carrying securities—
Loans primarily to brokers and dealers in securities.

Margin loans—A loan that is used to purchase shares
of stock. The shares purchased are used as collateral
for the loan.

Mark-to-market exposure—A measure, at a point in
time, of the value of a derivative or foreign exchange
contract in the open market. When the mark-to-market
is positive, it indicates the counterparty owes us and,
therefore, creates a repayment risk for us. When the
mark-to-market is negative, we owe the counterparty.
In this situation, we do not have repayment risk.

Market risk—The potential loss in value of
portfolios and financial instruments caused by
movements in market variables, such as interest and
foreign exchange rates, credit spreads, and equity and
commodity prices.

Master netting agreement—An agreement between
two counterparties that have multiple contracts with
each other that provides for the net settlement of all
contracts through a single payment in the event of
default or termination of any one contract.

Mortgage-Backed Security (“MBS”)—An asset-
backed security whose cash flows are backed by the
principal and interest payments of a set of mortgage
loans.

N/A—Not applicable.

N/M—Not meaningful.

Net interest margin—The result of dividing net
interest revenue by average interest-earning assets.

Operating leverage—The rate of increase in revenue
to the rate of increase in expenses.

Operational risk—The risk of loss resulting from
inadequate or failed processes or systems, human
factors, or external events.

Option ARMS—A type of adjustable rate mortgage
where the lender offers several payment options to the
borrower. These options may include payment of
principal and interest amounts similar to those made
in conventional mortgages, or alternative payment
options where the borrower can make significantly
smaller, interest-only or minimum payments.

Performance fees—Fees paid to an investment
advisor based upon the fund’s performance for the
period relative to various predetermined benchmarks.

Prime securities—A classification of borrowers who
have a high-value and/or a good credit history.

Pre-tax operating margin (FTE)—Income before
tax on an FTE basis for a period divided by total
revenue on an FTE basis for that period.

Projected Benefit Obligation (“PBO”)—The
actuarial present value of all benefits accrued on
employee service rendered prior to the calculation
date, including allowance for future salary increases if
the pension benefit is based on future compensation
levels.

Qualified Special Purpose Entity (“QSPE”)—A
special purpose entity whose activities are strictly
limited to holding and servicing financial assets and
meet the requirements set forth in SFAS No. 140. A
qualified special purpose entity is generally not
required to be consolidated by any party.

Residential mortgage-backed security—A type of
security which is backed by mortgages on residential
real estate.

The Bank of New York Mellon Corporation

Glossary (continued)

Restructuring charges—Typically result from the
consolidation and/or relocation of operations.
Restructuring charges may be incurred in connection
with a business combination, a change in an
enterprise’s strategic plan, or a managerial response to
declines in demand.

Return on assets—Income divided by average assets.

Return on tangible common equity—Income,
excluding intangible amortization, divided by average
tangible common shareholders’ equity.

Return on common equity—Income divided by
average common shareholders’ equity.

Sale-In-Lease-Out (“SILO”) transaction—A
transaction in which an entity leases its property to a
corporation. The corporation simultaneously leases
the property back to the entity for a shorter period of
time. The SILO arrangement typically involves a
service contract which guarantees a fixed return to the
corporation.

Securities lending short-term investment fund—
For some of our securities lending clients, we invest
the cash collateral received in the customer’s
securities lending transactions in a commingled
investment fund.

Securities lending transaction—A fully
collateralized transaction in which the owner of a
security agrees to lend the security through an agent
(The Bank of New York Mellon) to a borrower,
usually a broker/dealer or bank, on an open, overnight
or term basis, under the terms of a prearranged
contract, which generally matures in less than 90 days.

Statement of Financial Accounting Standards
(“SFAS”)—Statement published by the Financial
Accounting Standards Board.

Structured Investment Vehicle (“SIV”)—A fund
which borrows money by issuing short-term securities
at low interest and then lends money by buying long-
term securities at higher interest.

Sub-custodian—A local provider (e.g., a bank)
contracted by us to provide specific custodial related
services in a selected country or geographic area.
Services generally include holding foreign securities
in safekeeping, facilitating settlements and reporting
holdings to the custodian.

The Bank of New York Mellon Corporation

Subprime securities—A classification of borrowers
with a tarnished or limited credit history. Subprime
loans carry increased credit risk and subsequently
carry higher interest rates.

Tangible common equity ratio (“TCE”)—Common
shareholders’ equity less goodwill and intangible
assets adjusted for deferred tax liabilities associated
with tax deductible goodwill and non-tax deductible
intangible assets divided by period-end total assets
less goodwill, intangible assets, deposits with the
Federal Reserve and other central banks, and U.S.
government-backed commercial paper.

Tangible common shareholders’ equity—Common
equity less goodwill and intangible assets adjusted for
deferred tax liabilities associated with non-tax
deductible intangible assets and tax deductible
goodwill.

Tier I and total capital—Includes common
shareholders’ equity (excluding certain components of
comprehensive income), Series B preferred stock,
qualifying trust preferred securities and minority
interest in equity accounts of consolidated
subsidiaries, less goodwill and certain intangible
assets adjusted for deferred tax liabilities associated
with non-tax deductible intangible assets and tax
deductible goodwill and a deduction for certain
non-financial equity investments. Total capital
includes Tier I capital, qualifying unrealized equity
securities gains, qualifying subordinated debt and the
allowance for credit losses.

Unfunded commitments—Legally binding
agreements to provide a defined level of financing
until a specified future date.

Value at Risk (“VAR”)—A measure of the dollar
amount of potential loss at a specified confidence
level from adverse market movements in an ordinary
market environment.

Variable Interest Entity (“VIE”)—An entity that:
(1) lacks enough equity investment at risk to permit
the entity to finance its activities without additional
financial support from other parties; (2) has equity
owners that lack the right to make significant
decisions affecting the entity’s operations; and/or
(3) has equity owners that do not have an obligation to
absorb or the right to receive the entity’s losses or
return.

NEW YORK STOCK EXCHANGE AND SECURITIES AND EXCHANGE COMMISSION ANNUAL
CERTIFICATIONS

Because our common stock is listed on the NYSE, our
Chief Executive Officer is required to make an annual
certification to the NYSE stating that he was not
aware of any violation by the Company of the
Corporate Governance Listing Standards of the
NYSE. The Chief Executive Officer of The Bank of
New York Mellon Corporation submitted this annual
certification to the NYSE for 2008 on May 8, 2008,
and our Chief Executive Officer will submit the 2009

certification after our 2009 Annual Meeting of
Shareholders, in accordance with NYSE rules.

We have filed with the SEC the certification required
to be made by our Chief Executive Officer and Chief
Financial Officer under Section 302 of the Sarbanes
Oxley Act of 2002, as exhibits to the Annual Report
on Form 10-K for the year ended Dec. 31, 2008.

REPORT OF MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Management of the Company is responsible for
establishing and maintaining adequate internal control
over financial reporting for the Corporation, as such
term is defined in Rule 13a-15(f) under the Securities
Exchange Act of 1934, as amended.

Internal Control—Integrated Framework. Based upon
such assessment, management believes that, as of
December 31, 2008, the Company’s internal control
over financial reporting is effective based upon those
criteria.

The Company’s management, including its principal
executive officer and principal financial officer, has
assessed the effectiveness of the Company’s internal
control over financial reporting as of December 31,
2008. In making this assessment, management used
the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission in

KPMG LLP, the independent registered public
accounting firm that audited the 2008 financial
statements included in this Annual Report under
“Financial Statements and Notes,” has issued a report
with respect to the effectiveness of the Company’s
internal control over financial reporting. This report
appears on page 92.

The Bank of New York Mellon Corporation

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders of
The Bank of New York Mellon Corporation:

We have audited The Bank of New York Mellon Corporation’s (the “Company”) internal control over financial
reporting as of December 31, 2008, based on criteria established in Internal Control—Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s
management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Report
of Management on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the
Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was maintained in all material respects. Our audit
included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the
assessed risk. Our audit also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting
as of December 31, 2008, based on criteria established in Internal Control—Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the consolidated balance sheets of the Company as of December 31, 2008 and 2007, and the
related consolidated statements of income, changes in shareholders’ equity, and cash flows for each of the years in
the two-year period ended December 31, 2008, and our report dated February 27, 2009 expressed an unqualified
opinion on those consolidated financial statements.

New York, New York
February 27, 2009

The Bank of New York Mellon Corporation

CONSOLIDATED INCOME STATEMENT

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

(in millions, except per share amounts or unless otherwise noted)

Fee and other revenue

Securities servicing fees:
Asset servicing
Issuer services
Clearing and execution services

Total securities servicing fees

Asset and wealth management fees
Performance fees
Foreign exchange and other trading activities
Treasury services
Distribution and servicing
Financing-related fees
Investment income
Other

Total fee revenue

Securities gains (losses)

Total fee and other revenue

Net interest revenue
Interest revenue
Interest expense

Net interest revenue
Provision for credit losses

Net interest revenue after provision for credit losses

Noninterest expense

Staff
Professional, legal and other purchased services
Net occupancy
Distribution and servicing
Software
Furniture and equipment
Sub-custodian and clearing
Business development
Other

Subtotal

Amortization of intangible assets
Restructuring charge
Merger and integration expenses:

The Bank of New York Mellon Corporation
Acquired Corporate Trust Business

Total noninterest expense

Income

Income from continuing operations before income taxes
Provision for income taxes

Income from continuing operations
Income (loss) from discontinued operations, net of tax

Income before extraordinary (loss) and preferred dividends

Extraordinary (loss) on consolidation of commercial paper conduits, net of tax

Net income
Preferred dividends

Net income applicable to common stock

Year ended Dec. 31,

2008

2007 (a)

2006 (a)

$ 3,348
1,685
1,087

$2,353
1,560
1,192

$1,401
895
1,248

6,120
3,135
83
1,462
518
421
188
112
290

12,329
(1,628)

10,701

5,638
2,687

2,951
131

2,820

5,115
1,126
575
517
331
324
313
279
1,856

10,436
482
181

471
12

5,105
2,060
93
786
348
212
216
149
266

9,235
(201)

9,034

5,751
3,451

2,300
(10)

2,310

4,120
781
449
268
280
267
383
190
658

7,396
319
-

355
49

3,544
545
35
415
209
6
250
160
173

5,337
2

5,339

3,740
2,241

1,499
(20)

1,519

2,640
381
279
17
220
190
333
108
338

4,506
76
-

-
106

11,582

8,119

4,688

1,939
497

1,442
3

1,445
(26)

1,419
(33)

3,225
998

2,227
(8)

2,219
(180)

2,039
-

2,170
694

1,476
1,371

2,847
-

$ 1,386

$2,039

$2,847

(a) Results for 2007 include six months of The Bank of New York Mellon Corporation and six months of legacy The Bank of New York

Company, Inc. Results for 2006 reflect legacy The Bank of New York Company, Inc. only.

The Bank of New York Mellon Corporation

CONSOLIDATED INCOME STATEMENT (continued)

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

(in dollars unless otherwise noted)

Earnings per common share (b)

Basic:
Income from continuing operations
Income (loss) from discontinued operations, net of tax

Income before extraordinary (loss)

Extraordinary (loss), net of tax

Net income applicable to common stock

Diluted:
Income from continuing operations
Income (loss) from discontinued operations, net of tax

Income before extraordinary (loss)

Extraordinary (loss), net of tax

Net income applicable to common stock

Average common shares and equivalents outstanding (b) (in thousands)

Basic
Common stock equivalents

Diluted

Year ended Dec. 31,

2008

2007 (a)

2006 (a)

1.23
-

1.23
(0.02)

1.21

1.22
-

1.22
(0.02)
1.20

2.41
(0.01)

2.40
(0.19)

2.21

2.38
(0.01)

2.37
(0.19)
2.18

2.07
1.92

3.99
-

3.99

2.04
1.90

3.94
-
3.94

1,142,239
10,382

1,152,621

923,199
11,505

934,704

713,795
8,612

722,407

Anti-dilutive securities (in thousands) (c)
(a) Results for 2007 include six months of The Bank of New York Mellon Corporation and six months of legacy The Bank of New York

59,285

75,197

60,067

Company, Inc. Results for 2006 reflect legacy The Bank of New York Company, Inc. only.

(b) All earnings per share data and average shares outstanding are presented in post-merger share count terms.
(c) Represents stock options outstanding but not included in the computation of diluted average shares because the exercise prices of the

instruments were greater than the average fair value of our common stock during the periods.

See accompanying Notes to Consolidated Financial Statements.

The Bank of New York Mellon Corporation

CONSOLIDATED BALANCE SHEET

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

(dollar amounts in millions, except per share amounts)
Assets
Cash and due from:

Dec. 31,

2008

2007

Banks
Federal Reserve and other central banks (Includes $53,270 of interest-bearing deposits at

4,881

6,555

Dec. 31, 2008)

Other short-term investments – U.S. government-backed commercial paper, at fair value
Interest-bearing deposits with banks
Federal funds sold and securities purchased under resale agreements
Securities:

Held-to-maturity (fair value of $6,333 and $2,171)
Available-for-sale

Total securities

Trading assets
Loans
Allowance for loan losses

Net loans

Premises and equipment
Accrued interest receivable
Goodwill
Intangible assets
Other assets (includes $1,870 at fair value at Dec. 31, 2008)

Total assets

Liabilities
Deposits:

Noninterest-bearing (principally domestic offices)
Interest-bearing deposits in domestic offices
Interest-bearing deposits in foreign offices

Total deposits

Borrowing from Federal Reserve related to asset-backed commercial paper, at fair value
Federal funds purchased and securities sold under repurchase agreements
Trading liabilities
Payables to customers and broker-dealers
Commercial paper
Other borrowed funds
Accrued taxes and other expenses
Other liabilities (including allowance for lending related commitments of $114 and $167, also

includes $324 at fair value at Dec. 31, 2008)

Long-term debt

Total liabilities

Shareholders’ equity
Preferred stock – par value $0.01 per share; authorized 100,000,000 shares; issued 3,000,000

Common equity:
Common stock-par value $0.01 per common share; authorized 3,500,000,000 common shares;

issued 1,148,507,561 and 1,146,896,177 common shares

Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss, net of tax
Less: Treasury stock of 40,262 and 912,896 common shares, at cost

Total common equity
Total shareholders’ equity
Total liabilities and shareholders’ equity

See accompanying Notes to Consolidated Financial Statements.

53,278
5,629
39,126
2,000

7,371
32,064
39,435
11,102
43,394
(415)
42,979
1,686
619
15,898
5,856
15,023
$237,512

$ 55,816
32,386
71,471
159,673
5,591
1,372
8,085
9,274
138
755
4,052

4,657
15,865
209,462

80
-
34,312
9,108

2,180
46,518
48,698
6,420
50,931
(327)
50,604
1,731
739
16,331
6,402
16,676
$197,656

$ 32,372
21,082
64,671
118,125
-
2,193
4,577
7,578
4,079
1,840
8,101

4,887
16,873
168,253

2,786

11
20,432
10,250
(5,426)
(3)
25,264
28,050
$237,512

11
19,990
10,015
(574)
(39)
29,403
29,403
$197,656

The Bank of New York Mellon Corporation

CONSOLIDATED STATEMENT OF CASH FLOWS

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

(in millions)
Operating activities
Net income
Income (loss) from discontinued operations, net of tax
Extraordinary (loss), net of taxes
Income from continuing operations
Adjustments to reconcile net income to cash provided by operating activities:

Provision for credit losses
Depreciation and amortization
Deferred tax (benefit) expense
Securities losses (gains) and venture capital income

Change in trading activities
Change in accruals and other, net
Net effect of discontinued operations

Net cash provided by operating activities

Investing activities

Change in interest-bearing deposits with banks
Change in interest-bearing deposits at the Federal Reserve and other central banks
Change in margin loans
Purchases of securities held-to-maturity
Paydowns of securities held-to-maturity
Maturities of securities held-to-maturity
Purchases of securities available-for-sale
Sales of securities available-for-sale
Paydowns of securities available-for-sale
Maturities of securities available-for-sale
Net principal received from (disbursed to) loans to customers
Sales of loans and other real estate
Change in federal funds sold and securities purchased under resale agreements
Change in seed capital investments
Purchases of premises and equipment/capitalized software
Acquisitions, net cash
Dispositions, net of cash included
Proceeds from the sale of premises and equipment
Other, net
Net effect of discontinued operations

Net cash used for investing activities

Financing activities

Change in deposits
Change in federal funds purchased and securities sold under repurchase agreements
Change in payables to customers and broker-dealers
Change in other funds borrowed
Change in commercial paper
Net proceeds from the issuance of long-term debt
Repayments of long-term debt
Proceeds from the exercise of stock options
Issuance of common stock
Tax benefit realized on share-based payment awards
Treasury stock acquired
Common cash dividends paid
Preferred dividends paid
Series B preferred stock issued
Warrant issued
Net effect of discontinued operations

Net cash provided by financing activities

Effect of exchange rate changes on cash
Change in cash and due from banks

Change in cash and due from banks
Cash and due from banks at beginning of period
Cash and due from banks at end of period (Dec. 31, 2008 and 2007 include $8 million and $80 million of

noninterest-bearing cash at the Federal Reserve Bank)

Supplemental disclosures

Interest paid
Income taxes paid
Income taxes refunded

Year ended Dec. 31,

2008

2007 (a)

2006 (a)

$ 1,419
3
(26)
1,442

$ 2,039
(8)
(180)
2,227

$ 2,847
1,371
-
1,476

131
887
(1,267)
1,659
(368)
430
-
2,914

(13,995)
(53,270)
1,233
-
269
238
(11,647)
144
5,038
5,584
4,508
334
6,094
56
(303)
(511)
310
41
(98)
-
(55,975)

48,859
(821)
1,696
5,596
(3,941)
2,647
(4,082)
182
40
14
(308)
(1,107)
(22)
2,779
221
-
51,753
(438)

(1,746)
6,635

(10)
826
(148)
141
1,947
(992)
(21)
3,970

(10,625)
-
(43)
-
228
233
(30,398)
2,600
4,862
16,023
(3,647)
52
(2,612)
136
(313)
1,431
-
1
506
(8)
(21,574)

19,067
75
313
(772)
(295)
4,617
(1,131)
475
20
55
(113)
(884)
-
-
-
41
21,468
(69)

3,795
2,840

(20)
490
398
(9)
847
(67)
796
3,911

(3,810)
-
921
(567)
227
116
(11,122)
7,559
4,553
4,510
(5,551)
122
(2,689)
(216)
(221)
2,135
(2,275)
149
(188)
-
(6,347)

3,304
(43)
(1,358)
588
139
1,527
(567)
217
174
37
(883)
(656)
-
-
-
-
2,479
(85)

(42)
2,882

$ 4,889

$ 6,635

$ 2,840

$ 2,704
2,455
65

$ 3,546
1,390
147

$ 2,322
652
4

(a) Results for 2007 include six months of The Bank of New York Mellon Corporation and six months of legacy The Bank of New York

Company, Inc. Results for 2006 reflect legacy The Bank of New York Company, Inc. only.

See accompanying Notes to Consolidated Financial Statements.

The Bank of New York Mellon Corporation

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

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

(in millions, except per share amounts)

Balance at Jan. 1, 2006
Comprehensive income:

Net income
Other comprehensive income, net of tax:

Adjustment to initially apply SFAS 158
Reclassification adjustment

Total comprehensive income
Dividends on common stock at $0.91 per share
Repurchase of common stock
Common stock issued under employee benefit

plans

Stock awards and options exercised
Balance at Dec. 31, 2006
Adjustments for the cumulative effect of applying

FSP FAS 13-2 and FIN 48, net of taxes of
($214)

Adjusted balance at Jan. 1, 2007
Comprehensive income:

Net income
Other comprehensive income, net of tax:

Reclassification adjustment

Total comprehensive income
Dividends on common stock at $0.95 per share
Repurchase of common stock
Common stock issued under employee benefit

plans

Common stock issued in settlement of share
repurchase agreements with broker-dealer
counterparties

Stock awards and options exercised
Retirement of treasury stock
Merger with Mellon
Other
Balance at Dec. 31, 2007
Adjustments for the cumulative effect of

applying EITF 06-04, 06-10 and SFAS 159,
net of taxes of $24

Adjusted balance at Jan. 1, 2008
Comprehensive income:

Net income
Other comprehensive income, net of tax:

Reclassification adjustment

Total comprehensive income

Dividends on common stock at $0.96 per share
Dividends on preferred stock at $8.75 per share
Repurchase of common stock
Common stock issued under employee benefit

plans

Common stock issued under direct stock

purchase and dividend reinvestment plan

Series B preferred stock issued
Amortization of preferred stock discount
Stock awards and options exercised
Warrant issued in connection with TARP
Other
Balance at Dec. 31, 2008

Preferred
stock
-

Common
stock
$10

Additional
paid-in
capital

Retained
earnings
$ 9,654 $ 7,089

Accumulated
other
comprehensive
income (loss),
Treasury
net of tax
stock
$ (134) $(6,736)

ESOP
loan
$(7)

Total
shareholders’
equity
$ 9,876

-
-
-
-
-
-
-

-
-
-

-
-

-
-
-
-
-
-

-
-

-
-
-
-
-
-
-

-
2,779
7
-
-
-
$2,786

-
-
-
-
-
-
-

2,847
-
-
-
2,847
(656)
-

-
133
(264)
(52)
(183)
-
-

-
-
-
-
-
-
(883)

-
-
-
-
-
-
-

2,847
133
(264)
(52)
2,664
(656)
(883)

-
-
$10

381
-

-
-
$10,035 $ 9,280

-
-

-
43
$ (317) $(7,576)

4
-
$(3)

385
43
$11,429 (a)

-
10

-
10,035

(416)
8,864

2,039
-
-
2,039
(884)
-

-
-
-
-
-
-

-
-
(3)
4
-
$11

(35)
644
(7,541)
16,846
16

-
-
-
-
(4)
$19,990 $10,015

-
11

-
19,990

(57)
9,958

-
-
-
-
-
-
-

-
-
-
-
-
-
$11

-
-
-
-
-
-
-

1,419
-
-
1,419
(1,107)
(26)
-

(3)

-
-
-
200
221
9

(1)
-
(7)
-
-
17
$20,432 $10,250

-
(317)

-
(7,576)

-
(3)

(416)
11,013

-
(231)
(26)
(257)
-
-

-
-
-
-
-

$ (574) $

-
(574)

-
(5,824)
972
(4,852)
-
-
-

-
-
-
-
-
-

$(5,426) $

-
-
-
-
-
(113)

35
69
7,544
-
-
(39)

-
(39)

-
-
-
-
-
-
(308)

31
-
-
249
-
6
(3)

-
-
-
-
-
-

-
-
-
-
-
$ -

-
-

-
-
-
-
-
-
-

-
-
-
-
-
-
$ -

2,039
(231)
(26)
1,782
(884)
(113)

-
713
-
16,850
12
$29,403 (a)

(57)
29,346

1,419
(5,824)
972
(3,433)
(1,107)
(26)
(308)

30
2,779
-
449
221
32
$28,050 (a)

(a)

Includes $11,429 million, $29,403 million and $25,264 million of total common shareholders’ equity at Dec. 31, 2006, Dec. 31, 2007
and Dec. 31, 2008, respectively.

See accompanying Notes to Consolidated Financial Statement

The Bank of New York Mellon Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of significant accounting and
reporting policies

Basis of Presentation

The accounting and financial reporting policies of The
Bank of New York Mellon Corporation, a global
financial services company, conform to U.S. generally
accepted accounting principles (GAAP) and
prevailing industry practices. The preparation of
financial statements in conformity with U.S. GAAP
requires management to make estimates based on
assumptions about future economic and market
conditions which affect reported amounts and related
disclosures in our financial statements. Although our
current estimates contemplate current conditions and
how we expect them to change in the future, it is
reasonably possible that in 2009, actual conditions
could be worse than anticipated in those estimates,
which could materially affect our results of operations
and financial condition. Amounts subject to
significant estimates are items such as the allowance
for loan losses and lending related commitments,
goodwill and intangible assets, pension and post-
retirement obligations, the fair value of financial
instruments and other-than-temporary impairments.
Among other effects, such changes could result in
future impairments of investment securities, goodwill
and intangible assets and establishment of allowances
for loan losses and lending related commitments as
well as increased pension and post-retirement
expense.

In addition to discontinued operations (see Note 4 of
Notes to Consolidated Financial Statements), other
immaterial reclassifications have been made to prior
periods to place them on a basis comparable with
current period presentation.

The consolidated financial statements include the
accounts of the Company and its subsidiaries. Equity
investments of less than a majority but at least 20%
ownership are accounted for by the equity method and
classified as other assets. Earnings on these
investments are reflected in fee and other revenue as
securities servicing fees or investment income, as
appropriate, in the period earned. Our most significant
equity method investments are:

Equity method investments at Dec. 31, 2008
(dollars in millions)

Percent Ownership

Book Value

Wing Hang
CIBC Mellon
ConvergEx

20.3%
50.0%
33.8%

$279
$506
$187

The Bank of New York Mellon Corporation

The income statement and balance sheet include
results of acquired businesses accounted for under the
purchase method of accounting pursuant to SFAS
No. 141 “Business Combinations” and equity
investments from the dates of acquisition. We record
any contingent purchase payments when the amounts
are resolved and become payable.

The Parent Corporation financial statements in Note
22 of Notes to Consolidated Financial Statements
include the accounts of the Parent Corporation; those
of a wholly owned financing subsidiary that functions
as a financing entity for the Company and its
subsidiaries by issuing commercial paper and other
debt guaranteed by the Company; and MIPA, LLC, a
single member company, created to hold and
administer corporate owned life insurance. Financial
data for the Parent Corporation, the financing
subsidiary and the single member company are
combined for financial reporting purposes because of
the limited function of these entities and the
unconditional guarantee by the Company of their
obligations.

We consider the underlying facts and circumstances
of individual transactions when assessing whether or
not an entity is a potential variable interest entity
(VIE). The Company’s assessment focuses on the
dispersion of risks and rewards attributable to the
potential VIE. VIEs are entities in which equity
investors do not have the characteristics of a
controlling financial interest. A company is deemed to
be the primary beneficiary and thus required to
consolidate a VIE, if the company has a variable
interest (or combination of variable interests) that will
absorb a majority of the VIE’s expected losses, that
will receive a majority of the VIE’s expected residual
returns, or both. A “variable interest” is a contractual,
ownership or other interest that changes with changes
in the fair value of the VIE’s net assets. “Expected
losses” and “expected residual returns” are measures
of variability in the expected cash flows of a VIE.
When we transfer financial assets in a securitization to
a VIE, the VIE must represent a qualifying special
purpose entity (QSPE) or we would continue to
consolidate the transferred financial assets. QSPE
status is achieved when all conditions specified in
SFAS No. 140, “Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of
Liabilities,” are met. Those conditions focus on
whether the entity is demonstrably distinct from the
Company, limited to only permitted activities, limited
on what assets the QSPE may hold, and limited on
sales or other dispositions of assets. We also obtain

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

the required true-sale opinions from outside counsel
on all securitizations. We have determined that all of
our securitization trusts are QSPEs.

classified as other assets, trading account securities or
available- for-sale securities, depending on the nature
of the investment and management’s intent.

Nature of operations

The Company is a global leader in providing a broad
range of financial products and services in domestic
and international markets. Through our seven business
segments (Asset Management, Wealth Management,
Asset Servicing, Issuer Services, Clearing Services,
Treasury Services and Other), we serve the following
major classes of customers—institutions,
corporations, and high net worth individuals. For
institutions and corporations we provide the following
services:

investment management;

trust and custody;

foreign exchange;

securities lending;

depositary receipts;

corporate trust;

shareowner services;

global payment/cash management; and

banking services.

For individuals, we provide mutual funds, separate
accounts, wealth management and private banking
services. The Company’s asset management
businesses provide investment products in many asset
classes and investment styles on a global basis.

Trading account securities, available-for-sale,
securities, and held-to-maturity securities

Securities are generally classified in the trading
account securities portfolio, the available-for-sale
securities portfolio or the held-to-maturity securities
portfolio when they are purchased. Securities are
classified as trading account securities when the intent
is profit maximization through market appreciation
and resale. Securities are classified as
available-for-sale securities when we intend to hold
the securities for an indefinite period of time or when
the securities may be used for tactical asset/liability
purposes and may be sold from time to time to
effectively manage interest rate exposure, prepayment
risk and liquidity needs. Securities are classified as
held-to-maturity securities when we intend to hold
them until maturity. Seed capital investments are

Trading account securities are stated at fair value.
Trading revenue includes both realized and unrealized
gains and losses. The liability incurred on short-sale
transactions, representing the obligation to deliver
securities, is included in trading account liabilities at
fair value.

Available-for-sale securities are stated at fair value.
Unrealized gains or losses on assets classified as
available for sale, net of tax, are recorded as an
addition to or deduction from other comprehensive
results. Held-to-maturity securities are stated at cost,
adjusted for amortization of premium and accretion of
discount on a level yield basis. Gains and losses on
sales of available-for-sale securities are reported in the
income statement. The cost of debt and equity
securities sold is determined on a specific
identification and average cost method, respectively.
Unrealized gains and losses on seed capital
investments classified as Other assets are recorded in
investment income.

We conduct quarterly reviews to identify and evaluate
investments that have indications of probable
impairment. An investment in a debt or equity
security is impaired if its market value is less than its
carrying value. We examine various factors when
determining whether an impairment is other-than-
temporary. For debt securities, the primary factor is
whether we expect all contractual principal and
interest payments to be made on a timely basis.
Examples of other factors that may indicate that an
other-than-temporary impairment has occurred
include:

Š Fair value is below cost;

Š The decline in fair value has existed for an

extended period of time;

Š Management does not possess both the intent
and the ability to hold the investment for a
period of time sufficient to allow for any
anticipated recovery in fair value;

Š The decline in fair value is attributable to

specific adverse conditions affecting a particular
investment;

Š The decline in fair value is attributable to

specific conditions, such as conditions in an
industry or in a geographic area;

The Bank of New York Mellon Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Š A debt security has been downgraded by a rating

agency; and

these leases should any of the assumptions change
materially in future periods.

Š A debt security exhibits a cash flow

deterioration.

Š For each non-agency residential mortgage-
backed security, we compare the remaining
credit enhancement that protects the individual
security from losses against the projected total
amount of credit losses expected to come from
the underlying mortgage collateral, in order to
determine whether such credit losses might
directly impact the relevant security and, if so,
whether an OTTI has occurred.

Securities with an unrealized loss that is determined to
be other-than-temporary are written down to fair
value, with the write-down recorded as a realized loss
in securities gains (losses). A portion of the difference
between the expected incurred loss and fair market
value loss is accreted into interest revenue over
management’s best estimate of the remaining life of
the security.

The accounting policies for the determination of the
fair value of financial instruments and other-than-
temporary impairment have been identified as “critical
accounting estimates” as they require us to make
numerous assumptions based on available market
data.

Loans and leases

Loans are reported net of any unearned discount. Loan
origination and upfront commitment fees, as well as
certain direct loan origination and commitment costs,
are deferred and amortized as a yield adjustment over
the lives of the related loans. Deferred fees and costs
are netted against outstanding loan balances. Loans
held for sale are carried at the lower of aggregate cost
or fair value.

Unearned revenue on direct financing leases is
accreted over the lives of the leases in decreasing
amounts to provide a constant rate of return on the net
investment in the leases. Revenue on leveraged leases
is recognized on a basis to achieve a constant yield on
the outstanding investment in the lease, net of the
related deferred tax liability, in the years in which the
net investment is positive. Gains and losses on
residual values of leased equipment sold are included
in other income. Considering the nature of these
leases and the number of significant assumptions,
there is risk associated with the income recognition on

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The Bank of New York Mellon Corporation

Nonperforming assets

Commercial loans are placed on nonaccrual status
when principal or interest is past due 90 days or more,
or when there is reasonable doubt that interest or
principal will be collected. Residential mortgage and
consumer loans are generally placed on nonaccrual
status when, in our judgment, collection is in doubt or
the loans are 90 days or more delinquent, subject to an
impairment test. Real estate acquired in satisfaction of
loans is carried in other assets at the lower of the
recorded investment in the property or fair value
minus estimated costs to sell.

When a loan is placed on nonaccrual status,
previously accrued and uncollected interest is reversed
against current period interest revenue. Interest
receipts on nonaccrual and impaired loans are
recognized as interest revenue or are applied to
principal when we believe the ultimate collectibility
of principal is in doubt. Nonaccrual loans generally
are restored to an accrual basis when principal and
interest payments become current.

A loan is considered to be impaired, as defined by
SFAS No. 114, “Accounting by Creditors for
Impairment of a Loan,” when it is probable that we
will be unable to collect all principal and interest
amounts due according to the contractual terms of the
loan agreement. An impairment allowance is
measured on loans greater than $1 million and which
meet the definition of an impaired loan per SFAS
No. 114.

Impaired loans are required to be measured based
upon the loan’s market price, the present value of
expected future cash flows, discounted at the loan’s
initial effective interest rate, or at fair value of the
collateral if the loan is collateral dependent. If the loan
valuation is less than the recorded value of the loan,
an impairment allowance is established by either an
allocation of the allowance for credit losses or by a
provision for credit losses. Impairment allowances are
not needed when the recorded investment in an
impaired loan is less than the loan valuation.

In addition, securities for which there is uncertainty as
to the expected collection of interest or principal, are
also recorded on a nonaccrual basis similar to loans.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Allowance for loans losses and allowance for lending
related commitments

The allowance for loans losses, shown as a valuation
allowance to loans, and the allowance for lending
related commitments are referred to as the Company’s
allowance for credit exposure. The accounting policy
for the determination of the adequacy of the
allowances has been identified as a “critical
accounting estimate” as it requires us to make
numerous complex and subjective estimates and
assumptions relating to amounts which are inherently
uncertain.

The allowance for loans losses is maintained to absorb
losses inherent in the loan portfolio as of the balance
sheet date based on our judgment. The allowance
determination methodology is designed to provide
procedural discipline in assessing the appropriateness
of the allowance. Credit losses are charged against the
allowance. Recoveries are added to the allowance.

The methodology for determining the allowance for
lending related commitments considers the same
factors as the reserve for loan losses, as well as an
estimate of the probability of drawdown.

Premises and equipment

Premises and equipment are carried at cost less
accumulated depreciation and amortization.
Depreciation and amortization is computed using the
straight-line method over the estimated useful life of
the owned asset and, for leasehold improvements,
over the lesser of the remaining term of the leased
facility or the estimated economic life of the
improvement. For owned and capitalized assets,
estimated useful lives range from 2 to 40 years.
Maintenance and repairs are charged to expense as
incurred, while major improvements are capitalized
and amortized to operating expense over their
identified useful lives.

Software

The Company capitalizes costs relating to acquired
software and internal-use software development
projects that provide new or significantly improved
functionality. We capitalize projects that are expected
to result in longer term operational benefits, such as
replacement systems or new applications that result in
significantly increased operational efficiencies or
functionality. All other costs incurred in connection
with an internal-use software project are expensed as
incurred. Capitalized software is recorded in other
assets.

Identified intangible assets and goodwill

Identified intangible assets with estimable lives are
amortized in a pattern consistent with the assets’
identifiable cash flows or using a straight-line method
over their remaining estimated benefit periods if the
pattern of cash flows is not estimable. Intangible
assets with estimable lives are reviewed for possible
impairment when events or changed circumstances
may affect the underlying basis of the asset. Goodwill
and intangibles with indefinite lives are not amortized,
but are assessed at least annually for impairment. The
accounting policy for valuing and impairment testing
of identified intangible assets and goodwill has been
identified as a “critical accounting estimate” as it
requires us to make numerous complex and subjective
estimates.

Fee revenue

We record security servicing fees, asset and wealth
management fees, foreign exchange and other trading
activities, treasury services, financing-related fees,
distribution and servicing, and other revenue when the
services are provided and earned based on contractual
terms, when amounts are determined and collectibility
is reasonably assured.

Additionally, we recognize revenue from
non-refundable, up-front implementation fees under
outsourcing contracts using a straight-line method,
commencing in the period the ongoing services are
performed through the expected term of the
contractual relationship. Incremental direct set-up
costs of implementation, up to the related
implementation fee or minimum fee revenue amount,
are deferred and amortized over the same period that
the related implementation fees are recognized. If a
client terminates an outsourcing contract prematurely,
the unamortized deferred incremental direct set-up
costs and the unamortized deferred up-front
implementation fees related to that contract are
recognized in the period the contract is terminated.
Performance fees are recognized in the period in
which the performance fees are earned and become
determinable. Performance fees are generally
calculated as a percentage of the applicable portfolio’s
performance in excess of a benchmark index or a peer
group’s performance. For hedge fund investments, an
investment management performance fee is calculated
as a percentage of the applicable portfolio’s positive
returns. When a portfolio underperforms its
benchmark or fails to generate positive performance
in the instance of a hedge fund investment, subsequent

The Bank of New York Mellon Corporation

101

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

years’ performance must generally exceed this
shortfall prior to fees being earned. Amounts billable
in subsequent years and which are subject to a
clawback if performance thresholds in those years are
not met are not recognized since the fees are
potentially uncollectible. These fees are recognized
when it is determined that they will be collected.
When a multi-year performance contract provides that
fees earned are billed ratably over the performance
period, only the portion of the fees earned that are
non-refundable are recognized.

Net interest revenue

Revenue on interest-earning assets and expense on
interest-bearing liabilities is recognized based on the
effective yield of the related financial instrument.

Foreign currency translation

Assets and liabilities denominated in foreign
currencies are translated to U.S. dollars at the rate of
exchange on the balance sheet date. Transaction gains
and losses are included in the income statement.
Translation gains and losses on investments in foreign
entities with functional currencies that are not the U.S.
dollar are recorded as foreign currency translation
adjustments in other comprehensive results. Revenue
and expense accounts are translated monthly at an
average monthly exchange rate.

Pension

The measurement date for the Company’s pension
plans is Dec. 31. Plan assets are determined based on
fair value generally representing observable market
prices. The projected benefit obligation is determined
based on the present value of projected benefit
distributions at an assumed discount rate. The
discount rate utilized is based on the yield of high
quality corporate bonds available in the marketplace.
The net periodic pension expense or credit includes
service costs, interest costs based on an assumed
discount rate, an expected return on plan assets based
on an actuarially derived market-related value and
amortization of prior years’ actuarial gains and losses.

Actuarial gains and losses include the impact of plan
amendments, gains or losses related to changes in the
amount of the projected benefit obligation or plan
assets resulting from experience different from the
assumed rate of return, changes in the discount rate or
other assumptions. To the extent an actuarial gain or
loss exceeds 10 percent of the greater of the projected

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The Bank of New York Mellon Corporation

benefit obligation or the market-related value of plan
assets, the excess is recognized over the future service
periods of active employees.

The market-related value utilized to determine the
expected return on plan assets is based on the fair
value of plan assets adjusted for the difference
between expected returns and actual performance of
plan assets. The difference between actual experience
and expected returns on plan assets is included as an
adjustment in the market-related value over a five-
year period.

The Company’s accounting policy regarding pensions
has been identified as a “critical accounting estimate”
as it is regarded to be critical to the presentation of our
financial statements since it requires management to
make numerous complex and subjective assumptions
relating to amounts which are inherently uncertain.

Severance

The Company provides separation benefits through
The Bank of New York Mellon Corporation
Separation Plan, The Bank of New York Company,
Inc. Separation Plan or the Mellon Financial
Corporation Displacement Program to eligible
employees separated or displaced from their jobs for
business reasons not related to individual
performance. Basic separation benefits are based on
the employee’s years of continuous benefited service.
Separation expense is recorded when management
commits to an action that will result in separation and
the amount of the liability can be reasonably
estimated.

Income Taxes

We record current tax liabilities or assets through
charges or credits to the current tax provision for the
estimated taxes payable or refundable for the current
year. Deferred tax assets and liabilities are recorded
for future tax consequences attributable to differences
between the financial statement carrying amounts of
assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income
in the years in which those temporary differences are
expected to be recovered or settled. A deferred tax
valuation allowance is established if it is more likely
than not that all or a portion of the deferred tax assets
will not be realized. A tax position that fails to meet a
more-likely-than-not recognition threshold will result
in either reduction of current or deferred tax assets,

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

and/or recording of current or deferred tax liabilities.
Interest and penalties related to income taxes are
recorded as income tax expense.

such changes when they occur. Quarterly, we perform
a quantitative effectiveness assessment and record any
ineffectiveness in current earnings.

Derivative financial instruments

Derivative contracts, such as futures contracts,
forwards, interest rate swaps, foreign currency swaps
and options and similar products used in trading
activities are recorded at fair value. Gains and losses
are included in foreign exchange and other trading
activities in fee and other revenue. Unrealized gains
and losses are reported on a gross basis in trading
account assets and trading liabilities, after taking into
consideration master netting agreements.

We enter into various derivative financial instruments
for non-trading purposes primarily as part of our asset/
liability management (“ALM”) process. These
derivatives are designated as fair value and cash flow
hedges of certain assets and liabilities when we enter
into the derivative contracts. Gains and losses
associated with fair value hedges are recorded in
income as well as any change in the value of the
related hedged item. Gains and losses on cash flow
hedges are recorded in other comprehensive income.

We formally document all relationships between
hedging instruments and hedged items, as well as our
risk-management objectives and strategy for
undertaking various hedge transactions. This process
includes linking all derivatives that are designated as
fair value hedges to specific assets or liabilities on the
balance sheet.

We formally assess, both at the hedge’s inception and
on an ongoing basis, whether the derivatives that are
used in hedging transactions are highly effective and
whether those derivatives are expected to remain
highly effective in future periods. We evaluate
ineffectiveness in terms of amounts that could impact
a hedge’s ability to qualify for hedge accounting and
the risk that the hedge could result in more than a de
minimus amount of ineffectiveness. At inception, the
potential causes of ineffectiveness related to each of
our hedges is assessed to determine if we can expect
the hedge to be highly effective over the life of the
transaction and to determine the method for
evaluating effectiveness on an ongoing basis.

Recognizing that changes in the value of derivatives
used for hedging or the value of hedged items could
result in significant ineffectiveness, we have processes
in place that are designed to identify and evaluate

We discontinue hedge accounting prospectively when
we determine that a derivative is no longer an
effective hedge, the derivative expires, is sold, or
management discontinues the derivative’s hedge
designation. Subsequent gains and losses on these
derivatives are included in foreign exchange and other
trading activities. For fair value hedges, the
accumulated gain or loss on the hedged item is
amortized on a yield basis over the remaining life of
the hedged item. Accumulated gains and losses, net of
tax effect, from cash flow hedges are reclassified from
Other comprehensive income and recognized in
current earnings in Other revenue upon receipt of the
hedged cash flow.

The accounting policy for the determination of the fair
value of derivative financial instruments has been
identified as a “critical accounting estimate” as it
requires us to make numerous assumptions based on
the available market data.

Statement of cash flows

We have defined cash and cash equivalents as cash
and due from banks and cash on deposits with the
Federal Reserve and other central banks. Cash flows
from hedging activities are classified in the same
category as the items hedged.

Stock options

We adopted SFAS No. 123 (revised 2004) (“SFAS
123(R)”), “Share-Based Payment”, which is a revision
of SFAS No. 123, “Accounting for Stock-Based
Compensation on Jan. 1, 2006, using the “modified
prospective” method. Under this method,
compensation cost is recognized beginning with the
effective date: (a) based on the requirements of SFAS
123(R) for all share-based payments granted after the
effective date; and (b) based on the requirements of
SFAS 123 for all awards granted to employees prior
to the effective date of SFAS 123(R) that remain
unvested on the effective date.

Certain of our stock compensation grants vest when
the employee retires. SFAS 123(R) requires the
completion of expensing of new grants with this
feature by the first date the employee is eligible to
retire. For grants prior to Jan. 1, 2006, we will
continue to expense them over their stated vesting

The Bank of New York Mellon Corporation

103

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

period. The adoption of SFAS 123(R) increased
pre-tax expense by $32 million in 2008 and $17
million in 2007, respectively.

2. Accounting changes and new accounting
pronouncements

valuation adjustment decreased foreign exchange and
other trading revenue by $46 million in 2008.
Approximately 1% of our assets and liabilities
measured at fair value are in the lowest tier of the fair
value hierarchy. See Note 24 of Notes to Consolidated
Financial Statements.

SFAS No. 157—Fair Value Measurements

SFAS No. 159—Fair Value Option

SFAS No. 157 (“SFAS 157”), “Fair Value
Measurements” defines fair value, establishes a
framework for measuring fair value in accordance
with GAAP, and requires additional disclosures about
fair value measurements. Under this framework, a
three-level hierarchy has been established based on
the transparency of the inputs to the valuation of an
asset or liability. SFAS 157 clarifies that fair value is
the amount that would be exchanged to sell an asset or
transfer a liability, in an orderly transaction between
market participants. SFAS 157 nullifies the consensus
reached in EITF Issue No. 02-3 prohibiting the
recognition of day one gain or loss on derivative
contracts (and hybrid instruments measured at fair
value under SFAS 133 as modified by SFAS 155)
where we cannot verify all of the significant model
inputs to observable market data and verify the model
to market transactions. However, SFAS 157 requires
that a fair value measurement technique include an
adjustment for risks inherent in a particular valuation
technique (such as a pricing model) and/or the risks
inherent in the inputs to the model if market
participants would also include such an adjustment.
SFAS 157 requires us to consider the effect of our
own credit standing in determining the fair value of
our liabilities. In addition, SFAS 157 prohibits the
recognition of “block discounts” for large holdings of
unrestricted financial instruments where quoted prices
are readily and regularly available in an active market.
The requirements of SFAS 157 are applied
prospectively, except for changes in fair value
measurements that resulted from the initial application
of SFAS 157 to existing derivative financial
instruments measured under EITF Issue No. 02-3,
existing hybrid instruments measured at fair value,
and block discounts, which are to be recorded as an
adjustment to opening retained earnings in the year of
adoption.

We adopted SFAS 157 as of Jan. 1, 2008. As a result
of maximizing observable inputs as required by SFAS
157, we began to reflect external credit ratings as well
as observable credit default swap spreads when
measuring the fair value of our derivative positions.
The cumulative effect of making this derivative

104

The Bank of New York Mellon Corporation

SFAS No. 159 (“SFAS 159”), “The Fair Value Option
for Financial Assets and Financial Liabilities”
provides companies with an irrevocable option to
elect fair value as the measurement basis for selected
financial assets, financial liabilities, unrecognized
firm commitments and written loan commitments
which are not subject to fair value under other
accounting standards. There was a one-time election
available to apply this standard to existing financial
instruments as of Jan. 1, 2008; otherwise, the fair
value option will be available for financial
instruments on their initial transaction date. The first
re-measurement of existing financial instruments for
which the option was elected was recorded as an
adjustment to retained earnings; changes in the fair
value subsequent to initial adoption were recorded in
earnings.

We adopted SFAS 159 along with SFAS 157 on
Jan. 1, 2008. We elected the fair value option for $390
million of existing loans and unfunded loan
commitments where the related credit risks are
primarily managed utilizing other financial
instruments which are fair valued in earnings. This
election better aligns the accounting and reflects our
risk management practices. As a result of adopting the
fair value option on these loans and commitments, we
recorded a charge to retained earnings as of Jan. 1,
2008, of $36 million, after tax. See Note 25 of Notes
to Consolidated Financial Statements.

EITF 06-4 and EITF 06-10—Split-Dollar Life
Insurance

In September 2006, the FASB ratified Emerging
Issues Task Force (EITF) 06-4, “Postretirement
Benefits Associated with Split-Dollar Life Insurance
Arrangements,” and in March 2007, the FASB ratified
EITF 06-10, “Accounting for Collateral Assignment
Split-Dollar Life Insurance Arrangements.” EITF 06-4
and EITF 06-10 address endorsement and collateral
assignment split-dollar life insurance arrangements,
respectively, that provide a benefit to an employee
that extends to postretirement periods. An
endorsement split-dollar policy is owned and

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

controlled by the employer. However, a collateral
assignment policy is owned and controlled by the
employee. Both policy arrangements provide that the
employer and an employee split the insurance policy’s
cash surrender value and/or death benefits.

These EITFs require that the deferred compensation
or postretirement benefit aspects of the split-dollar life
insurance arrangements be recognized as a liability by
the employer because the obligation is not effectively
settled by the purchase of a life insurance policy. The
liability for future benefits is recognized based on the
substantive agreement with the employee, which may
be either to provide a future death benefit or to pay for
the future cost of the life insurance.

Both EITFs were effective Jan. 1, 2008. The adoption
of these EITFs required us to record a net liability, in
accordance with SFAS 106, of $21 million with an
offsetting debit to retained earnings of $21 million.

FSP No. FIN 39-1—Amendment of FASB
Interpretation No. 39

In April 2007, the FASB issued FASB Staff Position
No. FIN 39-1 (“FSP 39-1”) “Amendment of FASB
Interpretation No. 39.” FSP 39-1 permits offsetting of
fair value amounts recognized for the right to reclaim
cash collateral (a receivable) or obligation to return
cash collateral (a payable) against fair value amounts
recognized for derivative instruments executed with
the same counterparty under the same master netting
arrangements, and amends FIN No. 39 to replace the
terms “conditional contracts” and “exchange
contracts” with the term “derivative instruments,” as
defined in SFAS 133. We adopted this FSP on Jan. 1,
2008. Beginning Jan. 1, 2008, we revised our
accounting policy to net cash collateral received and
cash collateral paid for derivative instruments
executed with the same counterparty under the same
master netting arrangements. The impact of adopting
FSP 39-1 resulted in a reduction of trading account
assets and trading account liabilities of $817 million
and $1.8 billion, respectively, at Dec. 31, 2008.

FSP SFAS 133-1 and FIN 45-4—Disclosures about
Derivatives and Certain Guarantees

In September 2008, the FASB issued FASB Staff
Position No. SFAS 133-1 and FIN 45-4, “Disclosures
about Credit Derivatives and Certain Guarantees: An
Amendment of FASB Statement No. 133 and FASB
Interpretation No. 45; and Clarification of the
Effective Date of FASB Statement No. 161.” This

FSP amends SFAS No. 133 to require disclosures by
sellers of credit derivatives, including credit
derivatives embedded in a hybrid instrument. This
FSP also amends FIN No. 45 to require an additional
disclosure about the current status of the payment/
performance risk of a guarantee. Further, this FSP
clarifies the FASB’s intent about the effective date of
SFAS No. 161. These disclosures were effective
Dec. 31, 2008 and are included in Note 26 of Notes to
Consolidated Financial Statements.

FSP SFAS 140-4 and FIN 46(R)-8—Transfer of
financial assets and interests in VIEs

In December 2008, the FASB issued FASB Staff
Position No. SFAS 140-4 and FIN 46(R)-8 (FSP
140-4), “Disclosures by Public Entities (Enterprises)
about Transfers of Financial Assets and Interests in
Variable Interest Entities”. FSP 140-4 amends FASB
Statement No. 140 to require public entities to provide
additional disclosures about transfers of financial
assets. It also amends FASB Interpretation No. 46 to
require public enterprises, including sponsors that
have a variable interest in a variable interest entity, to
provide additional disclosures about their involvement
with variable interest entities.

Additionally, this FSP requires certain disclosures to
be provided by a public enterprise that is (a) a sponsor
of a qualifying special purpose entity (“QSPE”) that
holds a variable interest in the QSPE but was not the
transferor (non-transferor) of financial assets to the
QSPE; and (b) a servicer of a QSPE that holds a
significant interest in the QSPE but was not the
transferor (non-transferor) of financial assets to the
QSPE. These disclosures were effective Dec. 31, 2008
and are included in Note 17 of Notes to Consolidated
Financial Statements.

EITF 99-20-1—Other-than-temporary impairment

In January 2009, the FASB ratified EITF 99-20-1,
“Amendments to the Impairment Guidance of EITF
Issue 99-20.” EITF 99-20-1 amends the impairment
guidance in EITF 99-20 to achieve more consistent
determination of whether an other-than-temporary
impairment has occurred. EITF 99-20-1 was effective
Dec. 31, 2008. The change in the impairment
guidance with the issuance of FSP EITF 99-20-1
resulted in a reduction in impairment charges of
approximately $115 million.

The Bank of New York Mellon Corporation

105

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Other

Dispositions in 2008

Certain other prior year information has been
reclassified to conform its presentation to the 2008
financial statements.

3. Acquisitions and dispositions

We frequently structure our acquisitions with both an
initial payment and later contingent payments tied to
post-closing revenue or income growth. We record the
fair value of contingent payments as an additional cost
of the entity acquired in the period that the payment
becomes probable. Contingent payments totaled $211
million in 2008, including $5 million in stock.

At Dec. 31, 2008, we are potentially obligated to pay
additional consideration which, using reasonable
assumptions for the performance of the acquired
companies and joint ventures, could range from
approximately $63 million to $221 million over the
next 9 years. None of the potential contingent
additional consideration was recorded as goodwill at
Dec. 31, 2008.

Acquisitions in 2008

In January 2008, we acquired ARX Capital
Management (“ARX”). Goodwill related to this
acquisition is tax-deductible and was $147 million.
Intangible assets (customer contracts) related to this
transaction, with a life of 12 years, totaled $25
million. ARX is a leading independent asset
management business, headquartered in Rio de
Janeiro, Brazil. ARX specializes in Brazilian multi-
strategy, long/short and long only investment
strategies and had more than $2.8 billion in AUM.
This transaction enables us to offer clients access to
expanding investment opportunities and expertise in
the Brazilian marketplace. The impact of this
acquisition was not material to earnings per share.

On Dec. 31, 2008, we acquired the Australian
(Ankura Capital) and U.K. (Blackfrairs Asset
Management) businesses from our Asset Management
joint venture with WestLB. Headquartered in Sydney,
Australia, Ankura Capital manages approximately
AUS $1 billion, while Blackfriars Asset Management,
which is headquartered in London, England, has
assets under management of $2.3 billion. Goodwill
related to this transaction is tax deductible and was
$19 million. The impact of this acquisition is not
expected to be material to earnings per share.

106

The Bank of New York Mellon Corporation

In February 2008, we sold our B-Trade and G-Trade
execution businesses to BNY ConvergEx Group.
These businesses were sold at book value. The
execution businesses contributed approximately $215
million of revenue and $45 million of pre-tax income
in 2007.

On March 31, 2008, we sold a portion of the
Estabrook Capital Management business which
reduced our AUM by $2.4 billion. We retained
approximately 30% of the AUM which are primarily
managed by the Wealth Management segment. The
impact of this disposition was not material to our
results of operations.

In June 2008, we sold M1BB, based in Los Angeles,
California. The sale reduced loan and deposit levels
by $1.1 billion and $2.8 billion, respectively. There
was no gain or loss recorded on this transaction. This
transaction reflects our focus on reducing non-core
activities. Pre-tax income for M1BB was $50 million
for full year 2007 and was primarily comprised of net
interest revenue.

On Oct. 1, 2008, we sold the assets of Gannett
Welsh & Kotler, an investment management
subsidiary with approximately $8 billion in AUM.
The impact of this disposition was not material to our
results of operations.

Acquisitions and dispositions in 2007

Merger with Mellon Financial Corporation

On July 1, 2007, The Bank of New York Company,
Inc. and Mellon Financial Corporation (“Mellon
Financial”) both merged into The Bank of New York
Mellon Corporation, (together with its consolidated
subsidiaries, (the “Company”), with the Company
being the surviving entity. For accounting and
financial reporting purposes, the merger was
accounted for as a purchase of Mellon Financial.
Financial results for periods subsequent to July 1,
2007 reflect the Company’s results. Financial results
prior to July 1, 2007 reflect legacy The Bank of New
York Company, Inc. only. In the transaction, each
share of Mellon Financial $0.50 par value common
stock was converted into one share of the Company’s
$0.01 par value common stock and each share of The
Bank of New York Company, Inc. $7.50 par value
common stock was converted into 0.9434 shares of
the Company’s $0.01 par value common stock.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

At June 30, 2007, Mellon Financial had total assets of
$43 billion, total common shares outstanding of
418,330,448 and had 17,400 employees. Mellon
Financial’s total revenue and net income from
continuing operations for the first six months of 2007
were $2.9 billion and $524 million, respectively.

The merger with Mellon Financial added
approximately $33 billion of interest-earning assets,
including $18 billion of securities, $7 billion of loans
and $6 billion of other money market investments.
The merger also provided the following funding
sources: $21 billion of interest-bearing deposits, $8
billion of noninterest-bearing deposits, $4 billion of
long-term debt and $1 billion of federal funds
purchased. Goodwill and intangibles related to the
merger with Mellon Financial were approximately
$16 billion.

Purchase price and goodwill—Mellon Financial

The purchase price has been allocated to the assets
acquired and liabilities assumed using their fair values
at the merger date. The computation of the purchase
price and the allocation of the purchase price to the
net assets of Mellon Financial, based on their
respective fair values at July 1, 2007, and the resulting
amount of goodwill are presented in the following
table. Changes to the carrying amount of goodwill and
intangible assets, since the merger date, reflect
additional information obtained about the fair value of
the assets acquired and liabilities assumed.

(dollar amounts in millions,
except per share amounts) (a)

Purchase price of Mellon Financial:
Mellon Financial net common shares

outstanding
Exchange ratio
The Bank of New York Mellon

Corporation shares
Average price per share

Purchase price of Mellon Financial

Estimated fair value of outstanding
Mellon Financial stock options

Total purchase price

Net Mellon Financial assets acquired:
Mellon Financial shareholders’ equity
Mellon Financial goodwill and

intangibles

Unrecognized compensation on

unvested stock options and restricted
stock

Estimated adjustments to reflect assets

at fair value:

Loans and leases, net
Premises and equipment
Identified intangibles
Other assets

Estimated adjustments to reflect

liabilities at fair value:

Deposits
Long-term debt
Other liabilities
Deferred taxes:

Related to new intangibles

carrying value

Related to stock options
Related to all other
adjustments

Total deferred tax
adjustments

Estimated exit and transactions

costs

Total net assets acquired and
adjustment to fair value

Goodwill

July 1, 2007

418,330,448
1.00

418,330,448
39.86
$

$16,675

302

$16,977

$ 5,194

(2,925)

126

(199)
15
5,010
509

(4)
(18)
(156)

(1,537)

(203)

5,812

$11,165

(1,705)
(40)

208

(a) Goodwill resulting from the merger reflects adjustments of

the allocation of the purchase price to the net assets acquired
through Sept. 30, 2008.

The Bank of New York Mellon Corporation

107

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Components of the fair value of acquired, identifiable
intangible assets related to the acquisition of Mellon
Financial as of July 1, 2007 are as follows:

(overdrafts that have been repaid), $3.5 billion of
money market assets and $4.5 billion of deposits in
2007.

(in millions)

Amortizing intangibles:

Asset and Wealth Management

customer relationships

Customer contracts in

Institutional services

Core deposits
Non-compete agreements

Indefinite-lived intangibles:

Mutual funds advisory contracts
Trade names

Total

Estimated
lives or
contract
terms

Fair
value (a)

$1,815

14 years

711
106
21

24 years
5 years
6 years

1,357
1,000

$5,010

N/A
N/A

(a) Certain amounts have been revised subsequent to July 1,

2007.

The following condensed statement of net assets
acquired reflects the fair value of Mellon Financial’s
net assets as of July 1, 2007.

Mellon Financial’s net assets
(in millions)

Assets
Cash and cash equivalents
Securities
Trading assets
Loans, net of allowance
Goodwill and other intangible assets
All other assets

Total assets

Liabilities
Deposits
Short-term borrowings
All other liabilities
Long-term debt

Total liabilities

Net assets acquired

July 1, 2007

$ 7,928
18,397
1,305
6,840
16,074
6,249

$56,793

$28,990
1,943
4,566
4,317

$39,816

$16,977

Other 2007 acquisitions and dispositions

In December 2007, we completed the acquisition of
the remaining 50% interest in ABN AMRO Mellon
Global Securities Services B.V. (“ABN AMRO
Mellon”). ABN AMRO Mellon, a 50-50 joint venture
company established by Mellon Bank, N.A. and ABN
AMRO Bank N.V. in 2003 to provide global custody
and related services to institutions outside North
America, is now known as BNY Mellon Asset
Servicing B.V. and is included in the Asset Servicing
segment. The acquisition added $1.0 billion of loans

108

The Bank of New York Mellon Corporation

In January 2007, certain clearing and custody
relationships rights were acquired by our Pershing
subsidiary. The transaction involved 46 organizations,
comprised of 30 registered investment advisor firms
and 16 introducing broker-dealer firms.

In March 2007, we sold our 49% stake in joint venture
BNY Mortgage Co. to EverBank Financial Corp. The
transaction is consistent with our strategy to focus on
asset management and securities servicing.

In June 2007, we sold our 30% equity investment in
RBS International Securities Services (Holdings)
Limited to BNP Paribas Securities Services.

Acquisitions and dispositions in 2006

During 2006, five businesses were acquired for a total
cost of $2.6 billion. Goodwill and the tax-deductible
portion of goodwill related to 2006 acquisitions was
$1.8 billion and $1.6 billion, respectively.

Purchase of Acquired Corporate Trust Business and
sale of Retail Business

On Oct. 1, 2006, we sold our Retail Business to
JPMorgan Chase for the net asset value plus a
premium of $2.3 billion. JPMorgan Chase sold its
corporate trust business to us for the net asset value
plus a premium of $2.15 billion. The difference
between premiums resulted in a net cash payment of
$150 million. We recorded an after-tax gain of $1.2
billion on the sale of the Retail Business. For further
details, see Note 4 of Notes to Consolidated Financial
Statements.

On Oct. 2, 2006, we completed the transaction
resulting in the formation of BNY ConvergEx Group.
BNY ConvergEx Group brought together BNY
Securities Group’s trade execution, commission
management, independent research and transition
management business with Eze Castle Software, a
leading provider of trade order management and
related investment technologies.

The Company, as successor to The Bank of New York
Company, Inc. and GTCR Golder Rauner, LLC each
hold a 33.8% stake in BNY ConvergEx Group, with
the balance held by Eze Castle Software’s investors
and BNY CoverEx Group’s management team.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Pro forma condensed combined financial information

On a pro forma basis, if the merger with Mellon
Financial and the acquisition of the Acquired
Corporate Trust Business had occurred on Jan. 1,
2006, the transactions would have had the following
impact:

2007

2006

Reported Pro forma Reported Pro forma

$11,334

$14,219

$6,838

$12,732

2,227
2,039

3,000
2,815

1,476
2,847

2,497
2,463

(dollar amounts in millions,
except per share amounts)

Revenue
Income from continuing

operations

Net income
Diluted earnings per share:
Income from continuing

operations

Net income

In accordance with GAAP, the results for the Retail
Business are reported separately as discontinued
operations for all periods presented. Net interest
revenue in 2006 was computed by allocating
investment securities and federal funds sold and
related interest income to discontinued operations to
match the amount and duration of the assets sold with
the amount and duration of the liabilities sold. In
addition, certain residual activity from businesses that
Mellon Financial had reported as discontinued
operations prior to the merger are also included as
discontinued operations after July 2007.

There were no assets and liabilities of discontinued
operations at Dec. 31, 2008 and Dec. 31, 2007.

2.38
2.18

2.63
2.46

$ 2.04
3.94

2.20
2.17

Summarized financial information for discontinued
operations is as follows:

The pro forma results are based on adding the pre-tax
historical results of Mellon Financial and the
Acquired Corporate Trust Business to our results and
primarily adjusting for amortization of intangibles
created in the transaction and taxes. The pro forma
data does not include adjustments to reflect our
operating costs or expected differences in the way
funds generated by the Acquired Corporate Trust
Business are invested. The pro forma data is intended
for informational purposes and is not indicative of the
future results of operations.

4. Discontinued operations

On Oct. 1, 2006, we acquired JPMorgan Chase’s
corporate trust business and JPMorgan Chase acquired
our Retail Business. We adopted discontinued
operations accounting for our Retail Business. The
results from continuing operations exclude the results
of our Retail Business and include the operations of
the Acquired Corporate Trust Business only after
Oct. 1, 2006.

Discontinued operations
(in millions)

Fee and other revenue
Net interest revenue

Total revenue

Income (loss) from discontinued

operations

Provision (benefit) for income taxes

Income (loss) from discontinued

2008

2007 (a)

2006 (a)

$16
-

$16

$11
8

$ 16
-

$ 16

$2,372 (b)
457

$ 2,829

$(16)
(8)

$ 2,426
1,055

operations, net of taxes

$ 3

$ (8)

$ 1,371

(b)

The Bank of New York Mellon Corporation

109

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

5. Goodwill and Intangible assets

Goodwill

The level of goodwill decreased in 2008 due to the
effect of foreign exchange translation on non-U.S.
dollar denominated goodwill and the sale of M1BB,

partially offset by the acquisition of ARX Capital
Management.

The table below provides a breakdown of goodwill by
business segment. Goodwill impairment testing is
performed annually at the business segment level. No
impairment losses were recorded in 2008 and 2007.

Goodwill by segment
(in millions)

Balance at Dec. 31, 2007
Acquisitions/dispositions
Transfer between segments (a)
Foreign exchange translation
Other (b)

Balance at Dec. 31, 2008

Asset
Management

Wealth
Management

Asset
Servicing

Issuer
Services

Clearing
Services

Treasury
Services

$7,054
184
-
(501)
481

$7,218

$2,362
-
(255)
-
(413)

$1,694

$3,291
(11)
-
(162)
242

$2,413
52
-
(4)
2

$1,119
(50)
-
(51)
(116)

$3,360

$2,463

$ 902

$ 92
-
-
-
31

$123

Other

Total

-
(178)
255
-
61

$16,331
(3)
-
(718)
288

$ 138

$15,898

(a) Transfer reflects the movements of M1BB and MUNB to the Other segment from the Wealth Management segment.
(b) Other changes in goodwill include purchase price adjustments and certain other reclassifications.

Intangible assets

Intangible assets not subject to amortization are tested
annually for impairment or more often if events or
circumstances indicate they may be impaired. The
decrease in intangible assets in 2008 compared with
2007 resulted from intangible amortization, foreign
exchange translation on non-U.S. dollar denominated
intangible assets and the sale of M1BB, partially
offset by the acquisition of

ARX Capital Management. Intangible amortization
expense was $482 million, $319 million and $76
million in 2008, 2007 and 2006, respectively. No
impairment losses were recorded on intangible assets
in 2008 or 2007.

The table below provides a breakdown of intangible
assets by business segment.

Intangible assets – net carrying amount by segment

(in millions)

Balance at Dec. 31, 2007
Acquisitions/dispositions
Transfer between segments
Amortization
Foreign exchange translation
Other (a)
Net carrying amount at Dec. 31,

Asset
Management

Wealth
Management

Asset
Servicing

Issuer
Services

Clearing
Services

Treasury
Services

Other

Total

$3,364
27
-
(255)
(130)
(411)

$ 643
-
(37)
(60)
-
(206)

$ 505
(2)
-
(24)
(12)
(165)

$919
19
-
(80)
(6)
(18)

$710
10
-
(26)
(7)
12

$261
-
-
(27)
-
(5)

-
(22)
37
(10)
-
852

$6,402
32
-
(482)
(155)
59

2008

$2,595

$ 340

$ 302

$834

$699

$229

$857

$5,856

(a) Other changes in intangible assets primarily reflect reclassifications.

110

The Bank of New York Mellon Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Intangible assets

Dec. 31, 2008

Dec. 31, 2007

(in millions)

Subject to amortization:

Customer relationships-Asset and

Wealth Management

Customer contracts-Institutional

services

Deposit premiums
Other

Total subject to amortization

Not subject to amortization (a)

Trade name
Customer relationships

Total not subject to amortization

Total intangible assets

Gross
carrying
amount

Accumulated
amortization

Net
carrying
amount

Remaining
Weighted
average
amortization
period

Gross
carrying
amount

Accumulated
amortization

Net
carrying
amount

$1,923

2,051
68
89

$4,131

$1,358
1,306

$2,664

$6,795

$(463)

$1,460

12 yrs.

$1,933

$(175)

$1,758

(413)
(43)
(20)

1,638
25
69

$(939)

$3,192

N/A
N/A

N/A

$(939)

$1,358
1,306

$2,664

$5,856

15 yrs.
3 yrs.
7 yrs.

14 yrs.

N/A
N/A

N/A

2,039
106
64

$4,142

$1,369
1,355

$2,724

$6,866

(263)
(24)
(2)

1,776
82
62

$(464)

$3,678

N/A
N/A

N/A

$(464)

$1,369
1,355

$2,724

$6,402

(a)

Intangible assets not subject to amortization have an indefinite life.

Estimated annual amortization expense for current
intangibles for the next five years is as follows:

For the year
ended Dec. 31,

2009
2010
2011
2012
2013

6. Securities

Estimated amortization
expense (in millions)

$417
382
352
324
279

The following table sets forth the amortized cost and the fair values of securities at the end of the last two years.

Securities

(in millions)

Available-for-sale:
U.S. Government obligations
U.S. Government agencies
Obligations of states & political subdivisions
Mortgage-backed securities
Asset-backed securities
Equity securities
Other debt securities

Total securities available-for-sale

Held-to-maturity:
Obligations of states and political subdivisions
Mortgage-backed securities
Other debt securities
Other equity securities

Total securities held-to-maturity

Total securities

Dec. 31, 2008

Gross
unrealized

Gains

Losses

Amortized
cost

Fair
value

Amortized
cost

Dec. 31, 2007

Gross
unrealized

Gains

Losses

2
1
4
153
24
11
2

-
-
-
605
131
7
55

Fair
value

438
778
478
40,802
2,221
509
1,292

1
-
21
6,104
645
29
130

781
1,299
883
24,375
1,573
1,363
1,790

436
777
474
41,254
2,328
505
1,345

6,930

32,064

47,119

197

798

46,518

2
1,062
-
-

1,064

193
6,133
4
3

6,333

241
1,921
16
2

2,180

2
13
-
-

-
24
-
-

243
1,910
16
2

2,171

$46,011

$380

$7,994

$38,397

$49,299

$212

$822

$48,689

The Bank of New York Mellon Corporation

111

746
1,259
896
30,247
2,216
1,392
1,884

38,640

193
7,171
4
3

7,371

$ 36
40
8
232
2
-
36

354

2
24
-
-

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

At Dec. 31, 2008, almost all of the unrealized losses
are attributable to wider credit spreads reflecting
market illiquidity. We have the ability and intent to
hold these securities until their value recovers or until
maturity. We believe that all of our unrealized losses
are temporary in nature. At Dec. 31, 2008, we believe
that it is probable that we will collect all contractually
due principal and interest on these securities.

Temporarily impaired securities

The following tables show the aggregate related fair
value of investments with a continuous unrealized loss
position for less than 12 months and those that have
been in a continuous unrealized loss position for
greater than twelve months.

Temporarily impaired securities

(in millions)

Dec. 31, 2008:
Mortgage-backed securities
Asset-backed securities
State and political subdivisions
U.S. Government obligations
Other debt securities
Equity securities

Total temporarily impaired securities

Dec. 31, 2007:
Mortgage-backed securities
Asset-backed securities
Other debt securities
Equity securities

Total temporarily impaired securities

Less than 12 months
Unrealized
losses

Fair
value

12 months or more

Fair
value

Unrealized
losses

Total

Fair
value

Unrealized
losses

996
159
247
-
67
10
$ 1,479

$17,591
144
396
19

$18,150

$354
53
8
-
8
6
$429

$416
37
55
6

$514

$21,255
1,338
327
30
199
33
$23,182

$10,673
454
-
19

$11,146

$6,812
592
15
1
122
23
$7,565

$ 213
94
-
1

$ 308

$22,251
1,497
574
30
266
43
$24,661

$28,264
598
396
38

$29,296

$7,166
645
23
1
130
29
$7,994

$ 629
131
55
7

$ 822

The amortized cost and fair values of securities at Dec. 31, 2008, by contractual maturity, are as follows:

Securities by contractual maturity at Dec. 31, 2008

Available-for-sale

Held-to-maturity

(in millions)

Due in one year or less
Due after one year through five years
Due after five years through ten years
Due after ten years
Mortgage-backed securities
Asset-backed securities
Equity securities

Total securities

Amortized
cost

Fair
value

Amortized
cost

477
2,735
528
1,045
30,247
2,216
1,392

468
2,834
528
923
24,375
1,573
1,363

4
3
13
177
7,171
-
3

Fair
value

4
3
13
177
6,133
-
3

$38,640

$32,064

$7,371

$6,333

112

The Bank of New York Mellon Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Realized gross gains on the sale of securities
available-for-sale were $5 million in 2008 and $29
million in 2007. There were $1.6 billion of recognized
gross losses in 2008 and $230 million of recognized
gross losses in 2007. In 2008, we recorded a $1.6
billion (pre-tax) net loss primarily for other than
temporary impairment, comprised of the following:

Securities losses (impairment charges)
(in millions)

2008

2007

have the right to repledge or sell these securities. We
obtain securities under resale, securities borrowed and
custody agreements on terms which permit us to
repledge or resell the securities to others. As of
Dec. 31, 2008, the market value of the securities
received that can be sold or repledged was $22.8
billion. We routinely repledge or lend these securities
to third parties. As of Dec. 31, 2008, the market value
of collateral repledged and sold was $545 million.

Alt-A RMBS
Prime/Other RMBS
Subprime RMBS
ABS CDOs
Home equity lines of credit
SIV securities
Other

Total net securities losses
(impairment charges)

$1,236
12
12
122
104
70
72

-
-
-
201
-
-
-

$1,628

$ 201

Securities with residential mortgage loans as
underlying collateral are evaluated regularly for other-
than-temporary impairment based on our projections
of the collateral’s expected credit losses. Specifically,
for each non-agency residential mortgage-backed
security, we compare the remaining credit
enhancement that protects the individual security from
losses against the projected total amount of credit
losses expected to come from the underlying
mortgage collateral, in order to determine whether
such credit losses might directly impact the relevant
security and, if so, whether an OTTI has occurred.
Furthermore, should the expected performance of the
security’s underlying collateral deteriorate, additional
impairments may be recorded against the security in
future periods, as necessary.

At Dec. 31, 2008, assets amounting to $39.6 billion
were pledged primarily for potential borrowing at the
Federal Reserve Discount Window. The significant
components of pledged assets were as follows: $23.2
billion of securities, $6.3 billion of interest-bearing
deposits with banks, $5.6 billion of other short-term
investments—U.S. government-backed commercial
paper and $4.5 billion of loans. Included in these
pledged assets was securities available-for-sale of
$574 million which were pledged as collateral for
actual borrowings. The lenders in these borrowings

7. Loans

For details of our loan distribution and industry
concentrations of credit risk at Dec. 31, 2008 and
2007, see the “Loans by product” table on page 56,
which is incorporated by reference into these Notes to
Consolidated Financial Statements.

In the ordinary course of business, we and our
banking subsidiaries have made loans at prevailing
interest rates and terms to our directors and executive
officers and to entities in which certain of our
directors have an ownership interest or direct or
indirect subsidiaries of such entities. The aggregate
amount of these loans was $12 million, $35 million,
and $211 million at Dec. 31, 2008, 2007, and 2006,
respectively. These loans are primarily extensions of
credit under revolving lines of credit established for
such entities.

The composition of our loan portfolio is shown in the
following table:

Composition of loan portfolio

(in millions)

Commercial
Real estate
Wealth loans
Lease financings
Banks and other financial institutions
Loans for purchasing or carrying

securities
Margin loans
Government and official institutions
Other

Less: Allowance for loan losses

Dec. 31

2008

2007

$ 7,205
7,498
1,866
4,006
8,090

$ 7,466
7,367
1,857
4,967
12,677

4,099
3,977
1,437
5,216
(415)

6,208
5,210
312
4,867
(327)

Total loans

$42,979

$50,604

The Bank of New York Mellon Corporation

113

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Transactions in the allowance for credit losses are
summarized as follows:

The table below sets forth information about our
nonperforming assets and impaired loans.

Allowance for credit losses

Nonperforming assets and impaired loans

(in millions)

Balance at Dec. 31, 2005 (a)
Charge-offs:

Commercial
Foreign

Total charge-offs

Recoveries:

Commercial
Foreign
Leasing
Other

Total recoveries

Net charge-offs

Provision

Allowance
for loan
losses

Allowance
for lending-
related
commitments

Allowance
for credit
losses

$326

$144

$470

(27)
(2)

(29)

3
7
4
2

(13)
(26)

-
-

-
-
-
-

-
6

(27)
(2)

(29)

3
7
4
2

(13)
(20)

Balance at Dec. 31, 2006 (a)

$287

$150

$437

Additions resulting from
merger with Mellon
Financial
Charge-offs: (b)
Commercial
Leasing
Foreign
Other

Total charge-offs

Recoveries: (b)
Commercial
Leasing
Foreign

Total recoveries

Net charge-offs

Provision (b)

Balance at Dec. 31, 2007 (b)

Charge-offs:

Commercial
Commercial real estate
Foreign
Other residential
mortgages

Wealth management

Total charge-offs

Recoveries:

Commercial
Leasing
Foreign
Other

Total recoveries

Net charge-offs

Sale of M1BB
SFAS 159 adoption
Provision

Balance at Dec. 31, 2008

(16)
(36)
(19)
(1)

(72)

1
13
1

(57)
54

$327

(30)
(15)
(17)

(20)
(1)

(83)

2
3
4
1

(73)
(11)
(10)
182

$415

(6)
-
-
-

(6)

-
-
-

(6)
(64)

$167

-
-
-

-
-

-
-
-
-

-
(2)
-
(51)

130

(22)
(36)
(19)
(1)

(78)

1
13
1

(63)
(10)

$494

(30)
(15)
(17)

(20)
(1)

(83)

2
3
4
1

(73)
(13)
(10)
131

$114

$529

(a) Legacy The Bank of New York Company, Inc. only.
(b) Results for 2007 include six months of The Bank of New York
Mellon Corporation and six months of legacy The Bank of
New York Company, Inc.

114

The Bank of New York Mellon Corporation

(in millions)

Loans:

Commercial real estate
Residential real estate
Commercial
Wealth management

Total domestic

Foreign

Total nonperforming loans

Other assets owned

Total nonperforming assets

Impaired loans with an allowance
Impaired loans without an

allowance (b)

Total impaired loans
Allowance for impaired loans (c)
Average balance of impaired loans

during the year

Interest income recognized on

impaired loans during the year

2008

$124
99
60
1

284
-

284
8

$292
$165

$186
$ 51

178

Dec. 31,
2007

2006 (a)

$ 40
20
39
-

99
87

186
4

$190
$141

$158
$ 34

$ -
2
26
-

28
9

37
1

$38
$ 8

$27
$ 1

(a) Legacy The Bank of New York Company, Inc. only.
(b) When the discounted cash flows, collateral value or market
price equals or exceeds the carrying value of the loan, then
the loan does not require an allowance under the accounting
standard related to impaired loans.

allowance for loan losses.

Past due loans at year-end
(in millions)

Domestic:

Consumer
Commercial

Total domestic

Foreign

2008

2007

2006 (a)

$ 27
315

342
-

-
343

343
-

$ 9
7

16
-

$16

Total past due loans

$343
(a) Legacy The Bank of New York Company, Inc. only.

$342

Lost interest

(in millions)

Dec. 31,
2007

2008

2006 (a)

Amount by which interest income

recognized on nonperforming loans
exceeded reversals:

Total
Foreign

$ -
-

$1
-

Amount by which interest income

would have increased if
nonperforming loans at year-end
had been performing for the entire
year:

Total
Foreign

$6
2
(a) Legacy The Bank of New York Company, Inc. only.

$12
-

$1
-

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

At Dec. 31, 2008, undrawn commitments to borrowers
whose loans were classified as nonaccrual or reduced
rate were not material.

We use the discounted cash flow method as the
primary method for valuing impaired loans.

8. Other assets

Other assets

(in millions)

Accounts receivable
Corporate/bank owned life insurance
Equity in joint ventures and other

investments (a)

Fails to deliver
Margin deposits
Software
Prepaid expenses
Prepaid pension assets
Due from customers on acceptances
Other

Dec. 31,

2008

$ 4,057
3,781

2007

$ 4,889
3,594

2,421
1,394
1,275
607
422
371
265
430

2,400
1,650
511
519
329
1,657
81
1,046

Total other assets

$15,023

$16,676

(a)

Includes Federal Reserve Bank stock of $342 million and
$366 million, respectively, at cost.

9. Deposits

The aggregate amount of time deposits in
denominations of $100,000 or greater was
approximately $57.1 billion at Dec. 31, 2008 and
$43.4 billion at Dec. 31, 2007. At Dec. 31, 2008, the
scheduled maturities of all time deposits for the years
2009 through 2013 and 2014 and thereafter are as
follows: $56.6 billion; $411 million; $31 million; $13
million; $0 million; and $74 million, respectively.

10. Other fee revenue

In 2008, other fee revenue included $86 million of
asset related gains, and $34 million of expense
reimbursement from joint ventures. Asset related
gains in 2008 include the $42 million gain associated
with the initial public offering by VISA.

In 2007, other fee revenue included $58 million of
expense reimbursements from joint ventures, $41
million of net economic value payments related to the
Acquired Corporate Trust Business, and a $28 million
settlement received for early termination of a contract
with a clearing business.

In 2006, other fee revenue included a pre-tax gain of
$35 million related to the conversion of our New York
Stock Exchange seats into cash and shares of NYSE
Group, Inc. common stock, some of which were sold.

Other fee revenue also includes equity in earnings of
unconsolidated subsidiaries of $32 million, $56
million and $47 million in 2008, 2007 and 2006,
respectively.

11. Net interest revenue

Net interest revenue
(in millions)

Interest revenue

Non-margin loans
Margin loans
Securities:
Taxable
Exempt from federal income

taxes

Total securities

Other short-term

investments—U.S.
government-backed
commercial paper
Deposits with banks
Deposits with the Federal

Reserve and other central
banks

Federal funds sold and

securities purchased under
resale agreements

Trading assets

2008

2007 (a)

2006 (a)

$1,113
183

$1,884
332

$1,449
330

2,237

1,887

1,101

2,273

1,905

1,130

71
1,752

-
1,242

-
538

150
69

290
98

130
163

Total interest revenue

5,638

5,751

3,740

Interest expense

Deposits in domestic offices
Deposits in foreign offices
Borrowings from Federal

Reserve related to ABCP
Federal funds purchased and

securities sold under
repurchase agreements

Other borrowed funds
Customer payables
Long-term debt

339
1,437

577
1,812

387
1,047

57
90
69
642

125
91
177
669

104
100
167
436

Total interest expense

2,687

3,451

2,241

Net interest revenue

$2,951

$2,300

$1,499

The Bank of New York Mellon Corporation

115

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

12. Noninterest expense

The following table provides a breakdown of total
noninterest expense.

Noninterest expense
(in millions)

Staff
Professional, legal and other

purchased services

Net occupancy
Distribution and servicing
Software
Furniture and equipment
Business development
Sub-custodian
Communications
Clearing
Support agreement charges
Amortization of intangible

assets

M&I expenses
Restructuring charge
Other

2008

2007 (a)

2006 (a)

$ 5,115

$4,120

$2,640

1,126
575
517
331
324
279
233
128
80
894

482
483
181
834

781
449
268
280
267
190
200
109
183
3

319
404
-
546

381
279
17
220
190
108
134
97
199
-

76
106
-
241

Total noninterest expense

$11,582

$8,119

$4,688

In 2008, we recorded support agreement charges of
$894 million (pre-tax), or $0.46 per share.

five commingled cash funds used primarily for
overnight custody cash sweeps;
the BNY Mellon Institutional Cash Reserve
Fund used for the reinvestment of cash collateral
within our securities lending business; and
four Dreyfus money market funds.

116

The Bank of New York Mellon Corporation

Additionally, the following support agreements were
also executed in 2008:

Š An agreement covering SIV exposures in a

Sterling-denominated NAV fund in the Asset
Management segment;

Š An agreement for a commingled short-term

NAV fund covering securities related to Whistle
Jacket Capital/White Pine Financial, LLC in the
Asset Servicing segment; and

Š Agreements providing support to a collective
investment pool in the Asset Management
segment.

13. Restructuring charge

In the fourth quarter of 2008, the Company announced
that due to weakness in the global economy, it would
reduce its workforce by approximately 4%, or 1,800
positions. The goals of this workforce reduction are to
reduce expense growth and further improve the
efficiency of the organization.

As a result, in the fourth quarter of 2008, we recorded
a pre-tax restructuring charge of $181 million, or
$0.09 per common share, in accordance with SFAS
No. 146. This pronouncement permits charges
recorded under other accounting standards to be
presented along with those recorded under SFAS 146
in a separate line, restructuring charge, on the
Consolidated Statement of Income, provided those
costs are incurred in connection with a restructuring
event. The charge included:

Š
Š

$166 million related to employee severance;
$9 million for stock-based incentive
acceleration;
$5 million for other compensation costs; and
$1 million for other non-personnel expenses,
directly related to the workforce reduction.

The restructuring charge for 2008 is presented below
by business segment. The charge was recorded in the
Other segment as this restructuring was a corporate
initiative and not directly related to the operating
performance of these segments in 2008.

Restructuring charge by segment
(in millions)

Asset management
Asset servicing
Issuer services
Wealth management
Treasury services
Clearing services
Other (including shared services)

Total restructuring charge

2008

$ 64
34
15
13
6
6
43

$181

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

14. Income taxes

Provision for income taxes from
continuing operations

(in millions)

Current taxes:
Federal
Foreign
State and local

Total current tax expense

Deferred taxes:

Federal
Foreign
State and local

Total deferred tax expense

(benefit)

Year ended Dec. 31,

2008

2007 (a) 2006 (a)

854
488
422

1,764

$ 801
237
108

1,146

(869)
(1)
(397)

(99)
(9)
(40)

(1,267)

(148)

$ (30)
232
94

296

425
-
(27)

398

$694

Provision for income taxes

497

$ 998

The components of income before taxes are as
follows:

Components of income before
taxes

(in millions)

Domestic
Foreign

Income before taxes

Year ended Dec. 31,

2008

2007 (a)

2006 (a)

$ 210
1,729

$1,939

$2,154
1,071

$3,225

$1,582
588

$2,170

The components of our net deferred tax liability
included in accrued taxes and other expenses are as
follows:

Net deferred tax liability
(in millions)

Depreciation and amortization
Lease financings
Pension obligations
Securities valuation
Reserves not deducted for tax
Credit losses on loans
Net operating loss carryover
Tax credit carryovers
Other assets
Other liabilities

2008

$ 2,666
1,411
146
(2,360)
(1,351)
(224)
(189)
-
(468)
433

Dec. 31,
2007

$2,645
3,010
609
(193)
(905)
(221)
(485)
(404)
(478)
438

2006 (a)

$ 757
3,298
237
92
(175)
(201)
(323)
(286)
(175)
248

Net deferred tax liability

$4,016

$3,472

(a) Legacy The Bank of New York Company, Inc. only.

We have federal net operating loss carryovers of $539
million (for which we have recorded a $189 million
tax benefit) related to a separate filing of a group of
certain leasing subsidiaries which begin to expire in
2023. We have not recorded a valuation allowance
because we expect to realize our deferred tax assets
including these carryovers.

As of Dec. 31, 2008, we had approximately $1.428
billion of earnings attributable to foreign subsidiaries
that have been permanently reinvested abroad and for
which no provision has been recorded for income tax
that would occur if repatriated. It is not practicable at
this time to determine the income tax liability that
would result upon repatriation of these earnings.

The statutory federal income tax rate is reconciled to
our effective income tax rate below:

Effective tax rate

Federal rate
State and local income taxes, net of

federal income tax benefit

Credit for synthetic fuel investments
Credit for low-income housing

investments

Tax-exempt income
Foreign operations
SILO/LILO adjustment
Other – net

Effective rate

Dec. 31,
2007

2008

2006 (a)

35% 35.0% 35.0%

4.0
0.1

(2.7)
(3.4)
(13.0)
6.8
(1.2)

1.3
(0.7)

(1.0)
(1.6)
(3.2)
-
1.2

2.0
(1.8)

(1.7)
(1.4)
(0.7)
-
0.6

25.6% 31.0% 32.0%

(a) Legacy The Bank of New York Company, Inc. only.

FIN 48 Unrecognized tax positions
(in millions)

Beginning balance at Jan. 1, – gross
Unrecognized tax benefits acquired
Prior period tax positions:

Increases
Decreases

Current period tax positions
Settlements

Ending balance at Dec. 31, – gross

Amount affecting effective tax rate if

recognized

2008

977
(2)

2007

$842
44

832
(155)
75
(1,538)

91
(5)
5
-

189

$977

189

$170

Our total tax reserves as of Dec. 31, 2008 were $189
million compared with $977 million at Dec. 31, 2007.
The decrease is primarily due to the settlement of the
SILO/LILO issues. If these tax reserves were
unnecessary, $189 million would affect the effective
tax rate in future periods. We recognize accrued
interest and penalties, if applicable, related to income
taxes in income tax expense. Included in the balance

The Bank of New York Mellon Corporation

117

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

sheet at Dec. 31, 2008 is accrued interest, where
applicable, of $45 million. The additional tax expense
related to interest for the year ended Dec. 31, 2008
was $248 million compared with $77 million for the
year ended Dec. 31, 2007.

Our federal consolidated income tax returns are closed
to examination through 2002. Our New York State
and New York City return examinations have been
completed through 1996. Our United Kingdom
income tax returns are closed through 2002.

15. Extraordinary (loss) – consolidation of
commercial paper conduits

Since 2000, we have sold and distributed securities for
Old Slip Funding, LLC (“Old Slip”), an asset- backed
commercial paper securitization program. On Dec. 30,
2008, we voluntarily called the first loss notes of Old
Slip, making us the primary beneficiary and triggering
the consolidation of Old Slip (approximately $125
million in assets). The consolidation resulted in the
recognition of an extraordinary loss (non-cash
accounting charge) of $26 million, net of a tax benefit
of $19 million. The extraordinary loss represents the
current mark-to-market discount from par associated
with spread-widening for the assets in Old Slip. The

diluted earnings per common share impact of the
extra-ordinary loss was $0.02 per common share.

The fair value of Old Slip’s asset-backed securities
portfolio totaled approximately $78 million at
Dec. 31, 2008. The credit rating on Old Slip’s
mortgage-backed securities at Dec. 31, 2008 was 66%
AAA, 8% AA and 26% other.

On Dec. 31, 2007, we called the first loss notes of
Three Rivers Funding Corporation (“TRFC”), making
us the primary beneficiary and triggering the
consolidation of TRFC. The consolidation resulted in
the recognition of an extraordinary loss (non-cash
accounting charge) of $180 million, net of a tax
benefit of $122 million.

The extraordinary loss represents the mark to market
discount from par at Dec. 31, 2007, associated with
spread widening for the assets in TRFC. The diluted
earnings per common share impact of the
extraordinary loss was $0.19 per common share.

In addition to the extraordinary loss, the size of the
Dec. 31, 2007 balance sheet increased by the full
amount of third party commercial paper funding
previously issued by TRFC of approximately $4.0
billion.

16. Long-term debt

Long-term debt
(in millions)

Senior debt

Fixed rate
Floating rate
Subordinated debt (a)
Junior subordinated debentures (a)

Total
(a) Fixed rate.

At Dec. 31, 2008

Rate

Maturity

Amount

Dec. 31, 2007
Rate

Amount

3.25-6.38% 2009-2019
1.27-3.26% 2009-2038
3.27-7.40% 2009-2033
5.95-7.78% 2026-2043

$ 5,333
2,704
6,174
1,654

$15,865

3.25-6.38% $ 4,452
4,305
4.83-5.59%
6,050
3.27-7.40%
2,066
5.95-7.97%

$16,873

The aggregate amounts of notes and debentures that
mature during the five years 2009 through 2013 for
BNY Mellon are as follows: $1.23 billion, $1.85
billion, $1.28 billion, $2.85 billion and $1.51 billion.
At Dec. 31, 2008, subordinated debt aggregating
$1.65 billion was redeemable at our option as follows:
$644 million in 2009; $243 million in 2010; and $759
million after 2010.

Junior subordinated debentures

Wholly owned subsidiaries of BNY Mellon (the
“Trusts”) have issued cumulative Company-Obligated
Mandatory Redeemable Trust Preferred Securities of
Subsidiary Trust Holding Solely Junior Subordinated
Debentures (“Trust Preferred Securities”). The sole
assets of each trust are our junior subordinated

118

The Bank of New York Mellon Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

deferrable interest debentures of BNY Mellon whose
maturities and interest rates match the Trust Preferred
Securities. Our obligations under the agreements that
relate to the Trust Preferred Securities, the Trusts and
the debentures constitute a full and unconditional
guarantee by us of the Trusts’ obligations under the
Trust Preferred Securities. The assets for Mellon
Capital IV are currently (i) our remarketable 6.044%

junior subordinated notes due 2043, and (ii) interests
in stock purchase contracts between Mellon Capital
IV and us. On the “stock purchase date”, as defined in
the prospectus supplement for the Trust Preferred
Securities of Mellon Capital IV, the sole assets of the
trust will be shares of a series of our non-cumulative
perpetual preferred stock.

The following table sets forth a summary of the Trust Preferred Securities issued by the Trusts as of Dec. 31, 2008:

Trust Preferred Securities at Dec. 31, 2008
(dollar amounts in millions)

BNY Institutional Capital Trust A
BNY Capital IV
BNY Capital V
MEL Capital III (c)
MEL Capital IV

Total

Amount

$ 300
200
350
293
500

$1,643

Interest
Rate

Assets
of Trust (a)

Due
Date

7.78%
6.88
5.95
6.37
6.24

$ 309
206
361
277
501

$1,654

2026
2028
2033
2036
-

Call
Date

2006
2004
2008
2016
2012

Call
Price

103.11% (b)
Par
Par
Par
Par

(a) Junior subordinated debentures and interest in stock purchase contracts for Mellon Capital IV.
(b) Call price decreases ratably to par in the year 2016.
(c) Amount was translated from Sterling into U.S. dollars on a basis of U.S. $1.46 to £1, the rate of exchange on Dec. 31, 2008.

We have the option to shorten the maturity of BNY
Capital IV to 2013 or extend the maturity to 2047.
The BNY Capital Preferred Trust Securities have been
converted to floating rate via interest rate swaps.

17. Securitizations and variable interest
entities

In 2000, we purchased Dreyfus Institutional Reserves
Money Fund shares and sold the right to receive the
principal value of the shares in 2021 in a
securitization transaction and retained the rights to
receive the on-going dividends from the shares. In
2003, the Company securitized quarterly variable rate
municipal bonds, which are Aa3/AAA insured bonds
issued by borrowers rated no lower than A2/A+ by
Moody’s Investor Services and Standard & Poors. No
gain or loss was recognized on these transactions.

The Company has not securitized any assets during
2008 and 2007. The Company’s retained interests,
which are recorded as available-for-sale securities in
these securitizations at Dec. 31, 2008 and 2007, are
approximately $234 million and $248 million,
respectively, which represents our maximum exposure
to the securitizations.

Variable Interest Entities

At Dec. 31, 2008, the Company had no conduits. FIN
46(R), “Consolidation of Variable Interest Entities”
(“FIN 46(R)”) applies to certain entities in which

equity investors do not have the characteristics of a
controlling financial interest or do not have sufficient
equity at risk for the entity to finance its activities
without additional subordinated financial support
from other parties. The primary beneficiary of a
Variable Interest Entity (“VIE”) is the party that
absorbs a majority of the entity’s expected losses,
receives a majority of its expected residual returns or
both, as a result of holding variable interests. The
Company is required to consolidate entities for which
it is the primary beneficiary.

The Company’s VIEs generally include retail,
institutional and alternative investment funds offered
to its retail and institutional customers. The Company
may provide start-up capital in its new funds and also
earns fund management fees. Performance fees are
also earned on certain funds. The Company is not
contractually required to provide financial or any
other support to its VIEs. In addition, we provide trust
and custody services for a fee to entities sponsored by
other corporations in which we have no other variable
interest.

Primary beneficiary calculations are prepared in
accordance with FIN 46(R). The Company evaluates
how the expected losses, if incurred as an actual loss,
would be absorbed by the parties associated with each
VIE and how the expected residual returns of the VIE,
if realized as an actual return, would benefit the
parties involved with the VIE. This evaluation
includes estimates of ranges and probabilities of

The Bank of New York Mellon Corporation

119

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

losses and returns from the funds. The calculated
expected gains and expected losses are allocated to the
variable interests, which are generally the fund’s
investors and which may include the Company.

The start up capital invested in our Asset Management
VIEs as of Dec. 31, 2008, has been included in our
financial statements as shown below:

Other VIEs at Dec. 31, 2008

(in millions)

Trading
Available-for-sale
Other

Total

Assets Liabilities

$ 26
102
272

$400

$-
-
-

Maximum
loss
exposure

$ 26
102
272

$400

During the second half of 2008, the Company
voluntarily provided limited credit support to certain
money market, collective, commingled and separate
account funds (the “Funds”). Entering into such
support agreements represents an event under FIN
46(R), and its interpretations.

In analyzing the Funds for which credit support was
provided, it was determined that interest rate risk and
credit risk are the two main risks that the funds are
designed to create and pass through to their investors.
Accordingly, interest rate and credit risk were
analyzed to determine if the Company was the
primary beneficiary of each of the Funds.

Credit risk variability quantification includes any
potential future credit risk in a Fund and is evaluated
using credit ratings and default rates. The full marks
on any sensitive securities on watch are also included.

Interest rate variability quantification includes the
expected Fund yield. Standard deviations are used
along with the Fund’s market value to quantify the
interest rate risk expected in the Fund.

The Company’s analysis of the credit risk variability
and interest rate risk variability associated with the
supported Funds resulted in the Company not being
the primary beneficiary and therefore the Funds were
not consolidated.

The table below shows the financial statement items
related to non-consolidated VIEs to which we have
provided credit support agreements as of Dec. 31,
2008:

Credit supported VIEs at
Dec. 31, 2008
(in millions)

Assets Liabilities

Maximum
loss
exposure

Other

$248

$142

120

The Bank of New York Mellon Corporation

Certain funds have been created solely with securities
that are subject to credit support agreements where we
have agreed to absorb the majority of loss.
Accordingly, these funds have been consolidated into
the Company and have affected the following
financial statement items as of Dec. 31, 2008:

Consolidated VIEs
at Dec. 31, 2008
(in millions)

Available-for-sale
Other

Total

Assets

Liabilities

$26
24

$50

-
353

$353

Maximum
loss
exposure

$26
47

$73

The maximum loss exposure shown above for the
credit support agreements provided to the Company’s
VIE’s primarily reflects a complete loss on the Lehman
Brothers Holdings Inc. securities for the Company’s
clients that accepted our offer of support. As of Dec.
31, 2008, the Company recorded $551 million in
liabilities related to its VIEs for which credit support
agreements were provided and which is included in the
$894 million loss recorded in other expense.

18. Shareholders’ equity

The Company has 3.5 billion authorized shares of
common stock with a par value of $0.01 per share,
100 million authorized shares of preferred stock with
a par value of $0.01 per share, of which 3 million are
authorized shares of Series B preferred stock with a
liquidation preference of $1,000 per share and a par
value of $0.01 per share. At Dec. 31, 2008,
1,148,467,299 shares of common stock and 3,000,000
shares of Series B preferred stock were outstanding.

On Oct. 28, 2008, we issued Fixed Rate Cumulative
Perpetual Preferred Stock, Series B ($2.779 billion)
and a warrant for common stock ($221 million), as
described below, to the U.S. Treasury as part of the
Troubled Asset Relief Program (“TARP”) Capital
Purchase Program authorized under the Emergency
Economic Stabilization Act. The Series B preferred
stock will pay cumulative dividends at a rate of
5% per annum until the fifth anniversary of the date of
the investment and thereafter at a rate of 9% per
annum. Dividends will be payable quarterly in arrears
on March 20, June 20, Sept. 20 and Dec. 20 of each
year. The Series B preferred stock can only be
redeemed within the first three years with the
proceeds of at least $750 million from one or more
qualified equity offerings. After Dec. 20, 2011, the
Series B preferred stock may be redeemed, in whole
or in part, at any time, at our option, at a price equal to
100% of the issue price plus any accrued and unpaid
dividends. Redemption of the Series B preferred stock

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

at any time will be subject to the prior approval of the
Federal Reserve. Under ARRA, enacted Feb. 17,
2009, the U.S. Treasury, subject to consultation with
the appropriate Federal banking agency, is required to
permit a TARP recipient to repay any assistance
previously provided under TARP to such financial
institution, without regard to whether the financial
institution has replaced such funds from any other
source or to any waiting period. When such assistance
is repaid, the U.S. Treasury is required to liquidate
warrants associated with such assistance at the current
market price. The Series B preferred stock qualifies as
Tier I capital.

Š Pay any dividend on our common stock other
than regular quarterly dividends of not more
than our current quarterly dividend of $0.24 per
share; or

Š Redeem, purchase or acquire any shares of

additional compensation limitations on TARP
recipients. The provisions include new limits on the
ability of TARP recipients to pay or accrue bonuses,
retention awards, or incentive compensation to at least
the 20 next most highly-compensated employees in
addition to the Company’s Senior Executive Officers,
a prohibition on golden parachute payments on such
Senior Executive Officers and the next five most
highly-compensated employees, a clawback of any
bonus, retention or incentive awards paid to any
Senior Executive Officer or any of the next 20 most
highly-compensated employees based on materially
inaccurate earnings, revenues, gains or other criteria, a
required policy restricting excessive or luxury
expenditures, and a requirement that TARP recipients
implement a non-binding “say-on-pay” shareholder
vote on executive compensation.

On Dec. 18, 2007, our Board of Directors authorized
the repurchase of up to 35 million shares of common
stock. This authorization was in addition to the
authority to repurchase up to 6.5 million shares
previously approved by the Executive Committee of
the Board of Directors on Aug. 8, 2007, which was
completed during the first quarter of 2008. We
repurchased 6.3 million shares of our common stock
in the first quarter of 2008 as part of a publicly
announced plan. Included in the shares repurchased
were 5.9 million shares, at an initial price of $45.05
per share, acquired through a purchase agreement with
a broker-dealer counterparty which borrowed the
shares as part of an accelerated share repurchase

The Bank of New York Mellon Corporation

121

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(“ASR”) program. The initial price was subject to a
purchase price adjustment based on the price the
counterparty actually paid for the shares. In the third
quarter of 2008, we received $19 million in cash to
settle the purchase price adjustments.

19. Comprehensive results

At Dec. 31, 2008, 33.8 million shares were available
for repurchase under the December 2007 program.
There is no expiration date on this repurchase
program.

2006 beginning balance, net of tax
Change in 2006 net of tax (expense) benefit of $(8), $127, $50, $(81),

$(3)

Reclassification adjustment net of tax $ -, $ -, $ -, $33, $3

2006 total unrealized gain (loss)

2006 ending balance, net of tax

Change in 2007 net of tax (expense) benefit of $(36), $(41), $(5),

$218, $10

Reclassification adjustment net of tax $ -, $ -, $ - $13, $4

2007 total unrealized gain (loss)

2007 ending balance, net of tax

Change in 2008 net of tax (expense) benefit of $(113), $566, $(6),

$3,359, $(1)

Reclassification adjustment net of tax $ -, $ -, $ -, $(645), $1

2008 total unrealized gain (loss)

2008 ending balance, net of tax

SFAS No. 158 Adjustments

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