The Bank of New York Mellon Annual Report 2009

FY2009 Annual Report · The Bank of New York Mellon

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BNY Mellon 2009 Annual Report

STRENGTH. GLOBALLY.

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

FINANCIAL RESULTS
Income (loss) from continuing operations (in millions)
Income (loss) from discontinued operations, net of tax (in millions)
Extraordinary (loss) on consolidation of commercial

paper conduit, net of tax (in millions)

Net income (loss) (in millions)
Net (income) loss attributable to noncontrolling

interests, net of tax (in millions)

Redemption charge and preferred dividends (in millions)

Net income (loss) applicable to common shareholders of
The Bank of New York Mellon Corporation (in millions)

Earnings per common share – diluted (a)

Continuing operations
Discontinued operations, net of tax
Extraordinary (loss), net of tax

Net income (loss) applicable to common stock

CONTINUING OPERATIONS - KEY DATA
Total revenue (in millions)
Total expenses (in millions)
Fee and other revenue as a percentage of total revenue – GAAP

Non-GAAP adjusted (b)

Percent of non-U.S. fee revenue and net interest revenue
Assets under management at year end (in billions)
Assets under custody and administration at year end (in trillions)

Capital ratios at Dec. 31 (d)

Tier 1 capital ratio
Tier 1 common to risk-weighted assets ratio (b)
Total (Tier 1 plus Tier 2 capital ratio)
Common shareholders’ equity to assets ratio (b)
Tangible common shareholders’ equity to tangible assets
ratio – Non-GAAP (b)

(a) Diluted earnings per share for 2009 was calculated using average basic shares.

Adding back the dilutive shares would be anti-dilutive.

(b) See Supplemental Information beginning on page 74 for a calculation of these ratios.

was 32 percent for 2008.

(d)

Includes discontinued operations.

2009 2008
1,455
14

(813)
(270)

—

(1,083)

(1)
(283)

(26)

1,443

(24)
(33)

(1,367)

1,386

(0.93)
(0.23)
—

1.21
0.01
(0.02)

(1.16)

1.20

7,687
9,563

13,573
11,523

62%
78%
32%

79%
79%
33% (c)

$
$

1,115
22.3

$
$

928
20.2

12.1%
10.5
16.0
13.7

5.2

13.2%
9.4
16.9
10.6

3.8

TO OUR SHAREHOLDERS

As BNY Mellon marked its milestone 225th year,
the global economy was in the grip of the biggest
downturn in 80 years. It was an extraordinarily
challenging environment for the financial services
industry and a year of transition for your company.

Although we have outperformed both our peer group
and the S&P Financials since the beginning of the
financial crisis, during 2009 our total shareholder
return trailed both benchmarks and we reported a net
loss for the year. The loss reflected write-downs on
investment securities and actions we took to materially
de-risk our balance sheet. These actions should benefit
our performance going forward and, while prudent, the
net loss was disappointing for a company focused on
outperforming.

Financial institutions spent 2009 beginning the
arduous process of stabilization, balance sheet
cleanup, recapitalization and refocusing for the future.
At BNY Mellon, we focused on three priorities that are
critical to our long-term success: meeting the needs of
our clients, reducing risk and managing expenses. Our
progress in these areas in 2009 has helped position
your company for the eventual economic recovery.
Specifically:

MEETING THE NEEDS OF OUR CLIENTS
• We stabilized revenue following a significant

decline in revenue in the first quarter, and ended
the year with marked improvement in several
of our core businesses, particularly Asset

Management.
• Won $1.2 trillion in new assets under custody in

•

Asset Servicing.
Further strengthened our asset management
capabilities through improved fund investment
performance and the acquisition of Insight
Investment Management, a London-based
specialist in liability-driven investment solutions,
active fixed income and alternatives. We also
acquired a 20 percent interest in Siguler Guff
Asset Management, a multi-strategy private
equity firm based in New York.

• Continued to build share in corporate trust,

clearing, broker-dealer services and hedge fund
servicing.

• Had 16 consecutive quarters of net positive client

asset flows in Wealth Management.

• Outperformed our merger revenue synergy targets.
• Achieved No. 1 rankings in client satisfaction

among our peers in the Global Investor and R&M
global custody surveys and met our revenue
retention target.

REDUCING RISK
•

Sold or restructured $13.5 billion of lower-quality
securities in our investment portfolio to materially
de-risk our balance sheet.

• Reduced our credit exposure by $14.7 billion or

15 percent.

• Resolved the court case with Russia’s Federal

Customs Service.
Sold Mellon United National Bank, our

•
Miami-based bank.

MANAGING EXPENSES
• Reduced operating expense by 17 percent through
cost reduction programs and merger-related
synergies.
•
Exceeded merger expense synergy targets.
• Reduced incentive expense as a percentage of
revenue for the second consecutive year.
• Took a $139 million restructuring charge in the

fourth quarter to allow us to continue to drive
efficiencies in future quarters.

In addition, we passed the U.S. government stress
test and repaid the U.S. government’s $3 billion TARP
investment — becoming one of the first banks to do
so — providing American taxpayers with a very good
return of 12 percent (annualized) on their investment.
We also raised $1.4 billion in new common equity,
maintained strong capital ratios and continued to enjoy
the highest debt ratings among all U.S. banks. In fact,
we ended the year with materially stronger capital
ratios than when we entered it.

LOOKING FORWARD

We know that you, our shareholders, expect stronger
results, and so do we. We are very levered to higher
interest rates and improving financial markets globally.
We are focused on achieving higher revenue growth,
enhancing efficiency and reducing risk.

There are three areas of focus:

• Growing revenue. We expect good growth

prospects as the global economy continues to
recover. Rising short-term interest rates would
have an extremely positive impact on our
earnings. A rise in the overnight rate would have
a positive impact on our net interest revenue and
fees in our Asset and Wealth Management and
securities servicing businesses. Improving equity
markets would benefit our Asset Management
and Wealth Management fees. As securitization
markets reopen, our Corporate Trust business will
benefit. Increases in merger and acquisition

* Revenue on an operating basis as defined on page 76.

activity benefit all our businesses, particularly
Shareowner Services. Greater cross-border
financial flows will power Asset Servicing.

• We are also actively executing on opportunities

to consolidate global market share in our
securities servicing businesses, as demonstrated
by the recently announced, $2.31 billion
acquisition of Global Investment Servicing (GIS),
a leading provider of fund accounting/
administration, transfer agency, custody and
outsourcing solutions for fund managers and
financial advisors. The acquisition should be
accretive in the first year and provide attractive
returns for our shareholders, particularly given
the opportunities for excellent, achievable
revenue synergies.

• Growing margins by improving our operating
models. We are taking actions to provide
better economics to our shareholders. Across the
company, we are looking at which jobs really
need to be performed in major metropolitan
areas and which could be done equally well or
better in one of our global growth centers.
Parallel to this, we are continuing our ongoing
reengineering and process automation efforts
to drive further efficiencies and strengthen our
ability to deliver positive operating leverage.

•

Continue to limit risk on our balance sheet. We
are continually working to right-size our largest
credit exposures and reduce certain non-core
loan portfolios.

We will always focus intently on maintaining strong
internal controls and upholding the highest ethical
standards.

During 2009, we targeted our philanthropic efforts
to needy families and workforce development, efforts
designed to ensure we make a positive impact on
our communities. In response to the disaster in Haiti,
employees and the company contributed more than
$900,000 to help those in need. We are also making
progress in minimizing our company’s impact on the
environment.

With the stability of the global financial system at
stake, our company is contributing to an industry
effort to bring about meaningful regulatory reform.
The challenge is to do this thoughtfully, without
compromising the ability of American financial
companies to lend or compete globally, as the health
of our industry is essential to creating jobs and
supporting the recovery. In my opinion, there should
be four priorities in the U.S.:
•

First, to prevent another Lehman-type event,
it’s imperative that lawmakers pass legislation

•

this year creating a resolution authority. No
financial institution should be too big to fail, and
we need laws to allow for an orderly wind down.
Second, to close many of the gaps in regulatory
oversight that exist today, we need to establish a
federal systemic risk authority to monitor risks
across all financial markets and firms.
Third, the financial crisis clearly exposed the fact
that many financial institutions did not have
adequate capital or liquidity to survive a major
recession. We are supportive of creating higher
minimum standards achieved in a way that
ensures a competitive, level playing field globally.
Finally, given the central role our terribly flawed
mortgage system played in creating the credit
crisis, it is my hope that the government will
restructure and exit this business.

During this anniversary year, your company achieved
another important milestone. Since 2007, we
surveyed our employees each year to measure their
level of engagement. We use an approach that allows
us to compare our results to some of the world’s best
companies in a variety of industries. Companies with
high levels of engagement typically enjoy better client
service, better productivity and lower turnover and are
more likely to attract and retain top talent. They also
tend to earn greater total returns to shareholders over
time. In 2009, BNY Mellon achieved — a year early
— its 2010 goal of top-quartile performance in overall
employee engagement compared with other compa-
nies. Our continued upward trend is very encouraging,
considering the global economic and industry
challenges we faced this past year, and it validates our
success in creating a diverse, inclusive and supportive
culture where the best people globally want to work
and have opportunities for professional growth.

A special thank you to our employees around the
globe, who have demonstrated amazing client focus
and teamwork. I also offer my gratitude to our directors
for their extraordinary support, dedication and
contributions to strengthen our company. Finally, thank
you to our shareholders for your continued confidence
in the future of this great company. Know that your
company is well positioned for the economic recovery
and energized to outperform.

Yours sincerely,

Robert P. Kelly
Chairman and Chief Executive Officer

HIGHLIGHTS OF OUR BUSINESS

Asset Management (18 percent of 2009 total revenue) **
Assets under management at year end were $1,045
billion, an increase of 21 percent from the prior year; our
pre-tax income totaled $582 million, excluding intan-
gible amortization, and increased 21 percent over 2008.
In response to the challenging operating environment,
we continue to manage our expense base carefully.

Our investment boutiques are delivering good relative
investment returns for clients, with investment perfor-
mance strengthening across most of our investment
strategies. Product innovation remains an area of major
focus. Our multi-boutique platform provides us with the
breadth and depth of investment capabilities to deliver
a wide range of solutions to a diverse client base across
the world.

BNY Mellon Asset Management is the 11th largest global
asset manager, serving institutional and retail clients
and their advisors, including corporations, governments,
pension plans, endowments, foundations, sovereign
wealth funds and retail intermediaries. In 2009, we
continued our strong international growth, with revenue
from non-U.S. clients accounting for about 41 percent
of asset management revenue. We also furthered our
international expansion, completing the acquisition
of Insight Investment, the leading active manager of
liability-driven investment strategies in the UK.
Additionally, we acquired a 20 percent stake in Siguler
Guff, a multi-strategy private equity firm. In the U.S.,
we are a leading cash manager, major mutual fund
and separately managed accounts provider through
the Dreyfus brand.

Wealth Management (6 percent of 2009 total revenue)**
In Wealth Management, client assets totaled $154
billion at year end, reflecting 16 consecutive quarters of
positive long-term asset flows and record new busi-
ness in family office and mortgage services. Despite a
challenging market environment, Wealth Management
maintained an outstandingly high client retention rate
of 97 percent and continued to receive strong marks
for service in its annual client satisfaction surveys.
Consistent with its focus on the highest-quality service
and advice, Wealth Management also implemented
significant enhancements to its investment resources
and strategies, banking capabilities and client reporting
platforms.

Asset Servicing (33 percent of 2009 total revenue) **
Asset Servicing restored growth in core fees, despite
challenging market conditions, and continued to deliver
outstanding client service and maintain client loyalty. In
2009, we outperformed our peer group of the world’s
largest global custodians in the Global Investor and
R&M surveys of custody clients and met our revenue
retention target of 98 percent through the completion
of the merger integration. Assets under custody and
administration grew by 10 percent from the prior year,
reflecting the positive impact of $1.2 trillion in total
business wins.

Our recently announced acquisition in the fund
services space will broaden our product offering,
strengthening our fund accounting and administration
offering to U.S. mutual fund clients, adding a more
global mix of alternative investor service clients and
adding top-tier transfer agency and sub-accounting
platforms.

Broker-Dealer Services continued to gain significant
market share, benefiting from the market disruption
and innovative new solutions for the evolving tri-party
marketplace. We were named Broker/Dealer Custody
and Clearance Provider of the Year by ICFA magazine
and were the only provider to receive top ratings in
all regional categories in Global Custodian magazine’s
survey of tri-party securities financing services users.

In foreign exchange, we dominated Global Investor
magazine’s 2009 Foreign Exchange survey, ranking
first in 20 of 24 categories, including Best FX Service
Overall and Best Research.

Issuer Services (19 percent of 2009 total revenue) **
Despite significant market headwinds in 2009, Issuer
Services made impressive gains in its debt- and
equity-linked businesses through a focus on innovative
product and service initiatives that will serve the
long-term interests of our clients.

Corporate Trust once again was named the No. 1
overall trustee during a year in which the business
earned several mandates from government-sponsored
programs in the U.S. and abroad and outperformed its
closest competitors across nearly every debt segment
globally. It launched the Global Environmental Markets
platform, a universal custody and trade settlement
platform for carbon credits, and added new capabili-
ties that greatly enhance its services and transparency
tools for the structured and public finance markets.

Depositary Receipts extended its leading market
position with the launch of several new Depositary
Receipt indices and received emeafinance magazine’s
award for Best EMEA (Europe, Middle East and Africa)
Depositary Receipt House, in a region where it acts as
sponsored depositary bank for nearly 70 percent of all
DR programs. During a year in which the world expe-
rienced the largest historical outflow of equity capital,
Depositary Receipts established 750 new “unspon-
sored” DR programs across 35 countries, attracting
more than $2 billion in inflows as U.S. investors sought
ways to diversify their portfolios.

Shareowner Services maintained its position as the
largest stock transfer services provider in the U.S. and
earned the highest overall client satisfaction score in
full-service employee stock option administration in
Group 5’s annual stock plan services survey.

Clearing Services (12 percent of 2009 total revenue) **
Clearing Services experienced higher pre-tax earnings
growth attributable to strong expense management and
robust trading profits, especially in fixed income in the
early part of the year. Revenue was slightly lower due

to the continued low-interest-rate environment, which
resulted in lower money market fees, and to lower
trading volumes and lower asset-based fees. Pershing
continued to build its market share and value proposi-
tion among broker-dealers and registered investment
advisors through the delivery of expanded investment
and technology solutions, including its NetX360
platform, recognized as a game-changing technology
in the industry.

Treasury Services (12 percent of 2009 total revenue) **
Treasury Services completed its platforms and systems
integration, setting the stage for an entirely new client
portal that will provide integrated access to all of
BNY Mellon’s treasury services offerings in a tech-
nologically enriched environment. During the year,
Treasury Services significantly expanded its presence in
Asia, recorded important global remittance wins in the
U.S. and Asia and introduced a number of notable
electronic payments innovations. We also received
growing recognition for leadership in the delivery of
trade finance, white label systems and other treasury
services solutions.

** Excludes the Other Segment. See page 22.

Financial Section

THE BANK OF NEW YORK MELLON CORPORATION
2009 ANNUAL REPORT
TABLE OF CONTENTS

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

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

Results of operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General
Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impact of the current market environment on our business and regulatory events . . . . . . . .
2009 and subsequent events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Summary of financial results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 and regulatory developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selected quarterly data (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forward-looking statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 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 common share
amounts and unless otherwise noted)

Year ended Dec. 31

Fee revenue
Investment securities gains (losses)
Net interest revenue

Total revenue
Provision for credit losses
Noninterest expense

Income (loss) from continuing operations before

income taxes

Provision (benefit) for income taxes

Income (loss) from continuing operations

Income (loss) from discontinued operations, net of tax
Extraordinary (loss) on consolidation of commercial paper

conduits, net of tax

Net income (loss)

Net (income) loss attributable to noncontrolling interests,

net of tax

Redemption charge and preferred dividends

Net income (loss) applicable to common shareholders of

2009

2008

2007 (a)

2006 (b)

2005 (b)

$ 10,141
(5,369)
2,915

$ 12,342
(1,628)
2,859

7,687
332
9,563

(2,208)
(1,395)

(813)
(270)

(1,083)

(1)
(283)

13,573
104
11,523

1,946
491

1,455
14

(26)

1,443

(24)
(33)

9,254
(201)
2,245

11,298
(11)
8,094

3,215
987

2,228
10

(180)

2,058

(19)
-

5,337
2
1,499

6,838
(20)
4,675

2,183
694

1,489
1,371

2,860

(13)
-

4,693
22
1,340

6,055
(7)
4,078

1,984
635

1,349
228

1,577

(6)
-

The Bank of New York Mellon Corporation

$ (1,367)

1,386

2,039

2,847

1,571

Earnings per diluted common share (c):

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

(0.93)
(0.23)
-

1.21
0.01
(0.02)

2.35
0.01
(0.19)

Net income (loss) applicable to common stock

(1.16)

1.20

2.17

2.04
1.91
-

3.93 (d) $

1.84
0.31
-

2.15

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

$ 56,049
36,689
212,224
135,050
17,234
-
28,977

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

$ 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

(a) Results for 2007 include six months of BNY Mellon and six months of legacy The Bank of New York Company, Inc.
(b) Results for 2006 and 2005 include legacy The Bank of New York Company, Inc. only. All legacy The Bank of New York Company, Inc.

earnings per share and share-related data are presented in post merger share count terms.

(c) Diluted earnings per common share for the year ended Dec. 31, 2009 was calculated using average basic shares. Adding back the

dilutive shares would result in anti-dilution.

(d) Does not foot due to rounding.

6 BNY Mellon

Financial Summary (continued)

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

Selected data

Return on common equity (c)(d)
Non-GAAP adjusted (c)(d)

Return on tangible common equity (c)(d)

Non-GAAP adjusted (c)(d)

Return on assets (d)

Continuing operations basis:
Pre-tax operating margin (c)
Non-GAAP adjusted (c)

Fee and other revenue as a percent of total revenue (c)

Non-GAAP adjusted (c)

Fee revenue per employee (based on average headcount)

(in thousands)

Percent of non-U.S. fee revenue and net interest revenue
Net interest margin (on fully taxable equivalent basis) (e)

Cash dividends per common share (b)
Common dividend payout ratio
Dividend yield
Closing common stock price per common share (b)
Market capitalization (in billions)
Book value per common share (b)(c)
Tangible book value per common share – Non-GAAP (b)(c)
Employees (continuing operations)
Year-end common shares outstanding (in thousands) (b)
Average common equity to average assets

At Dec. 31
Assets under management (“AUM”) (in billions)
Assets under custody and administration (“AUC”)

(in trillions)

Cross-border assets (in trillions)
Market value of securities on loan (in billions) (g)

Capital ratios at Dec. 31 (h)
Tier 1 capital ratio
Tier 1 common equity to risk-weighted assets ratio (c)
Total (Tier 1 plus Tier 2) capital ratio
Leverage capital ratio
Common shareholders’ equity to assets (c)
Tangible common shareholders’ equity to tangible assets –

Non-GAAP (c)

2009

2008

2007 (a)

2006 (b)

2005 (b)

N/M

8.3%

N/M
28.7
N/M

N/M
31
62
78

242
32%

1.82

0.51
N/M

1.8%

27.97
33.8
23.99
7.90
42,200
1,207,835

5.0%

14.3
20.7
48.9
0.67

14
39
79
79

11.0%
13.7
29.3
33.7
1.49

28
36
80
80

27.6%
28.7
50.7
52.0
2.67

32
35
78
78

16.6%
16.7
29.4
29.1
1.55

33
33
78
78

290
33% (f)

1.89 (f)

291
32%

2.05

262
30%

2.01

240
30%

2.02

0.96
80.00%
3.4
28.33
32.5
22.00
5.18
42,500
1,148,467

0.95
43.58%
1.9
48.76
55.9
25.66
8.00
41,200
1,145,983

0.91
23.10%
2.2
41.73
29.8
16.03
7.73
22,400
713,079

0.87
40.28%
2.6
33.76
24.6
13.57
7.90
19,900
727,483

12.8%

13.4%

13.6%

9.7%

9.3%

1,115

928

1,121

142

115

22.3
8.8
247

12.1%
10.5
16.0
6.5
13.7

5.2

20.2
7.5
326

13.2%
9.4
16.9
6.9
10.6

3.8

23.1
10.0
633

9.3%
7.6
13.2
6.5
14.9

15.5
6.3
399

8.2%
6.7
12.5
6.7
11.1

11.4
3.4
311

8.4%
6.9
12.5
6.6
9.7

5.2

5.7

5.9

earnings per share and share-related data are presented in post merger share count terms.

(c) See Supplemental Information beginning on page 74 for a calculation of these ratios.
(d) Calculated before the extraordinary losses in 2008 and 2007.
(e) Prior periods are calculated on a continuing operations basis, even though the prior period balance sheets, in accordance with GAAP,

have not been restated for discontinued operations.

(f) Excluding the SILO/LILO charges, the percentage of non-U.S. fee and net interest revenue was 32% and the net interest margin was

2.21% for the year ended Dec. 31, 2008.

(g) Represents the securities on loan, both cash and non-cash, managed by the Asset Servicing segment.
(h)

Includes discontinued operations.

BNY Mellon

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

Results of Operations

General

In this Annual Report, references to “our,” “we,” “us,”
“BNY Mellon,” the “Company,” and similar terms for
periods on or after July 1, 2007 refer to The Bank of
New York Mellon Corporation and references to
“our,” “we,” “us,” the “Company,” and similar terms
prior to July 1, 2007 refer to The Bank of New York
Company, Inc.

BNY Mellon’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 Annual 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
Annual 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, “BNY Mellon”), with BNY Mellon
being the surviving entity.

The merger transaction resulted in The Bank of New
York Company, Inc. shareholders receiving 0.9434
shares of BNY Mellon’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 by The Bank of
New York Company, Inc.

8 BNY Mellon

Results for 2007 reflect six months of BNY Mellon
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.

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.

Throughout this Annual Report, certain measures,
which are noted, exclude certain items. BNY Mellon
believes that these measures are useful to investors
because they permit a focus on period-to-period
comparisons, which relate to our ability to enhance
revenues and limit expenses in circumstances where
such matters are within our control. We also present
certain amounts 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 a FTE basis has no impact
on net income. See “Supplemental information –
Explanation of Non-GAAP financial measures”
beginning on page 74 for a reconciliation of financial
measures presented in accordance with GAAP to
adjusted Non-GAAP financial measures.

Overview

BNY Mellon is the corporate brand of The Bank of
New York Mellon Corporation (NYSE symbol: BK).
BNY Mellon 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, high-net-worth
individuals, families, endowments and foundations
and related entities. At Dec. 31, 2009, we had $22.3
trillion in assets under custody and administration and
$1.1 trillion in assets under management, serviced
$12.0 trillion in outstanding debt and, on average,
processed $1.6 trillion of global payments per day.

BNY Mellon’s businesses benefit during periods of
global growth in financial assets and concentration of

Results of Operations (continued)

wealth, and also benefit from the globalization of the
investment process. Over the long term, our 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.

Key components of our strategy include: providing
superior client service versus peers; 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 1 capital
as our principal capital measure and have established
a targeted minimum ratio of Tier 1 capital to risk-
weighted assets of 10%.

Market conditions in 2009 resulted in a reduction in
the volume of global fixed income securities issuances
which impacted the level of new business in our
Corporate Trust business.

The weakness in the equity markets in 2009 resulted
in a lower level of corporate actions which impacted
our Depositary Receipts and Shareowner Services
businesses.

The current low interest rate environment continues to
adversely impact our net interest revenue and
corresponding net interest margin, as well as money
market mutual fund and money market fund related
distribution fees. At Dec. 31, 2009, we estimate that
an immediate 100 basis point increase in overnight
interest rates from those currently in effect would
increase annual pre-tax income by approximately
$500 million. The increase to pre-tax income would
benefit both fee revenue and net interest revenue.

Impact of the current market environment on
our business and regulatory events

Evolving regulatory environment

In 2009, market related factors continued to impact
the results in our core businesses. Total revenue was
impacted by: a low interest rate environment, which
resulted in lower net interest and fee revenue; lower
foreign exchange (“FX”) volumes; and lower average
equity markets as reflected by a 22% decrease in the
daily average S&P 500 Index and a 15% decrease in
the daily average FTSE 100 Index.

Our Asset and Wealth Management businesses were
negatively impacted by global weakness in market
values as a result of a decline in the daily averages of
the S&P 500 and the FTSE 100 indices compared
with 2008. Our asset and wealth management fee
revenue was also negatively impacted by outflows in
the alternative asset class as investors reduced their
risk profiles and higher money market fee waivers as
a result of low interest rates.

FX revenues returned to more normalized levels in
2009 from the record levels of 2008, reflecting lower
volatility and spreads.

Results in our securities lending business continue to
be impacted by narrower spreads and lower market
valuations, as well as overall de-leveraging in the
financial markets compared with 2008. Spreads
continued to narrow throughout 2009 and by the end
of 2009 returned to more historic levels.

The current economic and political environment has
led to legislative and regulatory initiatives that address
the financial services industry’s monitoring of risk,
capital requirements and executive compensation
policies. The Obama Administration, Congress and
U.S. and foreign regulators are currently considering a
variety of proposals that would modify the regulation
of the financial services industry and increase costs.
The initiatives that would have the greatest impact on
our business are described below.

The Federal Deposit Insurance Corporation (“FDIC”)
adopted a final rule requiring insured depository
institutions to prepay their estimated quarterly regular
risk-based assessments for the fourth quarter of 2009
and for all 2010, 2011 and 2012. On Dec. 30, 2009,
The Bank of New York Mellon and BNY Mellon,
N.A., our two principal banks, prepaid an aggregate of
$295 million for their estimated quarterly risk-based
assessments for these periods.

Also, in 2009, BNY Mellon recorded a payment of a
special emergency deposit assessment of 5 basis
points on each FDIC-insured depository institution’s
total assets, minus its Tier 1 capital, as of June 30,
2009, subject to a cap of 10 basis points of average
assessable domestic deposits for the second quarter of
2009. The special assessment resulted in a pre-tax
charge of $61 million, which was recorded as other
expense.

BNY Mellon

Results of Operations (continued)

In January 2010, President Obama proposed a
“Financial Crisis Responsibility Fee” which would
apply to banks, thrifts, insurance companies and
broker-dealers with more than $50 billion in
consolidated assets. The fee is intended to recoup the
cost of the Troubled Asset Relief Program (“TARP”)
to the U.S. Government. As currently proposed, the
fee would go into effect on June 30, 2010 and would
remain in force for 10 years or longer. The fee would
be calculated on total assets excluding Tier 1 capital
and assessed deposits. Based on the amount of assets
on our balance sheet at Dec. 31, 2009, we estimate
that we would be responsible for paying
approximately $200 million annually under this
proposal, if enacted as currently proposed.

Financial regulatory reform continues to be a top
priority for the Obama Administration. The U.S.
House of Representatives (the “House”) passed the
“Wall Street Reform and Consumer Protection Act”
on Dec. 11, 2009. The U.S. Senate has not yet passed
legislation in this area. The Senate Banking
Committee draft bill, “Restoring American Financial
Stability Act of 2009,” is still in draft form and
currently under discussion. Both legislative products
focus on measures to improve financial stability,
provide for more effective bank supervision, enhance
the regulation of consumer financial products and
services through the establishment of a Consumer
Financial Protection Agency and allow for better
coordination between regulatory agencies. The
House’s bill would establish a Systemic Dissolution
Fund to help wind down financial institutions when
necessary. The fund would be pre-funded by FDIC
assessments on large financial companies with assets
exceeding $50 billion, to pay for the resolution of a
bank holding company, a systemically important
financial company, an insurance company or any
other financial company. The Senate Banking
Committee’s draft proposal has a similar resolution
mechanism and sets the threshold at $10 billion or
more.

2009 and subsequent events

Investment securities portfolio restructuring

Consistent with our ongoing strategy to reduce
balance sheet risk, and reflecting the improvement in
the fixed income markets in the second half of 2009,
we sold or restructured a significant portion of our
watch list investment securities portfolio. The watch
list includes those securities we view as having a
higher risk of impairment charge.

10 BNY Mellon

The sales and restructuring impacted approximately
$13.5 billion (pre-restructuring amortized cost) of
investment securities. The investment securities sales
and restructuring resulted in a net charge of
approximately $4.8 billion (pre-tax) in 2009. The
majority of the restructured securities were retained
on our balance sheet in a certificate issued by a
Grantor Trust.

The charge for restructuring the securities portfolio
had a minimal impact on our tangible capital ratio, as
approximately 90% of the charge had previously been
reflected in tangible capital.

As a result of the restructuring, we expect net interest
revenue to be positively impacted by approximately
$200 million in 2010.

Settlement with the Russian Federal Customs Service

In October 2009, the Federal Customs Service of the
Russian Federation (the “Customs Service”) and The
Bank of New York Mellon, a subsidiary of BNY
Mellon, settled the litigation filed by the Customs
Service in the Arbitrazh Court of the City of Moscow.

Under the terms of the settlement agreement, the
Customs Service agreed to withdraw its $22.5 billion
lawsuit, the proceedings were terminated by the
Arbitrazh Court, and the Customs Service and The
Bank of New York Mellon exchanged mutual
releases. Without any admission of liability, The Bank
of New York Mellon agreed to pay $14 million in trial
costs and expenses to the Customs Service in
consideration for the settlement.

Acquisition of Insight Investment Management

In November 2009, we acquired Insight Investment
Management Limited (“Insight”) for £235 million
(approximately $377 million of cash and stock).
Based in London, Insight specializes in liability-
driven investment solutions, active fixed income and
alternative investments. Its clients include some of the
UK’s largest pension schemes, corporates, insurance
companies and local authorities, along with a growing
number of non-UK clients and some of the best-
known financial services and intermediary companies.
At acquisition, Insight had approximately $138 billion
in assets under management. Insight is included in the
Asset Management segment.

Results of Operations (continued)

Siguler Guff & Company, LLC investment

In November 2009, BNY Mellon acquired a 20%
minority interest in Siguler Guff & Company, LLC
(and certain related entities) (“Siguler Guff”), a multi-
strategy private equity firm with approximately $8
billion in assets under management and committed
capital.

Agreement to acquire Global Investment Servicing,
Inc.

In February 2010, BNY Mellon announced a
definitive agreement to acquire Global Investment
Servicing, Inc. (“GIS”) from PNC for cash of $2.31
billion. GIS provides a comprehensive suite of
products which includes subaccounting, fund
accounting/administration, custody, managed account
services and alternative investment services. GIS is
based in Wilmington, Delaware and has
approximately 4,500 employees in locations across
the U.S. and Europe.

GIS has approximately $855 billion in assets under
administration, including $460 billion in assets under
custody. BNY Mellon plans to raise between
$700-800 million in equity as part of the transaction.
The transaction is expected to close in the third
quarter of 2010, subject to necessary regulatory
approvals. At closing, GIS will be included in the
Institutional Services sector.

Repurchased preferred stock and warrant related to
TARP

In June 2009, BNY Mellon repurchased the 3 million
shares of its Series B preferred stock issued to the
U.S. Treasury in October 2008 as part of the TARP
Capital Purchase Program. BNY Mellon paid the U.S.
Treasury $3.0 billion, which reflects the liquidation
value of the preferred stock.

Related to this repurchase, we recorded an after-tax
redemption charge of $196.5 million in 2009,
representing the difference between the amortized cost
of the preferred stock and the repurchase price. BNY
Mellon paid the U.S. Treasury an aggregate of
approximately $95 million in dividends on the Series
B preferred shares from Oct. 28, 2008 through the
repurchase date.

On Aug. 5, 2009, BNY Mellon repurchased the
warrant issued to the U.S. Treasury in connection with
the TARP Capital Purchase Program. The warrant was

for 14,516,129 shares of our common stock. The
repurchase price was $136 million.

Common stock and debt offerings

In 2009, BNY Mellon issued 48 million shares of
common stock in a public offering, at a weighted-
average price of $28.75 per common share, for a total
of $1.4 billion. In addition to the common stock
offering, during 2009 BNY Mellon issued $2.75
billion of non-guaranteed senior debt in public
offerings comprised of $1.75 billion of 5-year notes
and $1 billion of 10-year notes. The proceeds from the
equity and debt offerings were used for general
corporate purposes, which included funding the
repurchase of the preferred stock related to TARP.
BNY Mellon also issued approximately $600 million
of FDIC-guaranteed debt, as described in “FDIC
Temporary Liquidity Guarantee Program,” below.

Regulatory stress test

On May 7, 2009, the regulators released the results of
the stress test administered under the Supervisory
Capital Assessment Program conducted during the
first quarter of 2009. The results concluded that BNY
Mellon was not required to raise additional capital,
and under the test’s adverse scenario our capital ratios
strengthened further.

Discontinued operations

In July 2009, we announced an agreement to sell
Mellon United National Bank (“MUNB”) located in
Florida. As a result, we adopted discontinued
operations accounting for MUNB. It was determined
that this business no longer fit our strategic focus on
our asset management and securities servicing
businesses. MUNB was sold on Jan. 15, 2010. The
business was formerly included in the Other segment.
In 2009, we recorded an after-tax loss on discontinued
operations of $270 million primarily reflecting loan
write-downs and the elimination of $82 million of
goodwill.

The income statements for all periods in this Annual
Report have been restated to reflect the discontinued
operations treatment of MUNB. The restatement
resulted in a reduction to previously reported levels of
net interest revenue and the net interest margin; a
slight reduction in both treasury services and other fee
revenue; a reduction in the provision for credit losses;
a reduction in noninterest expense; and a change in
continuing earnings per share.

BNY Mellon

Results of Operations (continued)

FDIC Temporary Liquidity Guarantee Program

Š Assets under management (“AUM”) totaled

In October 2008, the FDIC announced the Temporary
Liquidity Guarantee Program (“TLGP”). This
program:

Š Guarantees certain types of senior unsecured

debt issued by participating U.S. bank holding
companies, U.S. savings and loan holding
companies and FDIC-insured depository
institutions between Oct. 14, 2008 and Oct. 31,
2009, including promissory notes, commercial
paper and any unsecured portion of senior debt.
In 2009, BNY Mellon issued approximately
$600 million of FDIC-guaranteed debt maturing
June 29, 2012 under this program, which was
the maximum amount of the debt permissible for
it under the TLGP; and

Š Provides full FDIC deposit insurance coverage
for funds held by participating FDIC-insured
depository institutions in noninterest-bearing
transaction deposit accounts until Dec. 31, 2009,
extended until June 30, 2010. On Nov. 2, 2009,
BNY Mellon elected to opt out of the six month
extension of this program. Our participation in
the program ended on Dec. 31, 2009.

Summary of financial results

We reported a net loss from continuing operations
applicable to the common shareholders of BNY
Mellon of $1.1 billion, or $0.93 per diluted common
share in 2009. This compares with net income of $1.4
billion, or diluted earnings per common share of $1.21
in 2008 and $2.2 billion, or diluted earnings per
common share of $2.35, in 2007.

In 2009, the net loss applicable to common
shareholders, including discontinued operations,
totaled $1.4 billion, or $1.16 per diluted common
share, compared with net income of $1.4 billion, or
$1.20 per diluted common share, in 2008 and $2.0
billion, or $2.17 per diluted common share, in 2007.

Highlights of 2009 results

Š Assets under custody and administration

(“AUC”) totaled $22.3 trillion at Dec. 31, 2009
compared with $20.2 trillion at Dec. 31, 2008
reflecting higher market values and new
business wins. (See the Institutional Services
sector on page 28.)

12 BNY Mellon

$1.115 trillion at Dec. 31, 2009 compared with
$928 billion at Dec. 31, 2008. The impact of
acquisitions and higher market values were
partially offset by money market outflows. (See
the Asset and Wealth Management sector on
page 24.)

Š Securities servicing revenue totaled $5.0 billion
in 2009 compared with $6.1 billion in 2008.
Continued new business wins were more than
offset by lower securities lending revenue, lower
money market related distribution fees, lower
market values throughout most of 2009 and a
lower level of fixed income issuances globally.
See the Institutional Services sector on page 28.)

Š Securities lending fee revenue totaled $259

million in 2009 compared with $789 million in
2008. The decrease reflects narrower spreads
and lower loan balances due to de-leveraging in
the financial markets. Securities lending assets
totaled $247 billion at Dec. 31, 2009 compared
with $326 billion at Dec. 31, 2008. (See the
Institutional Services sector on page 28.)
Š Asset and wealth management fees, including
performance fees totaled $2.6 billion in 2009
compared with $3.2 billion in 2008. The
decrease reflects global weakness in market
values throughout most of 2009, a reduction in
money market related fees due to outflows in
money market products and higher fee waivers,
partially offset by new business and the
acquisition of Insight. (See the Asset
Management and Wealth Management segments
beginning on page 26.)

Š Foreign exchange and other trading activities
revenue totaled $1.0 billion in 2009 compared
with a record $1.5 billion in 2008. The decrease
primarily resulted from lower foreign exchange
revenue driven by a 21% decline in volumes.
(See Fee and other revenue beginning on
page 14.)
Investment securities (pre-tax) net losses of $5.4
billion in 2009 were primarily driven by the
investment securities portfolio restructuring
described above. (See Consolidated balance
sheet review beginning on page 45.)

Š Net interest revenue totaled $2.9 billion in 2009
essentially unchanged compared with 2008.
Results in 2009 reflect historically low interest
rates and our strategy to reinvest in high quality,
relatively short duration assets, while results in
2008 were impacted by $489 million of
sale-in-lease out (“SILO”)/lease-in-lease out

Results of Operations (continued)

(“LILO”) charges. (See Net interest revenue
beginning on page 17.)

Š The provision for credit losses was $332 million
in 2009 compared with $104 million in 2008.
The increase primarily relates to a higher
number of downgrades in 2009 and deterioration
in certain industry sectors. (See Asset quality
and allowance for credit losses beginning on
page 54.)

Š Noninterest expense totaled $9.6 billion in 2009

compared with $11.5 billion in 2008. The
decrease reflects lower support agreement
charges, lower compensation and incentive
expense, lower M&I charges as well as the
benefit of merger-related expense synergies.
(See Noninterest expense beginning on
page 20.)

Š Merger and integration (“M&I”) expenses were
$233 million (pre-tax), or $0.12 per diluted
common share in 2009. (See Noninterest
expense beginning on page 20.)

Š We recorded an after-tax redemption charge of
$196.5 million related to the repurchase of the
Series B preferred stock issued to the U.S.
Treasury as part of the TARP Capital Purchase
Program and $86.5 million for dividends/
accretion on the Series B preferred stock. These
items decreased earnings per share by $0.24 per
diluted common share in 2009.

Š The unrealized net of tax loss on our investment
securities portfolio was $619 million at Dec. 31,
2009 compared with $4.0 billion at Dec. 31,
2008. The decrease primarily resulted from the
sale and restructuring of a portion of the
watchlist investment securities portfolio and
general improvements in the fixed income
markets. (See Consolidated balance sheet review
beginning on page 45.)

Š The Tier 1 capital ratio at Dec. 31, 2009 was

12.1% compared with 13.2% at Dec. 31, 2008.
The decrease in the Tier 1 capital ratio primarily
reflects the charge related to the restructuring of
the investment securities portfolio and the
repayment of the Series B preferred stock,
partially offset by the common stock issuances
in 2009 and lower risk-weighted assets.

Results for 2008

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
revenue and had a lesser impact on issuer services
revenue. Noninterest expense was also significantly
impacted by the merger. Results for 2008 also
included:

Š Securities write-downs of $1.6 billion (pre-tax),

primarily relating to negative market
assumptions in the housing industry;

Š Support agreements provided to clients which
resulted in an $894 million (pre-tax) charge;
Š A charge relating to certain SILOs/LILOs of

$489 million (pre-tax) as well as the settlement
of several audit cycles;

Š M&I expenses of $483 million (pre-tax);
Š A restructuring charge of $181 million (pre-tax)
related to global workforce reduction initiatives;
and

Š The consolidation of 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.

Results for 2007

Results for 2007 were primarily impacted by the
merger with Mellon Financial in July 2007. The
merger increased asset servicing revenue, asset and
wealth management fees, foreign exchange and other
trading activities, net interest revenue and noninterest
expense. Issuer services revenue increased, primarily
as a result of the acquisition of the corporate trust
business of J. P. Morgan Chase.

Results for 2007 also included the consolidation of the
assets of our bank-sponsored commercial paper
conduit, Three Rivers Funding Corporation (“TRFC”)
which resulted in an extraordinary after-tax loss of
$180 million.

BNY Mellon

Results of Operations (continued)

Fee and other revenue

(dollars in millions unless otherwise noted)

Securities servicing fees:
Asset servicing
Securities lending revenue (c)
Issuer services
Clearing services

Total securities servicing fees

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

Total fee revenue
Net securities (losses)

Total fee and other revenue

Fee and other revenue as a percentage of total revenue – GAAP
Fee and other revenue as a percentage of total revenue – Non-GAAP (e)
Market value of AUM at period-end (in billions)
Market value of AUC and administration at period-end (in trillions)

2009

2008

2007 (a)

2009
vs.
2008

2008
vs.
2007

$ 2,314
259
1,463
962

4,998
2,639
1,036
519
397
215
226
111

$ 2,581 (b)
789
1,685
1,065 (d)

$2,010 (b)
366
1,560
1,187 (d)

(10)%
(67)
(13)
(10)

6,120
3,218
1,462
514
421
186
207 (d)
214 (d)

(18)
(18)
(29)
1
(6)
16
9
(48)

5,123
2,153
786
346
212
216
207 (d)
211 (d)

9,254
(201)

28%
116
8
(10)

19
49
86
49
99
(14)
-
1

10,141
(5,369)

12,342
(1,628)

(18)
N/M

33
N/M

$ 4,772

$10,714

$9,053

(55)%

18%

62%
78%

79%
79%

80%
80%

$ 1,115
22.3
$

928
20.2

$1,121
$ 23.1

20%
10%

(17)%
(13)%

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

In 2009, global sub-custodian out-of-pocket expense related to client reimbursements was reclassified from sub-custodian expense to
asset servicing revenue. This reclassification totaled $22 million in 2008 and $23 million in 2007.
Included in asset servicing revenue on the income statement.
In 2009, fee revenue associated with equity investments was reclassified from clearing services revenue and other revenue to
investment income. Fee revenue associated with an equity investment previously recorded in clearing services revenue was $22 million
in 2008 and $5 million in 2007. Fee revenue associated with an equity investment previously recorded in other revenue was $32
million in 2008 and $53 million in 2007. Prior periods have been reclassified.
(e) See Supplemental information beginning on page 74 for a calculation of these ratios.

Fee revenue

Fee revenue decreased 18% in 2009 compared with
2008 as our securities servicing and asset and wealth
management businesses were significantly impacted
by lower equity market levels throughout most of
2009, as well as lower customer activity in the equity
and fixed income markets. Lower spreads and
volatility and the impact of a stronger U.S. dollar
during 2009 also significantly impacted our
businesses in 2009.

Securities servicing fees

• Securities lending revenue reflects lower spreads

and lower loan balances due to de-leveraging in the
market;

• Issuer services fees reflect lower Depositary

Receipts revenue due to lower transaction fees and
lower Corporate Trust fees due to lower levels of
fixed income issuances globally and lower money
market related distribution fees and lower
Shareowner Services revenue; and

• Clearing services fees reflect lower money market

related distribution fees and lower trading volumes.

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

Securities servicing fees were impacted by the
following compared to 2008:

Asset and wealth management fees

• New business wins in asset servicing were more

than offset by lower average market values in 2009,
lower client activity and a stronger U.S. dollar;

Asset and wealth management fees, including
performance fees, decreased compared with 2008,
reflecting lower average global market values in 2009,

14 BNY Mellon

Results of Operations (continued)

lower money market related fees due to increased fee
waivers and short-term outflows, and a stronger U.S.
dollar, partially offset by new business. 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 $1.1 trillion at Dec. 31, 2009, compared
with $928 billion at Dec. 31, 2008. The increase
resulted from the Insight acquisition and market
appreciation, offset in part by $49 billion of net
money market outflows and $6 billion of net long-
term outflows. Long-term outflows in 2009 reflect
$20 billion of outflows through September, primarily
offset by $14 billion of inflows in the fourth quarter.
The S&P 500 index was 1115 at Dec. 31, 2009
compared with 903 at Dec. 31, 2008, a 23% increase.

Foreign exchange and other trading activities

Foreign exchange and other trading activities revenue,
which is primarily reported in the Asset Servicing
segment, decreased $426 million, or 29%, from a
record $1.5 billion in 2008. The decrease primarily
resulted from lower foreign exchange revenue driven
by lower volumes and a lower valuation of the credit
default swaps used to economically hedge the loan
portfolio. Foreign exchange volumes were down in
2009, decreasing approximately 21% from the
elevated levels experienced during the credit crisis in
2008.

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 $5
million from 2008 resulting from higher global
payment volumes.

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.

reflects lower money market related fees. The impact
of distribution and servicing 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 increased $29
million from 2008. The increase primarily reflects
higher fees on capital market products.

Investment income

Investment income
(in millions)

Corporate/bank-owned life

insurance

Lease residual gains
Seed capital gains (losses)
Private equity gains (losses)
Equity investment income (loss)

Total investment income

2009

2008

2007 (a)

$151
90
31
(18)
(28)

$226

$145
89
(82)
1
54

$207

$111
-
(35)
67
64

$207

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

Investment income, which is primarily reported in the
Other and Asset Management segments, includes
income from insurance contracts, lease residual gains
and losses, gains and losses on seed capital
investments and private equity investments, and
equity investment income (loss). The increase
compared to 2008 reflects higher seed capital gains
and income from corporate/bank-owned life
insurance, partially offset by the write-down of certain
equity investments and losses on private equity
investments.

Other revenue

Other revenue
(in millions)

Asset-related gains
Expense reimbursements from

joint ventures
Other income (loss)

2009

$ 76

31
4

2008

$ 45

29
140

2007 (a)

58
144

The $24 million decrease in distribution and servicing
fee revenue in 2009 compared with 2008 primarily

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

Total other revenue

$111

$214

$211

BNY Mellon

Results of Operations (continued)

Other revenue includes asset-related gains, expense
reimbursements from joint ventures and other income
(loss). Asset-related gains include loan, real estate and
other asset dispositions. Expense reimbursements
from joint ventures relate to expenses incurred by
BNY Mellon on behalf of joint ventures. Other
income (loss) primarily includes foreign currency
translation, other investments and various
miscellaneous revenues.

Total other revenue decreased compared with 2008
primarily reflecting a lower level of foreign currency
translation, partially offset by a gain on the sale of
VISA shares recorded in 2009.

Net investment securities losses

Net investment securities losses totaled $5.4 billion in
2009 and $1.6 billion in 2008.

As a result of adopting ASC 320, investment
securities losses in the first half of 2009 primarily
reflected credit related losses. In the third quarter of
2009, we recognized both credit and non-credit related
losses on our securities for which we declared our
intent to sell. Investment securities losses in 2008 and
2007 reflect mark-to-market (both credit and
non-credit) impairment losses.

The following table details investment securities
losses by type of security. The loss in 2009 primarily
resulted from the sale and restructuring of a
significant portion of the watchlist investment
securities portfolio. See “Consolidated balance sheet
review” for further information on the investment
securities portfolio.

16 BNY Mellon

Net investment securities losses
(in millions)

Alt-A RMBS
Prime RMBS
Subprime RMBS
European floating rate notes
Home equity lines of credit
Commercial MBS
Grantor Trust
Credit cards
ABS CDOs
Other

Total net investment
securities losses

2009

2008

2007 (a)

$3,113
1,008
322
269
205
89
39 (b)
26
23
275

$1,236
12
12
-
104
-
-
-
122
142

-
-
-
-
-
-
-
-
201
-

$5,369 (c) $1,628

$201

(b)

(a) Results for 2007 include six months of BNY Mellon and six
months of legacy The Bank of New York Company, Inc.
Includes $47 million of mark-to-market write-downs on the
Alt-A, prime and subprime RMBS from Oct. 1, 2009 through
the date of sale to the Grantor Trust.
Includes $930 million originally recorded in 2008 and
recorded again in 2009 under ASC 320 and as part of the
impairment charge related to the restructuring of the
securities portfolio.

(c)

2008 compared with 2007

Fee and other revenue increased in 2008 compared
with 2007. The merger with Mellon Financial
significantly increased asset servicing revenue,
securities lending 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.

Fee and other revenue was also impacted by the
following:

• Asset servicing revenue increased primarily due to
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;
• Securities lending revenue increased primarily

reflecting favorable spreads in the short-term credit
markets;

• Growth in issuer services revenue was driven by
higher Depositary Receipts, Corporate Trust and
Shareowner Services fees;

• Asset and wealth management revenue increased

primarily due to strong money market flows and net
new business, offset by significant declines in
global market values and long-term outflows;
• Foreign exchange and other trading activities

increased primarily due to higher volatility in all
major currencies and a rise in client volumes, as
well as the higher value of the credit default swaps;

Results of Operations (continued)

• Treasury services revenue increased primarily

• Distribution and servicing fees increased primarily

resulting from higher processing volumes in global
payment and cash management services; and

reflecting strong money market inflows.

Net interest revenue

(dollars in millions)

Net interest revenue (non-FTE)
Tax equivalent adjustment

Net interest revenue (FTE)

SILO/LILO charges

2009

2,915
18

2,933
-

2008

2,859
21

2,880
489

2007 (a)

2,245
12

2,257
-

2009
vs.
2008

2008
vs.
2007

2% 27%

N/M

2% 28%

N/M

Net interest revenue excluding SILO/LILO charges (FTE) – Non-GAAP

2,933

3,369

2,257

(13)% 49%

Average interest-earning assets
Net interest margin (FTE)
Net interest margin (FTE) excluding SILO/LILO charges (FTE) – Non-GAAP

$160,955

$152,201 (b) $110,034 (b)

1.82%
1.82%

1.89%
2.21%

2.05%
2.05%

6% 38%
(7)bps (16)bps
(39)bps
16bps

(a) Results for 2007 include six months of BNY Mellon and six months of legacy The Bank of New York Company, Inc.
(b) Excludes discontinued operations.

Net interest revenue on an FTE basis totaled $2.9
billion in 2009, essentially unchanged from 2008,
which included a $489 million charge related to SILO/
LILOs. Excluding the SILO/LILO charges, net
interest revenue decreased compared with 2008 as low
interest rates resulted in a decline in the value of
interest-free balances and lower spreads, offset in part
by an increase in average interest-earning assets
driven by client deposits.

The net interest margin was 1.82% in 2009 compared
with 1.89% in 2008, which was negatively impacted
by the SILO/LILO charges. The net interest margin,
excluding the SILO/LILO charges, was 2.21% in
2008. In 2009, net interest revenue and the related
margin were impacted by persistently low interest
rates globally, and our strategy to reinvest in high
quality, relatively short-duration assets.

Average interest-earning assets were $161 billion in
2009, compared with $152 billion in 2008 and $110
billion in 2007. The increase in 2009 from 2008 was
driven by higher levels of client deposits. Reflecting
our strategy to invest in high quality relatively short-
duration assets, average interest-earning cash on
deposit with the Federal Reserve and other central
banks and interbank investments increased to $71.3

billion in 2009, from $60.1 billion in 2008 and $32.2
billion in 2007. Average securities also increased to
$53.2 billion in 2009, up from $45.5 billion in 2008
and $37.0 billion in 2007. Average loans decreased to
$36.4 billion in 2009, compared with $46.6 billion in
2008 and $40.8 billion in 2007.

The restructuring of the investment securities portfolio
in 2009 is expected to positively impact net interest
revenue by approximately $200 million in 2010.

2008 compared with 2007

The increase in net interest revenue in 2008 compared
to 2007 primarily resulted from the merger with
Mellon Financial, 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. This growth was partially offset by the
SILO/LILO charges recorded in 2008.

The net interest margin was 1.89% in 2008 compared
with 2.05% in 2007. The decrease primarily 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.

BNY Mellon

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
State 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
Assets of discontinued operations
Total assets
Liabilities and 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 and official institutions
Other

Total foreign
Total interest-bearing deposits

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 asset-backed commercial paper
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
Total shareholders’ equity
Noncontrolling interest
Total equity
Total liabilities and equity
Net interest margin – taxable equivalent basis
Percentage of assets attributable to foreign offices (c)
Percentage of liabilities attributable to foreign offices

Average balance

Interest

Average rates

2009

$ 55,797
11,938
317
3,238
4,340

5,417
15,061
11,606
32,084

3,218
16,019
680

20,444
10,887
31,331

1,934
59
1,993
53,241
$160,955
(420)
3,638
45,766
2,188
$212,127

$ 18,619
1,136
961
4,922
25,638

5,182
866
66,520
72,568
98,206
2,695

2,263
592
2,855
317
5,262
16,893
$126,228
36,446
18,760
2,188
183,622
28,476
29
28,505
$212,127

37%
34

$ 683
43
9
31
69

262
362
250
874 (a)

50
592
47

832
244
1,076

50
1
51
1,816
$3,525 (b)

18
5
8
23
54

13
1
103
117
171
-

37
5
42
7
6
366
$ 592

1.22%
0.36
2.95
0.97
1.59

4.83
2.41
2.15
2.72

1.54
3.70
6.92

4.07
2.24
3.43

2.57
1.40
2.54
3.41
2.19%

0.09%
0.47
0.85
0.47
0.21

0.25
0.09
0.15
0.16
0.17
-

1.66
0.85
1.49
2.25
0.12
2.17
0.47%

1.82%

(a)

Includes fees of $43 million in 2009. Nonaccrual loans are included in the average loan balance; the associated income, recognized on the cash basis, is included
in interest.

(b) The tax equivalent adjustment was $18 million in 2009 and is based on the federal statutory tax rate (35%) and applicable state and local taxes.
(c)

Includes the Cayman Islands branch office.

18 BNY Mellon

Results of Operations (continued)

Average balances and interest rates (a) (continued)

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

Domestic offices:
Consumer
Commercial
Foreign offices

Total non-margin loans

Securities:

U.S. government obligations
U.S. government agency obligations
State 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 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 and 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
Liabilities of discontinued operations
Total liabilities
Total shareholders’ equity
Noncontrolling interest
Total equity
Total liabilities and equity
Net interest margin – taxable equivalent basis
Percentage of assets attributable to foreign offices (f)
Percentage of liabilities attributable to foreign offices

Average
balance

$ 46,473
4,754
2,348
6,494
5,427

6,081
20,926
14,172
41,179

596
10,846
744

23,124
8,386
31,510

1,696
134
1,830
45,526
$152,201
(314)
6,190
49,439
2,441
$209,957

$ 13,882
966
2,041
6,264
23,153

11,801
1,420
55,539
68,760
91,913
4,624

2,289
970
3,259
2,348
5,495
16,353
$123,992
33,724
20,979
2,441
181,136
28,704
117
28,821
$209,957

2008

Interest

$1,753
27
71
149
183

Average
rates

Average
balance

2007 (b)

Interest

Average
rates

3.77%
0.56
3.03
2.30
3.37

$ 26,505
-
-
5,722
5,392

$1,242
-
-
289
332

4.68%
-
-
5.06
6.16

268
865
693
1,826 (d)

11
369
27

1,125
363
1,488

5.85
4.74
5.50
5.16

4.49
5.32
6.85

5.67
4.81
5.44

47
51
98
1,993
$5,682 (e)

4.19
5.39
4.74
5.38
5.16%

$ 341
16
150
59
566

358
45
1,409
1,812
2,378
110

76
15
91
-
177
669
$3,425

3.05%
2.59
5.30
6.21
3.61

3.69
4.03
3.57
3.60
3.63
4.33

4.28
2.02
3.59
-
3.47
5.43
3.87%

307
157
563
1,027 (d)

5.05
0.75 (c)
3.97
2.49 (c)

18
479
55

1,249
463
1,712

3.03
4.42
7.20

5.41
5.52
5.44

66
5
71
2,335
$5,545 (e)

3.92
3.44
3.88
5.13
3.64%(c)

$ 134
12
58
124
328

184
25
1,228
1,437
1,765
46

61
29
90
53
69
642
$2,665

0.96%
1.22
2.83
1.98
1.42

1.56
1.75
2.21
2.09
1.92
1.00

2.67
3.00
2.77
2.25
1.25
3.93
2.15%

4,585
18,212
12,595
35,392

238
6,953
397

19,832
7,529
27,361

1,121
953
2,074
37,023
110,034
(296)
3,925
33,584
1,395
$148,642

$ 11,180
602
2,827
958
15,567

9,720
1,108
39,492
50,320
65,887
2,555

1,762
761
2,523
-
5,113
12,327
$ 88,405
21,400
17,079
1,395
128,279
20,234
129
20,363
$148,642

1.89%(c)

2.05%

35%
36

37%
37

(a) Presented on a continuing operations basis even though the balance sheet is not restated for discontinued operations. Average balances and rates are impacted by

allocations made to match assets of discontinued operations with liabilities of discontinued operations.

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

Includes the impact of the SILO/LILO charge in 2008. Excluding these charges, the domestic offices’ non-margin commercial loan rate would have been 3.09%, the
total non-margin loan rate would have been 3.68%, the interest-earning assets rate would have been 3.96% and the net interest margin would have been 2.21%.
Includes fees of $35 million in 2008 and $32 million in 2007. Nonaccrual loans are included in the average loan balance; the associated income, recognized on
the cash basis, is included in interest.

(d)

(e) The tax equivalent adjustments were $21 million in 2008 and $12 million in 2007, and are based on the federal statutory tax rate (35%) and applicable state and

local taxes.
Includes the Cayman Islands branch office.

(f)

BNY Mellon

Results of Operations (continued)

Noninterest expense

Noninterest expense
(dollars in millions)

Staff:

Compensation
Incentives
Employee benefits

Total staff

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

Subtotal

Support agreement charges
FDIC special assessment
Restructuring charges
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 (d)
Employees at period end

2009

2008

2007 (a)

2009
vs.
2008

2008
vs.
2007

$ 2,985
996
719

$ 3,242
1,247
700

$ 2,464
1,111
551

(8)%
(20)
3

4,700
1,017
564
426
367
320
309
214
791

8,708
(15)
61
150
426

233
-

5,189 (b)
1,021 (b)
570
517
331
335 (c)
323
278
928

9,492
894
-
181
473

471
12

4,126 (b)
760 (b)
447
268
280
406 (c)
266
189
631

7,373
3
-
-
314

355
49

(9)
-
(1)
(18)
11
(4)
(4)
(23)
(15)

(8)
N/M
N/M
(17)
(10)

(51)
N/M

32%
12
27

26
34
28
93
18
(17)
21
47
47

29
N/M
N/M
N/M
51

33
N/M

$ 9,563

$11,523

$ 8,094

(17)%

42%

61%

42,200

38%

42,500

37%

41,200

(1)%

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

In 2009, certain temporary/consulting expenses were reclassified from professional, legal and other purchased services to staff
expense. This reclassification totaled $100 million in 2008 and $19 million in 2007.
In 2009, global sub-custodian out-of-pocket expense related to client reimbursements was reclassified from sub-custodian expense to
asset servicing revenue. This reclassification totaled $22 million in 2008 and $23 million in 2007.

(c)

(d) Excluding investment securities gains (losses) and the 2008 SILO/LILO charges, total staff expense as a percentage of total revenue

(Non-GAAP) was 36% in 2009, 33% in 2008 and 36% in 2007.

Total noninterest expense decreased $2.0 billion, or
17%, compared with 2008 reflecting: lower support
agreement charges; an 8% decrease in compensation
expense and a 20% decrease in incentive expense,
driven by strong expense control; merger-related
synergies and a stronger U.S. dollar in 2009.
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 support agreement charges, FDIC
special assessment, restructuring charges,
amortization of intangible assets and M&I expenses.
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
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 decrease in staff expense compared with 2008
reflects lower compensation expense which was
driven by the workforce reduction program announced
in 2008 and the relocation of positions to lower cost
locations. The decrease in incentive expense primarily
resulted from lower incentive expense in every
business segment, reflecting the decreased operating
results in the segments.

20 BNY Mellon

Results of Operations (continued)

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 support agreement
charges, FDIC special assessment, restructuring
charges, amortization of intangible assets and M&I
expense totaled $4.0 billion in 2009 compared with
$4.3 billion in 2008. The decrease primarily reflects
declines in nearly every expense category. The
decreases in non-staff expense reflect overall expense
control. The decrease in other expense also reflects
charges recorded in 2008 related to credit monitoring
charges for lost tapes and the write-down of seed
capital investments related to a formerly affiliated
hedge fund manager.

For additional information on support agreements, see
the Support agreements section.

For additional information on the FDIC special
assessment, see the Impact of the current market
environment on our business and regulatory events
section.

In 2009, we recorded a pre-tax restructuring charge of
$139 million related to our global location strategy.
This charge was comprised of $102 million for
severance costs and $37 million for asset write-offs
and other costs. We also recorded additional pre-tax
restructuring charges of $11 million associated with
our workforce reduction program announced in 2008.
See Note 13 of the Notes to Consolidated Financial
Statements for additional information regarding
restructuring charges.

In 2009, we incurred $233 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 ($160
million);

Š Personnel related costs – including severance,
retention, relocation expenses, accelerated
vesting of stock options and restricted stock
expense ($57 million); and

Š One-time costs – including facilities related
costs, asset write-offs, vendor contract
modifications, rebranding and net gains and
losses on disposals ($16 million).

2008 compared with 2007

Total noninterest expense was $11.5 billion in 2008,
an increase of $3.4 billion or 42% compared with
2007. The increase primarily reflects the merger with
Mellon Financial partially offset by the sale of the
execution businesses and also included the following
activity:

an $894 million charge related to support
agreements related to BNY Mellon’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 bankruptcy of Lehman Brothers
Holdings, Inc. (“Lehman”);
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 global workforce reduction program;
a $50 million charge related to credit monitoring
for lost tapes; and

Š M&I expenses of $471 million related to the

merger with Mellon Financial, comprised of the
following: integration/conversion costs ($302
million); personnel related costs ($151 million);
and one-time costs ($18 million).

Income taxes

BNY Mellon recorded an income tax benefit, on a
continuing operations basis, of $1.4 billion (63.2%
effective tax rate) in 2009 compared to tax provisions
of $491 million (25.2% effective tax rate) in 2008 and
$987 million (30.7% effective tax rate) in 2007. The
2009 effective tax rate on our loss from continuing
operations is higher than the 35% federal statutory
rate because of additional tax benefits from a tax loss
on mortgages, the final SILO/LILO tax settlement,
investment securities losses and a higher proportion of
lower taxed foreign earnings. The lower effective tax
rate in 2008 compared with 2007 primarily resulted
from lower domestic earnings and a higher proportion
of income earned in lower taxed foreign jurisdictions.

BNY Mellon

Results of Operations (continued)

Excluding the impact of investment securities losses,
M&I expenses, FDIC special assessment,
restructuring charges and benefits from discrete tax
items primarily related to a tax loss on mortgages and
tax settlements, the effective tax rate for 2009 was
29.8%. Excluding the impact of investment securities
losses, M&I expenses, restructuring charges, support
agreement charges and the SILO/LILO/tax settlement,
the effective tax rate for 2008 was 32.8%. Excluding
the impact of the investment securities losses and
M&I expenses, the effective tax rate for 2007 was
32.3%.

Income of certain foreign subsidiaries is not currently
subject to U.S. income tax as a result of the active
financing deferral provision. This provision expired
for tax years beginning on Jan. 1, 2010. Absent an
extension, income that qualifies for the active
financing provision may require U.S. tax to be
recorded. BNY Mellon is in the process of evaluating
the impact if the law is not extended.

Extraordinary loss - consolidation of
commercial paper conduits

At the end of 2008 and 2007, we called the first loss
notes of Old Slip and TRFC, respectively, making us
the primary beneficiary and triggering the
consolidation of these commercial paper conduits.
The consolidation of these conduits resulted in the
recognition of extraordinary losses (non-cash
accounting charges) of $26 million after-tax, or $0.02
per common share in 2008, associated with Old Slip,
and $180 million after-tax, or $0.19 per common
share in 2007, associated with TRFC.

Business segments review

The results of our business segments are presented
and analyzed along the following business lines:

Š Asset Management
Š Wealth Management
Š Asset Servicing
Š
Issuer Services
Š Clearing Services
Š Treasury Services
Š Other

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

For information on the accounting principles of our
business segments, the primary types of revenue
generated by each segment and the basis on which our

22 BNY Mellon

segments are reported and analyzed, see Note 28 of
the Notes to Consolidated Financial Statements.

Our business segments continued to face a difficult
operating environment in 2009. Lower equity markets
and decreases in corporate actions and fixed income
issuances in 2009 significantly and adversely
impacted revenues in our asset and wealth
management and securities servicing businesses. New
business across these segments partially offset the
adverse impact of the markets. Fee waivers and lower
money market related distribution fees in 2009
decreased revenue in the Asset Management, Issuer
Services and Clearing Services segments. The low
interest rate environment in 2009, compared with
2008, as well as a decline in the value of interest-free
balances and narrowing spreads resulted in lower net
interest revenue in the Asset Servicing and Treasury
Services segments. Net interest revenue in 2008
included SILO/LILO charges of $489 million which
were recorded in the Other segment.

Investment securities losses in 2009, 2008 and 2007
were primarily recorded in the Other segment. Strong
expense control and the impact of merger-related
synergies resulted in lower noninterest expense in
every segment compared with 2008. Also in 2008, we
elected to support clients impacted by the Lehman
bankruptcy, as well as clients impacted by the
declining value of certain structured investment
vehicle (“SIV”) securities. These support agreements
had a significant impact on the 2008 results of the
Asset Management and Asset Servicing segments.
Restructuring charges recorded in 2009 and 2008
were recorded in the Other segment. In addition, M&I
expenses are a corporate level item and are therefore
recorded in the Other segment.

The merger with Mellon Financial had a considerable
impact on the comparison of business segment results
from 2008 to 2007. 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 following table presents the value of certain
market indices at period end and on an average basis.

Results of Operations (continued)

Market indices

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

(a) Period end.

2009

1115
948
5413
4568
2269
301
1581
549
564

2008

903
1221
4434
5368
1577
275
1237
660
577

2007

1468
1477
6457
6403
2652
258
2253
532
540

Increase/(Decrease)

2009 vs. 2008

2008 vs. 2007

23%
(22)
22
(15)
44
9
28
(17)
(2)

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

On a daily average basis, the S&P 500 Index
decreased 22% and the FTSE 100 Index decreased
15% in 2009 versus 2008. The period end S&P 500
Index increased 23% at Dec. 31, 2009 versus Dec. 31,
2008. The period end FTSE 100 Index increased 22%
at Dec. 31, 2009 versus Dec. 31, 2008. The period end
NASDAQ Composite Index increased 44% at Dec.
31, 2009 versus Dec. 31, 2008. Average daily U.S.
fixed-income trading volume was down 23% in 2009
compared with 2008. Total debt issuances decreased
11% in 2009 compared with 2008.

The changes in the value of market indices impact fee
revenue in the Asset and Wealth Management

segments and our securities servicing businesses. At
Dec. 31, 2009, using the S&P 500 Index as a proxy
for the equity markets, we estimate that a 100 point
change in the value of the S&P 500 Index, sustained
for one year, would impact fee revenue by
approximately 1-2% and fully diluted earnings per
common share on a continuing operations basis by
$0.06-$0.07.

The following consolidating schedules show the
contribution of our segments to our overall
profitability. Business segments are reported on a
continuing operations basis for all periods presented.

For the year ended Dec. 31, 2009
(dollars in millions)

Asset
Management

Wealth
Management

Fee and other revenue
Net interest revenue

Total revenue

Provision for credit losses
Noninterest expense

$ 2,280
31

$ 2,311

-
1,948

$ 578
194

$ 772

1
578

Total
Asset and
Wealth
Management
Sector

$ 2,858
225

$ 3,083

1
2,526

Asset
Servicing

Issuer
Services

Clearing
Services

Treasury
Services

Total
Institutional
Services
Sector

$ 3,369
892

$ 1,611
768

$ 1,190
340

878
616

$ 4,261

$ 2,379

$ 1,530

$ 1,494

-
2,941

-
1,302

-
1,021

-
794

700

Other
Segment

$ (5,134)
74

(5,060)

331
979

Total
Continuing
Operations

4,772
2,915

7,687

332
9,563

7,048
2,616

9,664

-
6,058

3,606

$ (6,370)

$ (2,208)

37% N/M
$32,043

$156,051

N/M
$209,939(b)

Income before taxes

363

$ 193

556

$ 1,320

$ 1,077

509

Pre-tax operating margin (a)
Average assets

16%

25%

18%

31%

45%

33%

47%

$12,567

$9,278

$21,845

$60,804

$50,746

$18,455

$26,046

Excluding intangible amortization:

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

$ 1,729
582
25%

$ 533
238
31%

$ 2,262
820
27%

$ 2,913
1,348

$ 1,221
1,158

32%

49%

994
536
35%

769
725
49%

5,897
3,767

978
(6,369)
39% N/M

9,137
(1,782)
N/M

BNY Mellon

Results of Operations (continued)

For the year ended Dec. 31, 2008

(dollars in millions)

Fee and other revenue
Net interest revenue

Total revenue

Provision for credit losses
Noninterest expense

Income before taxes

Pre-tax operating margin (a)
Average assets

Excluding intangible amortization:

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

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

(dollars in millions)

Fee and other revenue
Net interest revenue

Total revenue

Provision for credit losses
Noninterest expense

Income before taxes

Pre-tax operating margin (a)
Average assets

Excluding intangible amortization:

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

Asset
Management

Wealth
Management

$ 2,794
75

2,869

-
2,641

228

624
200

824

-
634

190

Total Asset
and Wealth
Management
Sector

Asset
Servicing

Issuer
Services

Clearing
Services

Treasury
Services

Total
Institutional
Services
Sector

$ 3,418
275

$ 4,416
1,086

$ 1,851
710

$ 1,292
321

977
730

8,536
2,847

Other
Segment

$ (1,240)
(263)

Total
Continuing
Operations

$ 10,714
2,859

3,693

-
3,275

5,502

-
3,783

2,561

-
1,413

1,613

-
1,130

418

$ 1,719

$ 1,148

483

-
840

867

1,707

11,383

(1,503)

-
7,166

104
1,082

4,217

$ (2,689)

1,946

13,573

104
11,523

23%

11%

31%

45%

30%

51%

37%

$13,267

$10,044

$23,311

$59,150

$35,169

$18,358

$25,603

$138,280

N/M
$45,925

14%

$207,516 (b)

$ 2,386
483

17%

580
244

30%

$ 2,966
727
20%

$ 3,759
1,743

$ 1,332
1,229

32%

48%

$ 1,104
509
32%

813
894
52%

7,008
4,375

38%

$ 1,076
(2,683)
N/M

$ 11,050
2,419

18%

Asset
Management

Wealth
Management

$ 1,872
10

1,882

-
1,372

510

423
111

534

-
413

121

Total Asset
and Wealth
Management
Sector

Asset
Servicing

Issuer
Services

Clearing
Services

Treasury
Services

Total
Institutional
Services
Sector

Other
Segment

Total
Continuing
Operations

$ 2,295
121

$ 2,957
693

$ 1,660
567

$ 1,130
303

2,416

-
1,785

3,650

-
2,497

2,227

-
1,159

1,433

-
1,047

741
521

1,262

-
663

599

6,488
2,084

8,572

-
5,366

270
40

310

(11)
943

9,053
2,245

11,298

(11)
8,094

631

$ 1,153

$ 1,068

386

3,206

$ (622)

3,215

27%

23%

26%

32%

48%

27%

47%

37%

$ 7,636

$ 5,702

$13,338

$38,016

$25,658

$14,967

$18,497

$ 97,138

N/M
$36,771

28%

$147,247 (b)

$ 1,226
656

35%

385
149

28%

$ 1,611
805
33%

$ 2,482
1,168

$ 1,084
1,143

32%

51%

$ 1,023
410
29%

649
613
49%

5,238
3,334

39%

931
(610)
N/M

7,780
3,529

31%

(a)
(b)

Income before taxes divided by total revenue.
Including average assets of discontinued operations of $2,188 million in 2009, $2,441 million in 2008 and $1,395 million in 2007, consolidated average assets were $212,127
million in 2009, $209,957 million in 2008 and $148,642 million in 2007.

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 $1.1 trillion at
Dec. 31, 2009, an increase of 20% compared with
$928 billion at Dec. 31, 2008. The increase primarily
reflects the Insight acquisition and market
appreciation, offset in part by money market outflows.

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 the loss of clients
and withdrawals; and
the impact of market price appreciation or
depreciation, the impact of any acquisitions or
divestitures and foreign exchange rates.

24 BNY Mellon

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 market products.
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.

Results of Operations (continued)

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
Board of Governors of the Federal Reserve System
(“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

(a) Results for 2006 and 2005 include legacy The Bank of New York Company, Inc. only.

AUM at period-end, by client type
(in billions)

Institutional
Mutual funds
Private client

Total AUM

2009

$ 611
416
88

$1,115

(a) Results for 2006 and 2005 include legacy The Bank of New York Company, Inc. only.

Changes in market value of AUM from Dec. 31, 2008 to Dec. 31, 2009 - by business segment

Market value of AUM at Dec. 31, 2008
Net inflows (outflows):

Long-term
Money market

Total net inflows (outflows)

Net market/currency impact
Acquisitions

Market value of AUM at Dec. 31, 2009

(a) Excludes $5 billion subadvised for the Wealth Management segment.
(b) Excludes private client assets managed in the Asset Management segment.

Performance fees, included in asset and wealth
management fee revenue on the income statement, are
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.

2009

$ 360
339
235
181

$1,115

2008

$402
270
168
88

$928

2008

$445
400
83

$928

2007

2006 (a) 2005 (a)

$ 296
460
218
147

$1,121

$ 38
39
21
44

$142

$ 33
37
20
25

$115

2007

2006 (a) 2005 (a)

$ 671
349
101

$1,121

$105
15
22

$142

$ 82
11
22

$115

Asset
Management

Wealth
Management

$ 859

$69

Total

$ 928

(9)
(49)

(58)
92
147

3
-

3
3
-

(6)
(49)

(55)
95
147

$1,040 (a)

$75 (b)

$1,115

BNY Mellon

Results of Operations (continued)

Asset Management segment

(dollar amounts in millions,
unless otherwise noted)

Revenue:

Asset and wealth management:

2009

2008

2009
vs.
2008

Mutual funds
Institutional clients
Private clients
Performance fees

$1,069
780
135
93

$1,288
1,052
170
83

(17)%
(26)
(21)
12

Total asset and wealth

management revenue

Distribution and servicing
Other

Total fee and other

revenue

Net interest revenue

Total revenue
Noninterest expense (ex.

amortization of intangible assets
and support agreement charges)

Income before taxes (ex.

amortization of intangible assets
and support agreement charges)

Amortization of intangible assets
Support agreement charges

2,077
350
(147)

(20)
2,593
(6)
371
(170) N/M

2,280
31

2,311

2,794
75

2,869

(18)
(59)

(19)

1,711

2,051

(17)

600
219
18

818
255
335

(27)
(14)
N/M

Income before taxes

$ 363

$ 228

59%

Memo: Income before taxes (ex.

amortization of intangible assets)

$ 582

$ 483

21%

Pre-tax operating margin
Pre-tax operating margin (ex.
amortization of intangible
assets) (a)

AUM (in billions) (b)
AUM inflows (outflows) (in billions):

Long-term (in billions)
Money market (in billions)

16%

25%

17%

$1,045

$ 862

21%

(9)
(49)

(45)
92

(a) The pre-tax operating margin, excluding amortization of

intangible assets, support agreement charges and investment
securities losses was 30% for 2008 and 28% for 2009.
Includes $5 billion and $3 billion subadvised for the Wealth
Management segment, respectively.

(b)

Business description

BNY Mellon Asset Management is the umbrella
organization for 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
and its affiliates, which are 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 11th position globally.

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.

In November 2009, we acquired Insight Investment
Management Limited (“Insight”) for £235 million
($377 million of cash and stock). Based in London,
Insight specializes in liability-driven investment
solutions, active fixed income and absolute return. Its
clients include some of the UK’s largest pension
schemes, corporates, insurance companies and local
authorities, along with a growing number of non-UK
clients and some of the best-known financial services
and intermediary companies. At acquisition, Insight
had approximately $138 billion in assets under
management.

Also, in November 2009, BNY Mellon acquired a
20% minority interest in Siguler Guff & Company,
LLC (and certain related entities), a multi-strategy
private equity firm with approximately $8 billion in
assets under management and committed capital.

Review of financial results

In 2009, Asset Management had pre-tax income of
$363 million compared with $228 million in 2008.
Excluding amortization of intangible assets and
support agreement charges, pre-tax income was $600
million in 2009 compared with $818 million in 2008.
Results for 2009 reflect lower fee revenue, partially
offset by strong expense control.

Asset and wealth management revenue in the Asset
Management segment was $2.1 billion in 2009
compared with $2.6 billion in 2008. The decrease
reflects weakness in global equity market values for
most of 2009, outflows of money market investments,
higher fee waivers, a stronger U.S. dollar and the

26 BNY Mellon

Results of Operations (continued)

divestiture of three small investment boutiques in
2009, partially offset by the impact of the Insight
acquisition in the fourth quarter of 2009. Despite the
challenging market environment, our investment
boutiques have had stronger investment performance.

In 2009, 51% of asset and wealth management fees in
the Asset Management segment were generated from
managed mutual fund fees. 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 $1.1 billion in 2009
compared with $1.3 billion in 2008. The decrease
resulted from lower market values during 2009,
outflows in treasury/government money market funds
reflecting higher fee waivers and the low level of
interest rates.

Distribution and servicing fees were $350 million in
2009 compared with $371 million in 2008. The
decrease resulted from lower redemptions in 2009 and
a decrease in money market inflows.

Other fee revenue was a loss of $147 million in 2009
compared with a loss of $170 million in 2008 and
includes $78 million of securities losses in both
periods. The improvement was due to changes in the
market value of seed capital investments.

Revenue generated in the Asset Management segment
includes 41% from non-U.S. sources in both 2009 and
2008. Excluding OTTI, the Non-U.S. revenue is 43%
in 2009 compared with 40% in 2008.

Noninterest expense (excluding amortization of
intangible assets and support agreement charges) was
$1.7 billion in 2009 compared with $2.1 billion in
2008. The decrease primarily resulted from staff
reductions, efficient expense management, the
consolidation of investment processes and a stronger
U.S. dollar. Staff expense and incentive expense
decreased 14% and 17%, respectively compared with
2008. The impact of the Insight acquisition on
expenses was primarily offset by divestitures.

Support agreement charges in 2009 primarily reflect
the final charge for four Dreyfus money market funds
support agreements entered into in 2008. The support
agreement charges in 2008 related to commingled
cash funds and money market funds.

2008 compared with 2007

Income before taxes was $228 million in 2008,
compared with $510 million in 2007. Income before

taxes (excluding amortization of intangible assets and
support agreement charges) was $818 million in 2008
compared with $656 million in 2007. Fee and other
revenue increased $922 million, primarily due to the
merger with Mellon Financial and strength in money
market inflows, which more than offset lower market
values, long-term outflows and a stronger U.S. dollar.
The increase was partially offset by lower other fee
revenue principally due to seed capital investment
losses and write-downs related to securities previously
purchased from funds managed by the investment
boutiques. Noninterest expense (excluding
amortization of intangible assets and support
agreement charges) increased $825 million in 2008
compared with 2007 primarily due to the merger with
Mellon Financial, the acquisition of ARX Capital
Management and the write-down of seed capital
investments related to a formerly affiliated hedge fund
manager, partially offset by overall expense
management efforts.

Wealth Management segment

(dollar amounts in millions,
unless otherwise noted)

Revenue:

2009

2008

Asset and wealth management
Other

$ 519
59

Total fee and other

revenue

Net interest revenue

Total revenue

Provision for credit losses
Noninterest expense

(ex. amortization of intangible
assets and support agreement
charges)

Income before taxes

(ex. amortization of intangible
assets and support agreement
charges)

Amortization of intangible assets
Support agreement charges

Memo: Income before taxes

(ex. amortization of intangible
assets)

Pre-tax operating margin
Pre-tax operating margin

(ex. amortization of intangible
assets)

Average loans
Average assets
Average deposits
Market value of total client assets
under management and custody
at period-end (in billions)

Income before taxes

$ 193

2009
vs.
2008

(8)%
(3)

(7)
(3)

(6)
N/M

563
61

624
200

824
-

578
194

772
1

238
45
-

533

565

(6)

259
54
15

190

(8)
(17)
N/M

244
23%

(2)%

$ 238

25%

31%

30%

$5,821
9,278
6,772

$ 4,938
10,044
7,554

18%
(8)
(10)

$ 154

139

11%

BNY Mellon

Results of Operations (continued)

Business description

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, families, endowments and
foundations and related entities. BNY Mellon Wealth
Management is a top ten U.S. wealth manager with
$154 billion in client assets. We serve our clients
through an expansive network of office sites in 17
states and 3 countries, including 16 of the top 25
domestic wealth markets.

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 $193 million in 2009
compared with $190 million in 2008. Income before
taxes (excluding amortization of intangible assets and
support agreement charges) was $238 million in 2009
compared with $259 million in 2008. Results
compared with 2008 reflect new business and strong
expense control, which was offset by unfavorable
market conditions during most of 2009.

Total fee and other revenue was $578 million in 2009
compared with $624 million in 2008. Organic growth
was more than offset by lower average equity market
levels and lower capital market fees.

Client assets under management and custody were
$154 billion at Dec. 31, 2009, an increase of $15
billion, or 11%, compared with $139 billion at Dec.
31, 2008. The increase was due to higher period end
market levels and positive asset flows. Wealth
management has generated 16 consecutive quarters of
positive long-term asset flows.

Net interest revenue decreased $6 million in 2009
compared with 2008. The impact of high quality loan
growth was more than offset by deposit spread
tightening due to the low interest rate environment.
Average loan levels were up $883 million, or 18%,
due to net new business and growth in the mortgage
portfolio.

28 BNY Mellon

Noninterest expense (excluding amortization of
intangible assets and support agreement charges)
decreased $32 million, or 6%, compared with 2008,
primarily reflecting savings due to workforce
reductions, strong expense control and the impact of
merger-related synergies.

2008 compared with 2007

Income before taxes was $190 million in 2008
compared with $121 million in 2007. Income before
taxes (excluding amortization of intangible assets and
support agreement charges), increased $110 million.
Fee and other revenue increased $201 million due to
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 as a result of the merger with Mellon
Financial, higher deposit levels, improved deposit
spreads and higher loan levels due to growth in the
mortgage portfolio. Noninterest expense (excluding
amortization of intangible assets and support
agreement charges) increased $180 million due to the
merger with Mellon Financial and the annual merit
salary increase, partially offset by merger-related
synergies and strong expense control.

Institutional Services Sector

As of Dec. 31, 2009, our assets under custody and
administration totaled $22.3 trillion, a 10% increase
from $20.2 trillion at Dec. 31, 2008. The increase in
assets under custody and administration primarily
reflects higher market values and new business wins.
Equity securities were 32% and fixed-income
securities were 68% of the market value of assets
under custody and administration at Dec. 31, 2009,
compared with 25% equity securities and 75% fixed-
income securities at Dec. 31, 2008. The shift in
composition of assets under custody from Dec. 31,
2008 to Dec. 31, 2009 was primarily due to an
increase in equity valuations. Assets under custody
and administration at Dec. 31, 2009 consisted of
assets related to the custody, mutual funds, and
corporate trust businesses of $18.2 trillion, broker-
dealer services assets of $2.6 trillion, and all other
assets of $1.5 trillion.

Market value of securities on loan at Dec. 31, 2009
decreased to $247 billion from $326 billion at Dec.
31, 2008. The decrease reflects de-leveraging in the
financial markets.

Results of Operations (continued)

In February 2010, we announced a definitive agreement to acquire Global Investment Servicing, Inc. from PNC.
See the 2009 and subsequent events section for additional information.

Assets under custody and administration trend

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

(in trillions) (b)

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

2009

2008

2007

2006 (a)

2005 (a)

$22.3
$ 247

$20.2
$ 326

$23.1
$ 633

$15.5
$ 399

$11.4
$ 311

(a) Results for 2006 and 2005 include legacy The Bank of New York Company, Inc. only.
(b)

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 $905 billion at Dec. 31, 2009, $697 billion at Dec. 31, 2008 and $989 billion at Dec. 31,
2007.

Asset Servicing segment

Business description

(dollar amounts in millions,
unless otherwise noted)

Revenue:

Securities servicing fees-

asset servicing

Securities lending revenue
Foreign exchange and other

trading activities

Other

Total fee and other

revenue

Net interest revenue

Total revenue
Noninterest expense (ex.

amortization of intangible
assets and support agreement
charges)

Income before taxes (ex.

amortization of intangible
assets and support agreement
charges)

Amortization of intangible assets
Support agreement charges

2009

2008

2009
vs.
2008

$ 2,215
221

$ 2,496
717

(11)%
(69)

757
176

3,369
892

4,261

1,051
152

4,416
1,086

5,502

(28)
16

(24)
(18)

(23)

2,946

3,218

(8)

1,315
28
(33)

2,284
24
541

(42)
17
N/M

Income before taxes

$ 1,320

$ 1,719

(23)%

Memo: Income before taxes ex.
amortization of intangible
assets

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

Market value of securities on

loan at period-end (in billions)

Average assets
Average deposits

$ 1,348

$ 1,743

(23)%

31%

32%

$
247
$60,804
52,907

$
326
$59,150
52,659

(24)%
3%
-

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 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, 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 deposit 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, tri-party repo
arrangements continue 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.

BNY Mellon

Results of Operations (continued)

We are one of the leading global securities servicing
providers with a total of $22.3 trillion of assets under
custody and administration at Dec. 31, 2009. We
continue to maintain our number one ranking in two
major global custody surveys. We are one of the
largest providers of fund services in the world,
servicing $4.4 trillion in assets. We also service 44%
of the funds in the U.S. exchange-traded funds
marketplace. We are the largest custodian for U.S.
corporate and public pension plans. BNY Mellon
Asset Servicing services 46% of the top 50
endowments.

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 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 $8.2
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
55% of U.S. Government securities transactions. We
are a leading collateral management agent with $1.5
trillion in tri-party balances worldwide at Dec. 31,
2009.

Securities lending revenue decreased $496 million
compared to 2008. The decrease primarily reflects
lower spreads and lower loan balances due to
de-leveraging in the financial markets. Spreads
decreased 80% at Dec. 31, 2009 compared with Dec.
31, 2008, reflecting normalization to historic levels.
The market value of securities on loan decreased $79
billion compared with Dec. 31, 2008.

Foreign exchange and other trading activity decreased
$294 million compared with 2008, primarily reflecting
a 21% decline in volumes.

Net interest revenue decreased $194 million compared
with 2008, primarily driven by lower spreads resulting
from the low interest rate environment throughout
2009.

Revenue generated in the Asset Servicing segment
includes 37% from non-U.S. sources in 2009
compared with 40% in 2008.

Noninterest expense (excluding amortization of
intangible assets and support agreement charges)
decreased $272 million compared with 2008. The
decrease in expenses primarily reflects a decrease in
compensation expense due to lower incentives, strong
overall expense control and a stronger U.S. dollar.
Incentive expense decreased 36% in 2009 compared
with 2008. Partially offsetting the decrease was higher
technology expenses.

Review of financial results

2008 compared with 2007

Income before taxes was $1.3 billion in 2009
compared with $1.7 billion in 2008. Income before
taxes, excluding amortization of intangible assets and
support agreement charges, was $1.3 billion in 2009
compared with $2.3 billion in 2008. The decrease
compared with 2008 reflects lower securities lending
revenue and foreign exchange revenue, reflecting the
challenging market environment for volume and
spread related businesses in 2009, and historically low
interest rates, partially offset by strong expense
control. Asset servicing continued to win new
business in 2009, including $1.2 trillion in 2009.

Total fee and other revenue decreased $1.0 billion in
2009 compared with 2008 driven by lower securities
lending revenue, lower foreign exchange and other
trading activities and lower market values for most of
2009, and a stronger U.S. dollar. This decrease was
partially offset by new business.

Income before taxes was $1.7 billion in 2008,
compared with $1.2 billion in 2007. Income before
taxes (excluding amortization of intangible assets and
support agreement charges) was $2.3 billion in 2008
compared with $1.2 billion in 2007. Fee and other
revenue increased $1.5 billion, primarily due to the
merger with Mellon Financial, net new business, cross
sells and organic growth, higher securities lending
revenue and foreign exchange and other trading
activities and the impact of the fourth quarter 2007
acquisition of the remaining 50% interest in BNY
Mellon Asset Servicing B.V. Net interest revenue
increased $393 million primarily driven by the merger
with Mellon Financial, strong deposit growth and
increased deposit spreads. Noninterest expense
(excluding amortization of intangible assets and
support agreement charges) increased $739 million
primarily due the merger with Mellon Financial, the
acquisition of the remaining 50% interest in BNY
Mellon Asset Servicing B.V., the 2008 annual merit

30 BNY Mellon

1,611
768

2,379

1,851
710

2,561

(13)
8

(7)

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

Results of Operations (continued)

salary increase, a $38 million operational error and
higher operating expenses to support new business.
Partially offsetting the increase were merger-related
synergies.

Issuer Services segment

(dollar amounts in millions)

2009

2008

2009
vs.
2008

Revenue:

Securities servicing fees-

issuer services

Other

Total fee and other

revenue

Net interest revenue

Total revenue
Noninterest expense (ex.

amortization of intangible
assets)

Income before taxes (ex.

amortization of intangible
assets)

Amortization of intangible assets

$ 1,462
149

$ 1,684
167

(13)%
(11)

1,221

1,332

(8)

1,158
81

1,229
81

(6)
-

Income before taxes

$ 1,077

$ 1,148

(6)%

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

Average assets
Average deposits
Number of depositary receipt

programs

Business description

45%

49%

48%

$50,746
$45,936

$35,169
$30,515

44%
51%

1,330

1,338

(1)%

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, BNY Mellon services $12 trillion in
outstanding debt from 58 locations, in 20 countries.
We are the number one provider of corporate trust
services for all major debt categories, across
conventional, structured credit and specialty debt. We
serve as the depositary for 1,330 sponsored American
and global depositary receipt programs, acting in
partnership with leading companies from 67 countries.
In addition to top-ranked transfer agency services,
BNY Mellon Shareowner Services offers a
comprehensive suite of equity solutions, including
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.

Review of financial results

Income before taxes decreased $71 million in 2009
compared with 2008. The results reflect lower fee
revenue due to lower global issuances and lower
overall corporate actions, partially offset by improved
net interest revenue due to higher deposit levels, and
ongoing expense control.

Total fee and other revenue decreased $240 million,
or 13%, in 2009 compared with 2008, as a result of:

Š Corporate Trust revenue – Continued market
share gains were more than offset by a 19%
decline in global debt issuances in 2009 and
lower money market related distribution fees.

Š Depositary Receipts revenue – Impacted by

lower transaction fees, partially offset by higher
corporate action fees and the benefit of new
business. In 2009, Depositary Receipts issuances
exceeded cancellations by $1.2 billion.

Š Shareowner Services revenue – Decreased due
to lower overall corporate actions activity and
the impact of lower equity values on employee
stock option plans fees.

Net interest revenue increased $58 million in 2009
compared with 2008, driven by higher customer
deposit balances primarily in Corporate Trust,
partially offset by lower spreads. Average deposits
were $45.9 billion in 2009 compared with $30.5
billion in 2008.

Revenue generated in the Issuer Services segment
includes 40% from non-U.S. sources in both 2009 and
2008.

BNY Mellon

Results of Operations (continued)

Noninterest expense (excluding amortization of
intangible assets) decreased $111 million in 2009
compared with 2008 reflecting lower staff expense
due to a 21% decrease in incentive expense and credit
monitoring charges related to lost tapes recorded in
2008.

2008 compared with 2007

Income before taxes was $1.15 billion in 2008,
compared with $1.07 billion in 2007. Fee and other
revenue increased $191 million, 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. The increase in Shareowner Services fees
was due to the merger with Mellon Financial and an
increased level of revenue from corporate actions. Net
interest revenue increased $143 million primarily
reflecting a significant increase in deposits in both the
Corporate Trust and Shareowner Services businesses,
as well as the merger with Mellon Financial.
Noninterest expense (excluding intangible
amortization) increased $248 million reflecting the
merger with Mellon Financial, credit monitoring
charges related to lost tapes recorded in Shareowner
Services and business growth, partially offset by
merger-related synergies.

32 BNY Mellon

Clearing Services segment

(dollar amounts in millions,
unless otherwise noted)

Revenue:

Securities servicing fees-

clearing services

Other

Total fee and other

revenue

Net interest revenue

Total revenue
Noninterest expense (ex.

amortization of intangible
assets)

Income before taxes (ex.

amortization of intangible
assets)

Amortization of intangible assets

Income before taxes

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

Average active accounts (in

thousands)
Average assets
Average margin loans
Average payable to customers

2009

2008

2009
vs.
2008

948
242

$ 1,040
252

(9)%
(4)

1,190
340

1,530

1,292
321

1,613

(8)
6

(5)

994

1,104

(10)

536
27

509

509
26

483

33%

30%

5
4

35%

32%

4,995
$18,455
$ 4,326

5,341
$18,358
$ 5,415

(6)%
1%
(20)%

and broker-dealers

$ 5,263

$ 5,495

(4)%

Business description

Our Clearing Services segment consists of Pershing’s
global clearing and execution business in over 60
markets. Located in 20 offices worldwide, Pershing
provides operational support, trading services, flexible
technology, an expansive array of investment
solutions including managed accounts, mutual funds
and cash management, practice management support
and service excellence. Pershing takes a consultative
approach, working behind the scenes for its more than
1,150 customers who represent approximately five
million individual and institutional investors. Pershing
serves a broad array of customers including financial
intermediaries, broker-dealers, independent registered
investment advisors and hedge fund managers.

Pershing is the enterprise name for Pershing, Pershing
Advisor Solutions, Pershing Prime Services, iNautix
USA, the Lockwood companies, and international
affiliates in Canada, Ireland, the U.K. and Singapore.

Results of Operations (continued)

Revenue in this segment includes fees and
commissions from broker-dealer services, 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 $509 million in 2009
compared with $483 million in 2008. The increase
reflects strong expense control and higher net interest
revenue, which helped mitigate the impact of lower
market volatility and lower trading volumes. Total fee
and other revenue decreased 8% in 2009 compared
with 2008. The decrease reflects lower money market
related distribution fees and trading volumes. Trading
volumes on the New York Stock Exchange (“NYSE”)
were down 21% in 2009 compared with 2008.

Net interest revenue increased $19 million compared
with 2008, reflecting wider spreads.

Noninterest expense (excluding amortization of
intangible assets) decreased $110 million in 2009
compared with 2008, primarily reflecting lower
compensation costs and strong expense control.
Incentive expense decreased 26% compared with
2008.

2008 compared with 2007

Income before taxes was $483 million in 2008
compared with $386 million in 2007. Total fee and
other revenue increased 14% reflecting strong growth
in trading activity along with growth in money market
mutual funds and record new business resulting from

market disruptions in the second half of 2008,
partially offset by a settlement received ($28 million)
in 2007 for the early termination of a contract. Net
interest revenue increased $18 million resulting from
higher customer balances and wider spreads.
Noninterest expense (excluding amortization of
intangible assets) increased $81 million reflecting
expenses incurred in support of business growth.

Treasury Services segment

(dollar amounts in millions)

2009

2008

2009
vs.
2008

(21)

(10)
(16)

(12)

503
375

878
616

500
477

977
730

1,494

1,707

769

813

(5)

725
25

700

894
27

867

47%

51%

(19)
(7)

(19)%

49%

52%

$12,435
26,046
21,816

$15,744
25,603
21,470

(21)%
2
2

Revenue:

Treasury services
Other

Total fee and other

revenue

Net interest revenue

Total revenue
Noninterest expense (ex.

amortization of intangible
assets)

Income before taxes (ex.

amortization of intangible
assets)

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

Average loans
Average assets
Average deposits

Business description

Amortization of intangible assets

Income before taxes

The Treasury Services segment includes cash
management solutions, trade finance services,
international payment services, global markets, capital
markets and liquidity services.

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, as well
as other transactions undertaken by corporate and
institutional clients. Segment expenses are driven by

BNY Mellon

Results of Operations (continued)

staff, equipment and space required to support the
services provided, as well as 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 the fourth largest USD
payment processor, processing about 160 thousand, or
an average of about $1.6 trillion, global payments
daily.

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 $700 million in 2009,
compared with $867 million in 2008. Merger-related
synergies and strong expense control were more than
offset by mark-to-market losses on the credit
derivatives portfolio used to economically hedge loans
in 2009 and lower net interest revenue.

Total fee and other revenue decreased $99 million in
2009 compared with 2008. The decrease was driven
by mark-to-market losses on the credit derivatives
portfolio used to economically hedge loans in 2009
due to the credit spread tightening.

The decrease in net interest revenue compared with
2008 primarily reflects lower loan levels and tighter
spreads resulting from the low interest rate
environment in 2009.

Noninterest expense (excluding amortization of
intangible assets) decreased $44 million in 2009
compared with 2008, primarily reflecting merger-
related synergies and strong expense control.
Incentive expense decreased 8% compared with 2008.

2008 compared with 2007

Income before taxes was $867 million in 2008,
compared with $599 million in 2007. Total fee and

34 BNY Mellon

other revenue increased $236 million reflecting the
merger with Mellon Financial as well as higher
processing volumes in global payment and cash
management services and higher capital markets
related revenue. The increase in net interest revenue
reflects the merger with Mellon Financial and higher
loan and deposit levels. Noninterest expense
(excluding intangible amortization) increased
$164 million primarily due to the merger with Mellon
Financial and business growth.

Other segment

(dollar amounts in millions)

2009

2008

Revenue:

Fee and other revenue
Net interest revenue (expense)

Total revenue

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

Income (loss) before taxes (ex.

restructuring charges, amortization of
intangible assets and M&I expenses)

Restructuring charges
Amortization of intangible assets
M&I expenses:

The Bank of New York Mellon

Corporation

Acquired Corporate Trust Business

Total M&I expenses

$ (5,134)
74

$ (1,240)
(263)

(5,060)
331

(1,503)
104

595

412

(5,986)
150
1

(2,019)
181
6

233
-

233

471
12

483

Income (loss) before taxes

$ (6,370)

$ (2,689)

Average assets
Average deposits

$32,043
$ 7,203

$45,925
$13,441

Business description

In July 2009, we signed a definitive agreement to sell
MUNB, our national bank located in Florida. As a
result, we adopted discontinued operations accounting
for MUNB. This business was formerly included in
the Other segment. All prior period results have been
restated.

The Other segment primarily includes:

Š
Š

the results of the leasing portfolio;
corporate treasury activities, including our
investment securities portfolio;
33.8% equity interest in BNY ConvergEx; and
business exits and corporate overhead.

Results of Operations (continued)

Revenue primarily reflects:

International operations

Š
Š

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

Noninterest expense includes:

Š M&I expenses;
Š
Š

restructuring charges;
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 $6.4 billion in 2009
compared with a loss of $2.7 billion in 2008.

The Other segment includes the following activity in
2009:

Š
Š

a $5.3 billion (pre-tax) loss on investment
securities primarily due to the restructuring of
the investment securities portfolio, recorded in
fee and other revenue;
a provision for credit losses of $331 million;
a $61 million (pre-tax) FDIC special assessment,
recorded in other expense;
a $139 million pre-tax restructuring charge
relating to our global location strategy; and
Š M&I expenses of $233 million associated with
the Mellon Financial merger. See Noninterest
expense for additional information on M&I
expenses.

2008 compared with 2007

Income before taxes was a loss of $2.7 billion in 2008
compared with a loss of $622 million in 2007. Total
fee and other revenue decreased primarily due to
higher investment securities losses. Net interest
revenue decreased primarily due to a $489 million
(pre-tax) SILO/ LILO settlement. The provision for
credit losses increased reflecting an increase in
nonperforming loans as well as higher net charge-offs
in 2008.

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 is a leading global custodian. At Dec.
31, 2009, our cross-border assets under custody were
$8.8 trillion compared with $7.5 trillion at Dec. 31,
2008. This increase primarily reflects higher market
values as the FTSE 100 and MSCI EAFE® indices
increased 22% and 28%, 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,
ranking 4th in the institutional marketplace and are the
7th largest asset manager active in Europe. Through
the acquisition of Insight, we have become a market
leader in the field of liability-driven investments.

At Dec. 31, 2009, approximately 32% of BNY
Mellon’s AUM were managed by our international
operations, compared with 18% in 2008. The increase
primarily resulted from our 2009 acquisitions of
Insight and Siguler Guff and improved market
valuations.

We serve as the depositary for 1,330 sponsored
American and global depositary receipt programs,
acting in partnership with leading companies from 67
countries. As the world’s leading provider of

BNY Mellon

Results of Operations (continued)

corporate trust and agency services, BNY Mellon
services $12 trillion in outstanding debt from 58
locations, in 20 countries, for clients including
governments and their agencies, multi-national
corporations, financial institutions and other entities
that access the global debt capital markets. We utilize
our global footprint and expertise to deliver a full
range of issuer and related investor services including
debt trustee, paying agency, escrow, data analyses,
document management and other fiduciary offerings.

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.

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.

Foreign exchange rates for
one U.S. Dollar

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

Yearly average rate:

British pound
Euro

2009

2008

2007

$1.6154
1.4348

$1.4626
1.3976

$1.9844
1.4594

$1.5659
1.3946

$1.8552
1.4713

$2.0018
1.3707

International clients accounted for 53% of revenue in
2009 compared with 37% in 2008. Excluding the
impact of the net investment securities losses,
international clients accounted for 32% of revenue in
2009 compared with 33% in 2008. Income from
foreign continuing operations was $1.1 billion in 2009
compared with $1.3 billion in 2008. Excluding the
impact of net investment securities losses,
international clients accounted for 46% of income
from continuing operations in 2009 compared with
39% in 2008, excluding investment securities losses,
support agreement charges and SILO/LILO charge.

At Dec. 31, 2009, we had more than 8,000 employees
in EMEA, over 5,000 employees in APAC and nearly
400 employees in other global locations, primarily
Brazil.

36 BNY Mellon

Results of Operations (continued)

International financial data

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)

Revenue

2009

Income
before
taxes

Income
from
continuing
operations

2008

Income
before
taxes

Income
from
continuing
operations

2007 (a)

Income
before
taxes

Income
from
continuing
operations

Total
assets (b)

Total
assets (b) Revenue

$3,615

$(3,615) $(1,901) (c) $ 145,008

$ 8,566

$ 140

$ 136 (c) $183,565

$ 7,621 $2,031

$1,408

$137,179

Domestic
Foreign:

EMEA (e)
APAC
Other

2,825 (d)
669
578

863
287
257

667
222
199

58,011 (d)
5,588
1,375

3,604 (d) 1,176
338
292

796
607

859
247
213

49,037 (d)
3,527
1,383

2,780
553
344

743
247
194

509
172
139

820

52,722
5,209
2,546

60,477

Total foreign

4,072

1,407

1,088

64,974

5,007

1,806

1,319

53,947

3,677

1,184

Total

$7,687

$(2,208) $ (813)

$209,982 (f)

$13,573

$1,946

$1,455

$237,512

$11,298 $3,215

$2,228

$197,656

(a) Results for 2007 include six months of BNY Mellon and six months of legacy The Bank of New York Company, Inc.
(b) Total assets include long-lived assets, which are not considered by management to be significant in relation to total assets. Long-lived assets are

primarily located in the U.S.

(c) Domestic income from continuing operations in 2009 and 2008 was reduced by investment securities losses. Domestic income from continuing

(d)

operations in 2008 was also reduced by SILO/LILO charges and support agreement charges.
Includes revenue of approximately $1.6 billion and $2.0 billion, and assets of approximately $43.0 billion and $27.1 billion, in 2009 and 2008,
respectively, of international operations domiciled in the U.K., which is 21% and 14% of total revenue and 20% and 11% of total assets, respectively.
In 2009, excludes the $269 million of securities losses on the European floating rate note.

(e)
(f) Presented on a continuing operations basis.

In 2009, revenues from EMEA were $2.8 billion,
compared with $3.6 billion in 2008 and $2.8 billion in
2007. Revenues from EMEA were down 22% for
2009 compared to 2008. The decrease in 2009
primarily reflects lower market values. Revenue from
EMEA in 2009 was spread across most of our
segments. Asset Servicing generated 46%, Issuer
Services 22%, Asset Management 21%, Treasury
Services 6% and Clearing Services 5% of revenues
from EMEA. Income from continuing operations from
EMEA was $667 million in 2009 compared with $859
million in 2008 and $509 million in 2007.

Revenues from APAC were $669 million in 2009
compared with $796 million in 2008 and $553 million
in 2007. The decrease in APAC revenue in 2009
resulted from lower market values, reduced securities
lending volume and the effect of a low interest rate

environment. Revenue from APAC in 2009 was
generated by the following segments: Asset
Management 30%, Treasury Services 26%, Asset
Servicing 23%, Issuer Services 18% and Clearing
Services 3%. Income from continuing operations from
APAC was $222 million in 2009 compared with $247
million in 2008 and $172 million in 2007.

Income from continuing operations from EMEA and
APAC were driven by the same factors affecting
revenue. In addition, income from continuing
operations from EMEA in 2009 compared with 2008
was negatively impacted by the strength of the
U.S. Dollar versus the Euro and British Pound.
Income from continuing operations from EMEA in
2008 compared with 2007 was negatively impacted by
the strength of the U.S. Dollar versus the British
Pound.

BNY Mellon

Results of Operations (continued)

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 U.S. 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)

2009:

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

2008:

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

2007:

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

(a) Primarily European floating rate notes.
(b) Primarily short-term placements.

Critical accounting estimates

Our significant accounting policies are described in
Note 1 of 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 loan losses and allowance for lending-
related commitments, 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 Note
1 of the Notes to Consolidated Financial Statements,

38 BNY Mellon

Banks and
other
financial
institutions (b)

Public
sector

Commercial,
industrial
and other

Total
cross-border
outstandings

$6,519
5,325
2,765
3,903
3,162
2,850
1,809
932

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

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

$ 56
75
-
-
377
-
-
1

-
140
-
-
-
-

-
178
150
-
5
-

$1,307
156
1,312 (a)
133
199
613
7
895 (a)

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

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

$7,882
5,556
4,077
4,036
3,738
3,463
1,816
1,828

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

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

further information on policies related to the
allowance for loan losses and allowance for lending-
related commitments can be found under
“Consolidated balance sheet review – 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
measurement” in Note 24 of the Notes to
Consolidated Financial Statements. Further
information on goodwill and intangible assets can be
found in “Goodwill and intangible assets” in Note 7 of
the Notes to Consolidated Financial Statements.
Additional information on pensions can be found in

Results of Operations (continued)

“Employee benefit plans” in Note 21 of the Notes to
Consolidated Financial Statements.

Allowance for loan losses and allowance for
lending-related commitments

The allowance for loan losses and allowance for
lending-related commitments consist of three
elements: (1) an allowance for impaired credits; (2) an
allowance for higher risk rated loans and exposures
and pass rated loans and exposures; and (3) an
unallocated allowance based on general economic
conditions and certain risk factors in our individual
portfolio and markets. Further discussion of the three
elements can be found under Asset quality and
allowance for credit losses in Consolidated balance
sheet review.

The allowance for loan losses and allowance for
lending-related commitments 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 based on internal ratings
after analyzing the credit quality of each borrower/
counterparty. 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.

It is difficult to quantify the impact of changes in
forecasts on our allowance for loan losses and
allowance for lending-related commitments.
Nevertheless, we believe the following discussion
may enable investors to better understand the
variables that drive the allowance for loan losses and
allowance for lending-related commitments.

A key variable in determining the allowance is
management’s judgment in determining the size of the

unallocated allowance. At Dec. 31, 2009, the
unallocated allowance was $26 million, or 4% of the
total allowance. At Dec. 31, 2009, if the unallocated
allowance, as a percentage of the total allowance, was
5% higher, the allowance would have increased by
approximately $34 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 $144 million, while if each
credit were rated one grade worse, the allowance
would have increased by $191 million. Similarly, if
the loss given default were one rating worse, the
allowance would have increased by $73 million, while
if the loss given default were one rating better, the
allowance would have decreased by $65 million. For
impaired credits, if the net carrying value of the loans
was 10% higher or lower, the allowance would have
decreased or increased by $3 million, respectively.

Fair value of financial instruments

We adopted guidance related to Fair Value
Measurement included in ASC 820 and Fair Value
Option included in ASC 825 effective Jan. 1, 2008.
ASC 820 defines fair value, establishes a framework
for measuring fair value, and expands disclosures
about assets and liabilities measured at fair value. The
standard also established 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.

Effective Jan. 1, 2009, we adopted guidance related to
“Determining Fair Value When the Volume and Level
of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions
That Are not Orderly”, included in ASC 820. This
ASC provides guidance on how to determine the fair
value when the volume and level of activity for the
asset or liability have significantly decreased and
reemphasizes that the objective of a fair value
measurement remains an exit price notion. In those
circumstances, further analysis of transactions or
quoted prices is needed, and a significant adjustment
to the transactions or quoted prices may be necessary
to estimate fair value in accordance with ASC 820. It
also requires additional disclosures for instruments
within the scope of ASC 820 to include inputs and
valuation techniques used, change in valuation
techniques and related inputs, if any, and more
disaggregated information relating to debt and equity
securities.

BNY Mellon

Results of Operations (continued)

The amended standard provides a consistent definition
of fair value, which focuses on exit price in an orderly
transaction (that is, not a forced liquidation or
distressed sale) between market participants at the
measurement date under current market conditions. If
there has been a significant decrease in the volume
and level of activity for the asset or liability, a change
in valuation technique or the use of multiple valuation
techniques may be appropriate. In such instances,
determining the price at which willing market
participants would transact at the measurement date
under current market conditions depends on the facts
and circumstances and requires the use of significant
judgment. The objective is to determine from
weighted indicators of fair value a reasonable point
within the range that is most representative of fair
value under current market conditions.

Fair value – Securities

Level 1 – Securities

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 ASC 820
hierarchy.

Level 2 – Securities

For securities where quotes from recent transactions
are not available for identical securities, we determine
fair value primarily based on pricing sources with
reasonable levels of price transparency. The pricing
sources employ financial models or obtain
comparisons to similar instruments to arrive at
“consensus” prices.

Specifically, the pricing sources obtain recent
transactions for similar types of securities (e.g.,
vintage, position in the securitization structure) and
ascertain variables such as discount rate and speed of
prepayment for the type of transaction and apply such
variables to similar types of bonds. We view these as
observable transactions in the current market place
and classify such securities as Level 2. They
discontinue pricing any specific security whenever
they determine there is insufficient observable data to
provide a good faith opinion on price.

Securities included in this category that were affected
by the lack of market liquidity in 2009 include our

40 BNY Mellon

Alt-A residential mortgage-backed securities
(“RMBS”), prime RMBS, subprime RMBS and
commercial mortgage-backed securities.

In addition, we have significant investments in more
actively traded agency RMBS and other types of
securities such as FDIC insured paper and sovereign
debt. 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 inter-dealer brokers.

For securities with bond insurance, the financial
strength of the insurance provider is analyzed and that
information is included in the fair value assessment
for such securities.

The pricing sources did not discontinue pricing for
any securities in our investment securities portfolio at
Dec. 31, 2009.

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

Level 3 – Securities

Where we have used our own cash flow models and
estimates to value the securities, we classify them in
Level 3 of the ASC 820 hierarchy. Our Level 3
securities represent less than 1% of our securities
recorded at fair value.

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

See Note 24 to the Notes to Consolidated Financial
Statements for details of our securities by ASC 820
hierarchy level.

Fair value – Derivative financial instruments

Level 1 – Derivative financial instruments

We include derivative financial instruments that are
actively traded on exchanges, principally foreign
exchange futures and forward contracts, in Level 1 of
the ASC 820 hierarchy.

Results of Operations (continued)

Level 2 – Derivative financial instruments

The majority of our derivative financial instruments
are priced using internally developed models that 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
ASC 820 hierarchy.

Level 3 – Derivative financial instruments

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 ASC 820 hierarchy and
compose less than 1% of our derivative financial
instruments at fair value.

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 prices as prescribed by ASC 820, we
reviewed our 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 ASC
820, 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.

For details of our derivative financial instruments by
ASC 820 hierarchy level, see Note 24 to the Notes to
Consolidated Financial Statements.

Fair value option

ASC 825 provides the option to elect fair value as an
alternative 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. Under ASC 825, 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. At
Dec. 31, 2009, we applied the fair value option to
$110 million of unfunded loan commitments. These
unfunded loan commitments are valued using quotes
from dealers in the loan markets, and are included in
Level 3 of the ASC 820 hierarchy. See Note 25 to the
Notes to Consolidated Financial Statements for
additional disclosure regarding the fair value option.

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

In April 2009, the FASB issued new guidance
included in ASC 320 which modifies the other-than-
temporary impairment (“OTTI”) model for
investments in debt securities. Under this guidance, a
debt security is considered impaired if its fair value is
less than its amortized cost basis. An OTTI is
triggered if (1) the intent is to sell the security, (2) the
security will more likely than not have to be sold
before the impairment is recovered, or (3) the
amortized cost basis is not expected to be recovered.
When an entity does not intend to sell the security
before recovery of its cost basis, it will recognize the
credit component of an OTTI of a debt security in
earnings and the remaining portion in other
comprehensive income.

BNY Mellon

Results of Operations (continued)

For each non-agency RMBS, which includes Alt-A,
subprime and prime RMBS, not backed by the
government, 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. To
determine if the unrealized loss for non-agency
RMBS is other-than-temporary, we project total
estimated defaults of the underlying assets
(mortgages) and multiply that calculated amount by
an estimate of realizable value upon sale of these
assets in the marketplace (severity) in order to
determine the projected collateral loss. We also
evaluate the current credit enhancement underlying
the bond to determine the impact on cash flows. If we
determine that a given RMBS position will be subject
to a write-down or loss, we record the expected credit
loss as a charge to earnings.

During 2009, given the weakness in the housing
market and broader economy, we adjusted our
non-agency RMBS estimated default and loss severity
assumptions to increase estimated defaults and
decrease the amount we expect to receive to cover the
value of the original loan. See Note 5 of the Notes to
Consolidated Financial Statements for projected
weighted-average default rates and loss severities for
recent vintages of Alt-A, subprime and prime RMBS.
If actual delinquencies, default rates and loss severity
assumptions worsen, we would expect additional
impairment losses to be recorded in future periods.

Net investment securities losses in 2009 were $5.4
billion. These losses reflect both credit and non-credit-
related losses on our investment securities portfolio,
including securities for which we declared our intent
to sell or restructure. If we were to increase or
decrease each of our loss severity and projected
default rates by 100 basis points on each of the
positions in our Alt-A, subprime and prime RMBS
portfolios and the securities portfolio held by the
Grantor Trust, credit-related impairment charges on
these securities would have increased by $3 million
(pre-tax) or decreased by $1 million (pre-tax) in 2009.

In addition, we assess OTTI for an appropriate subset
of our investment securities subject to guidance
included in ASC 325 – Investments – Other by testing
for an adverse change in cash flows. Any unrealized
loss on a security identified as other-than-temporarily
impaired under ASC 325 analysis is charged to
earnings.

42 BNY Mellon

Upon acquisition of a security, BNY Mellon decides
whether it is within the scope of ASC 325 or if it will
be evaluated for impairment under ASC 320.
Subsequently, if the security is downgraded, we do
not alter this decision.

ASC 325 is an interpretation of ASC 320 for certain
debt securities which are beneficial interests in
securitized financial assets. Specifically, ASC 325
provides incremental impairment guidance for a
subset of the debt securities within the scope of ASC
320. For securities where there is no debt rating at
acquisition, and the security is a beneficial interest in
securitized financial assets, we use the ASC 325
impairment model. For securities where there is no
debt rating at acquisition and the security is not a
beneficial interest in securitized financial assets we
use the ASC 320 impairment model.

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 ASC 805 Business Combinations and
ASC 350 Intangibles – Goodwill and Other. The
initial recording of goodwill and intangibles requires
subjective judgments concerning estimates of the fair
value of the acquired assets and liabilities. Goodwill
($16.2 billion at Dec. 31, 2009) and indefinite-lived
intangible assets ($2.7 billion at Dec. 31, 2009) are
not amortized but are subject to tests for impairment
annually 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.

BNY Mellon’s business segments are the reporting
units for which annual goodwill impairment testing is
done in accordance with ASC 350. The goodwill
impairment test is performed in two steps. The first
step compares the estimated fair value of the segment
with its carrying amount, including goodwill. If the
estimated fair value of the segment exceeds its
carrying amount, goodwill of the segment is
considered not impaired. However, if the carrying
amount of the segment exceeds its estimated fair
value, a second step would be performed that would
compare the implied fair value of the segment’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.

Results of Operations (continued)

Fair value may be determined using market prices,
comparison to similar assets, market multiples,
discounted cash flow analysis and other determinants.
Estimated cash flows extend far into the future and, by
their nature, are difficult to estimate over such an
extended time-frame. Factors that may significantly
affect the estimates include, among others,
competitive forces, customer behaviors and attrition,
changes in revenue growth trends, cost structures and
technology, changes in discount rates, and specific
industry or market sector conditions.

The carrying amount of goodwill in each of our six
segments in continuing operations was tested in 2008
and 2009 using observable market data when
available to estimate fair values. 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, recoverability of
long-lived assets, changes in our competitors, and the
earnings outlook for our segments. BNY Mellon’s
market capitalization exceeded its net book value at
the end of each quarter of 2008 and 2009.

The fair values of the Asset Management and Wealth
Management segments are largely impacted by
management and performance fees from AUM. Due
to lower stock market values in early 2009, AUM had
declined slightly from 2008 and there were fewer sale
transactions of comparable public businesses. While
management takes responsibility for its financial
statements and the underlying fair value estimates, we
engaged an independent business valuation specialist
in early 2009 to estimate the fair values of these two
segments. Their valuations incorporated both income
and market based analyses and indicated fair values
more than 15% greater than their respective carrying
amounts. The AUM in the fourth quarter of 2009 was
20% greater than the fourth quarter of 2008 and there
were no factors of potential impairment, so additional
interim testing was not necessary.

The fair values of our other four segments were
estimated for the 2009 test using discounted cash flow
analyses since there were few comparable public
company transactions in 2009. These incorporated our
forecasts and longer term earnings growth estimates
by segment and discount rates ranging from 11.5% to
15.5% that incorporated measured stock price
volatilities of the segments’ principal public company
competitors and a 6.5% average excess return over
risk-free rates. The estimated fair values of each of
these four segments was substantially in excess of

carrying amounts, as they had been in prior year
impairment tests.

In the second quarter of 2009, we wrote off the
remaining goodwill and intangibles in MUNB, which
was carried in discontinued operations since 2008
when we decided to exit this banking subsidiary in
Florida, when BNY Mellon committed to sell it at a
price less than its carrying amount. The sale of
MUNB was completed on Jan 15, 2010.

Goodwill and intangible assets could be subject to
impairment in future periods if economic conditions
that impact our segments worsen. Impairment would
be a non-cash charge.

Indefinite-lived intangible assets are evaluated for
impairment at least annually by comparing their fair
values, estimated using discounted cash flow analyses,
to their carrying values. Other intangible assets ($2.9
billion at Dec. 31, 2009) 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.

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 7 of the Notes to
Consolidated Financial Statements for additional
information regarding intangible assets. At Dec. 31,
2009, 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 26,000 U.S. employees and
approximately 2,000 non-U.S. employees.

BNY Mellon has two qualified and several
non-qualified defined benefit pension plans in the
U.S. and eight overseas. As of Dec. 31, 2009, the U.S.
plans accounted for 84% of the projected benefit
obligation. The pension credit for BNY Mellon plans
was $17 million in 2009, compared with $20 million
in 2008 and $4 million in 2007 (which includes six
months of BNY Mellon and six months of legacy
The Bank of New York Company, Inc. only).

The Retirement Plan of The Bank of New York
Company, Inc. and the Mellon Bank Retirement Plan
were merged into The Bank of New York Mellon

BNY Mellon

Results of Operations (continued)

Corporation Pension Plan effective Dec. 31, 2008.
The merger resulted in an additional pension credit of
$6 million in 2009.

In addition to its pension plans, BNY Mellon has an
Employee Stock Ownership Plan (“ESOP”). Benefits
payable under The Bank of New York Mellon
Corporation Pension Plan are offset by the equivalent
value of benefits earned under the ESOP for
employees who participated in the legacy Retirement
Plan of the Bank of New York Company, Inc.

A net pension expense of approximately $48 million
is expected to be recorded by BNY Mellon in 2010,
assuming currency exchange rates at Dec. 31, 2009.

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 and resulted in
an additional pension credit of $3 million in 2009.
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.

BNY Mellon made a discretionary contribution of
$300 million to The Bank of New York Mellon
Corporation Pension Plan during 2009. Pension
expense was re-measured to reflect this contribution
resulting in an additional pension credit of $4 million
in 2009.

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.

44 BNY Mellon

Since 2007, 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 (a)
ESOP stock price (a)
Net U.S. pension credit/

(expense)

All other net pension credit/

2010

2009

2008

2007

8.00% 8.00% 8.00% 8.00%
6.21

6.38

6.00

6.38

$3,860 $3,651 $3,706 $1,352
27.97
34.85

47.15

33.12

N/A $

32 $

39 $

16 (b)

(expense)

N/A

(15)

(19)

(12) (c)

Total net pension credit/

(expense)

N/A $

17 $

20 $

(a) Market-related value of plan assets and ESOP stock price

are for the beginning of the plan year. See “Summary of
Significant Accounting and Reporting Policies” in Note 1 of
the Notes to Consolidated Financial Statements.
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.

(b)

(c)

The discount rate for U.S. pension plans was
determined after reviewing equivalent rates obtained
by discounting the pension plans’ expected cash flows
using various high quality long-term corporate bond
yield curves. 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 6.21% as of Dec. 31, 2009.

The discount rates for foreign pension plans are based
on high quality corporate bond 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.

Results of Operations (continued)

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 is
being 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. BNY Mellon
currently has $788 million of 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

$ 43.7

$ 21.8

$(21.8)

$ (43.6)

(50) bp

(25) bp

25 bp

50 bp

$ 34.5

$ 16.8

$(16.7)

$ (32.3)

(20.0)% (10.0)% 10.0%
$(84.7)

$ 85.2

$ 170.3

20.0%
$(141.7)

ESOP stock price
Change in pension expense

$(10.00)
$ 13.0

$(5.00)
$ 6.3

$ 5.00
$ (5.9)

$ 10.00
$ (11.4)

Consolidated balance sheet review

At Dec. 31, 2009, total assets were $212.2 billion
compared with $237.5 billion at Dec. 31, 2008.
Deposits totaled $135.1 billion at Dec. 31, 2009 and
$159.7 billion at Dec. 31, 2008. The decrease in total
assets and deposits from Dec. 31, 2008 reflects a
decline in the size of the balance sheet as short-term
credit markets eased during 2009 and noninterest-
bearing deposits taken in during the credit crisis
returned to more normalized levels. Total assets
averaged $212.1 billion in 2009, compared with
$210.0 billion in 2008. Total deposits averaged $134.7
billion in 2009 compared with $125.6 billion in 2008.

At Dec. 31, 2009, we had available funds of
approximately $71 billion compared with $105 billion
at Dec. 31, 2008. Our percentage of liquid assets to
total assets was 33% at Dec. 31, 2009, compared with
44% at Dec. 31, 2008. The decline resulted from the
abnormally high deposit levels experienced during the
credit crisis in the fourth quarter of 2008.

Investment securities were $56.0 billion or 26% of
total assets at Dec. 31, 2009, compared with $39.4
billion or 17% of total assets at Dec. 31, 2008. The
increase in investment securities primarily relates to
our strategy of investing in debt issued by
governments, government-sponsored and government-
guaranteed agencies.

Loans were $36.7 billion or 17% of total assets at
Dec. 31, 2009, compared with $43.4 billion or 18% of
total assets at Dec. 31, 2008. The decrease in loan
levels was primarily due to our institutional credit
strategy to reduce targeted exposures and the
reclassification of MUNB to discontinued operations.

Trading assets were $6.0 billion at Dec. 31, 2009
compared with $11.1 billion at Dec. 31, 2008. Trading
liabilities were $6.4 billion at Dec. 31, 2009 compared
with $8.1 billion at Dec. 31, 2008. The decrease in
both trading assets and trading liabilities reflects the
change in interest rates, foreign exchange rates and
the settlement of contracts.

Total shareholders’ equity applicable to BNY Mellon
was $29.0 billion at Dec. 31, 2009 and $28.1 billion at
Dec. 31, 2008. The increase in total shareholders’
equity primarily reflects an improvement in fixed
income prices and the common stock issuance in
2009, partially offset by the repurchase of the Series B
preferred stock and warrant issued to the U.S.
Treasury in connection with the TARP Capital
Purchase Program.

BNY Mellon

Results of Operations (continued)

Investment securities

The following table shows the distribution of our total
securities portfolio at fair value:

Investment securities (at fair value)
(in millions)

Fixed income securities:

Mortgage and asset-backed

Dec. 31,
2009

Dec. 31,
2008

securities

$30,616

$32,081

Government-sponsored and

guaranteed debt

U.S. Treasury
U.S. Government agencies
State and political subdivisions
Sovereign government-sponsored

and guaranteed debt

Other
Grantor Trust

1,876
6,378
1,260
673

8,880
704
4,160

983
781
1,299
1,076

-
811
-

Subtotal fixed income securities

54,547

37,031

Equity securities:

Money market or fixed income funds
Other

Subtotal equity securities

Total investment securities – fair value
Total investment securities – carrying

value

1,290
35

1,325

1,325
41

1,366

$55,872

$38,397

$56,049

$39,435

At Dec. 31, 2009, the carrying value of our investment
securities portfolio was $56.0 billion compared with
$39.4 billion at Dec. 31, 2008. Average investment
securities were $51.2 billion in 2009 compared with
$43.7 billion in 2008. The increase in the securities
portfolio at Dec. 31, 2009 compared with Dec. 31,
2008 primarily reflects our strategy to invest in high
quality relatively short duration assets.

Consistent with our ongoing strategy to reduce risk
from the balance sheet, and reflecting the

improvement in the fixed income markets in the
second half of 2009, we sold or restructured a
significant portion of the watch list section of our
investment securities portfolio. The sales and
restructuring impacted approximately $13.5 billion
(pre-restructuring amortized cost) of investment
securities. In the third quarter of 2009, we declared
our intent to sell these securities and recognized a
pre-tax loss of $4.8 billion.

In the fourth quarter of 2009, we securitized
approximately $5.0 billion, fair value, of our
investment securities portfolio into a Grantor Trust.
The Grantor Trust contains Alt-A, prime and
subprime RMBS which were written down to fair
value as part of the restructuring. As a result of this
transaction, we received approximately $771 million
(before expenses) in cash for Class A Notes which
represent the senior tranche notes (“Class A Notes”)
of the securities issued by the Grantor Trust, that were
sold to third parties and retained Class B certificates
with a fair value of approximately $4.2 billion. The
Class A Notes, rated AAA by DBRS, bear interest at
one month LIBOR plus 1.25% and are expected to
have a weighted average life of less than one year. In
connection with this transaction, we recorded a
$39 million net loss in 2009 primarily reflecting a
$47 million write-down on the RMBS from Oct. 1,
2009 through the date of sale to the Grantor Trust. As
a result of SFAS 167 – Amendments to FIN 46(R)
(ASC 810), effective Jan. 1, 2010, we will be required
to consolidate the Grantor Trust. As a result, the
RMBS will be recorded as assets and the Class A
Notes will be recorded as liabilities on our
consolidated balance sheet. (See the Recent
accounting and regulatory developments section for
additional details.)

46 BNY Mellon

Results of Operations (continued)

The following table provides a rollforward of the investment securities portfolio from Dec. 31, 2008 to Dec. 31,
2009.

Investment securities portfolio rollforward of
2009 activity

(dollar amounts in millions)
Watch list:
European floating rate notes (b)
Commercial MBS
Prime RMBS
Alt-A RMBS
Subprime RMBS
Credit cards
Home equity lines of credit
Other

Total Watch list

Grantor Trust Class B certificates
Agency MBS
Sovereign debt/sovereign guaranteed
U.S. Treasury
FDIC-insured debt
U.S. Government agencies
Other

Total investment securities

Amortized
cost at
12/31/08

$ 7,582
2,846
6,725
7,499
1,578
747
558
717
28,252
-
11,561
-
746
949
1,259
3,244
$46,011

Paydowns/
accretion/

other Purchases Restructuring

Proceeds
from
sales

Net
securities
gain/
(loss)

ASC 320

reversal (c)

Amortized
cost at
12/31/09

-
$ (364) $
-
(67)
-
(1,642)
-
(996)
-
(131)
-
(73)
-
(97)
115
(10)
115
(3,380)
-
45
11,469
(4,252)
8,342
403
5,824
(212)
1,013
1
-
(24)
(1,920)
1,669
$(9,339) $28,432

-
-
(2,069)
(2,603)
(128)
-
-
-
(4,800)
4,814
-
-
-
-
-
-
14

$ (767) $ (269) $

(89)
(1,008)
(3,113)
(322)
(26)
(205)
(298)
(5,330)

(291)
(86)
(949)
(222)
(22)
(279)
(92)
(2,708)
(771)
-
-
-
-
-
(496)

-
-
12
1,054
13
-
23
44
1,146
-
-
-
-
-
-
-
$(3,975) $(5,369) $1,146

(39) (a)
-
-
-
-
-
-

$ 6,182
2,399
1,932
892
788
626
-
476
13,295
4,049
18,778
8,745
6,358
1,963
1,235
2,497
$56,920

(a)

Includes $47 million of mark-to-market write-downs on the Alt-A, prime and subprime securities from Oct. 1, 2009 through the date of
sale to the Grantor Trust.
Includes commercial MBS, RMBS and other securities.

(b)
(c) Reversal of the non-credit component of OTTI recorded in 2008 under previous accounting guidance.

Investment securities portfolio Dec. 31, 2009

(dollar amounts in millions)
Watch list:
European floating rate notes
Commercial MBS
Prime RMBS
Alt-A RMBS
Subprime RMBS
Credit cards
Other

Total Watch list (b)

Grantor Trust Class B certificates
Agency MBS
Sovereign debt/sovereign guaranteed
U.S. Treasury
FDIC-insured debt
U.S. Government agencies
Other

Total investment securities

Amortized
cost

Fair
value

Fair value
as a % of
amortized

cost (a)

Ratings

Unrealized
gain/(loss)

AAA/
AA-

A+/
A-

BBB+/
BBB-

BB+ and
lower

Not
rated

$ 6,182
2,399
1,932
892
788
626
476
13,295
4,049
18,778
8,745
6,358
1,963
1,235
2,497
$56,920

$ 5,503
2,302
1,684
779
470
610
465
11,813
4,160
19,016
8,753
6,378
2,003
1,260
2,489
$55,872

88% $ (679)
(97)
96
(248)
86
(113)
67
(318)
60
(16)
95
56
(11)
(1,482)
84
111
60
238
99
8
100
20
100
40
98
25
98
100
(8)
92% $(1,048)

97% 3% -%
4
93
23
60
15
27
14
75
98
1
-
-
12
77
-
-
-
100
-
100
-
100
-
100
-
100
69
11
86% 3% 1%

3
5
1
5
1
16
2
-
-
-
-
-
-
7

-%
-
12
57
6
-
76
9
-
-
-
-
-
-
1
2%

-%
-
-
-
-
-
8
-
100
-
-
-
-
-
12
8%

(a) Amortized cost before impairments
(b) The “Watch list” includes those securities we view as having a higher risk of impairment charges.

BNY Mellon

The following table provides pre-tax securities losses
by type.

Net investment securities losses
(in millions)

Alt-A RMBS
Prime RMBS
Subprime RMBS
European floating rate notes
Home equity lines of credit
Commercial MBS
Grantor Trust
Credit cards
ABS CDOs
Other

Total net investment
securities losses

2009

2008

2007 (a)

$3,113
1,008
322
269
205
89
39 (b)
26
23
275

$1,236
12
12
-
104
-
-
-
122
142

-
-
-
-
-
-
-
-
201
-

$5,369 (c) $1,628

$201

(b)

(c)

The deterioration in the economy had a significant
impact on our Alt-A, prime and subprime RMBS
portfolios. The investment securities losses in 2009,
2008 and 2007 reflected both credit and non-credit
impairment securities losses.

The following table shows the fair value of the
European floating rate notes by geographical location
at Dec. 31, 2009.

European floating rate notes at Dec. 31, 2009 (a)

(in millions)

RMBS
Other

Total

United
Kingdom

$2,365
409

$2,774

Netherlands

Other

$1,082
82

$1,164

$1,140
425

$1,565

Total
fair
value

$4,587
916

$5,503

(a) 97% of these securities are in the AAA to AA- ratings

category.

Results of Operations (continued)

The unrealized net of tax loss on our investment
securities available for sale portfolio included in other
comprehensive income was $619 million at Dec. 31,
2009. The unrealized net of tax loss on our investment
securities available for sale portfolio at Dec. 31, 2008
was $4.0 billion. The decrease compared with 2008
was due to the restructuring of the securities portfolio
and an improvement in the fixed income markets in
the second half of 2009. In the first quarter of 2009,
BNY Mellon adopted ASC 820 and adjusted its
unrealized pre-tax loss on the securities portfolio to
reflect what a security would sell for in an orderly
market. In the third quarter of 2009, as the credit
markets improved and became more orderly, these
adjustments were reversed. BNY Mellon recorded no
adjustments for disorderly markets at Dec. 31, 2009.

At Dec. 31, 2009, 86% of the securities in our
portfolio were rated AAA/AA, essentially unchanged
from 87% at Dec. 31, 2008.

We routinely test our investment securities for OTTI.
(See “Critical accounting estimates” for additional
disclosure regarding OTTI.)

At Dec. 31, 2009, we had $2.0 billion of accretable
discount related to restructuring the securities
portfolio as well as securities acquired in the
consolidation of two commercial paper conduits,
Three Rivers Funding Corporation and Old Slip
Funding, LLC. The discount related to these
transactions had a remaining estimated life of
approximately 3.7 years. For these securities, the
accretion of discount increased net interest revenue
and is recorded on a level yield basis. Discount
accretion totaled $91 million in 2009 and $79 million
in 2008. There was no discount accretion in 2007.

Also, at Dec. 31, 2009, we had $423 million of net
amortizable purchase premium with a remaining
estimated life of approximately 3.1 years. For these
securities, the amortization of net premium decreased
net interest revenue and is recorded on a level yield
basis. We recorded net premium amortization of $68
million in 2009. For 2008 and 2007, a net discount of
$19 million and $9 million was recorded respectively.

48 BNY Mellon

Results of Operations (continued)

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 securities losses
Mark-to-market unrealized (loss)

(pre-tax)

Dec. 31,
2009

Dec. 31,
2008

$548
42
-
-

$ 591
171
334
7
$590 (a) $1,103
$606
$1,384

$ (16)

$ (281)

(a) The par value guaranteed by the monoline insurers was $619

At Dec. 31, 2009, securities guaranteed by monoline
insurers were rated 33% AAA to AA-, 32% A+ to A-,
23% BBB+ to BBB- and 12% BB+ and lower. The
decrease in fair value from Dec. 31, 2008 reflects the
restructuring of the securities portfolio. In all cases,
when purchasing the securities, we reviewed the credit
quality of the underlying securities, as well as the
insurer.

The following table shows the maturity distribution by
carrying amount and yield (on a tax equivalent basis)
of our investment securities portfolio at Dec. 31,
2009.

million.

Investment securities
portfolio

U.S.
Treasury

U.S.
government
agency

State 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

-
-
-
-
-
-
-

-% $
-
-
-
-
-
-% $

-
-
-
-
-
-
-

-%
-
-
-
-
-
-%

$ 283 0.19% $ 774 2.89%

6,014 1.36
81 3.79
-
-
-
-

-
-
-
-

486 2.97
-
-
-
-
-

-
-
-
-
-

$6,378 1.34% $1,260 2.92%

-
3
16
131
-
-
$150

$ 5
17
27
471
-
-
-
$520

-% $

6.92
6.70
6.66
-
-

6.67% $

3
-
-
-
-
-
3

0.03% $

-
-
-
-
4,260
4
0.03% $ 4,264

-
-
-
-
-

3
-% $
3
-
16
-
131
-
4,260
1.68
4.13
4
1.68% $ 4,417

8.79% $
8.59
3.98
6.60
-
-
-

421
10,694
192
150
-
-
-

2.59% $
1.92
5.99
6.46
-
-
-

29,471 (b) 5.20 (b)
1,225
1,321
6.52% $11,457 (c) 2.05% $32,017

-% $ 1,483
17,211
-
300
-
621
-
29,471
1,225
1.34
1,321
0.40
4.88% $51,632

-
-
-
-

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

Includes $88 million, for which we are recording interest on a cash basis. Also includes $4.160 billion fair value of the Grantor Trust
Class B certificates with a yield of 13.27%.
Includes $1.9 billion of government-sponsored and guaranteed debt and $8.9 billion of sovereign government-sponsored and
guaranteed debt.

(c)

We also have equity investments categorized as other
assets (bracketed amounts indicate carrying values at
Dec. 31, 2009). Included in other assets are joint
ventures and other equity investments ($1.6 billion),
seed capital ($241 million), Federal Reserve Bank
stock ($397 million), private equity investments ($187
million), and tax advantaged low-income housing
investments ($418 million). For additional
information on the fair value of our private equity
investments and seed capital, see Note 8 of the Notes
to Consolidated Financial Statements.

Our equity investment in Wing Hang Bank Limited
(“Wing Hang”) had a fair value of $559 million (book

value of $316 million) at Dec. 31, 2009. 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 $2 million, $26 million and $17 million in 2009,
2008 and 2007, 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 $187
million at Dec. 31, 2009, down $22 million from $209

BNY Mellon

Results of Operations (continued)

million at Dec. 31, 2008. At Dec. 31, 2009, private
equity investments consisted of investments in private
equity funds of $170 million, direct equity of $12
million, and leveraged bond funds of $5 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 BNY Mellon models. In 2009, we had an
average invested balance of $198 million in private
equity. Investment losses net of interest and dividend
income were $18 million in 2009.

At Dec. 31, 2009, we had $53 million of unfunded
investment commitments to private equity funds. 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.

Loans

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, 2009
Unfunded
commitments

Total
exposure

Loans

Dec. 31, 2008
Unfunded
commitments

Total
exposure

$18.5
22.5

$27.5
25.5

$11.0
6.3

$23.2
24.9

$34.2
31.2

41.0
1.8
1.7
0.1
-
-
-

44.6
-

53.0
8.0
3.7
3.6
2.2
6.1
-

76.6
4.7

17.3
5.3
3.1
4.0
2.5
7.0
0.2

39.4
4.0

48.1
2.3
1.9
0.1
0.1
-
0.1

52.6
-

65.4
7.6
5.0
4.1
2.6
7.0
0.3

92.0
4.0

Loans

$ 9.0
3.0

12.0
6.2
2.0
3.5
2.2
6.1
-

32.0
4.7

$36.7

$44.6

$81.3

$43.4

$52.6

$96.0

At Dec. 31, 2009, total exposures were $81.3 billion, a
reduction of $14.7 billion compared with Dec. 31,
2008, reflecting our credit strategy to reduce targeted
risk exposure and the reclassification of $1.9 billion of
MUNB exposure to discontinued operations.

In 2008, we implemented an institutional credit
strategy to reduce targeted credit exposure by $14
billion. In 2009, we achieved the targeted exposure
reduction.

We will continue to reduce risk within our loan
portfolio by:

Š Focusing on investment grade names to support

cross selling.

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

Š Exiting high-risk portfolios.

Our financial institutions and commercial portfolios
comprise our largest concentrated risk. These
portfolios make up 65% of our total lending exposure.

50 BNY Mellon

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)

Dec. 31, 2009

Loans

Unfunded
commitments

Total
exposure

% Inv
grade

% due
<1 yr

Loans

Insurance
Banks
Securities industry
Asset managers
Government
Other

Total

$0.4
3.3
3.6
1.0
0.1
0.6

$9.0

$ 6.0
2.9
2.1
2.8
2.9
1.8

$18.5

$ 6.4
6.2
5.7
3.8
3.0
2.4

$27.5

88%
64
91
95
98
86

85%

43% $ 0.6
89
3.5
92
4.0
85
0.8
41
1.4
38
0.7
69% $11.0

Dec. 31, 2008
Unfunded
commitments

Total
exposure

$ 6.4
2.4
2.9
5.5
3.0
3.0

$23.2

$ 7.0
5.9
6.9
6.3
4.4
3.7

$34.2

The financial institutions portfolio exposure was
$27.5 billion at Dec. 31, 2009, compared to
$34.2 billion at Dec. 31, 2008. The change from
Dec. 31, 2008 reflects lower exposure in nearly every
category. Exposures to financial institutions are high
quality with 85% meeting the investment grade
equivalent criteria of our rating system at Dec. 31,
2009. These exposures are generally short-term, with
69% 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.

As a conservative measure, our internal credit rating
classification for international counterparties caps the

Commercial

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.

Our exposure to banks is predominately 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.

The asset manager portfolio exposures are high
quality with 95% meeting our investment grade
equivalent ratings criteria at Dec. 31, 2009. These
exposures are generally short-term liquidity facilities
with the vast majority to regulated mutual funds.

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

Commercial portfolio exposure

Dec. 31, 2009

(dollar amounts in billions)

Loans

Unfunded
commitments

Total
exposure

% Inv
grade

% due
<1 yr

Loans

Services and other
Manufacturing
Energy and utilities
Media and telecom

Total

$1.0
0.9
0.6
0.5

$3.0

$ 7.7
6.4
6.3
2.1

$22.5

$ 8.7
7.3
6.9
2.6

$25.5

82%
82
85
57

80%

38% $2.0
19
1.5
17
1.7
23
1.1
25% $6.3

Dec. 31, 2008
Unfunded
commitments

Total
exposure

$ 8.6
7.9
6.1
2.3

$24.9

$10.6
9.4
7.8
3.4

$31.2

The commercial portfolio exposure decreased to $25.5
billion at Dec. 31, 2009, from $31.2 billion at Dec. 31,
2008, reflecting decreased exposures across all
exposure categories. Our goal is to continue to
migrate towards a predominantly investment grade
portfolio.

We continue to actively monitor automotive industry
exposure given ongoing weakness in the domestic
automotive industry. At Dec. 31, 2009, total
exposures in our automotive portfolio included $109
million of secured exposure to one of the big three
U.S. automotive manufacturers. This exposure was
reduced 51% in 2009, reflecting paydowns. We also

BNY Mellon

Results of Operations (continued)

had $81 million of exposure to four automotive
suppliers at Dec. 31, 2009. This exposure has
decreased 52% from Dec. 31, 2008, as a result of
paydowns and loan sales.

The table below summarizes the percent of the
financial institutions and commercial exposures that
are investment grade for the previous three years.

Percent of the portfolios
that are investment grade

Dec. 31,
2009

Dec. 31,
2008

Dec. 31,
2007

Financial institutions
Commercial

85%
80%

90%
80%

88%
82%

estate portfolio is secured. The secured portfolio is
diverse by project type with approximately 53%
secured by residential buildings, approximately 28%
secured by office buildings, approximately 8%
secured by retail properties, and approximately 11%
secured by other categories. Approximately 94% of
the unsecured portfolio is allocated to investment
grade real estate investment trusts (“REITs”) under
revolving credit agreements.

At Dec. 31, 2009, our commercial real estate portfolio
is comprised of the following geographic
concentrations: New York metro – 51%; investment
grade REITs – 28%; and other – 21%.

Wealth management loans and mortgages

Lease financings

Wealth Management loans and mortgages are
primarily composed of loans to high-net-worth
individuals, which are secured by residential property
and marketable securities. Wealth management
mortgages are primarily interest-only adjustable rate
mortgages with an average loan to value ratio of 64%
at origination. Less than 1% of the mortgages in the
wealth management portfolio were past due at
Dec. 31, 2009. The increase in total wealth
management loans and mortgages in 2009 primarily
relates to increased mortgage activity.

At Dec. 31, 2009, the private wealth mortgage
portfolio was comprised of the following geographic
concentrations: New York – 22%; Massachusetts –
17%; California – 17%; Florida – 9%; and other –
35%.

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 $3.7 billion at
Dec. 31, 2009 compared with $5.0 billion at Dec. 31,
2008. This reduction primarily reflects the
reclassification of the commercial real estate portfolio
at MUNB to discontinued operations. At Dec. 31,
2009, approximately 73% of our commercial real

52 BNY Mellon

The leasing portfolio consisted of non-airline
exposures of $3.4 billion and $228 million of airline
exposures at Dec. 31, 2009. We reduced airline
exposure by 5% in 2009. Approximately 90% of the
non-airline exposure is investment grade. At Dec. 31,
2009, we carried no automotive exposure in our
leasing portfolio.

At Dec. 31, 2009, our $228 million of exposure to the
airline industry consisted of a $15 million real estate
lease exposure, as well as the airline-leasing portfolio
which included $77 million to major U.S. carriers,
$121 million to foreign airlines and $15 million to
U.S. regionals.

The airline industry continued to face difficult
operating conditions in 2009. A weak economic
outlook for 2010 continues to have 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.

At Dec. 31, 2009, the non-airline portion of the
leasing portfolio consisted of $3.4 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,
2009, were as follows:

Š
Š
Š
Š

14% of the counterparties are AA or better;
37% are A;
46% are BBB; and
3% are non-investment grade

Results of Operations (continued)

Other residential mortgages

The other residential mortgage portfolio primarily
consists of 1-4 family residential mortgage loans and
totaled $2.2 billion at Dec. 31, 2009. Included in this
portfolio is approximately $1.0 billion of mortgage
loans purchased in 2005, 2006 and the first quarter of
2007 that are predominantly prime mortgage loans,
with a small portion of Alt-A loans. As of Dec. 31,
2009, the prime and Alt-A mortgage loans in this
portfolio had a weighted-average original
loan-to-value ratio of 75% and approximately 23% of
these loans were at least 60 days delinquent. The
properties securing the prime and Alt-A mortgage
loans were located (in order of concentration) in
California, Florida, Virginia, the tri-state area (New
York, New Jersey and Connecticut) and Maryland.

To determine the projected loss on the prime and
Alt-A mortgage portfolio, we calculate the total
estimated defaults of these mortgages and multiply

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 (primarily overdrafts)

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 (primarily overdrafts)

Total foreign

Less: Allowance for loan losses

Net loans

that amount by an estimate of realizable value upon
sale in the marketplace (severity).

At Dec. 31, 2009, we had less than $15 million in
subprime mortgages included in the total residential
mortgage portfolio. The subprime loans were issued to
support our Community Reinvestment Act
requirements.

Overdrafts

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.

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.

2009

2008

2007

2006 (a)

2005 (a)

$ 3,280

$ 6,537

$ 6,553

$ 4,814

$ 3,676

533
721
5,567
1,517
3,826
2,450
(754)
3,354
4,657
3,780

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

28,931

33,357

36,278

27,912

24,202

517
4,947
3,344
(1,528)
64
414

7,758
(503)

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)

$36,186

$42,979

$50,604

$37,506

$32,601

(a) Results for 2006 and 2005 include legacy The Bank of New York Company, Inc. only.

BNY Mellon

Results of Operations (continued)

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 $5.9 billion and $7.9 billion as
of Dec. 31, 2009 and 2008, respectively. This
decrease primarily resulted from a decrease in loans to
foreign governments and lower overdrafts.

Maturity of loan portfolio

At Dec. 31, 2009, our emerging markets exposures,
which are primarily included in foreign loans in the
table above, totaled approximately $7.9 billion. These
exposures consisted primarily of short-term loans, and
a $316 million investment in Wing Hang, which is
located in Hong Kong. This compares with emerging
market exposure of $7.3 billion in 2008, including an
investment of $279 million in Wing Hang.

The following table shows the maturity structure of our loan portfolio at Dec. 31, 2009.

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

377
804
3,670
4,657

4,521

14,029
5,406

Between
1 and 5
years

After
5 years

$ 534
2,464
156
-

707

3,861
534

$343
12
-
-

424
-

Total

$ 1,254
3,280
3,826
4,657

5,297

18,314
5,940

$19,435

$4,395 (b)

$424 (b) $24,254

(a) Excludes loans collateralized by residential properties, lease financings and wealth loans.
(b) Variable rate loans due after one year totaled $4.757 billion and fixed rate loans totaled $62 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 a 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.

54 BNY Mellon

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
(in millions)

Margin loans
Non-margin loans

Total loans at 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
Wealth management
Leasing
Other

Total charge-offs

Recoveries:

Commercial
Foreign
Leasing
Other

Total recoveries

Net charge-offs

Provision for credit losses
Transferred to discontinued operations
Acquisitions/dispositions and other

Balance, Dec. 31,
Domestic
Foreign
Unallocated

Total allowance, Dec. 31, (b)

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
Allowance for loan losses as a percent of total loans
Allowance for loan losses as a percent of non-margin loans
Total allowance for credit losses as a percent of total loans
Total allowance for credit losses as a percent of non-margin loans

2009

2008

2007 (a)

2006 (a)

2005 (a)

$ 4,657
32,032

36,689
36,424

$ 3,977
39,417

43,394
48,132

$ 5,210
45,721

50,931
41,515

$ 5,167
32,626

37,793
33,612

$ 6,089
26,838

32,927
32,069

461
6
62

529

(124)
(31)
(60)
-
(1)
-
-

(216)

-
-
1
1

(214)
332
(19)
-

598
4
26

628

503
125
0.59%

34.08
1.37
1.57
1.71
1.96

354
24
116

494

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

(83)

2
4
3
1

(73)
104
27
(23)

461
6
62

529

415
114
0.15%

13.80
0.96
1.05
1.22
1.34

328
7
102

437

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

(78)

1
1
13
-

(63)
(11)
1
130

354
24
116

494

327
167
0.15%

12.75
0.64
0.72
0.97
1.08

363
11
96

470

(27)
-
-
(2)
-
-
-

(29)

3
7
4
2

(13)
(20)
-
-

328
7
102

437

287
150
0.04%
2.97
0.76
0.88
1.16
1.34

481
27
119

627

(144)
-
-
(10)
-
-
-

(154)

1
3
-
-

(150)
(7)
-
-

363
11
96

470

326
144
0.47%

31.91
0.99
1.21
1.43
1.75

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

Company, Inc. These categories for 2006 and 2005 reflect legacy The Bank of New York Company, Inc.

(b) The allowance for credit losses at Dec. 31, 2009 excludes discontinued operations. The allowance for credit losses includes

discontinued operations of $35 million at Dec. 31, 2008 and $17 million at Dec. 31, 2007.

BNY Mellon

Results of Operations (continued)

Net charge-offs were $214 million in 2009, $73
million in 2008 and $63 million in 2007. Net charge-
offs in 2009 included $71 million related to print and
broadcast media, $60 million of residential mortgages
primarily located in California, New York, New
Jersey and Florida, $31 million related to commercial
real estate exposure in Florida and New York, $38
million to finance and leasing companies and $8
million to an auto parts manufacturer. 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 publisher and
$7 million to a retail trade customer.

The provision for credit losses was $332 million in
2009 compared with $104 million in 2008 and a credit
of $11 million in 2007. The increase in the provision
in 2009 compared with 2008 primarily reflects
downgrades in the insurance, media and residential
mortgage portfolios. We expect the provision to
decline in 2010.

The total allowance for credit losses was $628 million
and $529 million at year-end 2009 and 2008,
respectively. The increase in the allowance for credit
losses resulted from a provision for credit losses of
$332 million, partially offset by net charge-offs of
$214 million. The ratio of the total allowance for
credit losses to year-end non-margin loans was 1.96%
and 1.34% at Dec. 31, 2009 and 2008, respectively.
The ratio of the allowance for loan losses to year-end
non-margin loans was 1.57% and 1.05% at Dec. 31,
2009 and 2008, respectively. The growth in these
ratios reflects additions to the allowance for credit
losses resulting from higher risk-rated loans and
mortgages, and an increase in nonperforming loans.

We had $4.7 billion of secured margin loans on our
balance sheet at Dec. 31, 2009 compared with $4.0
billion at Dec. 31, 2008. We have rarely suffered a
loss on these types of loans and do not allocate any of
our allowance for credit losses to them. 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.

In 2009, the methodology used to determine the
allowance for credit losses was revised. The
determination of the reserve for higher risk rated
credits and pass-rated credits was combined and is
based on our expected loss model. This methodology
change increased the reserve requirement
approximately $10 million.

56 BNY Mellon

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

an allowance for impaired credits (nonaccrual
loans over $1 million);
an allowance for higher risk rated credits and
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-rated credits and 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
annually and are periodically mapped to third party
databases, including rating agency and default and
recovery databases, to ensure ongoing consistency and
validity. Higher risk rated credits are reviewed
quarterly. 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.

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

Š Economic conditions including duration of the

current cycle;
Š Collateral values;
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 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 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. The unallocated allowance for credit
losses was 4% at Dec. 31, 2009, a decrease from 12%
at Dec. 31, 2008.

Results of Operations (continued)

Based on an evaluation of these three 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

Commercial
Other residential
mortgages

Financial institutions
Wealth

management (c)

Commercial real

estate
Foreign
Unallocated

Total

2009 (a) 2008 (a) 2007 (a) 2006 (b) 2005 (b)

41% 47%

49%

64%

66%

25
13

7
1
4

15
10

10
1
12

5
8

7
5
23

4
3

2
2
23

5
3

2
2
17

100% 100% 100% 100% 100%

(a) Excludes discontinued operations. The allowance for credit
losses includes discontinued operations in 2008 and 2007.
(b) Reflects legacy The Bank of New York Company, Inc. only.
Includes the allowance for wealth management mortgages.
(c)

Nonperforming assets

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

Nonperforming assets at Dec. 31
(dollar in millions)

Loans:

Other residential mortgages
Financial institutions
Commercial
Commercial real estate
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

2009

2008

2007

2006 (a)

2005 (a)

$ 190
172
65
61
58
-
-

546
4

97
41
14
130
2
-
-

284
8

20
24
15
40
-
87
-

186
4

$ 550 (b)

$ 292 (b)

$ 190 (b)

2
-
26
-
-
9
-

37
1

-
-
12
-
-
13
1

26
13

1.5%
92.1
91.5
115.0
114.2

0.7%

0.4%

0.1%

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

(a) Reflects legacy The Bank of New York Company, Inc. only.
(b) Nonperforming assets at Dec. 31, 2009 exclude discontinued operations. Nonperforming assets at Dec. 31, 2008 and Dec. 31, 2007

include discontinued operations of $96 million and $18 million, respectively.

Nonperforming assets were $550 million at Dec. 31,
2009, an increase of $258 million compared with
Dec. 31, 2008. The increase primarily resulted from
$137 million in the insurance portfolio, $108 million
in the media portfolio, $99 million in other residential
mortgages, an increase of $62 million in loans to
wealth management clients, $37 million to real estate

investment companies, $27 million to mortgage
companies and $21 million to a finance/leasing
company. Partially offsetting this increase was
$96 million that was transferred to discontinued
operations, $95 million of charge-offs and $49 million
of loan payments/sales.

BNY Mellon

Results of Operations (continued)

Nonperforming assets activity
(in millions)

Balance at beginning of year

Additions
Charge-offs
Paydowns/sales
Transferred to discontinued operations
Other

Balance at end of year (a)

2009

$292
510
(95)
(49)
(96)
(12)

$550

2008

$190
251
(61)
(91)
-
3

$292

(a) Nonperforming assets at Dec. 31, 2009 exclude discontinued

operations. Nonperforming assets at Dec. 31, 2008 include
discontinued operations of $96 million.

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

The aggregate amount of deposits by foreign
customers in domestic offices was $11 billion and
$16 billion at Dec. 31, 2009 and 2008, respectively.

Deposits in foreign offices totaled approximately
$71 billion at both Dec. 31, 2009 and 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, 2009.

Domestic time deposits > $100,000 at Dec. 31, 2009

Past due loans still accruing interest at year-end
(in millions)

2009

2008

2007

2006 (a) 2005 (a)

(in millions)

Domestic:

Consumer
Commercial

Total domestic
Foreign

$ 93
338

431
-

$ 27
315

342
-

-
343

343
-

$ 9
7

16
-

Total past due loans

$431 (b) $342 (b) $343 (b) $16

(a) Reflects legacy The Bank of New York Company, Inc. only.
(b) Past due loans at Dec. 31, 2009 exclude discontinued

operations. There were no past due loans at Dec. 31, 2008
and 2007 included in discontinued operations.

$2
7

9
-

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

Total

Other borrowings

Certificates
of deposits

$311
427
32
68

$838

Other
time
deposits

$27,102
-
-
-

Total

$27,413
427
32
68

$27,102

$27,940

Past due loans at Dec. 31, 2009 were primarily
comprised of loans to an asset manager that has filed
for bankruptcy. For additional information, see
Note 26 of the Notes to Consolidated Financial
Statements. These loans are well secured, largely by
cash and high grade fixed income securities, and are
in the process of collection. The remainder of past due
loans at Dec. 31, 2009 include $93 million of other
residential mortgages and $25 million of commercial
real estate loans.

Deposits

Total deposits were $135.1 billion at Dec. 31, 2009, a
decrease of 15% compared with $159.7 billion at
Dec. 31, 2008. The decrease in deposits reflects the
roll-off of client cash as the credit market eased
throughout 2009 and deposits taken in during the
credit crisis decreased to more normal levels.

Noninterest-bearing deposits were $33.5 billion at
Dec. 31, 2009, compared with $55.8 billion at
Dec. 31, 2008. Interest-bearing deposits were
$101.6 billion at Dec. 31, 2009, compared with
$103.9 billion at Dec. 31, 2008.

58 BNY Mellon

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. Federal
funds purchased and securities sold under repurchase
agreements were $3.3 billion at Dec. 31, 2009,
compared with $1.4 billion at Dec. 31, 2008. Payables
to customers and broker-dealers were $10.7 billion at
Dec. 31, 2009 and $9.3 billion at Dec. 31, 2008. The
increase to payables to customers and broker-dealers
was due to higher short selling activity and a general
increase in cash held in customer accounts awaiting
re-investment. Other borrowed funds were $477
million at Dec. 31, 2009, compared with $755 million
at Dec. 31, 2008. Other borrowed funds consist
primarily of extended federal funds purchased and
amounts owed to the U.S. Treasury. At Dec. 31, 2009,
we had $12 million of commercial paper compared
with $138 million at Dec. 31, 2008.

At Dec. 31, 2008, we held $5.6 billion of borrowings
related to the Federal Reserve’s Asset-Backed
Commercial Paper Program that was implemented in
2008. These balances were repaid in early 2009.

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

Results of Operations (continued)

Information related to federal funds purchased and
securities sold under repurchase agreements in 2009,
2008 and 2007 is presented in the table below.

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

2009

2008

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

$3,928
2,695

$11,788
4,624

1.00%

4.33%

$3,348

$ 1,372

$2,193

0.01%

0.14%

3.54%

2007

$8,496
2,555

(a) Discontinued operations were excluded in 2009 and were

included in 2008 and 2007.

Information related to other borrowed funds in 2009,
2008 and 2007 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

2009

2008

2007

$3,409
2,855
1.49%

$ 489

1.36%

$3,029
3,259
2.77%

$ 893

1.04%

$5,919
2,523
3.59%

$5,919

3.07%

Information related to borrowings from Federal
Reserve related to asset-backed commercial paper in
2009 and 2008 is presented in the table below.

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

2009

2008

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

Support agreements

$1,080
317
2.25%
-
-%

$10,865
2,348

2.25%

$ 5,591

2.92%

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, as well as clients invested in funds within
our securities lending business.

These support agreements are designed to enable
these funds to continue to operate at a stable share
price of $1.00. In 2009, we recorded a credit to
support agreement charges of $15 million (pre-tax).
This credit reflects a reduction in the support
agreement reserve primarily due to improved pricing

of Lehman securities, primarily offset by the final
support agreement charge for four Dreyfus money
market funds entered into in 2008. The agreements
supporting the Dreyfus money market funds expired
and were completed in 2009. At Dec. 31, 2009, the
value of Lehman securities increased to 19.50% from
9.75% at Dec. 31, 2008.

At Dec. 31, 2009, our additional potential maximum
exposure to support agreements was approximately
$86.1 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 ($49.6 million), as well as other client
support agreements ($36.5 million).

Liquidity and dividends

BNY Mellon defines liquidity as the ability of the
Company and its subsidiaries to access funding or
convert assets to cash quickly and inexpensively,
especially during periods of market stress.
Appropriate consideration in managing the balance
sheet is given to balancing the competing needs to
maintain adequate levels of liquidity while
maintaining profitability. Liquidity risk is the potential
for loss resulting from an inability to satisfy
contractual and contingent funding requirements, both
on- and off-balance sheet, at an acceptable cost.

Our liquidity policy is based on several core
principles. BNY Mellon seeks to maintain an adequate
liquidity cushion in both normal and stressed
environments and seeks to diversify funding sources
by customer, market segment and maturity. Liquidity
is managed on a subsidiary basis, a consolidated basis
and at The Bank of New York Mellon Corporation
parent company (“Parent”).

Primary uses of liquidity include withdrawals of
customer deposits and client drawdowns on unfunded
credit or liquidity facilities. We actively monitor
unfunded loan commitments, thereby reducing
unanticipated funding requirements.

At Dec. 31, 2009, we had approximately $60 billion
of liquid funds and $11 billion of cash (including
approximately $7 billion on deposit with the Federal
Reserve and other central banks) for a total of
approximately $71 billion of available funds. This
compares with available funds of $105 billion at
Dec. 31, 2008. Our liquid assets to total assets was
33% at Dec. 31, 2009 compared with 44% at Dec. 31,

BNY Mellon

Results of Operations (continued)

2008. The decrease from Dec. 31, 2008 primarily
reflects lower cash balances, primarily deposits with
the Federal Reserve and other central banks, resulting
from the decline in noninterest-bearing deposits as the
balance sheet returned to expected levels during 2009.

subsidiaries had the ability to pay dividends of
approximately $136 million to the Parent without the
need for a regulatory waiver. In addition, at Dec. 31,
2009, nonbank subsidiaries of the Parent had liquid
assets of approximately $1.1 billion.

On an average basis for 2009 and 2008, 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
$25.1 billion and $23.8 billion, respectively. The
increase primarily reflects a higher level of money
market rate accounts, partially offset by lower levels
of federal funds purchased and certificates of deposits
greater than $100,000. Average foreign deposits,
primarily from our European-based securities
servicing business, were $72.6 billion in 2009
compared with $68.8 billion in 2008. The increase in
foreign deposits primarily reflects greater liquidity
from our corporate trust business. Domestic savings
and other time deposits averaged $6.1 billion in 2009
compared with $7.2 billion in 2008. The 2008 average
included the impact of a large government deposit.

Average payables to customers and broker-dealers
were $5.3 billion in 2009 and $5.5 billion in 2008.
Long-term debt averaged $16.9 billion in 2009 and
$16.4 billion in 2008. The increase in long-term debt
primarily reflects the issuance of senior debt, partially
offset by maturities. Average noninterest-bearing
deposits increased to $36.4 billion in 2009 from
$33.7 billion in 2008, primarily reflecting a significant
increase in customer deposits in late 2008 during the
credit crisis.

The Parent has five major sources of liquidity:

Š
Š
Š
Š

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

As a result of charges related to the restructuring of
the securities portfolios, The Bank of New York
Mellon and BNY Mellon, N.A. will require consent
from our regulators prior to paying a dividend.
Despite this limitation, management estimates that
liquidity at the Parent will continue to be sufficient to
meet BNY Mellon’s ongoing quarterly dividend
requirement. Based on projections, we currently
expect this restriction to be lifted in the fourth quarter
of 2010. At Dec. 31, 2009, our other bank

60 BNY Mellon

Any increase in BNY Mellon’s ongoing quarterly
dividends would require consultation with the Federal
Reserve.

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

In 2009 and 2008, the Parent’s average commercial
paper borrowings were $186 million and $34 million,
respectively. The Parent had cash of $4.4 billion at
Dec. 31, 2009, compared with $5.0 billion at Dec. 31,
2008. Commercial paper outstandings issued by the
Parent were $12 million and $16 million at Dec. 31,
2009 and 2008, respectively. Net of commercial paper
outstanding, the Parent’s cash position at Dec. 31,
2009 decreased by $596 million compared with
Dec. 31, 2008. The decrease in cash held by the
Parent reflected the repurchase of the preferred stock
and warrant issued to the U.S. Treasury as part of the
TARP Capital Purchase Program, primarily offset by
common stock and debt offerings in 2009. The
Parent’s liquidity target is to have sufficient cash on
hand to meet its obligations over the next 18 months
without the need to receive dividends from its bank
subsidiaries or issue debt. As of Dec. 31, 2009, the
liquidity target was exceeded.

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, 2009 was 6 basis points. The
credit agreement requires us to maintain:

Š
Š

shareholder’s equity of $5 billion;
a ratio of Tier 1 capital plus the allowance for
credit losses to nonperforming assets of at least
2.5;
a double leverage ratio less than 130%; 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, 2009.

We also have the ability to access the capital markets.
In July 2007, we filed a shelf registration statement on

Results of Operations (continued)

Form S-3 with the Securities and Exchange
Commission (“SEC”) covering the issuance of certain
securities, including an unlimited amount of debt,
common stock, preferred stock and trust preferred
securities.

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. See discussion of qualification
of trust preferred securities as capital in Capital.

Our ability to access the capital markets on favorable
terms, or at all, is partially dependent on our credit
ratings, which, as of Dec. 31, 2009, were as follows:

Debt ratings at Dec. 31, 2009

Standard
&

Moody’s

Poor’s Fitch

DBRS

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

Aa2
Aa3

Aaa
Aaa

AA-
A+

AA- AA (low)
A (high)

A+

AA
AA

AA-
AA

AA- (a)
AA

AA
AA

Outlook

Stable

Stable Stable

Stable
(long-term)

(a) Represents senior debt issuer default rating.

Long-term debt increased to $17.2 billion at Dec. 31,
2009 from $15.9 billion at Dec. 31, 2008 primarily
due to the issuance of $3.4 billion of senior medium-
term debt, summarized in the following table:

Debt issuances
(in millions)

Senior medium-term notes:

3-month LIBOR + 16 bps senior notes due 2012 (a)
4.3% senior medium-term notes due 2014 (b)
5.45% senior medium-term notes due 2019 (b)
3.1% senior medium-term notes due 2015 (b)
4.6% senior medium-term notes due 2020 (b)

Total debt issuances

2009

$ 603
1,000
500
750
500

$3,353

(a) Guaranteed under the FDIC’s Temporary Liquidity

Guarantee Program (“TLGP”). In 2009, the Parent issued
the maximum amount of debt permissible for it under the
TLGP.

(b) These notes are not guaranteed under the FDIC’s TLGP.

In February 2010, the rating agencies referenced
above affirmed the ratings included in the table above
of BNY Mellon and its subsidiaries.

In the second quarter of 2009, BNY Mellon issued
48.3 million common shares, at $28.75 per share, for a
total of $1.4 billion.

In January and February 2010, Fitch and Moody’s
revised their global guidelines for rating hybrid
securities. These revised guidelines impacted the
ratings of hybrid securities of a significant number of
U.S. financial institutions (primarily banks),
monitored by these agencies. As a result of these
changes, the ratings on BNY Mellon’s Trust Preferred
securities were revised from A+ to A by Fitch and
Aa3/A1 to A1/A3 by Moody’s. BNYMellon’s other
ratings from Fitch and Moody’s were not impacted by
these changes.

The Parent’s major uses of funds are payment of
dividends, principal and interest on its borrowings,
acquisitions, and additional investment in its
subsidiaries.

In 2009, $1.225 billion of senior and subordinated
long-term debt matured. The Parent has $1.85 billion
of long-term debt that will mature in 2010. The Parent
has the option to call $1.07 billion of subordinated
debt in 2010, which it may call and refinance if
market conditions are favorable.

In June 2009, we repurchased the 3 million shares of
Series B preferred stock issued to the U.S. Treasury in
October 2008 as part of TARP. We paid the U.S.
Treasury $3.0 billion, which reflects the liquidation
value of the preferred stock.

On Aug. 5, 2009, BNY Mellon repurchased, for
$136 million, the warrant issued to the U.S. Treasury
in connection with the TARP Capital Purchase
Program.

The double leverage ratio is the ratio of investment in
subsidiaries divided by our consolidated equity plus
trust preferred securities. Our double leverage ratio at
Dec. 31, 2009 and 2008 was 104.8%, and 98.34%,
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.

In 2009, BNY Mellon contributed $300 million to its
primary U.S. pension plan.

We have $850 million of trust-preferred securities that
are callable in 2010. These securities qualify as Tier 1

Pershing LLC, an indirect subsidiary of BNY Mellon,
has committed and uncommitted lines of credit in

BNY Mellon

Results of Operations (continued)

place for liquidity purposes which are guaranteed by
the Parent. The committed line of credit of $905
million extended by 15 financial institutions matures
in March 2010. We expect that this line of credit will
be renewed. In 2009, the average borrowing against
this line of credit was $178 million. Additionally,
Pershing has another committed line of credit for $125
million extended by one financial institution that
matures in September 2010. The average borrowing
against this line of credit was $39 million during
2009.

Pershing LLC has four separate uncommitted lines of
credit, amounting to $875 million in aggregate. In
2009, average daily borrowing under these lines was
$187 million in aggregate.

The committed line of credit maintained by Pershing
LLC requires the Parent to maintain:

Š
Š

shareholders equity of $5 billion;
a ratio of Tier 1 capital plus the allowance for
credit losses to nonperforming assets of at least
2.5; and
a double leverage ratio less than 130%.

We are currently in compliance with these covenants.

Pershing Limited, an indirect U.K.-based subsidiary
of BNY Mellon, has committed and uncommitted
lines in place for liquidity purposes, which are
guaranteed by the Parent. The committed line of credit
of $171 million extended by four financial institutions
matures in March 2010. We expect this line to be
renewed. In 2009, there were no borrowings against
these lines of credit. Pershing Limited has three
separate uncommitted lines of credit amounting to
$250 million in aggregate. In 2009, average daily
borrowing under these lines was $16 million in
aggregate.

Statement of cash flows

Cash provided by operating activities was $3.8 billion
in 2009, compared with $2.9 billion in 2008 and $4.0
billion in 2007. In 2009, earnings, excluding the
non-cash impact of investment securities losses,
depreciation and amortization and accruals and other
balances, partially offset by deferred tax benefits and

62 BNY Mellon

changes in trading activities were a significant source
of funds. The cash flows from operations in 2008
were principally the result of earnings. The cash flows
from operations in 2007 were principally the result of
earnings and changes in trading activities.

In 2009, cash provided by investing activities was
$23.1 billion compared to $56.0 billion used for
investing activities in 2008 and $21.6 billion used for
investing activities in 2007. In 2009, interest-bearing
deposits with the Federal Reserve and other central
banks was a significant source of funds, partially
offset by purchases of securities available for sale. 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, 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.

In 2009, cash used for financing activities was $28.0
billion, compared to $51.8 billion provided by
financing activities in 2008 and $21.5 billion provided
by financing activities in 2007. In 2009, change in
deposits, other borrowed funds and the repurchase of
the Series B preferred stock and the warrant were
significant uses of funds, partially offset by proceeds
from the issuance of long term debt and common
stock, and the change in federal funds purchased and
securities sold under repurchase agreements. In 2008,
deposits and other funds borrowed, partially offset by
use of funds for the repayments of long-term debt and
commercial paper were the primary source of funds.
In 2007, 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.

Results of Operations (continued)

Contractual obligations at Dec. 31, 2009

(in millions)

Payments due by period

Less than

Total

1 year 1-3 years 3-5 years

Over
5 years

Deposits without a stated maturity
Term deposits
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

$ 26,599 $ 26,599
74,900
3,348
10,721
489
2,573
347
39
31

74,974
3,348
10,721
489
24,592
2,775
382
47

-
45
-
-
-
6,066
610
81
16

- $

-
7
-
-
-
11,234
1,324
187
-

22
-
-
-
4,719
494
75
-

Total contractual obligations

(a)

Including interest.

$143,927 $119,047

$6,818

$5,310 $12,752

We have entered into fixed and determinable commitments as indicated in the table below:

Other commitments at Dec. 31, 2009

(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

Less than

Total

1 year 1-3 years 3-5 years

$247,560 $247,560
11,797
7,423
789
3
400
-

32,454
11,359
789
207
1,087
86

-
18,547
3,686
-
25
495
36

$293,542 $267,972

$22,789

-
$
1,795
250
-
3
169
50

$2,267

Over
5 years

-
$
315
-
-
176
23
-

$514

Includes private equity, community reinvestment act, and other investment-related commitments.

(a)
(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, 2009, $335 million of unrecognized tax
benefits have been recorded as liabilities in
accordance with ASC 740. Related to these
unrecognized tax benefits, we have also recorded a
liability for potential interest of $80 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 BNY Mellon, 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 businesses. See the
Support agreements section and Note 26 of the Notes
to Consolidated Financial Statements for a further
discussion of our off-balance sheet arrangements.

BNY Mellon

Results of Operations (continued)

Capital

Capital data
(dollar amounts in millions except per
share amounts; common shares in
thousands)
At period end:
Common shareholders’ equity to assets

ratio

Total shareholders’ equity
Tangible common shareholders’ equity

– Non-GAAP (a)

Book value per common share
Tangible book value per common share

– Non-GAAP (a)

Closing common stock price per share
Market capitalization
Common shares outstanding

2009

2008

13.7%

28,977

9,540
23.99

10.6%

28,050

5,950
22.00

$
$

7.90
$
27.97
$
$
33,783
1,207,835

5.18
$
28.33
$
$
32,536
1,148,467

Full-year:
Average total shareholders’ equity to

average assets

Cash dividends per common share
Dividend yield

13.4%
0.51
1.8%

13.7%
0.96
3.4%

(a) See Supplemental information beginning on page 74 for a

reconciliation of GAAP to non-GAAP.

The increase in total shareholders’ equity compared
with Dec. 31, 2008 primarily resulted from an
improvement in unrealized losses on the investment
securities portfolio resulting from improved pricing in
the fixed income market in 2009 and the restructuring
of the securities portfolio. This improvement in OCI
was offset by lower retained earnings resulting from
the impairment charges recorded in 2009. Also
impacting total shareholders’ equity was the common
stock offering of 48.3 million shares ($1.4 billion) in
2009, which was more than offset by the repurchase
of the Series B preferred stock and warrant issued to
the U.S. Treasury in 2008. During 2009, retained
earnings decreased $1.3 billion.

In 2009, we acquired Insight and a 20% minority
interest in Siguler Guff. In connection with these
transactions, BNY Mellon issued approximately
3 million common shares ($85 million).

In January 2010, we declared a quarterly common
stock dividend of $0.09 per common share that was
paid on Feb. 9, 2010, to shareholders of record as of
the close of business on Feb. 1, 2010.

The Tier 1 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.

64 BNY Mellon

Our Tier 1 capital ratio was 12.1% at Dec. 31, 2009,
compared with 13.2% at Dec. 31, 2008. The decrease
in the Tier 1 capital ratio compared with Dec. 31,
2008 primarily reflects the restructuring of the
investment securities portfolio and the repurchase of
Series B preferred stock issued as part of the TARP
Capital Purchase Program (“CPP”), offset by the
issuance of common shares in the second quarter of
2009. At Dec. 31, 2009, our total assets were $212.2
billion compared with $237.5 billion at Dec. 31, 2008.
The decrease in assets had an immaterial impact on
risk-weighted assets as the decrease was in lower risk-
weighted government investments.

A billion dollar change in risk-weighted assets
changes the Tier 1 ratio by approximately 11 basis
points while a $100 million change in common equity
changes the Tier 1 ratio by approximately 9 basis
points.

Our tangible common equity to tangible assets ratio
was 5.2% at Dec. 31, 2009, up from 3.8% at Dec. 31,
2008. The increase compared with the prior year
primarily reflects the improvement in pricing in the
fixed income market in 2009 and the $1.4 billion
common stock offering in 2009. The unrealized net of
tax loss on our available-for-sale securities portfolio
recorded in other comprehensive income was $619
million at Dec. 31, 2009 compared with $4.0 billion at
Dec. 31, 2008. The improvement reflects the
restructuring of the investment securities portfolio and
the improvements in the fixed income markets.

Troubled Asset Relief Program

In October 2008, the U.S. Government announced the
Troubled Asset Relief Program Capital Purchase
Program authorized under the Emergency Economic
Stabilization Act. See Note 18 of the Notes to the
Consolidated Financial Statements for a further
discussion of the impact of TARP on BNY Mellon.

Capital adequacy

Regulators establish certain levels of capital for bank
holding companies and banks, including BNY Mellon
and our bank subsidiaries, in accordance with
established quantitative measurements. For the Parent
to maintain its status as a financial holding company,
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.

Results of Operations (continued)

At Dec. 31, 2009, we had approximately $1.7 billion
of trust preferred securities outstanding, net of
issuance costs, all of which qualifies as Tier 1 capital.

Components of Tier 1 and total risk-based capital (a)
(in millions)

Tier 1 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 1 capital

Tier 2 capital:

Qualifying unrealized gains on equity securities
Qualifying subordinate debt
Qualifying allowance for credit losses

Total Tier 2 capital

Total risk-based capital

The following tables present the components of our
Tier 1 and Total risk-based capital and risk-weighted
assets at Dec. 31, 2009 and 2008, as well as our
consolidated capital ratios and capital ratios of our
largest bank subsidiary, The Bank of New York
Mellon.

Dec. 31,

2009

2008

$ 28,977
-
1,686

$ 25,264
2,786
1,654

(19,437)
1,070
619
(32)

12,883

3
3,429
665

4,097

(19,312)
1,010
4,035
(35)

15,402

-
3,823
529

4,352

$ 16,980

$ 19,754

(a) On a regulatory basis and including discontinued operations.
(b) Reduced by deferred tax liabilities of $2.4 billion at both Dec. 31, 2009 and Dec. 31, 2008 associated with non-tax deductible

identifiable intangible assets and tax deductible goodwill.

Components of risk-weighted assets (a)

2009

2008

(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
Derivative instruments

Total off-balance sheet exposure

Market risk equivalent assets

Total risk-weighted assets

Average assets for leverage capital purposes

(a) On a regulatory basis and including discontinued operations.

Balance
sheet/
notional
amount

67,396
56,049
6,001
3,535
36,689
(503)
43,057

Risk-
weighted
assets

$ 11,923
17,633
-
17
25,746
-
20,589

Balance
sheet/
notional
amount

$ 102,914
39,435
11,102
2,000
43,394
(415)
39,082

Risk-
weighted
assets

8,728
18,217
-
8
30,253
-
20,817

$ 212,224

$ 75,908

$ 237,512

$ 78,023

33,598
249,120
14,426
1,314,246

$1,611,390

$ 12,180
132
11,886
4,552

$ 28,750
1,670

$106,328

$196,857

39,441
326,602
16,515
1,137,453

$1,520,011

$ 12,063
530
13,121
10,448

$ 36,162
2,528

$116,713

$223,164

BNY Mellon

Results of Operations (continued)

Consolidated and largest bank
subsidiary capital ratios

Consolidated capital ratios:

Tier 1
Total capital
Leverage
Tier 1 common equity to risk-weighted assets ratio (a)
Tangible common shareholders’ equity to tangible assets ratio –

Non-GAAP (a)

The Bank of New York Mellon capital ratios:

Tier 1
Total capital
Leverage

(a) See Supplemental information beginning on page 74 for a calculation of this ratio.

Well
capitalized

Adequately
capitalized

Dec. 31,

2009

2008

6%
10
5

4%
8
3

12.1%
16.0
6.5
10.5

13.2%
16.9
6.9
9.4

5.2%

3.8%

11.2%
15.0
6.3

11.2%
14.7
5.9

If a bank holding company or bank fails to qualify as
“adequately capitalized”, regulatory sanctions and
limitations are imposed. At Dec. 31, 2009, the
amounts of capital by which BNY Mellon and our
largest bank subsidiary, The Bank of New York
Mellon, exceed the well-capitalized guidelines are as
follows:

Capital above guidelines
at Dec. 31, 2009
(in millions)

Tier I Capital
Total Capital
Leverage

Capital framework

Consolidated

$6,503
6,347
3,041

The Bank of
New York
Mellon

$4,708
4,538
2,069

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. BNY
Mellon 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. Basel II final rule, published by the U.S.
regulatory agencies, became effective on April 1,
2008. Under the final rule, 2009 was the first year for

66 BNY Mellon

a bank to begin its first of three transitional floor
periods during which banks subject to the final rule
calculate their capital requirements under both the old
guidelines and new guidelines.

In the U.S., we will begin the parallel run of
calculations under both the old and new guidelines in
the second quarter of 2010. 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.

Stock repurchase programs

Share repurchases during fourth quarter 2009

(common shares
in thousands)

October 2009
November 2009
December 2009

Total
shares
repurchased

8
7
71

Average
price per
share

$ 29.44
27.27
26.71

Total
shares
repurchased
as part of a
publicly
announced
plan

-
-
-

Fourth quarter 2009

86 (a) $ 27.02

(a) These shares were purchased at a purchase price of

approximately $2 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 BNY
Mellon authorized the repurchase of up to 35 million
shares of common stock. There were no shares
repurchased under the Dec. 18, 2007 program in the
fourth quarter of 2009. At Dec. 31, 2009, 33.8 million
shares were available for repurchase under the
December 2007 program. There is no expiration date
on this repurchase program.

Results of Operations (continued)

In June 2009, we completed a public offering of
48.3 million shares of common stock at a weighted-
average price of $28.75 per common share, for a total
of $1.4 billion. In November 2009, we issued
2.0 million shares of common stock to HBOS
Insurance & Investment Group Limited in connection
with our acquisition of Insight that was exempt from
registration under the Securities Act of 1933, pursuant
to Section 4(2) thereof. Also in November 2009, we
issued 1 million shares of common stock in
connection with our acquisition of a 20% minority
interest in Siguler Guff to Siguler Guff’s selling
shareholders. This issuance was also exempt from
registration under the Securities Act of 1933, pursuant
to Section 4(2) thereof.

Risk management

The understanding, identification and management of
risk are essential elements for the successful
management of BNY Mellon. 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 Committee.

The Risk Committee is comprised entirely 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 Audit Committee is also comprised entirely of
independent directors, all of whom have been
determined by the Board to have banking and
financial management expertise within the meaning of
the FDIC rules and 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 Securities Exchange Act of
1934, as amended (the “Exchange Act”), and to have
accounting or related financial management expertise
within the meaning of the NYSE listing standards as
interpreted by the Board. The Audit 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 Audit Committee also
reviews management’s assessment of the adequacy of
internal controls. The functions of the Audit
Committee are described in more detail in its charter,
a copy of which is available on our website,
www.bnymellon.com.

The Senior Risk Management Committee is the
senior-most management body that approves BNY
Mellon’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.

BNY Mellon

Results of Operations (continued)

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

68 BNY Mellon

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,
BNY Mellon seeks to limit both on and off-balance
sheet credit risk through prudent underwriting and the
use of capital only where risk-adjusted returns
warrant. We seek to manage risk and improve our
portfolio diversification through syndications, asset
sales, credit enhancements, 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 is 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 Head of Enterprise-wide
market risk reports to the Chief Risk Officer. The
Asset/Liability Management Committee, which is part
of this structure, oversees the market risk management
process for interest rate risk related to asset/liability
management activities. Our market risk governance
structure is 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 the
Notes to Consolidated Financial Statements.

Results of Operations (continued)

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
BNY Mellon 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
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:

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 BNY Mellon 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 BNY Mellon. 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
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 BNY Mellon. The Chief
Compliance and Ethics Officer reports to the Chief
Risk Officer, is a member of all critical committees of
BNY Mellon and provides regular updates to the
Audit Committee of the Board of Directors.

Internal audit

Our internal audit function reports directly to the
Audit 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 BNY Mellon. Internal Audit has
unrestricted access to BNY Mellon and regularly
participates in key committees of BNY Mellon.

Š Board Oversight and Governance—The Risk

Economic capital

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,

BNY Mellon 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

BNY Mellon

Results of Operations (continued)

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 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. See Note 27 of the
Notes to Consolidated Financial Statements for
additional information on the VAR methodology.

The following tables indicate the calculated VAR
amounts for the trading portfolio for the years ended
Dec. 31, 2009 and 2008.

VAR (a)

2009

(in millions)

Average Minimum Maximum Dec. 31

Interest rate
Foreign exchange
Equity
Credit
Diversification
Overall portfolio

$ 5.8
2.4
2.7
2.9
(6.1)
7.7

$ 2.8
0.8
1.3
0.7
N/M
3.9

$11.7
5.6
8.1
7.5
N/M
13.5

$ 6.9
1.0
1.6
0.7
(2.1)
8.1

70 BNY Mellon

VAR (a)

2008

(in millions)

Average Minimum Maximum Dec. 31

Interest rate
Foreign exchange
Equity
Credit
Diversification
Overall portfolio

$ 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

(a) VAR figures do not reflect the impact of the credit valuation
adjustment guidance in ASC 820. This is consistent with the
Regulatory treatment.

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 2009, interest rate risk generated 42% of
average VAR, credit risk generated 21% of average
VAR, equity risk generated 20% of average VAR, and
foreign exchange risk accounted for 17% of average
VAR. During 2009, our daily trading loss did not
exceed our calculated VAR amount of the overall
portfolio on any given day.

BNY Mellon monitors a volatility index of global
currency using a basket of 30 major currencies. In
2009, the volatility of this index decreased from the
abnormally high levels experienced in 2008.

The extraordinary financial environment and the
consequent volatility experienced in the last half of
2008 and the first half of 2009 contributed to elevated
trading earnings during those periods, evidenced by
the number of days where revenue exceeded $5
million. As the global economy stabilized, volatility
declined, and trading performance returned to a more
normalized level.

The following table of total daily trading revenue or
loss captures this performance and illustrates the
number of trading days in which our trading revenue
or loss fell within particular ranges during the past
year.

Distribution of trading revenues (losses) (a)

Quarter ended

Dec. 31,
2008

March 31,
2009

June 30,
2009

Sept. 30,
2009

Dec. 31,
2009

Number of days

1
1
5
21
33

2
2
11
23
26

-
5
16
24
19

1
5
13
22
21

1
-
6
14
41

Revenue range
(in millions):

Less than $(2.5)
$(2.5) - $0
$0 - $2.5
$2.5 - $5.0
More than $5.0

(a) Distribution of trading revenues (losses) does not reflect the impact of

the credit valuation adjustment guidance in ASC 820. This is
consistent with the Regulatory treatment.

Results of Operations (continued)

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 a AA credit curve. In addition,
we consider credit risk in arriving at the fair value of
our derivatives.

As required by ASC 820 – Fair Value Measurements
and Disclosures, 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, 2009, our over-the-counter (“OTC”)
derivative assets of $4.8 billion included a credit
valuation adjustment (“CVA”) deduction of $114
million, including $61 million related to the declining
credit quality of CDO counterparties. Our OTC
derivative liabilities of $4.6 billion included $30
million of debit valuation adjustments (“DVA”)
related to our own credit spread.

Adjustments to the CVA and DVA decreased foreign
exchange and other trading activities revenue by $38
million in 2009. Adjustments to our own credit spread
decreased foreign exchange and other trading
activities revenue by $15 million in 2009.

The table below summarizes the risk ratings for our foreign exchange and interest rate derivative counterparty
credit exposure.

Foreign exchange and other trading-
counterparty risk ratings profile (a)

Ratings:

AAA to AA-
A+ to A-
BBB+ to BBB-
Noninvestment grade (BB+ and lower)

Total
(a) Represents credit rating agency equivalent of internal credit ratings.

Dec. 31,
2008

Quarter ended
June 30,
2009

March 31,
2009

Sept. 30,
2009

Dec. 31,
2009

51%
35
7
7

52%
23
17
8

57%
20
14
9

58%
17
16
9

56%
22
15
7

100%

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.

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.

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

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

BNY Mellon

Results of Operations (continued)

pre-tax net interest revenue between the scenarios
over a 12-month measurement period.

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

Estimated changes in net interest revenue
(dollar amounts in millions)

Dec. 31, 2009
%
$

up 200 bps vs. baseline
up 100 bps vs. baseline

$318
259

10.9%
8.8

The baseline scenario’s Fed Funds rate in the Dec. 31,
2009 analysis was 0.25%. The 100 basis point ramp
scenario assumes short-term rates change 25 basis
points in each of the next four quarters and the 200
basis point ramp scenario assumes a 50 basis point per
quarter change. Both the up 200 basis point and the up
100 basis point Dec. 31, 2009 scenarios assume
10-year rates rising 196 and 96 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, 2009

Rate change:

up 200 bps vs. baseline
up 100 bps vs. baseline

(1.3)%
(0.7)

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 the fair value option provided in ASC 825 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, 2009, under
the higher rate environments versus a stable rate
scenario. The table below shows the impact of a
change in interest rates on the TCE ratio:

Estimated changes in the TCE ratio at Dec. 31, 2009
(in basis points)

up 200 bps vs. baseline
up 100 bps vs. baseline

(91)
(47)

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, 2009, net investments in foreign
operations totaled approximately $6.0 billion and
were spread across 14 foreign currencies.

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

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

72 BNY Mellon

Results of Operations (continued)

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 13,900 employees on a global basis of which
over 7,700 are proprietary.

We continue to enhance geographic diversity for
business operations by moving additional personnel to
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 Federal Reserve, OCC and SEC 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,
and 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.

BNY Mellon

Supplemental Information (unaudited)

Explanation of Non-GAAP financial measures

BNY Mellon has included in this Annual Report
certain Non-GAAP financial measures based upon
tangible common shareholders’ equity. BNY Mellon
believes that the ratio of tangible common
shareholders’ equity to tangible assets is a measure of
capital strength that adds additional useful information
to investors supplementing the Tier 1 capital ratio
which is utilized by regulatory authorities. Unlike the
Tier 1 ratio, the tangible common shareholders’ equity
ratio fully incorporates those changes in investment
securities valuations which are reflected in
shareholders’ equity. In addition, this ratio is
expressed as a percentage of the actual book value of
assets, as opposed to a percentage of a risk-based
reduced value established in accordance with
regulatory requirements, although BNY Mellon in its
calculation has excluded certain assets which are
given a zero percent risk-weighting for regulatory
purposes. This ratio is also informative to investors in
BNY Mellon’s common stock because, unlike the Tier
1 capital ratio, it excludes preferred stock and trust
preferred securities issued by BNY Mellon. Further,
BNY Mellon believes that the return on tangible
common equity measure, which excludes goodwill
and intangible assets net of deferred tax liabilities, is a
useful additional measure for investors because it
presents a measure of BNY Mellon’s performance in
reference to those assets which are productive in
generating income.

BNY Mellon has provided a measure of tangible book
value per share, which it believes provides additional
useful information as to the level of such assets in
relation to shares of common stock outstanding. BNY
Mellon has presented revenue measures which
exclude the effect of investment securities gains
(losses) and SILO/LILO charges; expense measures
which exclude restructuring charges, an FDIC special
assessment, support agreement charges, asset-based
taxes, M&I expenses and intangible amortization
expense; and measures which utilize net income
excluding tax items such as the benefit of tax
settlements and discrete tax benefits related to a tax
loss on mortgages. Return on equity measures and
operating margin measures which exclude some or all
of these items are also presented. BNY Mellon
believes that these measures are useful to investors
because they permit a focus on period to period
comparisons which relate to the ability of BNY
Mellon to enhance revenues and limit expenses in
circumstances where such matters are within BNY
Mellon’s control. The excluded items in general relate

74 BNY Mellon

to situations where accounting rules require certain
ongoing charges as a result of prior transactions, or
where valuation or other accounting/regulatory
requirements require charges unrelated to operational
initiatives. M&I expenses relate to our Corporate
Trust Acquisition in 2006 and to the merger with
Mellon Financial Corporation in 2007. M&I expenses
generally continue for approximately three years after
the transaction and can vary on a year-to-year basis
depending on the stage of the integration. BNY
Mellon believes that the exclusion of M&I expenses
provides investors with a focus on BNY Mellon’s
business as it would appear on a consolidated going-
forward basis, after such M&I expenses have ceased,
typically after approximately three years. Future
periods will not reflect such M&I expenses, and thus
may be more easily compared to our current results if
M&I expenses are excluded. With regard to the
exclusion of investment securities gains (losses), BNY
Mellon’s primary businesses are Asset and Wealth
Management and Institutional Services. The
management of these sectors is evaluated on the basis
of the ability of these businesses to generate fee and
net interest revenue and to control expenses, and not
on the results of BNY Mellon’s investment securities
portfolio. Management of the investment securities
portfolio is a shared service contained in the Other
segment. The primary objective of the investment
securities portfolio is to generate net interest revenue
from the liquidity generated by BNY Mellon’s
processing businesses. BNY Mellon does not
generally originate or trade the securities in the
investment securities portfolio. As a result, BNY
Mellon believes that presenting measures that exclude
investment securities gains (losses) from its results, as
a supplement to GAAP information, gives investors a
clearer picture of the results of its primary businesses.
The SILO/LILO charges relate to a one-time
settlement with the IRS of tax structured lease
transactions in 2008. BNY Mellon believes that
excluding the SILO/LILO charges from net interest
revenue provides investors with a clearer impact of
the net interest margin generated on our interest-
earning assets. Restructuring charges relate to
migrating positions to global growth centers and the
elimination of certain positions. Excluding the
discrete tax benefits related to a tax loss on mortgages
permits investors to calculate the tax impact of BNY
Mellon’s primary businesses.

In this Annual Report, certain amounts are presented
on an FTE basis. We believe that this presentation
provides comparability of amounts arising from both
taxable and tax-exempt sources, and is consistent with

Supplemental Information (unaudited) (continued)

industry practice. The adjustment to an FTE basis has
no impact on net income.

Each of these measures as described above is used by
management to monitor financial performance, both
on a company-wide and on a business segment basis.

Return on common equity and tangible common equity
(dollars in millions)

Net income (loss) applicable to common shareholders of The Bank

of New York Mellon Corporation before extraordinary loss

Add: Intangible amortization

Net income (loss) applicable to common shareholders of The Bank

of New York Mellon Corporation before extraordinary loss
excluding intangible amortization – Non-GAAP

Add:

Investment securities (gains) losses
SILO/LILO/tax settlements
Support agreement charges
FDIC special assessment
M&I expenses
Restructuring charges
Discrete tax benefits and the benefit of tax settlements

Net income (loss) before extraordinary loss excluding investment
securities (gains) losses, SILO/LILO/tax settlements, support
agreement charges, FDIC special assessment, M&I expenses,
restructuring charges, discrete tax benefits and the benefit of tax
settlements and intangible amortization – Non-GAAP

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 – Non-GAAP

Return on common equity before extraordinary loss – GAAP
Return on common equity before extraordinary loss excluding

investment securities (gains) losses, SILO/LILO/tax settlements,
support agreement charges, FDIC special assessment, M&I
expenses, restructuring charges, discrete tax benefits and the
benefit of tax settlements and intangible amortization –
Non-GAAP

Return on tangible common equity before extraordinary loss –

2009

2008

2007 (a)

2006 (b)

2005 (b)

$ (1,367)
265

$ 1,412
292

$ 2,219
194

$ 2,847
50

$1,571
27

(1,102)
3,374
-
(9)
36
144
94
(267)

$ 2,270

$27,198
16,042
5,654
720
1,680

$ 7,902

N/M

1,704
983
410
533
-
288
107
-

2,413
119
-
2
-
238
-
-

2,897
(1)
-
-
-
72
-
-

$ 4,025

$ 2,772

$28,212
16,525
5,896
599
1,841

$ 8,231

$20,234
10,739
3,769
495
2,006

$ 8,227

$ 2,968

$10,333
4,394
772
384
162

$ 5,713

1,598
(15)
-
-
-
-
-
-

$1,583

$9,473
3,772
568
303
-

$5,436

5.0%

11.0%

27.6%

16.6%

8.3%

14.3%

13.7%

28.7%

16.7%

Non-GAAP

N/M

20.7%

29.3%

50.7%

29.4%

Return on tangible common equity before extraordinary loss

excluding investment securities (gains) losses, SILO/LILO/tax
settlements, support agreement charges, FDIC special
assessment, M&I expenses, restructuring charges and discrete
tax benefits and the benefit of tax settlements – Non-GAAP

28.7%

48.9%

33.7%

52.0%

29.1%

(a) Results for 2007 include six months of BNY Mellon and six months of legacy The Bank of New York Company, Inc.
(b) Results for 2006 and 2005 include legacy The Bank of New York Company, Inc. only.

BNY Mellon

Supplemental Information (unaudited) (continued)

Reconciliation of income (loss) from continuing operations
before income taxes – pre-tax operating margin
(dollars in millions)

Income (loss) from continuing operations before income taxes – GAAP
Add:

Investment securities (gains) losses
SILO/LILO charges
Support agreement charges
FDIC special assessment
M&I expenses
Restructuring charges
Asset-based taxes
Intangible amortization

Income (loss) from continuing operations before income taxes

excluding investment securities (gains) losses, SILO/LILO charges,
support agreement charges, FDIC special assessment, M&I
expenses, restructuring charges, asset-based taxes and intangible
amortization – Non-GAAP

Fee and other revenue – GAAP
Net interest revenue – GAAP

Total revenue – GAAP

Add:

Investment securities (gains) losses
SILO/LILO charges

2009

$ (2,208)
5,369
-
(15)
61
233
150
20
426

$ 4,036

$ 4,772
$ 2,915

7,687
5,369
-

2007 (a)

2006 (b)

2005 (b)

2008

$ 1,946
1,628
489
894
-
483
181
-
473

$ 3,215
201
-
3
-
404
-
-
314

$ 6,094

$ 4,137

$10,714
$ 2,859

13,573
1,628
489

$ 9,053
$ 2,245

11,298
201
-

$2,183
(2)
-
-
-
106
-
-
76

$2,363

$5,339
$1,499

6,838
(2)
-

$1,984
(22)
-
-
-
-
-
-
40

$2,002

$4,715
$1,340

6,055
(22)
-

Total revenue excluding investment securities (gains) losses and

SILO/LILO charges – Non-GAAP

$13,056

$15,690

$11,499

$6,836

$6,033

Pre-tax operating margin (c)
Pre-tax operating margin, excluding investment securities (gains)
losses, SILO/LILO charges, support agreement charges, FDIC
special assessment, M&I expenses, restructuring charges, asset-
based taxes and intangible amortization – Non-GAAP (c)

N/M

14%

28%

32%

33%

31%

39%

36%

35%

33%

Income (loss) before taxes divided by total revenue.

Reconciliation of fee and other revenue
as a percent of total revenue
(dollars in millions)

Fee and other revenue – GAAP
Less:

Investment securities gains (losses)

Fee and other revenue excluding investment securities gains

(losses) – Non-GAAP

Net interest revenue – GAAP
Add: SILO/LILO charges

Net interest revenue excluding SILO/LILO charges – Non-GAAP

Total revenue – GAAP
Total revenue excluding investment securities gains (losses)

2009

$ 4,772
(5,369)

2008

$10,714
(1,628)

2007 (a)

2006 (b)

2005 (b)

$ 9,053
(201)

$5,339
2

$4,715
22

10,141

12,342

2,915
-

2,915

2,859
489

3,348

9,254

2,245
-

2,245

5,337

1,499
-

1,499

4,693

1,340
-

1,340

$ 7,687

$13,573

$11,298

$6,838

$6,055

and SILO/LILO charges – Non-GAAP

$13,056

$15,690

$11,499

$6,836

$6,033

Fee and other revenue as a percentage of total revenue
Fee and other revenue as a percentage of total revenue excluding
investment securities gains (losses) and SILO/LILO charges –
Non-GAAP

62%

79%

80%

78%

79%

80%

78%

(a) Results for 2007 include six months of BNY Mellon and six months of legacy The Bank of New York Company, Inc.
(b) Results for 2006 and 2005 include legacy The Bank of New York Company, Inc. only.

76 BNY Mellon

Supplemental Information (unaudited) (continued)

Equity to assets and book value per common share
(dollars in millions, except per share
amounts and unless otherwise noted)

Common shareholders’ equity at period end – GAAP
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

2009

28,977
16,249
5,588
720

1,680

2008

25,264
15,898
5,856
599

1,841

2007

29,403
16,331
6,402
495

2,006

2006 (a)

2005 (a)

$ 11,429
5,008
1,453
384

162

9,876
3,619
811
303

– Non-GAAP

9,540

5,950

9,171

$ 5,514

5,749

Total assets at period end – GAAP
Less: Goodwill

Intangible assets
Cash on deposit with the Federal Reserve and

other central banks (b)

U.S. Government-backed commercial

paper (b)

$ 212,224
16,249
5,588

$ 237,512
15,898
5,856

$ 197,656
16,331
6,402

$103,206
5,008
1,453

$102,118
3,619
811

7,375

53,278

5,629

Tangible total assets at period end – Non-GAAP

$ 183,012

$ 156,851

$ 174,843

$ 96,745

$ 97,688

Common shareholders’ equity to assets – GAAP
Tangible common shareholders’ equity to tangible

assets – Non-GAAP

13.7%

5.2%

10.6%

3.8%

14.9%

11.1%

5.2%

5.7%

9.7%

5.9%

Period end common shares outstanding (in thousands)

1,207,835

1,148,467

1,145,983

713,079

727,483

Book value per common share
Tangible book value per common share – Non-GAAP

$
$

23.99
7.90

$
$

22.00
5.18

$
$

25.66
8.00

$ 16.03
7.73
$

$
$

13.57
7.90

(a) The 2006 and 2005 share-related data includes legacy The Bank of New York Company, Inc. only and is presented in post merger

share count terms.

(b) Assigned a zero percent risk weighting by the regulators.

Calculation of the Tier 1 common equity
to risk-weighted assets ratio (a)
(dollars in millions)

Total Tier 1 capital
Less: Trust preferred securities
Series B preferred stock

Total Tier 1 common equity

Total risk-weighted assets
Tier 1 common equity to risk-weighted assets ratio

2009

$ 12,883
1,686
-

$ 11,197

2008

$ 15,402
1,654
2,786

$ 10,962

2007

$ 11,259
2,030
-

9,229

$106,328

$116,713

$120,866

2006 (b)

2005 (b)

$ 6,350
1,150
-

$ 5,200

$77,567

$ 6,643
1,150
-

$ 5,493

$79,282

10.5%

9.4%

7.6%

6.7%

6.9%

(a) On a regulatory basis. Includes discontinued operations.
(b) Results for 2006 and 2005 include legacy The Bank of New York Company, Inc. only.

BNY Mellon

Supplemental Information (unaudited) (continued)

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
State 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 and official institutions
Other

Total foreign
Total interest-bearing deposits

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 asset-backed

commercial paper

Payables to customers and broker-dealers
Long-term debt

2009 over (under) 2008

2008 over (under) 2007

Due to change in

Average
balance

Average
rate

Net
change

Average
balance

Average
rate

Net
change

$ 295

$(1,365)

$(1,070)

$ 792

$ (281)

$ 511

(60)
(55)
(31)

(32)
(55)
(89)
(176)

44
201
(5)

(132)
111
(21)

8
(2)
6
225
$ 227

$ 34
2
(21)
(22)
(7)

(69)
(7)
204
128
121

(14)

(2)
(8)
(10)

(46)
(3)
21
$ 69
$ 158

(13)

(2)
(63)
(83)

(13)
260
(224)
23

(12)
(88)
(3)

(285)
(330)
(615)

(62)
(118)
(114)

(45)
205
(313)
(153)

32
113
(8)

(417)
(219)
(636)

-
35
2

79
110
79
268

12
180
25

178
44
222

71
(175)
(151)

(40)
(818)
(209)
(1,067)

(5)
(70)
3

(54)
56
2

71
(140)
(149)

39
(708)
(130)
(799)

7
110
28

124
100
224

(24)
(2)
(26)
(744)
$(2,247)

(16)
(4)
(20)
(519)
$(2,020)

23
(33)
(10)
429
$1,526

(4)
(13)
(17)
(87)
$(1,663)

19
(46)
(27)
342
$(137)

$ (150)
(9)
(29)
(79)
(267)

(102)
(17)
(1,329)
(1,448)
(1,715)

(32)

(22)
(16)
(38)

$ (116)
(7)
(50)
(101)
(274)

(171)
(24)
(1,125)
(1,320)
(1,594)

(46)

(24)
(24)
(48)

67
7
(34)
130
170

65
10
460
535
705

18
5
23

-
(60)
(297)
$(2,142)
$ (105)

(46)
(63)
(276)
$(2,073)
53
$

-
12
185
$ 980
$ 546

$ (274)
(11)
(58)
(65)
(408)

$(207)
(4)
(92)
65
(238)

(239)
(30)
(641)
(910)
(1,318)

(119)

(33)
9
(24)

53
(120)
(212)
$(1,740)
77
$

(174)
(20)
(181)
(375)
(613)

(64)

(15)
14
(1)

53
(108)
(27)
$(760)
$ 623

Total interest expense
Changes in net interest revenue
(a) Changes which are solely due to balance changes or rate changes are allocated to such categories on the basis of the respective
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.

78 BNY Mellon

Recent Accounting and Regulatory Developments

SFAS No. 166—Accounting for Transfers of
Financial Assets

In June 2009, the FASB issued SFAS No. 166,
“Accounting for Transfers of Financial Assets, an
amendment to FASB Statement No. 140.” This
statement removed (1) the concept of a qualifying
special purpose entity (“QSPE”) from SFAS No. 140
(ASC 860—Transfers and Servicing) and (2) the
exceptions from applying FASB Interpretatation No.
(“FIN”) 46 (R) (ASC 810—Consolidation) to QSPEs.
This statement amends SFAS No. 140 (ASC 860) to
revise and clarify the derecognition requirements for
transfers of financial assets and the initial
measurement of beneficial interests that are received
as proceeds by a transferor in connection with
transfers of financial assets. This statement also
requires additional disclosure about transfers of
financial assets and a transferor’s continuing
involvement with such transferred financial assets.
This statement was effective Jan. 1, 2010, at which
time any QSPEs will be evaluated for consolidation in
accordance with SFAS No. 167, which amends FIN
46 (R) (ASC 810). However, the amendments on how
to account for transfers of financial assets will apply
prospectively to transfers occurring on or after the
effective date. Accordingly, the Grantor Trust into
which we securitized certain of our investment
securities will no longer qualify as a QSPE, resulting
in approximately $0.7 billion being added to our
securities portfolio.

SFAS No. 167—Amendments to FIN 46 (R) (ASC 810)

In June 2009, the FASB issued SFAS No. 167,
“Amendments to FASB Interpretation No. 46 (R).”
This statement amends FIN 46 (R) (ASC 810) to
require ongoing assessments to determine whether an
entity is a variable interest entity (“VIE”) and whether
an enterprise is the primary beneficiary of a VIE. This
statement also amends the guidance for determining
which enterprise, if any, is the primary beneficiary of
a VIE by requiring the enterprise to initially perform a
qualitative analysis to determine if the enterprise’s
variable interest or interests give it a controlling
financial interest. Consolidation is based on a
company’s ability to direct the activities of the entity
that most significantly impact the entity’s economic
performance. If a company has control and the right to
receive benefits or the obligation to absorb losses
which could potentially be significant to the VIE, then
consolidation is required. This statement also requires
additional disclosures about an enterprise’s
involvement in a VIE, including a requirement for

sponsors of a VIE to disclose information even if they
do not hold a significant variable interest in the VIE.
This statement was effective Jan. 1, 2010 and is
expected to primarily impact our asset management
businesses.

The new statement does not change the economic risk
related to these businesses and therefore, BNY
Mellon’s computation of economic capital required by
our businesses will not change.

On Jan. 27, 2010, the FASB approved an ASU
“Amendments to Statement No. 167 for Certain
Investment Funds” which defers the requirements of
Statement No. 167 for asset managers’ interests in
entities that apply the specialized accounting guidance
for investment companies or that have the attributes of
investment companies and for interests in money
market funds. This amendment became effective Jan.
1, 2010.

The new statement will increase the size of our
balance sheet by approximately $3.0 billion for the
consolidation of certain asset management funds
sponsored by BNY Mellon’s Alcentra subsidiary and
certain seed capital investments. In addition, as noted
in the preceding section, the Grantor Trust will lose its
QSPE status and be consolidated.

In January 2010, the Office of the Comptroller of the
Currency, Board of Governors of the Federal Reserve
System, Federal Deposit Insurance Corporation, and
the Office of Thrift Supervision issued a final rule
requiring banks to hold capital for assets consolidated
under FAS No. 166 and FAS No. 167. The final rule
allows for (1) opting for a two-quarter delay through
June 30, 2010, of recognition of the effect on risk-
weighted assets and allowance for loan losses
includable in Tier 2 capital that results from
implementation of FAS 167 and (2) a phase-in of
those effects for the quarters ending Sept. 30, 2010
and Dec. 31, 2010. We currently expect that the
implementation of FAS 167 will impact the March 31,
2010 Tier 1 capital ratio by approximately 25 basis
points.

ASU 2010-6—Improving Disclosures About Fair
Value Measurements

In January 2010, the FASB issued ASU 2010-6,
“Improving Disclosures about Fair Value
Measurements.” This amends ASC 820 to clarify
existing requirements regarding disclosures of inputs

BNY Mellon

Recent Accounting and Regulatory Developments (continued)

and valuation techniques and levels of disaggregation.
This ASU also requires the following new disclosures:
(1) significant transfers in and out of Levels 1 and 2
and the reasons that such transfers were made; and
(2) additional disclosures in the reconciliation of
Level 3 activity, including information on a gross
basis for purchases, sales, issuances and settlements.
This ASU is required in interim and annual financial
statements and is effective March 31, 2010, except for
the disclosures about Level 3 purchases, sales,
issuances and settlements in the rollforward activity
for fair value measurements, which will be effective
March 31, 2011.

Adoption of new accounting standards

For a discussion of the adoption of new accounting
standards, see Note 2 to the Notes to Consolidated
Financial Statements.

Regulatory developments

Proposed capital requirements

In September 2009, the U.S. Department of the
Treasury issued a policy statement “Principles for
Reforming the U.S. and International Regulatory
Capital Framework for Banking Firms.” This
statement sets forth core principles that the Treasury
believes would shape a new international capital
accord to better protect the safety and soundness of
individual banking firms and the stability of the global
financial system and economy. These core principles
include: (a) capital requirements should be designed
to protect the stability of the financial system, not just
the solvency of individual banking firms; (b) capital
requirements for all banks should be increased and
those that could pose a threat to overall financial
stability should be higher than others; (c) there should
be a greater emphasis on higher quality forms of
capital (common equity should constitute a “large
majority” of a bank’s Tier 1 capital); (d) risk-based
capital requirements should be a function of the
relative risk; (e) the procyclicality of the regulatory
capital and accounting regimes should be reduced
(hold a larger buffer over banks’ minimum capital
requirements during good times); (f) banks should be
subject to a simple, non-risk-based leverage
constraint; (g) banks should be subject to a
conservative, explicit liquidity standard; and
(h) stricter capital and liquidity requirements for the
banking system should not be allowed to result in the
re-emergence of an under-regulated non-bank

80 BNY Mellon

financial sector that poses a threat to financial
stability.

The U.S. Department of the Treasury issued this
statement to facilitate the process of reaching a
domestic and then international consensus on a new
regulatory capital and liquidity regime for global
banking firms. The Department of the Treasury seeks
to reach a comprehensive international agreement on
the new global framework by Dec. 31, 2010, with
implementation of the reforms effective Dec. 31,
2012.

Basel Committee—Proposed capital and liquidity
reforms

On Dec. 17, 2009, the Basel Committee issued two
consultative documents proposing reforms to bank
capital and liquidity regulation, which are intended to
address lessons learned from the financial crisis that
began in 2007. The document titled “Strengthening
the Resilience of the Banking Sector”, which proposes
reforms to bank capital, and the document titled
“International Framework for Liquidity Risk
Management, Standards and Monitoring” are
discussed below.

The proposal included in the document titled
“Strengthening the Resilience of the Banking Sector”
would significantly revise the definitions of Tier 1
capital and Tier 2 capital, with the most significant
changes being to Tier 1 capital. Among other things,
the proposal would disqualify certain capital
instruments—including U.S.-style trust preferred
securities and other instruments that effectively pay
cumulative distributions—from Tier 1 capital status.

The liquidity proposals included in the document
titled “International Framework for Liquidity Risk
Management, Standards and Monitoring”, would
impose two measures of liquidity risk exposure, one
based on a 30-day time horizon and the other
addressing longer-term structural liquidity mismatches
over a one-year time period.

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 domestic issuers with an alternative

Recent Accounting and Regulatory Developments (continued)

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 Dec.
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 comment
period on this proposed roadmap ended on April 20,
2009.

While the SEC decides whether IFRS will be required
to be used in the preparation of our consolidated
financial statements, a number of countries have
mandated the use of IFRS by BNY Mellon’s
subsidiaries in their statutory reports. BNY Mellon’s
operations in the Netherlands are required to prepare
their statutory financial statements in accordance with
IFRS. Other subsidiaries in Canada, Brazil and Japan
will be required to use IFRS for statutory reporting.
The use of IFRS is currently optional in the United
Kingdom.

BNY Mellon

Selected Quarterly Data (unaudited)

(dollar amounts in millions, except per share
amounts)

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 (loss) from continuing operations
Income (loss) from discontinued operations,

net of tax

Extraordinary (loss) on consolidation of
commercial paper conduit, net of tax

Net income (loss)

Net (income) loss attributable to noncontrolling

interests, net of tax

Redemption charge and preferred dividends

Net income (loss) applicable to common

shareholders of The Bank of New York Mellon
Corporation

Basic earnings per share
Continuing operations
Discontinued operations
Extraordinary (loss)

Net income (loss) applicable to common stock

Diluted earnings per share
Continuing operations
Discontinued operations
Extraordinary (loss)

Net income (loss) applicable to common stock

Average balances
Interest-bearing deposits with banks
Securities (b)
Loans (b)
Total interest-earning assets (b)
Total assets
Deposits (b)
Long-term debt
Common shareholders’ equity
Net interest margin (FTE) (b)
Annualized return on common equity (b)
Pre-tax operating margin (b)
Common stock data (d)
Market price per share range:

High
Low
Average
Period end close

2009

2008

Quarter ended

Dec. 31

Sept. 30

June 30 March 31

Dec. 31

Sept. 30

June 30

March 31

1,817
1,047

2,864
54
2,859

(49)
(137)

(26)

(5)
(33)

0.04
-
(0.02)

2,595
724

3,319
65
2,582

672
(41)

713

$ (2,216)
716

(1,500)
147
2,318

(3,965)
(1,527)

(2,438)

(119)

(19)

594

(1)
-

(2,457)

(1)
-

593

$ (2,458)

2,257
700

2,957
61
2,383

2,136
775

2,911
59
2,280

513
12

501

(91)

410

2
(236)

572
161

411

(41)

370

(1)
(47)

176

0.23
(0.08)
-

(2.04)
(0.02)
-

(2.05) (a) $

0.15

(2.04)
(0.02)
-

0.23
(0.08)
-

0.59
(0.10)
-

0.49

0.59
(0.10)
-

0.49

(2.05) (a) $

0.15

322

0.31
(0.04)
-

0.28 (a) $

0.02

0.31
(0.04)
-

0.04
-
(0.02)

0.28 (a) $

0.02

2,926
681

3,607
23
3,319

2,989
388

3,377
13
2,743

265
(42)

307

621
312

309

2,982
743

3,725
14
2,602

1,109
358

751

307

315

755

(4)
-

(6)
-

(9)
-

303

0.26
-
-

0.26

0.26
-
-

0.26

309

746

0.26
-
-
0.27 (a) $

0.65
-
-

0.65

0.64
-
-
0.65 (a)

$ 55,467
55,573
35,239
164,075
214,205
133,395
17,863
28,843

$ 54,343
53,889
34,535
155,159
205,786
128,552
17,393
28,144

$ 56,917
51,903
37,029
157,265
208,533
131,748
16,793
26,566

$ 56,505
43,465
38,958
167,427
220,119
145,034
15,493
25,189

$ 78,680
40,057
48,326
181,639
243,962
147,455
15,467
26,812

$ 43,999
42,864
45,435
142,062
198,827
118,969
15,993
27,996

$ 43,361
44,384
45,633
142,032
195,997
118,232
16,841
28,507

$ 38,658
47,531
47,024
142,863
200,790
117,732
17,125
29,551

1.77%
9.8%
20%

1.85%
N/M
N/M

1.80%
4.0%
17%

1.87%
5.8%
20%

2.32%
0.8% (c)
(2)%

1.92%
4.3%
7%

1.11%
4.3%
18%

2.09%
10.1%
30%

29.94
25.80
27.38
27.97
0.09
$ 33,783

31.57
26.11
28.70
28.99
0.09
$ 34,911

33.62
23.75
28.41
29.31
0.09
$ 35,255

29.28
15.44
24.72
28.25
0.24
$ 32,585

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

Dividends per common share
Market capitalization (e)
(a) Amount does not foot due to rounding.
(b) Continuing operations basis.
(c) Calculated before extraordinary loss.
(d) At Dec. 31, 2009, there were 27,727 shareholders registered with our stock transfer agent, compared with 29,428 at Dec. 31, 2008 and 28,904 at Dec.
31, 2007. In addition, there were approximately 41,106 of BNY Mellon’s current and former employees at Dec. 31, 2009, who participate in BNY
Mellon’s 401(k) Retirement Savings Plans. All shares of BNY Mellon’s common stock held by the Plans for its participants are registered in the names
of The Bank of New York Mellon Corporation and Fidelity Management Trust Company, as trustee.

(e) At period end.

82 BNY Mellon

Forward-Looking Statements

Some statements in this document are forward-
looking. These include all statements about the future
results of BNY Mellon; projected business growth;
statements with respect to the merger of The Bank of
New York Company, Inc., and Mellon Financial with
and into BNY Mellon; BNY Mellon’s plans, areas of
focus and long-term financial goals; the effects of
pending and proposed legislation and regulation,
including the Federal Reserve and Financial Stability
Boards’ proposals on compensation policies and the
proposed Financial Crisis Responsibility Fee; the
effects of our investment securities portfolio
restructuring, including statements with respect to net
interest revenue and consolidation of the Grantor
Trust; our planned acquisition of GIS, including the
timing of the transaction, our position in the market,
the potential for synergies and any plans to raise
equity in connection with the transaction; expectations
with respect to reductions in our workforce;
expectations with respect to our expenses; impact of
U.S. tax law on income of certain foreign subsidiaries;
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 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 of 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: the expected increase in the
percentage of revenue and income from outside the
U.S.; 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; deposit levels; expectations with
respect to earnings per share; assumptions with
respect to pension plans, including discount rates,
costs, expected future returns, contributions and
benefit payments; statements with respect to our intent
to sell or hold 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
loan portfolio; descriptions of our allowance for credit
losses and loan losses; statements with respect to the
timing of current restrictions on dividends, our
liquidity targets and ability to pay dividends;
expectations with respect to capital, including

anticipated repayment and call of outstanding debt
and issuance of replacement securities; expectations
with respect to our lines of credit; our goal of
migrating to a predominantly investment grade credit
portfolio; the effect of a change in risk-weighted
assets or common equity on Tier 1 capital, the effect
of a change in interest rates on our earnings and the
effect of a change in the value of the S&P 500 Index;
the impact of 2009 acquisitions on earnings per share;
statements on our target double leverage ratios and
our target Tier 1 capital ratio; expectations with
respect to securities lending guarantees expiring
without the need to advance cash; expectations with
respect to the well capitalized status of BNY Mellon
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;
qualifications of our economic capital; statements
with respect to our risk management methodologies;
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, 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 BNY Mellon 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 BNY Mellon’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 BNY
Mellon’s stock and factors which represent risk
associated with the business and operations of BNY
Mellon, can be found in the “Risk Factors” section of
BNY Mellon’s Annual Report on Form 10-K for the

BNY Mellon

Forward-Looking Statements (continued)

year ended Dec. 31, 2009, and any subsequent reports
filed with the SEC by BNY Mellon pursuant to the
Exchange Act.

Forward-looking statements, including discussions
and projections of future results of operations and
discussions of future plans contained in the MD&A,
are based on management’s current expectations and
assumptions that involve risk and uncertainties and
that are subject to change based on various important
factors (some of which are beyond BNY Mellon’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 BNY Mellon with the
Commission pursuant to the Exchange Act, as well as
other uncertainties affecting future results and the
value of BNY Mellon’s stock.

All forward-looking statements speak only as of the
date on which such statements are made, and BNY
Mellon 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.

84 BNY Mellon

Glossary

Accumulated Benefit Obligation (“ABO”)—The
actuarial present value of benefits (vested and
non-vested) attributed to employee services rendered.

constructed from a portfolio of fixed-income assets.
CDOs are divided into different tranches and losses
are applied in reverse order of seniority.

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
(“AUC”)—Assets beneficially owned by our clients
or customers which we hold in various capacities for
which various services are provided such as; custody,
accounting, administration valuations and
performance measurement. These assets are not on
our balance sheet.

ASC—Accounting Standards Codification.

Assets Under Management (“AUM”)—Assets
beneficially owned by our clients or customers which
we hold in various capacities that are either actively or
passively managed. These assets are not on our
balance sheet.

bp—basis point.

Collateral management—A comprehensive program
designed to simplify collateralization and expedite
securities transfers for buyers and sellers. BNY
Mellon 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
transaction. The service includes verification of
securities eligibility and maintenance of margin
requirements.

Collateralized Debt Obligations (“CDOs”)—A type
of asset-backed security and structured credit product

Collateralized loan obligation (“CLO”)—A debt
security backed by a pool of commercial loans.

Collective trust fund—An investment fund formed
from the pooling of investments by investors.

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.

Currency swaps—An agreement to exchange
stipulated amounts of one currency for another
currency.

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 ASC 205, that
are removed from continuing operations when that
component has been disposed of or it is management’s
intention to sell the component.

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.

BNY Mellon

Glossary (continued)

Economic Value of Equity (“EVE”)—An
aggregation of discounted future cash flows of assets
and liabilities over a long-term horizon.

EMEA—Europe, the Middle East and Africa.

Exchange traded fund—Each share of an exchange
traded fund 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.

FASB—Financial Accounting Standards Board.

FDIC—Federal Deposit Issuance Corporation.

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.

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.

Foreign exchange contracts—Contracts that provide
for the future receipt or delivery of foreign currency at
previously agreed-upon terms.

Interest rate sensitivity—The exposure of net
interest income to interest rate movements.

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
defining acceptable practices in preparing financial
statements in the U.S. The FASB is the primary
source of accounting rules.

Grantor Trust—A legal, passive entity through
which pass-through securities are sold to investors.

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

86 BNY Mellon

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 a swap, the
principal amount of a debt remains unchanged, but the
interest stream changes.

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

Glossary (continued)

sublessee are usually secured by deposits, letters of
credit, or marketable securities.

Leverage ratio—Tier 1 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.

Operational risk—The risk of loss resulting from
inadequate or failed processes or systems, human
factors, or external events.

Performance fees—Fees received by an investment
advisor based upon the fund’s performance for the
period relative to various predetermined benchmarks.

Prime securities—A classification of securities
collateralized by loans to borrowers who have a high-
value and/or a good credit history.

Private equity/venture capital—Investment in
start-up companies or those in the early processes of
developing products and services with perceived,
long-term growth potential.

Pre-tax operating margin—Income before taxes for
a period divided by total revenue 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 ASC 860. A
qualified special purpose entity is generally not
required to be consolidated by any party.

Real Estate Investment Trust (“REIT”)— An
investor-owned corporation, trust or association that
sells shares to investors and invests in income-
producing property.

Residential Mortgage-Backed Security
(“RMBS”)—An asset-backed security whose cash
flows are backed by principal and interest payments of
a set of residential mortgage loans.

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.

Operating leverage—The rate of increase in revenue
to the rate of increase in expenses.

Return on common equity—Income divided by
average common shareholders’ equity.

BNY Mellon

Glossary (continued)

Return on tangible common equity—Income,
excluding intangible amortization, divided by average
tangible common shareholders’ equity.

Sale-In-Lease-Out (“SILO”) transaction—A
transaction in which an entity sells 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 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.

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 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.

Subprime securities—A classification of securities
collateralized by loans to borrowers who have a
tarnished or limited credit history. Subprime securities
carry increased credit risk and subsequently carry
higher interest rates.

Tangible common shareholders’ equity to tangible
assets 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 1 and total capital—Includes common
shareholders’ equity (excluding certain components of
comprehensive income), Series B preferred stock,
qualifying trust preferred securities, 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
and disallowed deferred tax assets. Total capital
includes Tier 1 capital, qualifying unrealized equity
securities gains, qualifying subordinated debt and the
allowance for credit losses.

Tier 1 common equity to risk-weighted assets
ratio—Tier 1 capital excluding trust preferred
securities and preferred stock divided by risk-
weighted assets.

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.

88 BNY Mellon

Report of Management on Internal Control Over Financial Reporting

Management of BNY Mellon is responsible for
establishing and maintaining adequate internal control
over financial reporting for BNY Mellon, as such term
is defined in Rule 13a-15(f) under the Exchange Act.

such assessment, management believes that, as of
December 31, 2009, BNY Mellon’s internal control
over financial reporting is effective based upon those
criteria.

BNY Mellon’s management, including its principal
executive officer and principal financial officer, has
assessed the effectiveness of BNY Mellon’s internal
control over financial reporting as of December 31,
2009. In making this assessment, management used
the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission in
Internal Control—Integrated Framework. Based upon

KPMG LLP, the independent registered public
accounting firm that audited BNY Mellon’s 2009
financial statements included in this Annual Report
under “Financial Statements and Notes,” has issued a
report with respect to the effectiveness of BNY
Mellon’s internal control over financial reporting.
This report appears on page 90.

BNY Mellon

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders
The Bank of New York Mellon Corporation:

We have audited The Bank of New York Mellon Corporation’s (“BNY Mellon”) internal control over financial
reporting as of December 31, 2009, based on criteria established in Internal Control—Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). BNY Mellon’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 BNY
Mellon’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, BNY Mellon maintained, in all material respects, effective internal control over financial reporting
as of December 31, 2009, 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 BNY Mellon as of December 31, 2009 and 2008, and the
related consolidated statements of income, changes in equity, and cash flows for each of the years in the three-year
period ended December 31, 2009, and our report dated February 26, 2010 expressed an unqualified opinion on
those consolidated financial statements.

New York, New York
February 26, 2010

90 BNY Mellon

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

Consolidated Income Statement

(in millions)

Fee and other revenue
Securities servicing fees:

Asset servicing
Issuer services
Clearing services

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

Total fee revenue

Net securities gains (losses) – including other-than-temporary impairment
Noncredit related losses on securities not expected to be sold (recognized in OCI)
Net 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
Sub-custodian and clearing
Furniture and equipment
Business development
Other

Subtotal

Amortization of intangible assets
Restructuring charges
Merger and integration expenses:

The Bank of New York Mellon Corporation
Acquired Corporate Trust Business

Total noninterest expense

Income
Income (loss) from continuing operations before income taxes
Provision (benefit) for income taxes

Income (loss) from continuing operations

Discontinued operations:

Income (loss) from discontinued operations
Provision (benefit) for income taxes
Income (loss) from discontinued operations, net of tax

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

Net income (loss)

Net (income) loss attributable to noncontrolling interests, net of tax
Redemption charge and preferred dividends

Year ended Dec. 31,

2009

2008

2007 (a)

$ 2,573
1,463
962
4,998
2,639
1,036
519
397
215
226
111
10,141
(5,552)
183
(5,369)
4,772

3,507
592
2,915
332
2,583

4,700
1,017
564
426
367
320
309
214
837
8,754
426
150

233
-
9,563

(2,208)
(1,395)
(813)

(421)
(151)
(270)
-
(1,083)
(1)
(283)

$ 3,370 (b) $2,376 (b)

1,560

1,685
1,065 (c) 1,187 (c)
6,120
3,218
1,462
514
421
186
207 (c)
214 (c)

5,123
2,153
786
346
212
216
207 (c)
211 (c)

12,342
(1,628)
-
(1,628)
10,714

5,524
2,665
2,859
104
2,755

9,254
(201)
-
(201)
9,053

5,670
3,425
2,245
(11)
2,256

5,189 (d) 4,126 (d)
760 (d)
1,021 (d)
447
570
268
517
280
331
406 (b)
335 (b)
266
323
189
278
1,822 (e)
634
7,376
10,386
314
473
-
181

471
12
11,523

1,946
491
1,455

28
14
14
(26)
1,443
(24)
(33)

355
49
8,094

3,215
987
2,228

13
3
10
(180)
2,058
(19)
-

Net income (loss) applicable to common shareholders of The Bank of New York Mellon

Corporation

$ (1,367)

$ 1,386

$2,039

BNY Mellon

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

Consolidated Income Statement (continued)

Earnings per common share applicable to the common shareholders’

of The Bank of New York Mellon Corporation

(in dollars)

Basic:

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

Net income (loss) applicable to common stock (f)

Diluted: (g)

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

Net income (loss) applicable to common stock (f)

Average common shares and equivalents outstanding

(in thousands)

Basic
Common stock equivalents
Participating securities

Diluted

Anti-dilutive securities (h)

Reconciliation of net income (loss) from continuing operations applicable to the

common shareholders’ of The Bank of New York Mellon Corporation

(in millions)

Income (loss) from continuing operations
Net (income) loss attributable to noncontrolling interests, net of tax

Income (loss) from continuing operations attributable to The Bank of New York Mellon

Corporation

Redemption charge and preferred dividends

Income (loss) from continuing operations applicable to common shareholders of The Bank

of New York Mellon Corporation, net of tax

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

Year ended Dec. 31,

2009

2008

2007 (a)

(0.93)
(0.23)
-

(1.16)

(0.93)
(0.23)
-

(1.16)

1.21
0.01
(0.02)

1.20

1.21
0.01
(0.02)

1.20

2.37
0.01
(0.19)

2.19

2.35
0.01
(0.19)

2.17

Year ended Dec. 31,

2009

2008

2007 (a)

1,178,907
-
-

1,142,239
10,383
(4,264)
1,178,907 (g) 1,148,358

923,199
11,505
(4,028)

930,676

98,112

83,763

67,171

Year ended Dec. 31,

2009

(813)
(1)

(814)
(283)

(1,097)
(270)
-

2008

1,455
(24)

1,431
(33)

1,398
14
(26)

2007 (a)

2,228
(19)

2,209
-

2,209
10
(180)

Net income (loss) applicable to the common shareholders of The Bank of New York

Mellon Corporation

(1,367)

1,386

2,039

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

In 2009, global sub-custodian out-of-pocket expense related to client reimbursements was reclassified from sub-custodian expense to
asset servicing revenue. This reclassification totaled $22 million in 2008 and $23 million in 2007.
In 2009, fee revenue associated with equity investments was reclassified from clearing services revenue and other revenue to
investment income. Fee revenue associated with an equity investment previously recorded in clearing services revenue was $22 million
in 2008 and $5 million in 2007. Fee revenue associated with an equity investment previously recorded in other revenue was $32
million in 2008 and $53 million in 2007. Prior periods have been reclassified.
In 2009, certain temporary/consulting expenses were reclassified from professional, legal and other purchased services to staff
expense. This reclassification totaled $100 million in 2008 and $19 million in 2007.
Includes support agreement charges of $894 million in 2008.

(e)
(f) Basic and diluted earnings per share under the two-class method were calculated after deducting earnings allocated to participating

(c)

(d)

securities of $- million in 2009, $9.7 million in 2008 and $17.3 million in 2007.

(g) Diluted earnings per share for the year ended Dec. 31, 2009, was calculated using average basic shares. Adding back the dilutive

shares would be anti-dilutive.

(h) Represents stock options, restricted stock, restricted stock units, participating securities and warrants outstanding that are not

included in the computation of diluted average common shares because their effect would be anti-dilutive.

See accompanying Notes to Consolidated Financial Statements.

92 BNY Mellon

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

Consolidated Balance Sheet

(dollar amounts in millions, except per share amounts)

Assets
Cash and due from:

Banks
Interest-bearing deposits with the Federal Reserve and other central banks

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 $4,240 and $6,333)
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 $863 and $1,870 at fair value)
Assets of discontinued operations
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 $125 and $114, also

includes $610 and $721, at fair value)

Long-term debt
Liabilities of discontinued operations
Total liabilities

Equity
Preferred stock – par value $0.01 per share; authorized 100,000,000 shares;

issued – shares and 3,000,000 shares

Common stock – par value $0.01 per common share; authorized 3,500,000,000 common shares;

issued 1,208,861,641 and 1,148,507,561 common shares

Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss, net of tax
Less: Treasury stock of 1,026,927 and 40,262 common shares, at cost

Total The Bank of New York Mellon Corporation shareholders’ equity

Noncontrolling interests
Total equity
Total liabilities and equity

See accompanying Notes to Consolidated Financial Statements.

Dec. 31,

2009

2008

3,732
7,362
-
56,302
3,535

4,417
51,632
56,049
6,001
36,689
(503)
36,186
1,602
639
16,249
5,588
16,737
2,242
$212,224

$ 33,477
32,944
68,629
135,050
-
3,348
6,396
10,721
12
477
4,484

3,891
17,234
1,608
183,221

4,889
53,270
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

4,618
15,865
-
209,423

2,786

12
21,917
8,912
(1,835)
(29)
28,977
26
29,003
$212,224

11
20,432
10,225
(5,401)
(3)
28,050
39
28,089
$237,512

BNY Mellon

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

Consolidated Statement Of Cash Flows

(in millions)

Operating activities

Net income (loss)
Net income attributable to noncontrolling interests, net of tax
Income (loss) from discontinued operations, net of tax
Extraordinary (loss), net of taxes
Income (loss) from continuing operations attributable to The Bank of New York Mellon Corporation
Adjustments to reconcile net income (loss) to cash provided by (used for) operating activities:

Provision for credit losses
Depreciation and amortization
Deferred tax (benefit) expense
Securities losses and venture capital income

Change in trading activities
Pension plan contribution
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 with 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
Sale of Grantor Trust Series A senior tranche
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 cash
Proceeds from the sale of premises and equipment
Other, net
Net effect of discontinued operations

Net cash provided by (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
Series B preferred stock issued/(repurchased)
Common stock warrant issued/(repurchased)
Preferred dividends paid
Net effect of discontinued operations

Net cash provided by (used for) 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

Supplemental disclosures

Interest paid
Income taxes paid
Income taxes refunded

Year ended Dec. 31,

2009

2008

2007 (a)

$ (1,083)
(1)
(270)
-
(814)

$ 1,443
(24)
14
(26)
1,431

$ 2,058
(19)
10
(180)
2,209

332
711
(1,970)
5,387
(636)
(394)
1,192
(27)
3,781

(9,635)
45,908
(680)
(114)
643
280
(28,665)
3,204
6,361
2,001
771
4,948
851
(1,545)
(8)
(318)
(364)
-
6
(987)
431
23,088

(24,774)
2,602
1,447
(5,717)
(126)
3,350
(1,882)
16
1,371
4
(28)
(599)
(3,000)
(136)
(73)
(428)
(27,973)
(53)

104
878
(1,257)
1,659
(368)
(80)
513
34
2,914

(13,973)
(53,270)
1,233
-
267
238
(11,561)
114
4,950
5,468
-
4,660
334
6,095
56
(303)
(511)
310
41
(171)
48
(55,975)

48,780
(660)
1,696
5,596
(3,941)
2,647
(4,082)
182
40
14
(308)
(1,107)
2,779
221
(22)
(82)
51,753
(438)

(11)
820
(146)
141
1,949
(29)
(927)
(36)
3,970

(10,625)
-
(43)
-
228
233
(30,398)
2,600
4,862
16,023
-
(2,201)
52
(2,603)
136
(313)
1,431
-
1
1,234
(2,191)
(21,574)

17,667
(711)
313
(772)
(295)
4,617
(1,131)
475
20
55
(113)
(884)
-
-
-
2,227
21,468
(69)

(1,157)
4,889
$ 3,732

(1,746)
6,635
$ 4,889

682
2,392
664

$ 2,682
2,455
65

3,795
2,840
$ 6,635

$ 3,521
1,390
147

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

See accompanying Notes to Consolidated Financial Statements.

94 BNY Mellon

The Bank of New York Mellon Corporation shareholders’

Preferred
stock
-

Common
stock
$10

Additional
paid-in
capital

Retained
earnings
$10,035 $ 9,255

Accumulated
other
comprehensive
income (loss),
Treasury
net of tax
stock
$ (292) $(7,576)

ESOP
loan
$(3)

Non-
controlling
interests

Total
equity

$ 171 $11,600 (a)

-
10
-

-
10,035
-

-
(7,576)
-

-
(3)
-

-
171
(7)

(416)
11,184
(7)

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

Consolidated Statement of Changes in Equity

(in millions, except per share amounts)

Balance at Dec. 31, 2006
Adjustments for the cumulative effect of

applying ASC 740 and ASC 840, net of
taxes of ($214)

Adjusted balance at Jan. 1, 2007
Distributions paid to noncontrolling interest
Comprehensive income:

Net income
Other comprehensive income,

net of tax
Reclassification adjustment

Total comprehensive income
Dividends on common stock at $0.95 per

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 ASC 715 and ASC 825, net of
taxes of $24

Adjusted balance at Jan. 1, 2008
Purchase of subsidiary shares from

non-controlling interest

Distributions paid to noncontrolling interest
Comprehensive income:

Net income
Other comprehensive income,

net of tax
Reclassification adjustment
Total comprehensive income
Dividends on common stock at $0.96 per

Dividends on preferred stock at $8.75 per

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

-
-
-

-
-

-
-
-

-
-

-
-
-

-
-

(416)
8,839
-

2,039

-
-
2,039

(884)
-

-
-
-

-
-

-
-
-

-
-

-
-
(3)
4
-
$11

(35)
644
(7,541)
16,846
16

-
-
-
-
(4)
$19,990 $ 9,990

-
-

-
-
-

-
-

-
-
-

-
-

1,419

-
-
1,419

(1,107)

(26)
-

(3)

-
2,779
7
-
-
-
$2,786

-
-
-
-
-
-
$11

-
-
-
200
221
9

(1)
-
(7)
-
-
17
$20,432 $10,225

-
(292)
-

(231)
(26)
(257)

-
-

-
-
-
-
-

$ (549) $

-
-
-

-
(113)

35
69
7,544
-
-
(39)

-
-

(5,824)
972
(4,852)

-
-

-
-
-
-
-
-

$(5,401) $

-
-

-
-
-

-
(308)

31
-
-
249
-
6
(3)

-
11

-
19,990

(57)
9,933

-
(549)

-
(39)

-
-
-

-
-

-
-
-
-
-
$ -

-
-

-
-
-

-
-

-
-
-
-
-
-
$ -

(1)
-
18

-
-

-
-
-
-
-

2,058

(232)
(26)
1,800

(884)
(113)

-
713
-
16,850
12

182 $29,585 (a)

-
182

(57)
29,528

(148)
(7)

1,443

(12)
-
12

-
-

-
-
-
-
-
-

(5,836)
972
(3,421)

(1,107)

(26)
(308)

30
2,779
-
449
221
32

$ 39 $28,089 (a)

BNY Mellon

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

Consolidated Statement of Changes in Equity (continued)

The Bank of New York Mellon Corporation shareholders’

Preferred
stock
$ 2,786

Common
stock
$11

Additional
paid-in
capital

Retained
earnings
$20,432 $10,225

Accumulated
other
comprehensive
income (loss),
net of tax
$(5,401)

Treasury
stock
$ (3)

ESOP
loan
$ -

Non-
controlling
interests

Total
equity

$ 39 $28,089 (a)

-
2,786

-
11

-
20,432

676
10,901

(676)
(6,077)

-
(3)

-
-
-

-
-
(3,000)
-
-

-
-
-

-
-
-
-
1

(74)

-
-
-

-
-
-
(136)
1,346

(1,084)

-
-
(1,084)

(599)

(69)
-
-
-
-

926
3,316
4,242

-
-
-
-
-

-
-
-

-
(28)
-
-
-

-
-

-
-
-

-
-
-
-
-

214
-
-
-

-
-
-
$12

-
197
(1)

(214)
-
(23)
$21,917 $ 8,912

-
-
-
$(1,835)

-
-
-
$(29)

-
-
-
$ -

-
39

(11)

(7)

-
28,089

(85)

(7)

4
-
5

-
-
-
-
-

-
-
-

(1,083)

930
3,316 (b)
3,163

(599)

(69)
(28)
(3,000)
(136)
1,347

-
197
(24)

$ 26 $29,003 (a)

(in millions, except per share amounts)

Balance at Dec. 31, 2008
Adjustments for the cumulative effect
of applying ASC 320, net of taxes of
$470

Adjusted balance at Jan. 1, 2009
Purchase of subsidiary shares from

noncontrolling interest

Distributions paid to noncontrolling

interest

Comprehensive income:

Net income
Other comprehensive income, net of

tax
Reclassification adjustment

Total comprehensive income

Dividends on common stock at $0.51

per share

Dividends on preferred stock at $24.58

per share

Repurchase of common stock
Repurchase of Series B preferred stock
Repurchase of common stock warrant
Common stock issued in public offering
Common stock issued in connection
with acquisitions and investments
Common stock issued under employee

benefit plans

Common stock issued under direct
stock purchase and dividend
reinvestment plan

Amortization of preferred stock

discount and redemption charge
Stock awards and options exercised
Other
Balance at Dec. 31, 2009
(a)

Includes total common shareholders’ equity of $11,429 million at Dec. 31, 2006, $29,403 million at Dec. 31, 2007, $25,264 million at Dec. 31, 2008 and
$28,977 million at Dec. 31, 2009.
Includes $3,348 million (after tax) related to OTTI which was reclassified to net securities gains (losses) on the income statement.

(b)

See accompanying Notes to Consolidated Financial Statements.

96 BNY Mellon

Notes to Consolidated Financial Statements

1. Summary of significant accounting and
reporting policies

Equity method investments at Dec. 31, 2009
(dollars in millions)

Percent Ownership

Book Value

CIBC Mellon
Wing Hang
Siguler Guff
West LB Joint Venture
ConvergEx

50.0%
20.3%
20.0%
50.0%
33.8%

$586
$316
$245
$128
$ 82

The income statement and balance sheet include
results of acquired businesses accounted for under the
acquisition method of accounting pursuant to ASC
805—Business Combinations and equity investments
from the dates of acquisition. For acquisitions prior to
Jan. 1, 2009, we recorded any contingent purchase
payments when the amounts were resolved and
became payable. For acquisitions occurring after
Dec. 31, 2008, contingent purchase consideration was
measured at its fair value and recorded on the
purchase date.

The Parent financial statements in Note 22 of the
Notes to Consolidated Financial Statements include
the accounts of the Parent; those of a wholly owned
financing subsidiary that functions as a financing
entity for BNY Mellon and its subsidiaries by issuing
commercial paper and other debt guaranteed by BNY
Mellon; and MIPA, LLC, a single member company,
created to hold and administer corporate owned life
insurance. Financial data for the Parent, 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 BNY Mellon 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”). BNY Mellon’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

Basis of Presentation

The accounting and financial reporting policies of
BNY Mellon, 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 the near term, 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 accounting, 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 the opinion of management, all adjustments
necessary for a fair presentation of financial position,
results of operations and cash flows for the annual
periods have been made. Certain other immaterial
reclassifications in addition to discontinued operations
(see Note 4 of the Notes to Consolidated Financial
Statements) have been made to prior years to place
them on a basis comparable with current period
presentation.

The consolidated financial statements include the
accounts of BNY Mellon 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:

BNY Mellon

Notes to Consolidated Financial Statements (continued)

consolidate a VIE, if BNY Mellon 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
ASC 860—Transfers and Servicing are met. Those
conditions focus on whether the entity is
demonstrably distinct from BNY Mellon, 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 the required
true-sale opinions from outside counsel on all
securitizations. We have determined that all of our
securitization trusts are QSPEs.

Nature of operations

BNY Mellon 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. BNY Mellon’s asset management businesses
provide investment products in many asset classes and
investment styles on a global basis.

98 BNY Mellon

Trading account securities, available-for-sale
securities, and held-to-maturity securities

Securities are accounted for under ASC 320
Investments—Debt and Equity Securities. Securities
are generally classified in the trading,
available-for-sale investment or the held-to-maturity
investment securities portfolios when they are
purchased. Securities are classified as trading
securities when our intention is to resell. 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 classified as other assets, trading
securities or available- for-sale securities, depending
on the nature of the investment and management’s
intent.

Trading 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 liabilities at fair
value.

Available-for-sale securities are stated at fair value.
The difference between fair value and amortized cost
representing unrealized gains or losses on assets
classified as available-for-sale, are recorded net of tax
as an addition to or deduction from other
comprehensive income, unless a security is deemed to
have an other than temporary impairment (“OTTI”).
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. Held-to-maturity
securities are stated at cost.

Income on securities purchased is adjusted for
amortization of premium and accretion of discount on
a level yield basis, unless a security is other-than-
temporarily impaired.

Effective 2009, the Company adopted FAS 115-2 and
FAS 124-2 “Recognition and Presentation of Other-
Than-Temporary Impairments” (included in ASC 320)
which changed the accounting disclosure for OTTI.

Notes to Consolidated Financial Statements (continued)

Under this new guidance, only the credit component
of an OTTI of a debt security is recognized in
earnings and the noncredit component is recognized in
other comprehensive income (“OCI”) when we do not
intend to sell the security and it is more likely than not
that BNY Mellon will not be required to sell the
security prior to recovery.

For held-to-maturity debt securities, the amount of
OTTI recorded in OCI for the non-credit portion of a
previous OTTI is amortized prospectively, as an
increase to the carrying amount of the security, over
the remaining life of the security on the basis of the
timing of future estimated cash flows of the securities.
Effective with the adoption of the new accounting
guidance in 2009, management is required to assert
that it does not have the intent to sell the security and
that it is more likely than not it will not have to sell
the security before recovery of its cost basis in order
not to be required to recognize non-credit component
of an OTTI in earnings.

If we intend to sell the security or it is more likely
than not that BNY Mellon will be required to sell the
security prior to recovery, the non-credit component
of OTTI is recognized in earnings and subsequently
accreted to interest income on an effective yield basis
over the life of the security.

ASC 325 Investments—Other provides additional
specific guidance for unrated investments which are
beneficial interests in securitized financial assets.
BNY Mellon decides whether a security is within the
scope of ASC 325 upon its acquisition and does not
alter this decision if the security is subsequently
downgraded. Under ASC 325, the excess of future
estimated cash flows over the initial carrying amount
of the investment is accreted to interest income over
the life of the investment using the effective yield
method.

We routinely conduct periodic reviews to identify and
evaluate each investment security to determine
whether OTTI has occurred. We examine various
factors when determining whether an impairment,
representing the fair value of a security being below
its amortized cost, is other than temporary. The
following are examples of factors that BNY Mellon
considers:

Š The length of time and the extent to which the
fair value has been less than the amortized cost
basis;

Š Whether management has an intent to sell the

security;

Š Whether the decline in fair value is attributable
to specific adverse conditions affecting a
particular investment;

Š Whether the decline in fair value is attributable
to specific conditions, such as conditions in an
industry or in a geographic area;

Š Whether a debt security has been downgraded

by a rating agency;

Š Whether a debt security exhibits cash flow

deterioration; and

Š For each non-agency RMBS, we compare the
remaining credit enhancement that protects the
individual security from losses against the
projected losses of principal and/or interest
expected to come from the underlying mortgage
collateral, to determine whether such credit
losses might directly impact the relevant
security.

The accounting policies for the determination of the
fair value of financial instruments and OTTI 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 investment income. Considering the nature of these
leases and the number of significant assumptions,
there is risk associated with the income recognition on
these leases should any of the assumptions change
materially in future periods.

BNY Mellon

Notes to Consolidated Financial Statements (continued)

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 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. 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 become current.

A loan is considered to be impaired, as defined by
ASC 310—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 ASC 310. Impaired
loans greater than $1 million 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.

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 BNY Mellon’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.

100 BNY Mellon

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 allowance 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

BNY Mellon 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,

Notes to Consolidated Financial Statements (continued)

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
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 BNY Mellon’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
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.

BNY Mellon

101

Notes to Consolidated Financial Statements (continued)

BNY Mellon’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

BNY Mellon 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,
and/or recording of current or deferred tax liabilities.
Interest and penalties related to income taxes are
recorded as income tax expense.

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.

102 BNY Mellon

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.
Foreign currency transaction gains and losses related
to a hedged net investment in a foreign operation, net
of their tax effect, are recorded with cumulative
foreign currency translation adjustments within 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
minimis 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
such changes when they occur. Quarterly, we perform
a quantitative effectiveness assessment and record any
ineffectiveness in current earnings.

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

Notes to Consolidated Financial Statements (continued)

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, as cash and due from banks.
Cash flows from hedging activities are classified in
the same category as the items hedged.

Stock options

We are using the “modified prospective” method
included in ASC 718 Compensation—Stock
Compensation. Under this method, compensation cost
is recognized for all share-based payments granted
after Jan. 1, 2006 and for all awards granted to
employees prior to Jan. 1, 2006 that were unvested on
Jan 1, 2006. Stock option grants are amortized using
the straight-line method.

Certain of our stock compensation grants vest when
the employee retires. ASC 718 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
period.

2. Accounting changes and new accounting
guidance

Noncontrolling interests and selected implementation
questions

In December 2007, the FASB issued new guidance on
noncontrolling interests included in ASC 810—
Consolidation. This amends previous guidance 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 guidance applies to all entities that prepare
consolidated financial statements. This guidance
clarifies that a noncontrolling interest in a subsidiary

is part of the equity of the controlling group and is
reported on the balance sheet within the equity section
separately from BNY Mellon’s equity as a distinct
item. The equity section of the balance sheet is
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 this guidance on Jan. 1, 2009. This
guidance required retrospective application. As a
result, effective Jan. 1, 2009, we reclassified $39
million of minority interest from liabilities to equity
on our balance sheet. Net income attributable to
noncontrolling interests was $1 million in 2009, $24
million in 2008 and $19 million in 2007.

Business combinations

In December 2007, the FASB issued new guidance on
business combinations included in ASC 805—
Business Combinations. This guidance requires all
acquisitions of businesses to be measured at the fair
value of the net assets acquired rather than the cost
allocation process specified in previous guidance. The
adoption of this guidance did not have a significant
impact on our financial position or 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 transaction costs, such as legal,
investment banking, and due diligence costs, to be
expensed as incurred and requires earn out
contingencies to be measured at fair value. The
accounting requirements of this guidance are applied
on a prospective basis for all transactions completed
subsequent to Dec. 31, 2008.

BNY Mellon

103

Notes to Consolidated Financial Statements (continued)

Participating securities

In June 2008, the FASB issued new guidance,
included in ASC 260—Earnings Per Share, on
determining whether instruments granted in share-
based payment transactions are participating securities
prior to vesting and, therefore, need to be included in
the earnings allocation in computing earnings per
share (“EPS”) under the two-class method. This
guidance applies to the calculation of EPS for share-
based payment awards with rights to dividends or
dividend equivalents. Unvested share-based payment
awards that contain non-forfeitable rights to dividends
or dividend equivalents (whether paid or unpaid) are
participating securities and are included in the
computation of EPS pursuant to the two-class method.
This guidance was effective Jan. 1, 2009. The
adoption reduced basic EPS by approximately $0.01
for the year ended Dec. 31, 2008. All prior period EPS
data was adjusted to conform to the provisions of this
guidance.

Useful life of intangible assets

In April 2008, the FASB issued new guidance on the
determination of the useful life of intangible assets,
included in ASC 350—Intangibles—Goodwill and
Other. This guidance amended the factors that should
be considered in renewal or extension assumptions
used to determine the useful life and initial fair value
of recognized intangible assets. The new guidance
became effective Jan. 1, 2009.

BNY Mellon estimates the fair value of intangible
assets at acquisition generally on the basis of an
income approach using discounted estimated cash
flows. For customer relationship and customer
contract intangibles, the expected renewals by
customers are included in estimating the period over
which cash flows will be generated to BNY Mellon.
Estimates of customer renewals are generally based
upon the historical information of the acquired
intangible assets, and also consider BNY Mellon’s
own historical experience with similar types of
customer relationships and contracts. In the absence of
historical information or our own experience, we use
assumptions market participants would expect to use
consistent with the highest and best use of the assets.

Intangibles are amortized over the periods of and in a
pattern that is consistent with the identifiable cash
flows, or on a straight-line method over the benefit
period if the pattern of cash flows is not estimable.

104 BNY Mellon

The initial application of this guidance did not impact
BNY Mellon as it already considers expected
customer renewals or extensions in cash flow
estimates used to estimate fair values and useful lives.
BNY Mellon does not capitalize any costs incurred
that may contribute to the renewal or extension of any
customer relationship and contract intangibles.

Other-than-temporary impairment

In April 2009, the FASB issued new guidance on
recognition and presentation of other-than-temporary
impairments, included in ASC 320—Investments —
Debt and Equity Securities. This new guidance
replaced the “intent and ability” indication in previous
guidance by specifying that (a) if a company does not
have the intent to sell a debt security prior to recovery
and (b) it is more likely than not that it will not have
to sell the debt security prior to recovery, the security
would not be considered other-than-temporarily
impaired unless there is a credit loss. When an entity
does not intend to sell the security and it is more
likely than not that the entity will not have to sell the
security before recovery of its cost basis, it will
recognize the credit component of an other-than-
temporary impairment of a debt security in earnings
and the remaining portion in other comprehensive
income. For held-to-maturity debt securities, the
amount of OTTI recorded in OCI for the non-credit
portion of a previous OTTI should be amortized
prospectively over the remaining life of the security
on the basis of the timing of future estimated cash
flows of the security.

ASC 320 requires entities to initially apply the
provisions of the standard to previously other-than-
temporarily impaired debt securities (i.e. debt
securities that the entity does not intend to sell and
that the entity is not more likely than not required to
sell before recovery) existing as of the date of initial
adoption by making a cumulative-effect adjustment to
the opening balance of retained earnings in the period
of adoption. The cumulative-effect adjustment
reclassifies the noncredit portion of a previously
other-than-temporarily impaired debt security held as
of the date of initial adoption to accumulated OCI
from retained earnings.

This guidance also amends the previous disclosure
provisions of ASC 320 for both debt and equity
securities. It requires disclosures in interim and annual
periods for major security types identified on the basis
of how an entity manages, monitors and measures its
securities and the nature and risks of the security. We

Notes to Consolidated Financial Statements (continued)

adopted this new guidance effective Jan 1, 2009. As a
result of adopting this guidance, BNY Mellon
recorded a cumulative-effect adjustment as of the
beginning of the first quarter of 2009 of $676 million
(after-tax) to reclassify the non-credit component of
the previously recognized OTTI from retained
earnings to accumulated OCI (for those securities
where management did not intend to sell the security
and it was not more likely than not that BNY Mellon
would have been required to sell the securities before
recovery). Additionally, the new accounting
prescribed for recording OTTI on debt securities
increased net income by $126 million and diluted
earnings per common share by $0.11 in 2009.

Nonactive markets

In April 2009, the FASB issued new guidance on
determining fair value when the volume and level of
activity for the asset or liability have significantly
decreased and identifying transactions that are not
orderly, included in ASC 820—Fair Value
Measurements and Disclosures. The fair value of an
asset, when the market is not active, is the price that
would be received to sell the asset in an orderly
transaction (that is, not a forced liquidation or
distressed sale) between market participants at the
measurement date under current market conditions
(that is, the inactive market). Entities need to conclude
whether a transaction was orderly based on the weight
of evidence. When estimating fair value, more weight
is placed on transactions that BNY Mellon concludes
are orderly and less weight on transactions for which
we do not have sufficient information to conclude
whether the transaction is orderly. This new guidance
also amends the disclosure provisions of ASC 820 to
require entities to disclose on interim and annual
periods the inputs and valuation techniques used to
measure fair value.

ASU 2009-5—Measuring Liabilities at Fair Value

In August 2009, the FASB issued Accounting
Standards Update (“ASU”) 2009-5, “Measuring
Liabilities at Fair Value.” This update provides
amendments to ASC 820 for the fair value
measurement of liabilities. This new guidance
provides clarification that in circumstances in which a
quoted market price in an active market for the
identical liability is not available, a reporting entity is
required to measure fair value using the following
techniques: (1) a valuation technique that uses the
quoted price of the identical liability when traded as
an asset, and quoted prices for similar liabilities or

similar liabilities when traded as assets, or (2) another
valuation technique that is consistent with the
principles of ASC 820. In applying the above
techniques, an entity must maximize the use of
relevant observable inputs and minimize the use of
unobservable inputs. If applicable, an entity must also
apply the guidance in ASC 820 for identifying
transactions that are not orderly and for determining
fair value when the volume and level of activity for an
asset or liability have significantly decreased. This
guidance was effective Oct. 1, 2009 and did not have
a significant impact on BNY Mellon.

ASU 2009-12—Investments in Certain Entities that
Calculate Net Asset Value per Share

In September 2009, the FASB issued ASU 2009-12,
“Fair Value Measurements and Disclosures:
Investments in Certain Entities That Calculate Net
Asset Value per Share (or Its Equivalent),” (Topic
820). ASU 2009-12 offers guidance on how to use a
net asset value per share to estimate the fair value on
investments in investment vehicles such as hedge
funds, private equity funds, real estate funds, venture
capital funds, offshore fund vehicles and fund of
funds. Investors may use net asset value to estimate
the fair value of investments in investment companies
that do not have a readily determinable fair value if
the investees have the attributes of investment
companies and the net asset values or their equivalents
are calculated consistent with the AICPA Audit and
Accounting Guide, Investment Companies, which
generally requires investments to be measured at fair
value. This approach is deemed to be a “practical
expedient” for investors in investment companies as
the GAAP fair-value measurement framework defines
an asset’s fair value as its current exit price. ASU
2009-12 has limitations and disclosure requirements
about the nature and terms of the investments within
the scope of the new guidance. ASU 2009-12 was
effective Dec. 31, 2009. Note 8 reflects these
disclosure requirements.

Adopted in 2008

Fair value measurements

We adopted guidance related to “Fair value
measurements” included in ASC 820, effective Jan. 1,
2008. This guidance defined fair value as the amount
that would be exchanged to sell an asset or transfer a
liability, in an orderly transaction between market
participants. It also established a three-level hierarchy
based on the transparency of the inputs to the

BNY Mellon

105

Notes to Consolidated Financial Statements (continued)

valuations of an asset or liability. In addition, this
guidance requires us to consider the effect of our own
credit standing in determining the fair value of our
liabilities. The requirements of ASC 820 were applied
prospectively, except in certain situations, which were
recorded as an adjustment to beginning retained
earnings in 2008. See Note 24 of the Notes to
Consolidated Financial Statements.

Fair value option

ASC 825 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. We elected the
fair value option for $390 million of existing loans
and unfunded loan commitments. The first
re-measurement of existing financial instruments for
which the option was elected was recorded as an
adjustment to retained earnings.

As a result of adopting the fair value option on these
loans and commitments, we recorded an aggregate
charge to retained earnings as of Jan. 1, 2008, of $36
million, after tax. See Note 25 of the Notes to
Consolidated Financial Statements.

3. Acquisitions and dispositions

We sometimes structure our acquisitions with both an
initial payment and later contingent payments tied to
post-closing revenue or income growth. For
acquisitions completed prior to Jan. 1, 2009, we
record the fair value of contingent payments as an
additional cost of the entity acquired in the period that
the payment becomes probable. For acquisitions
completed after Jan. 1, 2009, subsequent changes in
the fair value of a contingent consideration liability
will be recorded through the income statement.
Contingent payments totaled $36 million in 2009.

At Dec. 31, 2009, we were potentially obligated to
pay additional consideration which, using reasonable
assumptions for the performance of the acquired
companies and joint ventures based on contractual
agreements, could range from approximately $80
million to $130 million over the next four years.

Potential contingent additional consideration of $7
million was recorded as goodwill at Dec. 31, 2009.

106 BNY Mellon

Acquisitions in 2009

In November 2009, we acquired Insight Investment
Management Limited (“Insight”) for £235 million
($377 million of cash and stock). Based in London,
Insight specializes in liability-driven investment
solutions, active fixed income and alternative
investments. Its clients include some of the UK’s
largest pension schemes, corporates, insurance
companies and local authorities. Insight had $138
billion in assets under management at acquisition.
Goodwill related to this acquisition is non-tax
deductible and totaled $202 million. Intangible assets
(primarily customer contracts) related to the
transaction, with a life up to 11 years, totaled $111
million. The impact of this acquisition is not expected
to be material to earnings per share in 2010.

In November 2009, BNY Mellon acquired a 20%
minority interest in Siguler Guff & Company, LLC
(and certain related entities), a multi-strategy private
equity firm with approximately $8 billion in assets
under management and committed capital. The impact
of this acquisition is not expected to be material to
earnings per share.

Divestitures in 2009

On Jan. 15, 2010, BNY Mellon sold MUNB, our
national bank subsidiary located in Florida. The
results for MUNB were classified as discontinued
operations. See Note 4 for additional information on
the MUNB transaction.

Acquisitions in 2008

In January 2008, we acquired ARX Capital
Management (“ARX”). ARX is a leading independent
asset management business, headquartered in Rio de
Janeiro, Brazil. 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. (Blackfriars Asset
Management) businesses from our Asset Management
joint venture with WestLB. The impact of this
acquisition was not material to earnings per share.

Dispositions in 2008

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

Notes to Consolidated Financial Statements (continued)

million of revenue and $45 million of pre-tax income
in 2007.

In June 2008, we sold Mellon 1st Business Bank
(“M1BB”), based in Los Angeles, California. There
was no gain or loss recorded on this transaction.
Pre-tax income for M1BB was $50 million for full
year 2007 and was primarily comprised of net interest
revenue.

Acquisitions 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, “BNY Mellon”), with BNY Mellon
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 BNY Mellon’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 BNY Mellon’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
BNY Mellon’s $0.01 par value common stock.
Goodwill and intangibles related to the merger with
Mellon Financial were approximately $16 billion.

Other 2007 acquisition

In December 2007, we completed the acquisition of
the remaining 50% interest in BNY Mellon Asset
Servicing B.V.

The pro forma results are based on adding the pre-tax
historical results of Mellon Financial 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. The pro forma data is intended for
informational purposes and is not indicative of the
future results of operations.

4. Discontinued operations

On Jan. 15, 2010, BNY Mellon sold MUNB, our
national bank subsidiary located in Florida. As a
result, we applied discontinued operations accounting
to this business and the income statements for all
periods in this Annual Report have been restated. This
business, which was previously reported in the Other
segment, no longer fit our strategic focus on our asset
management and securities servicing businesses.
Results for discontinued operations in 2009 were a
loss of $270 million largely related to write-downs for
retained South Florida real estate loans and the
elimination of $82 million of goodwill.

Summarized financial information for discontinued
operations is as follows:

Discontinued operations assets and liabilities (a)
(in millions)

Dec. 31,
2009

Cash and due from banks
Securities
Loans, net of allowance for loan losses
Premises and equipment
Other assets

Assets of discontinued operations

Deposits:

Noninterest-bearing
Interest-bearing

Total deposits

Other liabilities

Liabilities of discontinued operations

$ 446
488
1,225
12
71

$2,242

$ 539
958

1,497
111

$1,608

Pro forma condensed combined financial information

(a) Prior period balance sheets, in accordance with GAAP, were

not restated for discontinued operations.

On a pro forma basis, the merger with Mellon
Financial would have had the following impact:

(dollar amounts in millions,
except per share amounts)

Revenue
Income from continuing operations
Net income

Diluted earnings per share:

2007

Reported

Pro forma

$11,334
2,227
2,039

$14,219
3,000
2,815

Income from continuing operations
Net income

2.38
2.18

2.63
2.46

BNY Mellon

107

Notes to Consolidated Financial Statements (continued)

Discontinued operations
(in millions)

Fee and other revenue
Net interest revenue
Provision for loan losses

Net interest revenue after provision for loan losses

Noninterest expense:

Staff
Professional, legal and other purchased services
Net occupany
Other
Goodwill impairment

Total noninterest expense

Income (loss) from discontinued operations

Loss on assets held for sale
Provision (benefit) for income taxes

2009

2008

2007 (a)

7
59
191

(132)

37
4
5
16
50

112

(237)
(184)
(151)

$24
93
27

26
10
5
21
-

28
-
14

$20
55
1

28
8
3
22
-

13
-
3

Income (loss) from discontinued operations, net of taxes

$(270)

$14

$10

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

5. Securities

The following tables set forth the amortized cost and the fair value of securities at the end of the last two years.

Securities at Dec. 31, 2009

(in millions)

Available-for-sale:
U.S. Treasury
U.S. Government agencies
State and political subdivisions
Agency MBS
Alt-A RMBS
Prime RMBS
Subprime RMBS
Other RMBS
Commercial MBS
Asset-backed CLOs
Other asset-backed securities
Other debt securities
Equity securities
Grantor Trust Class B certificates (b)
Total securities available-for-sale

Held-to-maturity:
State and political subdivisions
Agency MBS
Alt-A RMBS
Prime RMBS
Subprime RMBS
Other RMBS
Commercial MBS
Other debt securities
Other securities

Total securities held-to-maturity

Total securities

Amortized
cost

Gross unrealized

Gains

Losses

Fair
value

$ 6,358
1,235
538
18,247
588
1,743
758
2,199
2,762
424
869
11,419
1,314
4,049

52,503

150
531
304
189
30
3,195
11
3
4

4,417

$ 30
25
6
303
12
3
-
1
31
15
5
86
8
111

636

3
30
-
-
-
39
-
-
-

10
-
24
95
63
234
311
430
203
50
38
48
1
-

$ 6,378
1,260
520
18,455
537
1,512
447
1,770
2,590
389
836
11,457 (a)
1,321
4,160

1,507

51,632

-
-
62
17
7
162
1
-
-

249

153
561
242
172
23
3,072
10
3
4

4,240

$56,920

$708

$1,756

$ 55,872

Includes $10.8 billion, at fair value, of government-sponsored and government-guaranteed entities.

(a)
(b) The Grantor Trust contains Alt-A, prime and subprime RMBS.

108 BNY Mellon

Notes to Consolidated Financial Statements (continued)

Securities at Dec. 31, 2008

(in millions)

Available-for-sale:
U.S. Treasury
U.S. Government agencies
State and political subdivisions
Agency RMBS
Alt-A RMBS
Prime RMBS
Subprime RMBS
Other RMBS
Commercial MBS
Asset-backed CLOs
Other asset-backed securities
Other debt securities
Equity securities

Total securities available-for-sale

Held-to-maturity:
State and political subdivisions
Agency RMBS
Alt-A RMBS
Prime RMBS
Subprime RMBS
Other RMBS
Commercial MBS
Other debt securities
Other securities

Total securities held-to-maturity

Total securities

Amortized
cost

Gross unrealized

Gains

Losses

746
1,259
896
10,862
5,164
6,437
1,512
2,997
3,275
604
1,612
1,884
1,392

38,640

193
699
2,335
288
66
3,770
13
4
3

7,371

$ 36
40
8
211
21
-
-
-
-
2
-
36
-

354

2
24
-
-
-
-
-
-
-

1
-
21
174
2,223
1,733
575
596
803
166
479
130
29

6,930

2
1
562
48
16
432
3
-
-

1,064

Fair
value

781
1,299
883
10,899
2,962
4,704
937
2,401
2,472
440
1,133
1,790
1,363

32,064

193
722
1,773
240
50
3,338
10
4
3

6,333

$46,011

$380

$7,994

$38,397

In conjunction with the restructuring of the investment
securities portfolio, in 2009, we changed our intent to
hold to maturity $1.7 billion of securities included in
the held-to-maturity classification and recorded
mark-to-market losses, both credit and non-credit, on
these securities in the income statement. These
securities have experienced a decrease in the credit
quality of the underlying collateral or a significant
increase in the risk-weight used for regulatory capital
purposes.

Temporarily impaired securities

At Dec. 31, 2009, almost all of the unrealized losses
are attributable to credit spreads widening and interest

rate fluctuations since purchase. We do not intend to
sell these securities and it is not more likely than not
that we will have to sell.

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 12 months, including debt securities for
which a portion of other-than-temporary impairment
has been recognized in OCI.

BNY Mellon

109

Notes to Consolidated Financial Statements (continued)

Temporarily impaired securities

(in millions)

Dec. 31, 2009:
Available-for-sale:
U.S. Treasury
State and political subdivisions
Agency MBS
Alt-A RMBS
Prime RMBS
Subprime RMBS
Other RMBS
Commercial MBS
Asset-backed CLOs
Other asset-backed securities
Other debt securities
Equity securities

Total securities available-for-sale

Held-to-maturity:
Alt-A RMBS
Prime RMBS
Subprime RMBS
Other RMBS
Commercial MBS

Total securities held-to-maturity

Less than 12 months
Unrealized
losses

Fair
value

12 months or more

Fair
value

Unrealized
losses

Total

Fair
value

Unrealized
losses

$1,226
50
7,297
-
5
1
-
-
18
-
33
16
$8,646

2
-
-
-
-

9
13
76
-
1
2
-
-
6
-
-
-
$107

1
-
-
-
-

176
171
2,061
311
1,480
446
1,764
1,290
274
706
8,804
3
$17,486

221
172
23
3,072
10

$ 3,498

1
11
19
63
233
309
430
203
44
38
48
1
$1,400

61
17
7
162
1

$ 1,402
221
9,358
311
1,485
447
1,764
1,290
292
706
8,837
19
$26,132

223
172
23
3,072
10

10
24
95
63
234
311
430
203
50
38
48
1
$ 1,507

62
17
7
162
1

$ 248

$1,648

$ 3,500

$29,632

$
249
$1,756 (a)

Total temporarily impaired securities

$8,648

$108

$20,984

Dec. 31, 2008:
Available-for-sale:
U.S. Treasury
State and political subdivisions
Agency RMBS
Alt-A RMBS
Prime RMBS
Subprime RMBS
Other RMBS
Commercial MBS
Asset-backed CLOs
Other asset-backed securities
Other debt securities
Other equity securities

-
247
-
145
375
129
39
136
70
89
67
10

-
8
-
64
102
58
-
55
50
3
8
6

30
264
4,370
1,891
4,291
808
2,362
2,295
349
989
199
33

1
13
174
2,159
1,631
517
596
748
116
476
122
23

30
511
4,370
2,036
4,666
937
2,401
2,431
419
1,078
266
43

1
21
174
2,223
1,733
575
596
803
166
479
130
29

Total securities available-for-sale

$1,307

$354

$17,881

$6,576

$19,188

$ 6,930

Held-to-maturity:

State and political subdivisions
Agency RMBS
Alt-A RMBS
Prime RMBS
Subprime RMBS
Other RMBS
Commercial MBS

-
-
172
-
-
-
-

-
-
75
-
-
-
-

63
25
1,575
240
50
3,338
10

2
1
487
48
16
432
3

63
25
1,747
240
50
3,338
10

2
1
562
48
16
432
3

Total securities held-to-maturity

$ 172

$ 75

$ 5,301

$ 989

$ 5,473

$ 1,064

Total temporarily impaired securities
Includes other-than-temporarily impaired securities in which portions of the other-than-temporary impairment loss remains in OCI.

$24,661

$23,182

$1,479

$7,565

$429

$ 7,994

(a)

110 BNY Mellon

Notes to Consolidated Financial Statements (continued)

The amortized cost and fair value of securities at Dec. 31, 2009, by contractual maturity, are as follows:

Securities by contractual maturity at Dec. 31, 2009

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

Fair
value

Amortized
cost

$ 1,457
17,132
293
668

$ 1,483
17,211
300
621

30,346 (a) 29,471 (a)

1,293
1,314

1,225
1,321

3
3
16
131
4,260
-
4

Total securities
Includes the Grantor Trust Class B certificates with an amortized cost of $4.049 billion and a fair value of $4.160 billion.

$ 52,503

$ 51,632

$4,417

(a)

Fair
value

3
3
16
134
4,080
-
4

$4,240

The realized gross gains, realized gross losses, and
recognized gross impairments are as follows:

Net securities losses
(in millions)

Realized gross gains
Realized gross losses
Recognized gross impairments

2009

2008

2007

130
(1,648)
(3,851)

10
(531)
(1,107)

$ 29
(230)
-

Total net securities losses

$(5,369)

$(1,628)

$(201)

Other-than-temporary impairment

For certain debt securities which have no debt rating
at acquisition and are beneficial interests in
securitized financial assets under ASC 325, OTTI
occurs when we determine that there has been an
adverse change in cash flows and the present value of
those remaining cash flows is less than the present
value of the remaining cash flows estimated at the
security’s acquisition date (or last estimated cash flow
revision date).

We routinely conduct periodic reviews to identify and
evaluate each investment security to determine
whether OTTI has occurred. Economic models are
used to determine whether an OTTI has occurred on
these securities. While all securities are considered,
the securities primarily impacted by OTTI testing are
non-agency RMBS. For each non-agency RMBS 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. Various inputs to
the economic models are used to determine if an
unrealized loss on non-agency RMBS is other-than-
temporary. The most significant inputs are:

Š Default rate—the number of mortgage loans

expected to go into default over the life of the

transaction, which is driven by the roll rate of
loans in each performance bucket that will
ultimately migrate to default; and

Š Severity—the loss expected to be realized when

a loan defaults

To determine if the unrealized loss for non-agency
RMBS is other-than-temporary, we project total
estimated defaults of the underlying assets
(mortgages) and multiply that calculated amount by
an estimate of realizable value upon sale of these
assets in the marketplace (severity) in order to
determine the projected collateral loss. We also
evaluate the current credit enhancement underlying
the bond to determine the impact on cash flows. If we
determine that a given RMBS position will be subject
to a write-down or loss, we record the expected credit
loss as a charge to earnings.

In addition, we have estimated the expected loss by
taking into account observed performance of the
underlying securities, industry studies, market
forecasts, as well as our view of the economic outlook
of the collateral.

The table below shows the projected weighted-
average default rates and loss severities for the recent-
vintage (i.e. 2007, 2006 and late 2005) non-agency
RMBS and the Grantor Trust portfolios at Dec. 31,
2009 and Dec. 31, 2008.

Projected weighted-average default rates and severities

Dec. 31, 2009

Dec. 31, 2008

Default Rate

Severity

Default Rate

Severity

Alt-A
Subprime
Prime

43%
74%
19%

50%
69%
44%

28%
56%
14%

43%
59%
31%

BNY Mellon

111

Notes to Consolidated Financial Statements (continued)

The following table provides pre-tax securities losses
by type:

Net investment securities losses
(in millions)

2009

2008

2007 (a)

Alt-A RMBS
Prime RMBS
Subprime RMBS
European floating rate notes
Home equity lines of credit
Commercial MBS
Grantor Trust
Credit cards
ABS CDOs
Other

$3,113
1,008
322
269
205
89
39 (b)
26
23
275

$1,236
12
12
-
104
-
-
-
122
142

-
-
-
-
-
-
-
-
201
-

Total net investment securities

losses

$5,369 (c) $1,628

$201

(b)

(c)

The following table reflects investment securities
credit losses recorded in earnings. The beginning
balance represents the credit loss component for
which OTTI occurred on debt securities in prior
periods. The additions represent the first time a debt
security was credit impaired or when subsequent
credit impairments have occurred. The deductions
represent credit losses on securities that have been
sold, are required to be sold or it is our intention to
sale.

Debt securities credit loss roll forward

Beginning balance as of Dec. 31, 2008
Add: Initial OTTI credit losses

Subsequent OTTI credit losses
Less: Realized losses for securities sold

Securities intended or required to be sold

Ending balance as of Dec. 31, 2009

2009

$ 535
661
208
1,116
17

$ 271

At Dec. 31, 2009, assets amounting to $40.1 billion
were pledged primarily for potential borrowing at the
Federal Reserve Discount Window. The significant
components of pledged assets were as follows: $29.9
billion of securities, $6.7 billion of interest-bearing
deposits with banks and $3.5 billion of loans. Also
included in these pledged assets was securities
available-for-sale of $120 million which were pledged
as collateral for actual borrowings. The lenders in
these borrowings have the right to repledge or sell
these securities. We obtain securities under resale,

112 BNY Mellon

securities borrowed and custody agreements on terms
which permit us to repledge or resell the securities to
others. As of Dec. 31, 2009, the market value of the
securities received that can be sold or repledged was
$30.0 billion. We routinely repledge or lend these
securities to third parties. As of Dec. 31, 2009, the
market value of collateral repledged and sold was
$899 million.

6. Loans

The table below provides the details of our loan
distribution and industry concentrations of credit risk
at Dec. 31, 2009 and 2008:

Loans by product
(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 (primarily overdrafts)

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 (primarily overdrafts)

Total foreign

Less: Allowance for loan losses

Dec. 31,

2009

2008

$ 3,280

$ 6,537

533
721
5,567
1,517
3,826
2,450
(754)
3,354
4,657
3,780

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

28,931

33,357

517
4,947
3,344
(1,528)
64
414

7,758
(503)

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

10,037
(415)

Net loans

$36,186

$42,979

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 $4 million, $12 million and
$35 million at Dec. 31, 2009, 2008, and 2007
respectively. These loans are primarily extensions of
credit under revolving lines of credit established for
such entities.

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

(in millions)
Balance at Dec. 31, 2006 (a)
Acquisition
Charge-offs: (b)
Commercial
Leasing
Foreign
Other

Total charge-offs

Recoveries: (b)
Commercial
Leasing
Foreign

Total recoveries

Net charge-offs

Provision for credit losses (b)
Transferred to discontinued

operations

Balance at Dec. 31, 2007

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

Disposition/other
Provision for credit losses
Transferred to discontinued

operations

Balance at Dec. 31, 2008
Charge-offs:

Commercial
Commercial real estate
Other residential mortgages
Wealth management

Total charge-offs

Recoveries:
Leasing
Other

Total recoveries

Net charge-offs
Provision for credit losses
Transferred to discontinued

operations

Allowance
for loan
losses

$ 287
43

Allowance
for lending-
related
commitments

Allowance
for credit
losses

$150
87

$ 437
130

(16)
(36)
(19)
(1)

(72)

1
13
1

(57)
54

$ 327

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

(83)

2
3
4
1

(73)
(21)
154

$ 415

(124)
(31)
(60)
(1)

(216)

1
1

(214)
319

(17)

(6)
-
-
-

(6)

-
-
-

(6)
(65)

$167

-
-
-
-
-

-
-
-
-

-
(2)
(50)

(1)

$114

-
-
-
-

-
-

-
13

(2)

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

(78)

1
13
1

(63)
(11)

1
$ 494 (c)

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

(83)

2
3
4
1

(73)
(23)
104

27
$ 529 (c)

(124)
(31)
(60)
(1)

(216)

1
1

(214)
332

(19)

$125
Balance at Dec. 31, 2009 (c)
(a) Reflects legacy The Bank of New York Company, Inc. only.
(b) Reflects six months of BNY Mellon and six months of legacy The Bank

$ 503

$ 628 (c)

of New York Company, Inc.

discontinued operations. The allowance for credit losses includes
discontinued operations of $35 million at Dec. 31, 2008 and $17
million at Dec. 31, 2007.

Nonperforming assets and impaired loans

(in millions)

Loans:

Other residential mortgages
Financial institutions
Commercial
Commercial real estate
Wealth management

Total domestic

Foreign

Total nonperforming loans

Other assets owned

Total nonperforming assets (a)

Impaired loans with an allowance
Impaired loans without an

allowance (b)

Total impaired loans (c)
Allowance for impaired loans (d)
Average balance of impaired loans

during the year

Interest income recognized on

impaired loans during the year

Dec. 31,
2008

$ 97
41
14
130
2

284
-

284
8

$292

$165

$186
$ 51

2009

$190
172
65
61
58

546
-

546
4

$550

$303

$345
$ 51

216

178

2007

$ 20
24
15
40
-

99
87

186
4

$190

$141

$158
$ 34

(a) Nonperforming assets at Dec. 31, 2009 exclude discontinued
operations. Nonperforming assets at Dec. 31, 2008 and Dec.
31, 2007 include discontinued operations of $96 million and
$18 million, respectively.

(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.

(c) Total impaired loans at Dec. 31, 2009 exclude discontinued
operations. Total impaired loans include discontinued
operations of $93 million at Dec. 31, 2008 and $17 million at
Dec. 31, 2007.

(d) The allowance for impaired loans is included in the

allowance for loan losses.

Past due loans still accruing interest at year-end
(in millions)

2009

2008

2007

Domestic:

Consumer
Commercial

Total domestic

Foreign

$ 93
338

431
-

$ 27
315

342
-

-
343

343
-

Total past due loans (a)

$431

$342

$343

(a) Past due loans at Dec. 31, 2009 exclude discontinued

operations. There were no past due loans at Dec. 31, 2008
and 2007 included in discontinued operations.

BNY Mellon

113

Notes to Consolidated Financial Statements (continued)

Lost interest
(in millions)

Dec. 31,
2008

2009

2007

Amount by which interest income

recognized on nonperforming loans
exceeded reversals:

Total
Foreign

Amount by which interest income

would have increased if
nonperforming loans at year-end had
been performing for the entire year:

Total (a)
Foreign

$ 2
1

$ -
-

$10
1

$12
-

$1
-

$6
2

(a) Lost interest excludes discontinued operations for 2009. Lost
interest includes discontinued operations of $5 million in
2008 and less than $1 million in 2007.

At Dec. 31, 2009, 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.

7. Goodwill and intangible assets

Goodwill

The level of goodwill increased in 2009 due to foreign
exchange translation on non-U.S. dollar denominated
goodwill and the Insight acquisition, partially offset
by the transfer of goodwill to discontinued operations.
Goodwill impairment testing is performed annually at
the business segment level.

The table below provides a breakdown of goodwill by business segment.

Goodwill by segment
(in millions)

Asset
Management

Wealth
Management

Asset
Servicing

Issuer
Services

Clearing
Services

Treasury
Services

Balance at Dec. 31, 2007
Acquisitions/dispositions
Transfer between segments (a)
Foreign exchange translation
Other (b)

Balance at Dec. 31, 2008
Acquisitions
Foreign exchange translation
Transferred to discontinued

operations

Other (b)

$7,054
184
-
(501)
481

$7,218
202
174

-
15

$2,362
-
(255)
-
(413)

$1,694
-
-

-
9

$3,291
(11)
-
(162)
242

$3,360
-
37

$2,413
52
-
(4)
2

$2,463
-
14

-
-

-
11

$1,119
(50)
-
(51)
(116)

$ 902
-
15

-
1

Other

-
(178)
255
-
61

$ 138
-
-

Total

$16,331
(3)
-
(718)
288

$15,898
202
240

$ 92
-
-
-
31

$123
-
-

-
4

(128) (c)
(3)

(128)
37

Balance at Dec. 31, 2009

$7,609

$1,703

$3,397

$2,488

$ 918

$127

$16,249

(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.
(c)

Includes a $50 million goodwill impairment recorded in the first quarter of 2009. No goodwill impairment was recorded in 2008 or
2007.

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 2009 compared with
2008 resulted from intangible amortization partially
offset by the Insight acquisition and foreign exchange
translation on non-U.S. dollar denominated intangible
assets.

Intangible amortization expense was $426 million,
$473 million and $314 million in 2009, 2008 and
2007 respectively. No impairment losses were
recorded on intangible assets in 2009 or 2008.

The table below provides a breakdown of intangible
assets by business segment.

114 BNY Mellon

Notes to Consolidated Financial Statements (continued)

Intangible assets—net carrying amount by segment

(in millions)

Net carrying amount at

Dec. 31, 2007

Acquisitions/dispositions
Transfer between segments
Amortization
Foreign exchange translation
Other (b)

Net carrying amount at

Dec. 31, 2008

Acquisitions
Amortization
Foreign exchange translation
Transferred to discontinued

operations

Other (b)

Net carrying amount at

Dec. 31, 2009

Asset
Management

Wealth
Management

Asset
Servicing

Issuer
Services

Clearing
Services

Treasury
Services

Other

Total

$3,364
27
-
(255)
(130)
(411)

$2,595
111
(219)
44

-
(1)

$ 643
-
(37)
(60) (a)
-
(206)

$ 340
-
(45)
-

-
-

$ 505
(2)
-
(24)
(12)
(165)

$ 302
-
(28)
1

-
6

$919
19
-
(80)
(6)
(18)

$834
11
(81)
2

-
(13)

$710
10
-
(26)
(7)
12

$699
-
(27)
2

-
-

$261
-
-
(27)
-
(5)

$229
-
(25)
(1)

-
-

-
(22)
37
(10) (a)
-
852

$6,402
32
-
(482) (a)
(155)
59

$857
-
(1)
-

(4)
-

$5,856
122
(426)
48

(4)
(8)

$2,530

$ 295

$ 281

$753

$674

$203

$852

$5,588

Includes discontinued operations.

(a)
(b) Other changes in intangible assets primarily reflect reclassifications.

Intangible assets

Dec. 31, 2009

Dec. 31, 2008

(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
Other

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

$2,060

2,039
49
98

$4,246

$1,368
1,320
10

$2,698

$6,944

$ (724)

$1,336

13 yrs.

$1,923

$(463)

$1,460

(561)
(41)
(30)

1,478
8
68

$(1,356)

$2,890

N/A
N/A
N/A

N/A

$(1,356)

$1,368
1,320
10

$2,698

$5,588

14 yrs.
2 yrs.
7 yrs.

13 yrs.

N/A
N/A
N/A

N/A

2,051
68
89

$4,131

$1,358
1,306
-

$2,664

$6,795

(413)
(43)
(20)

1,638
25
69

$(939)

$3,192

N/A
N/A
N/A

N/A

$(939)

$1,358
1,306
-

$2,664

$5,856

(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,

Estimated amortization
expense (in millions)

2010
2011
2012
2013
2014

$389
363
339
293
262

BNY Mellon

115

Notes to Consolidated Financial Statements (continued)

8. Other assets

Other assets

(in millions)

Corporate/bank owned life insurance
Accounts receivable
Equity in joint ventures and other

investments (a)

Income taxes receivable
Prepaid expenses
Fails to deliver
Prepaid pension assets
Software
Due from customers on acceptances
Margin deposits
Other

Dec. 31,

2009

2008

$ 3,900
3,528

$ 3,781
3,715

2,816
1,867
1,089 (b)
911
714
595
502
459
356

2,421
342
422
1,394
371
607
265
1,275
430

Total other assets

$16,737

$15,023

(a)

(b)

Includes Federal Reserve Bank stock of $397 million and
$342 million, respectively, at cost.
Includes $295 million related to the prepayment of the
quarterly fees to the FDIC.

Seed capital and private equity investments valued
using net asset value per share

In our Asset Management segment, we manage
investment assets, including equities, fixed income,
money market and alternative investment funds for
institutions and other investors; as part of that activity
we make seed capital investments in certain funds.
Seed capital is included in trading assets, securities
available-for-sale and other assets depending on the
nature of the investment. BNY Mellon also holds
private equity investments which consist of
investments in private equity funds, mezzanine
financings and direct equity investments. Private
equity investments are included in other assets.
Consistent with our policy to focus on our core
activities, we continue to reduce our exposure to
private equity investments.

The fair value of these investments has been estimated
using the net asset value (“NAV”) per share of BNY
Mellon’s ownership interest in the funds. The table
below presents information about BNY Mellon’s
investments in seed capital and private equity
investments.

Seed capital and private equity investments valued using NAV – Dec. 31, 2009
(dollar amounts in millions)
Unfunded commitments

Fair value

Hedge funds (a)
Private equity funds (b)
Other funds (c)

Total

$172
187
263

$622

$ -
53
-

$53

Redemption frequency

Redemption notice period

Monthly-quarterly
N/A
Monthly-yearly

3 - 45 days
N/A
(c)

(a) Hedge funds include multi-strategy funds that utilize a variety of investment strategies and equity long-short hedge funds that include

various funds that invest over both long-term investment and short-term investment horizons.

(b) Private equity funds primarily include numerous venture capital funds that invest in various sectors of the economy. Private equity
funds do not have redemption rights. Distributions from such funds will be received as the underlying investments in the funds are
liquidated.

(c) Other funds primarily include: an absolute return unit trust investing in global currencies and interest rate strategies with a monthly
redemption frequency and no notice period; a global special situations fund investing in distressed debt with a quarterly redemption
frequency and no notice period; an emerging markets fund that invests in emerging market bonds and other debt instruments with no
redemption provisions; an event-driven offshore fund of funds that employs a variety of event-driven strategies and techniques with a
yearly redemption frequency and 90 days notice; as well as various other market neutral, leveraged loans, real estate and structured
credit funds.

9. Deposits

10. Other fee revenue

The aggregate amount of time deposits in
denominations of $100,000 or greater was
approximately $34.0 billion at Dec. 31, 2009 and
$57.1 billion at Dec. 31, 2008. At Dec. 31, 2009, the
scheduled maturities of all time deposits for the years
2010 through 2014 and 2015 and thereafter are as
follows: $34.1 billion; $30 million; $15 million; $2
million; $21 million; and $7 million, respectively.

In 2009, other fee revenue included $76 million of
asset related gains, and $31 million of expense
reimbursement from joint ventures. Asset related
gains in 2009 include the $39 million gain associated
with the sale of VISA shares.

In 2008, other fee revenue included $45 million of
asset related gains and $29 million of expense
reimbursement from joint ventures. Asset related

116 BNY Mellon

Notes to Consolidated Financial Statements (continued)

gains in 2008 included a $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.

Selected noninterest expense categories
(in millions)

Sub-custodian
Clearing

Total sub-custodian and

clearing

Communications
Support agreement charges
Other

Total other

2009

$203
117

2008

2007 (a)

$ 255 (b) $223 (b)

183

$320

$ 335 (b) $406 (b)

$115
(15)
737 (c)

$ 127
894
801

$837

$1,822

$108
3
523

$634

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 in banks
Deposits with the Federal

Reserve and other central
banks

Federal funds sold and

securities purchased under
resale agreements

Trading assets

2009

2008

2007 (a)

$ 874
69

$1,027
183

$1,826
332

1,718

2,210

1,865

1,748

2,245

1,883

9
683

71
1,753

-
1,242

31
50

149
69

289
98

Total interest revenue

3,507

5,524

5,670

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

Total interest expense

54
117

-
42
6
366

592

328
1,437

566
1,812

46
90
69
642

110
91
177
669

2,665

3,425

Net interest revenue

$2,915

$2,859

$2,245

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

12. Selected noninterest expense categories

The following table provides a breakdown of certain
expense categories presented on the consolidated
income statement.

(b)

(a) Results for 2007 include six months of BNY Mellon and six
months of legacy The Bank of New York Company, Inc.
In 2009, global sub-custodian out-of-pocket expense related
to client reimbursements was reclassified from sub-custodian
expense to asset servicing revenue. This reclassification
totaled $22 million in 2008 and $23 million in 2007.
Includes $61 million of FDIC special assessment recorded in
2009.

(c)

In 2008, we recorded support agreement charges of
$894 million. 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.

In 2009, we recorded a credit to support agreement
charges of $15 million. This credit reflects a reduction
in the support agreement reserve primarily due to
improved pricing of Lehman securities, primarily
offset by the final support agreement charge for four
Dreyfus money market funds entered into in 2008.
The agreements supporting the Dreyfus money market
funds expired and were completed in 2009. At Dec.
31, 2009, the value of Lehman securities increased to
19.5% from 9.75% at Dec. 31, 2008.

13. Restructuring charges

Global location strategy

As part of an ongoing effort to improve efficiency and
develop a global operating model that provides the
highest quality of service to our clients, BNY Mellon
continues to execute its global location strategy. This
strategy includes migrating positions to our global
growth centers and is expected to result in moving
and/or eliminating over 2,300 positions in 2010. In the
fourth quarter of 2009, we recorded a pre-tax
restructuring charge of $139 million, or $0.08 per
common share on a full-year basis. This charge was
comprised of $102 million for severance costs and
$37 million primarily for asset write-offs, and expense
related to the closing of offices.

BNY Mellon

117

Notes to Consolidated Financial Statements (continued)

Workforce reduction program

In the fourth quarter of 2008, we announced that, due
to weakness in the global economy, we would reduce
our workforce by approximately 4%, or an estimated
1,800 positions, and as a result, recorded a pre-tax
restructuring charge of $181 million. In 2009, we
recorded additional charges of $11 million associated
with this workforce reduction.

As of Dec. 31, 2009, we have reduced our workforce
by approximately 1,500 positions, and expect to
complete the remainder of the program in the first half
of 2010. Severance payments related to these
positions are primarily paid over the salary
continuance period in accordance with the separation
plan.

The restructuring charges are recorded as a separate
line on the income statement.

The following tables present the activity in the
restructuring reserves through Dec. 31, 2009.

Global location strategy – restructuring charge reserve activity
(in millions)

Original restructuring charge
Utilization

Balance at Dec. 31, 2009

Severance

Asset
write-offs/other

$102
-

$102

$ 37
(23)

$ 14

Workforce reduction program – restructuring charge
reserve activity
(in millions)

Original restructuring charge
Additional charges/(recovery)
Utilization

Balance at Dec. 31, 2009

Stock-based
incentive
acceleration

Other
compensation
costs

Other
non-personnel
expenses

$ 9
(2)
(7)

$ -

$ 5
(1)
(4)

$ -

$ 1
10
(11)

Severance

$ 166
4
(105)

$ 65

Total

$139
(23)

$116

Total

$ 181
11
(127)

$ 65

Workforce reduction program 2008 – restructuring charge
by segment
(in millions)

2009

2008

Asset management
Asset servicing
Issuer services
Wealth management
Treasury services
Clearing services
Other (including shared services)

Total restructuring charge

$ 9
(4)
(2)
-
4
-
4

$11

$ 64
34
15
13
6
6
43

$181

The restructuring charges for 2009 and 2008 are
presented below by business segment. The charges
were recorded in the Other segment as these
restructurings were corporate initiatives and not
directly related to the operating performance of these
segments.

Global location strategy 2009 – 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

2009

$ 32
34
18
8
8
8
31

$139

118 BNY Mellon

Notes to Consolidated Financial Statements (continued)

14. Income taxes

Provision (benefit) 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

Year ended Dec. 31,

2009

2008

2007 (a)

289
185
101

575

840
488
420

1,748

$ 788
237
108

1,133

(1,676)
-
(294)

(860)
(1)
(396)

(97)
(9)
(40)

Total deferred tax expense

(benefit)

(1,970)

(1,257)

(146)

Provision (benefit) for

income taxes

$(1,395)

491

$ 987

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

The components of income (loss) before taxes are as
follows:

Components of income (loss)
before taxes

Year ended Dec. 31,

(in millions)

Domestic
Foreign

2009

$(3,022)
814

2008

$ 217
1,729

Income (loss) before taxes

$(2,208)

$1,946

2007 (a)

$2,144
1,071

$3,215

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

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
Other assets
Other liabilities

Dec. 31,

2009

2008

$ 2,725
1,197
277
(2,112)
(736)
(368)
(163)
(838)
738

$ 2,666
1,411
146
(2,360)
(1,351)
(224)
(189)
(468)
433

Net deferred tax liability

720

We have federal net operating loss carryovers of $466
million (for which we have recorded a $163 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, 2009, we had approximately $1.9
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 following table presents a reconciliation of the
statutory federal income tax rate to our effective
income tax rate applicable to income from continuing
operations.

Effective tax rate

Federal rate
State and local income taxes, net of

federal income tax benefit
Credit for low-income housing

investments

Tax-exempt income
Foreign operations
Tax settlements
Tax loss on mortgages
Credit for synthetic fuel investments
Other – net

Dec. 31,
2008

2009

2007

35.0% 35.0% 35.0%

4.5

4.0

1.3

2.6
2.9
3.5
4.0
10.8
-
(0.1)

(2.7)
(3.4)
(13.0)
6.8
-
0.1
(1.6)

(1.0)
(1.6)
(3.2)
-
-
(0.7)
0.9

Effective rate

63.2% 25.2% 30.7%

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
Statute expiration

2009

$189
-

2008

977
(2)

2007

$842
44

225
(30)
10
(58)
(1)

832
(155)
75
(1,538)
-

91
(5)
5
-
-

Ending balance at Dec. 31, – gross

$335

189

$977

Our total tax reserves as of Dec. 31, 2009 were $335
million compared with $189 million at Dec. 31, 2008.
If these tax reserves were unnecessary, $335 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 sheet at Dec. 31,
2009 is accrued interest, where applicable, of $80
million. The additional tax expense related to interest
for the year ended Dec. 31, 2009 was $89 million

BNY Mellon

119

Notes to Consolidated Financial Statements (continued)

compared with $248 million for the year ended
Dec. 31, 2008.

15. Extraordinary (loss) – consolidation of
commercial paper conduits

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 2004. Our United Kingdom
income tax returns are closed through 2007.

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.

Dec. 31, 2009
Maturity

Rate

3.10-6.92% 2011-2020
0.05-0.69% 2010-2038
4.40-7.40% 2010-2033
5.95-7.78% 2026-2043

Amount

$ 7,949
2,869
4,795
1,621

$17,234

Dec. 31, 2008
Rate

Amount

3.25-6.38% $ 5,605
2,704
1.27-3.26%
5,890
3.27-7.40%
1,666
5.95-7.78%

$15,865

The aggregate amounts of notes and debentures that
mature during the five years 2010 through 2014 for
BNY Mellon are as follows: $1.85 billion, $1.31
billion, $3.45 billion, $1.51 billion and $2.29 billion.
At Dec. 31, 2009, subordinated debt aggregating
$1.61 billion was redeemable at our option as follows:
$1.07 billion in 2010; $275 million in 2011; and $259
million after 2011.

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
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.

120 BNY Mellon

Notes to Consolidated Financial Statements (continued)

The following table sets forth a summary of the Trust Preferred Securities issued by the Trusts as of Dec. 31,
2009:

Trust Preferred Securities at Dec. 31, 2009
(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
323
500

$1,673

Interest
rate

Assets
of trust (a)

Due
date

7.78% $ 309
206
6.88
361
5.95
309
6.37
501
6.24

$1,686

2026
2028
2033
2036
-

Call
date

2006
2004
2008
2016
2012

Call
price

102.72% (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. $1.62 to £1, the rate of exchange on Dec. 31, 2009.

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.

and $234 million, respectively, which represents our
maximum exposure to the securitizations.

Variable Interest Entities

17. Securitizations and variable interest
entities

Investment securities portfolio securitization

In 2009, we securitized approximately $5.0 billion,
fair value, of our investment securities portfolio into a
Grantor Trust. The Grantor Trust contains Alt-A,
prime and subprime RMBS which were written down
to fair value as part of the restructuring of the
investment securities portfolio. As a result of this
transaction, we received approximately $771 million
(before expenses) in cash for Class A Notes that were
sold to third parties and retained Class B certificates
with a fair value of approximately $4.2 billion. BNY
Mellon did not securitize any assets during 2008.

Other securitizations

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 ongoing dividends from the shares.

In 2003, we 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 this transaction.

Our retained interests in these securitizations at Dec.
31, 2009 and 2008, are approximately $153 million

Guidance on “Consolidation of Variable Interest
Entities”, included in ASC 810 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. BNY Mellon is required to consolidate
entities for which it is the primary beneficiary.

BNY Mellon’s VIEs generally include retail,
institutional and alternative investment funds offered
to its retail and institutional customers. BNY Mellon
may provide start-up capital in its new funds and also
earns fund management fees. Performance fees are
also earned on certain funds. BNY Mellon 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 interest.

Primary beneficiary calculations are prepared in
accordance with ASC 810 – Consolidation. This
evaluation includes estimates of ranges and
probabilities of losses and returns from the funds. The
calculated expected gains and expected losses are
allocated to the variable interest holders of the funds,
which are generally the fund’s investors and which
may include BNY Mellon, in order to determine
which entity is required to consolidate the VIE, if any.

BNY Mellon

121

Notes to Consolidated Financial Statements (continued)

The start up capital invested in our Asset Management
VIEs as of Dec. 31, 2009 and 2008, has been included
in our financial statements as shown below:

Other VIEs at Dec. 31, 2009

(in millions)

Trading
Available-for-sale
Other

Total

Other VIEs at Dec. 31, 2008

(in millions)

Trading
Available-for-sale
Other

Total

Assets Liabilities

$ 28
138
281

$447

$-
-
-

Assets Liabilities

$ 26
102
272

$400

$-
-
-

Maximum
loss
exposure

$ 28
138
281

$447

Maximum
loss
exposure

$ 26
102
272

$400

BNY Mellon 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 ASC 810, and is subject to
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 BNY Mellon 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.

BNY Mellon’s analysis of the credit risk variability
and interest rate risk variability associated with the
supported Funds resulted in BNY Mellon not being
the primary beneficiary and therefore the Funds were
not consolidated.

122 BNY Mellon

The table below shows the financial statement items
related to non-consolidated VIEs to which we have
provided credit support agreements at Dec. 31, 2009
and 2008.

Credit supported VIEs
at Dec. 31, 2009
(in millions)

Assets

Liabilities

Maximum
loss
exposure

Other

$14

$40

Credit supported VIEs
at Dec. 31, 2008
(in millions)

Assets

Liabilities

Maximum
loss
exposure

Other

$248

$142

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
BNY Mellon and have affected the following
financial statement items at Dec. 31, 2009 and 2008.

Consolidated VIEs
at Dec. 31, 2009
(in millions)

Available-for-sale
Other

Total

Consolidated VIEs
at Dec. 31, 2008
(in millions)

Available-for-sale
Other

Total

Assets

Liabilities

$47
-

$47

-
190

$190

Assets

Liabilities

$26
24

$50

-
353

$353

Maximum
loss
exposure

$47
46

$93

Maximum
loss
exposure

$26
47

$73

The maximum loss exposure shown above for the
credit support agreements provided to BNY Mellon’s
VIEs primarily reflects a complete loss on the Lehman
Brothers Holdings Inc. securities for BNY Mellon’s
clients that accepted our offer of support. As of Dec.
31, 2009, BNY Mellon recorded $157 million in
liabilities related to its VIEs for which credit support
agreements were provided.

18. Shareholders’ equity

BNY Mellon 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
were 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 issued pursuant to our
participation in the TARP Capital Purchase Program.

Notes to Consolidated Financial Statements (continued)

At Dec. 31, 2009, 1,207,834,714 shares of common
stock were outstanding. There were no shares of
preferred stock outstanding at Dec. 31, 2009.

Troubled Asset Relief Program

In October 2008, the U.S. government announced the
TARP CPP authorized 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.

As part of this program, BNY Mellon 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 3 million shares of Fixed Rate
Cumulative Perpetual Preferred Stock, Series B and a
warrant for common stock to the U.S. Treasury.

The $3 billion proceeds received from the U.S.
Treasury were allocated between the Fixed Rate
Cumulative Perpetual Preferred Stock, Series B and a
warrant for common stock based on the relative fair
values of the preferred stock and warrant at the time
of issuance.

In June 2009, BNY Mellon repurchased the 3 million
shares of its Series B preferred stock for its $3 billion
liquidation value. BNY Mellon recorded an after-tax
redemption charge of $196.5 million in 2009,
representing the difference between the amortized cost
of the Series B preferred stock and the repurchase price.

On Aug. 5, 2009, BNY Mellon repurchased for $136
million the warrant for 14,516,129 shares of our
common stock.

Common stock repurchase program

On Dec. 18, 2007, our Board of Directors authorized
the repurchase of up to 35 million shares of common
stock. There were no shares repurchased under this
program in 2009.

At Dec. 31, 2009, 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 BNY Mellon

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, 2009 and 2008, the Parent and our bank
subsidiaries were considered well capitalized on the
basis of the ratios (defined by regulation) of Total and
Tier 1 capital to risk-weighted assets and leverage (Tier
1 capital to average assets). The following table presents
the components of our Tier 1 and total risk-based
capital, as well as our consolidated and largest bank
subsidiary capital ratios at Dec. 31, 2009 and 2008.

Risk-based and leverage capital ratios (a)(b)

(dollars in millions)

Tier 1 capital:

Common shareholders’ equity
Series B preferred stock
Trust-preferred securities
Adjustments for:

Goodwill and other intangibles (c)
Pensions
Securities valuation allowance
Merchant banking investment

Total Tier 1 capital

Tier 2 capital:

Qualifying unrealized gains on

equity securities

Qualifying subordinate debt
Qualifying allowance for credit

losses

Total Tier 2 capital

Dec. 31,

2009

2008

$ 28,977
-
1,686

$ 25,264
2,786
1,654

(19,437)
1,070
619
(32)

12,883

(19,312)
1,010
4,035
(35)

15,402

3
3,429

665

4,097

-
3,823

529

4,352

Total risk-based capital

$ 16,980

$ 19,754

Total risk-weighted assets

$106,328

$116,713

Consolidated capital ratios:

Tier 1
Total capital
Leverage

Largest bank capital ratios:

Tier 1
Total capital
Leverage

12.1%
16.0
6.5

11.2%
15.0
6.3

13.2%
16.9
6.9

11.2%
14.7
5.9

(a) For a banking institution to qualify as “well capitalized”, its
Tier 1, Total (Tier 1 plus Tier 2) and leverage capital ratios
must be at least 6%, 10% and 5%, respectively. To qualify as
“adequately capitalized”, Tier 1, Total and leverage capital
ratios must be at least 4%, 8% and 3%, respectively.

(b) On a regulatory basis and including discontinued operations.
(c) Reduced by deferred tax liabilities of $2.4 billion at both

Dec. 31, 2009 and 2008 associated with non-tax deductible
identifiable intangible assets and tax deductible goodwill.

BNY Mellon

123

Notes to Consolidated Financial Statements (continued)

At Dec. 31, 2009, we had approximately $1.7 billion
of trust-preferred securities outstanding, net of
issuance costs, all of which qualified as Tier 1 capital.

largest bank subsidiary, The Bank of New York
Mellon, exceed the well capitalized guidelines are as
follows:
Capital above guidelines at Dec. 31, 2009

(in millions)

Tier 1 capital
Total capital
Leverage

Consolidated

The Bank of
New York Mellon

$6,503
6,347
3,041

$4,708
4,538
2,069

19. Comprehensive results

2007 beginning balance, net of tax (expense) benefit
Change in 2007, net of tax (expense) benefit of $(36), $(41),

$(5), $218, $10

Reclassification adjustment, net of tax (expense) benefit of $ -,

$ -, $- $13, $4

2007 total unrealized gain (loss)

ASC 820 Adjustments

Foreign
currency
translation

Pensions

Other post-
retirement
benefits

Unrealized
gain (loss)
on assets
available
for sale

Unrealized
gain (loss)
on cash flow
hedges (a)

Total
accumulated
unrealized
gain (loss)

$ (64)

$ (194)

$(76)

$ 26

$ (292)

(339)

(19)

(358)

(16)

(7)

(23)

(231)

(26)

(257)

2007 ending balance, net of tax (expense) benefit

$ 11

$ (148)

$(73)

$ (342)

$ 3

$ (549)

Change in 2008, net of tax (expense) benefit of $(113), $566,

$(6), $3,359, $(1)

Reclassification adjustment, net of tax (expense) benefit of

$ -,$ -, $ -, $(645), $1

2008 total unrealized gain (loss)

(374)

(808)

(374)

(808)

2008 ending balance, net of tax (expense) benefit

$(363)

$ (956)

$(66)

Adjustments for the cumulative effect of applying ASC

320, net of taxes of $-, $-, $-, $470, $-

Adjusted balance at Jan. 1, 2009
Change in 2009, net of tax (expense) benefit of $(82), $14,

$(34), $(489), $(1)

Reclassification adjustment, net of tax (expense) benefit $-,

$-, $-, $(2,022), $-

2009 total unrealized gain (loss)

(363)

227

(956)

(46)

(66)

(1)

(4,694)

983

(3,711)

$(4,053)

(676)

(4,729)

762

3,348

4,110

(5,824)

(11)

$ 37

(16)

(32)

(48)

972

(4,852)

$(5,401)

(676)

(6,077)

926

3,316

4,242

2009 ending balance, net of tax (expense) benefit

$(136)

$(1,002)

$(67)

$ (619)

$(11)

$(1,835)

(a)

Includes unrealized gain (loss) on foreign currency cash flow hedges of $(1) million, $7 million and $4 million at Dec. 31, 2009, Dec.
31, 2008 and Dec. 31, 2007, respectively.

20. Stock–based compensation

Stock options

Our Long-Term Incentive Plans provide for the
issuance of stock options, restricted stock, restricted
stock units (RSUs) and other stock-based awards to
employees of BNY Mellon. At Dec. 31, 2009, under
the Long-Term Incentive Plan approved in April
2008, we may issue 49,558,147 new options. Of this
amount, 23,365,162 shares may be issued as restricted
stock or RSUs. Stock option expense related to
retirement eligibility vesting totaled $16 million in
2009 and $32 million in 2008, respectively.

Our Long-Term Incentive Plans provide for the
issuance of stock options at fair market value at the
date of grant to officers and employees of BNY
Mellon. Generally, each option granted is exercisable
between one and ten years from the date of grant.

The compensation cost that has been charged against
income was $86 million, $108 million and $66 million
for 2009, 2008 and 2007, respectively. The total
income tax benefit recognized in the income statement
was $35 million, $44 million and $27 million for
2009, 2008 and 2007, respectively.

124 BNY Mellon

Notes to Consolidated Financial Statements (continued)

We used a lattice-based binomial method to calculate
the fair value on the date of grant. The fair value of
each option award is estimated on the date of grant
using the weighted-average assumptions noted in the
following table:

Assumptions

Dividend yield
Expected volatility
Risk-free interest rate
Expected option lives (in years)

2009

2008

2007

3.1% 2.2% 2.4%
34
27
2.22
2.91
6
6

23
4.46
6

For 2009 and 2008, assumptions were determined as
follows:

Š Expected volatilities are based on implied

volatilities from traded options on our stock,
historical volatility of our stock, and other
factors.

Š We use historical data to estimate option

exercises and employee terminations within the
valuation model.

Š The risk-free rate for periods within the

contractual life of the option is based on the U.S.
Treasury yield curve at the time of grant.

Š The expected term of options granted is derived
from the output of the option valuation model
and represents the period of time that options
granted are expected to be outstanding.

A summary of the status of our options as of Dec. 31, 2009, 2008, and 2007, and changes during the years ended
on those dates, is presented below:

Stock option activity

Balance at Dec. 31, 2006
Mellon Financial conversion, July 1
Granted
Exercised
Canceled

Balance at Dec. 31, 2007
Granted
Exercised
Canceled

Balance at Dec. 31, 2008
Granted
Exercised
Canceled

Balance at Dec. 31, 2009

Vested and expected to vest at Dec. 31, 2009

Exercisable at Dec. 31, 2009

Weighted-average fair value of options at grant date
Aggregate intrinsic value (in millions)

-Outstanding at Dec. 31,
-Exercisable at Dec. 31,

Shares subject
to option

Weighted-average
exercise price

Weighted-
average remaining
contractual term
(in years)

60,738,954
31,649,426
8,028,880
(14,479,352)
(1,828,205)

84,109,703
13,767,590
(5,414,860)
(2,936,268)

89,526,165
15,574,075
(671,342)
(9,341,743)

95,087,155

94,013,581

65,703,148

$38.79
35.97
41.61
33.13
45.98

$38.82
43.90
33.89
44.25

39.72
18.82
24.51
40.14

$36.36

$36.46

$38.96

2009

$4.59

$ 167
$ 26

2008

$10.33

$
$

31
31

5.1

3.6

2007

$8.96

$ 875
$ 701

BNY Mellon

125

Notes to Consolidated Financial Statements (continued)

Stock options outstanding at Dec. 31, 2009

Range of
exercise
prices

$18 to 31
31 to 41
41 to 51
51 to 60

$18 to 60

Outstanding at
Dec. 31, 2009

27,550,321
30,711,282
30,876,095
5,949,457

95,087,155

Options outstanding

Weighted-
average
remaining
contractual
life (in years)

6.59
5.00
4.70
1.05

5.12

Options exercisable (a)

Weighted-
average
exercise
price

$22.38
$37.12
$44.09
$57.13

$36.36

Exercisable at
Dec. 31, 2009

12,603,102
26,312,948
20,837,641
5,949,457

65,703,148

Weighted-
average
exercise
price

$26.91
$36.70
$43.93
$57.13

$38.96

(a) At Dec. 31, 2008 and 2007, 66,280,895 and 63,727,506 options were exercisable at an average price per common share of $38.71 and

$38.37, respectively.

The total intrinsic value of options exercised during
the years ended Dec. 31, 2009, 2008 and 2007 was $3
million, $53 million and $148 million.

As of Dec. 31, 2009, there was $144 million of total
unrecognized compensation cost related to nonvested
options. The unrecognized compensation cost is
expected to be recognized over a weighted-average
period of two years.

Cash received from option exercises for the years
ended Dec. 31, 2009, 2008, and 2007, was $16
million, $182 million and $475 million, respectively.
The actual tax benefit realized for the tax deductions
from options exercised totaled $4 million, $14 million
and $55 million for the years ended Dec. 31, 2009,
2008 and 2007, respectively.

Restricted stock and restricted stock units (“RSU”)

Restricted stock and RSUs are granted under our
Long-Term Incentive Plans at no cost to the recipient.

These awards are subject to forfeiture until certain
restrictions have lapsed, including continued
employment for a specified period. The recipient of a
share of restricted stock is entitled to voting rights and
generally is entitled to dividends on the common
stock. An RSU entitles the recipient to receive a share
of common stock after the applicable restrictions
lapse. The recipient generally is entitled to receive
cash payments equivalent to any dividends paid on the
underlying common stock during the period the RSU
is outstanding but does not receive voting rights.

The fair value of restricted stock and RSUs is equal to
the fair market value of our common stock on the date
of grant. The expense is recognized over the vesting
period of one to seven years. The total compensation
expense recognized for restricted stock and RSUs was
$124 million, $134 million and $101 million
recognized in 2009, 2008 and 2007, respectively.

The following table summarizes our nonvested restricted stock and RSU activity for 2009.

Nonvested restricted stock and RSUs activity

Nonvested restricted stock and RSUs at Dec. 31, 2008
Granted
Vested
Forfeited

Nonvested restricted stock and RSUs at Dec. 31, 2009

As of Dec. 31, 2009, $111 million of total
unrecognized compensation costs related to nonvested
restricted stock and RSUs is expected to be
recognized over a weighted-average period of
approximately two years.

126 BNY Mellon

Number
of shares

9,188,719
4,394,895
(2,608,849)
(436,225)

10,538,540

Weighted-
average
fair value

$41.92
18.53
37.01
39.53

$33.48

21. Employee benefit plans

BNY Mellon has defined benefit and defined
contribution retirement plans covering substantially
all full-time and eligible part-time employees and
other post-retirement plans providing healthcare
benefits for certain retired employees.

Notes to Consolidated Financial Statements (continued)

Pension and post-retirement healthcare plans

The following tables report the combined data for our domestic and foreign defined benefit pension and post
retirement healthcare plans.

Pension Benefits

Healthcare Benefits

Domestic

Foreign

Domestic

Foreign

(dollar amounts in millions)

2009

2008

2009

2008

2009

2008

2009

2008

Weighted-average assumptions used to determine

benefit obligations

Discount rate
Rate of compensation increase

Change in benefit obligation (a)
Benefit obligation at beginning of period
Service cost
Interest cost
Employee contributions
Amendments
Actuarial gain (loss)
(Acquisitions) divestitures
Benefits paid
Foreign exchange adjustment

Benefit obligation at end of period

Change in fair value of plan assets
Fair value at beginning of period
Actual return on plan assets
Employer contributions
Employee contributions
Benefit payments
Foreign exchange adjustment

Fair value at end of period

Funded status at end of period

Amounts recognized in accumulated other
comprehensive (income) loss consist of:

Net loss (gain)
Prior service cost (credit)
Net initial obligation (asset)

Total (before tax effects)

6.21%
3.50

6.38%
3.50

5.74%
4.64

6.18%
4.11

6.21%
3.50

6.38%
-

5.85%
-

6.25%
-

$(2,559)
(96)
(160)
-
-
(185)
-
165
N/A

$(2,349)
(84)
(142)
-
34
(161)
4
139
N/A

(2,835)

(2,559)

2,673
479
344
-
(165)
N/A

3,331

3,742
(952)
22
-
(139)
N/A

2,673

$(365)
(20)
(24)
(1)
-
(121)
-
10
(34)

(555)

387
74
50
1
(10)
38

540

$(497)
(27)
(26)
(1)
-
56
-
9
121

(365)

545
(71)
58
1
(9)
(137)

387

$(269)
(2)
(16)
-
-
21
-
24
N/A

(242)

56
10
24
-
(24)
N/A

$(250)
(3)
(17)
-
(23)
9
-
15
N/A

(269)

72
(16)
15
-
(15)
N/A

$ (2)
-
-
-
-
-
-
-
(1)

(3)

-
-
-
-
-
-

$ (8)
-
-
-
-
4
-
-
2

(2)

-
-
-
-
-
-

496

114

$ (15)

$ 22

$(176)

$(213)

$ (3)

$ (2)

$ 1,552
(82)
-

$ 1,573
(96)
-

$ 1,470

$ 1,477

$ 200
-
-

$ 200

$ 129
-
-

$ 129

$ 65
(4)
12

$ 73

$ 95
(4)
15

$ 106

$ (6)
-
-

$ (6)

$ (6)
-
-

$ (6)

(a) The benefit obligation for pension benefits is the projected benefit obligation and for healthcare benefits, it is the accumulated benefit obligation.

Net periodic benefit cost (credit)

Pension Benefits

Healthcare Benefits

Domestic

Foreign

Domestic

Foreign

(dollar amounts in millions)

2009

2008

2007 (a) 2009

2008

2007 (a) 2009

2008

2007 (a) 2009

2008

2007 (a)

Weighted-average assumptions

as of Jan. 1:

Market-related value of plan assets
Discount rate
Expected rate of return on plan assets
Rate of compensation increase

Components of net periodic

benefit cost (credit):

Service cost
Interest cost
Expected return on assets
Amortization of:

Net initial obligation (asset)
Prior service cost (credit)
Net actuarial (gain) loss

Settlement (gain) loss
Other

$3,651

$3,706

$1,352

$ 459

$ 542

$ 252

$ 77

$ 72

N/A

6.38% 6.38%
8.00
3.50

8.00
3.50

6.00% 6.18% 5.75% 4.95% 6.38% 6.38% 6.00% 6.25% 5.80% 5.00%
8.00
3.75

7.28
4.43

6.40
4.46

6.40
4.11

8.00
N/A

N/A
N/A

96
160
(295)

84
142
(290)

61
94
(190)

$ 20
24
(32)

$ 27
26
(37)

$ 18
18
(28)

-
(14)
26
5
(10)

-
(10)
11
10
14

-
(10)
27
2
-

-
-
3
-
-

-
--
45
--
--

2
16
(6)

3
17
(6)

1
12
(5)

4
-
5
-
-

4
--
8
--
--

-
-
-

(1)

-
-
-

-
-
-
-
-

-
-
-

-
-
-
-
-

Net periodic benefit cost (credit)

$ (32)(b)$ (39)

$ (16)

$ 15

$ 19

$ 12

$ 21

$ 23

$ 20

$ (1)

(a) Assumptions in effect as of July 1, 2007 for legacy Mellon Financial plans include a discount rate of 6.25% for domestic plans and discount rate of

5.75% for foreign plans, an expected rate of return on plan assets of 8.25% and a rate of compensation increase of 3.25%.
Includes discontinued operations.

(b)

BNY Mellon

127

Notes to Consolidated Financial Statements (continued)

Changes in other comprehensive (income) loss in 2009

(in millions)

Net loss (gain) arising during period
Recognition of prior years net (loss)
Prior service cost (credit) arising during period
Recognition of prior years service (cost) credit
Recognition of net initial (obligation) asset
Foreign exchange adjustment

Total recognized in other comprehensive (income) loss (before tax effects)

Amounts expected to be recognized in net periodic benefit
cost (income) in 2010 (before tax effects)

(in millions)

(Gain) loss recognition
Prior service cost recognition
Net initial obligation (asset) recognition

Pension Benefits

Healthcare Benefits

Domestic

Foreign

Domestic

Foreign

$
-
(21)
-
14
-
N/A

$ (7)

$73
(3)
-
-
-
1

$71

$(24)
(5)
-
-
(4)
N/A

$(33)

$ -
1
-
-
-
(1)

$ -

Pension Benefits

Healthcare Benefits

Domestic

Foreign

Domestic

Foreign

$ 71
(13)
-

$11
-
-

$5
-
4

$1
-
-

Domestic

Foreign

2009

2008

2009

2008

Assumed healthcare cost trend—Domestic post-
retirement healthcare benefits

(in millions)

Pension benefits:
Prepaid benefit cost
Accrued benefit cost

$ 681
(185)

$ 315
(201)

Total pension benefits

$ 496

$ 114

Healthcare benefits:
Accrued benefit cost

$(176)

$(213)

Total healthcare benefits

$(176)

$(213)

$ 33
(48)

$(15)

$ 56
(34)

$ 22

$ (3)

$ (2)

The accumulated benefit obligation for all defined
benefit plans was $3.2 billion at Dec. 31, 2009 and
$2.8 billion at Dec. 31, 2008.

Plans with obligations in excess
of plan assets

(in millions)

Projected benefit obligation
Accumulated benefit

obligation

Fair value of plan assets

Domestic

Foreign

2009

$205

205
20

2008

$220

218
19

2009

$41

38
14

2008

$14

12
1

Our expected long-term rate of return on plan assets is
based on anticipated returns for each asset class.
Anticipated returns are weighted for the expected
allocation for each asset class and 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.

For additional information on pension assumptions
see the Critical accounting estimates section.

128 BNY Mellon

The assumed healthcare cost trend rate used in
determining benefit expense for 2010 is 8.00%
decreasing to 5.00% in 2016. This projection is based
on various economic models that forecast a decreasing
growth rate of healthcare expenses over time. The
underlying assumption is that healthcare expense
growth cannot outpace gross national product
(“GNP”) growth indefinitely, and over time a lower
equilibrium growth rate will be achieved. Further, the
growth rate assumed in 2016 bears a reasonable
relationship to the discount rate.

An increase in the healthcare cost trend rate of one
percentage point for each year would increase the
postretirement benefit obligation by $17.0 million, or
7% and the sum of the service and interest costs by
$1.1 million, or 7%. Conversely, a decrease in this
rate of one percentage point for each year would
decrease the benefit obligation by $14.8 million, or
6%, and the sum of the service and interest costs by
$1.0 million, or 6%.

Assumed healthcare cost trend—Foreign post-
retirement healthcare benefits

An increase in the healthcare cost trend rate of one
percentage point for each year would increase the
post-retirement benefit obligation by less than $1
million and the sum of the service and interest costs
by less than $1 million. Conversely, a decrease in this
rate of one percentage point for each year would
decrease the benefit obligation by less than $1 million
and the sum of the service and interest costs by less
than $1 million.

Notes to Consolidated Financial Statements (continued)

Investment strategy and asset allocation

BNY Mellon is responsible for the administration of
various pension and healthcare post-retirement
benefits plans, both domestically and internationally.
Prior to July 21, 2008, the plans were administered by
The Bank of New York Company, Inc.’s and Mellon
Financial Corporation’s respective Benefits
Committees. Since July 21, 2008, the domestic plans
have been administered by BNY Mellon’s Benefits
Administration Committee (the “Committee”). Prior
to July 21, 2008, the Benefits Committee was, and
since July 21, 2008, BNY Mellon’s Benefits
Administration Committee has been, a named
fiduciary of the domestic plans. Subject to the
following, at all relevant times, BNY Mellon’s
Benefits Investment Committee, another named
fiduciary to the Plan, is responsible for the investment
of Plan assets. The Committee’s responsibilities
include the investment of all domestic defined benefit
plan assets, as well as the determination of investment
options offered to participants in all domestic defined
contribution plans. The Benefits Investment
Committee conducts periodic reviews of investment
performances, asset allocation and investment
manager suitability.

Our investment objective for U.S. and foreign plans is
to maximize total return while maintaining a broadly
diversified portfolio for the primary purpose of
satisfying obligations for future benefit payments.

Equities are the main holding of the plans. Alternative
investments (including private equities) and fixed
income securities provide diversification and, in
certain cases, lower the volatility of returns. In
general, equity securities and alternative investments
within any domestic plan’s portfolio can be
maintained in the range of 30% to 70% of total plan
assets, fixed-income securities can range from 20% to
50% of plan assets and cash equivalents can be held in
amounts ranging from 0% to 5% of plan assets. Actual
asset allocation within the approved ranges varies
from time to time based on economic conditions (both
current and forecast) and the advice of professional
advisors.

Our pension investment assets were invested as
follows at Dec. 31, 2009 and 2008:

Asset allocations
(in millions)

Equities
Fixed income
Private equities
Alternative investment
Real estate
Cash

Domestic

Foreign

2009

2008

2009

2008

55% 57%
33
3
8
-
1

33
5
4
-
1

54% 53%
29
-
10
4
3

32
-
10
3
2

Total pension benefits

100% 100% 100% 100%

Included in the domestic plan assets above were
2 million shares of our common stock with a fair
value of $57 million at Dec. 31, 2008, representing
4.6% of 2008 plan assets. BNY Mellon retirement
plans received approximately $0.5 million and $2
million of dividends from our stock in 2009 and 2008,
respectively. We held no BNY Mellon Corporation
stock in our pension plans at Dec. 31, 2009. Assets of
the U.S. post retirement healthcare plan are invested
in an insurance contract.

BNY Mellon expects to make cash contributions to
fund its defined benefit pension plans in 2010 of $17
million for the domestic plans and $22 million for the
foreign plans.

BNY Mellon expects to make cash contributions to
fund its post-retirement healthcare plans in 2010 of
$22 million for the domestic plans and less than $1
million for the foreign plans.

The following benefit payments for BNY Mellon’s
pension and healthcare plans, which reflect expected
future service as appropriate, are expected to be paid:

Domestic

Foreign

(in millions)

Pension benefits:
Year 2010
2011
2012
2013
2014
2015-2019

Total pension benefits

Healthcare benefits:
Year 2010
2011
2012
2013
2014
2015-2019

$ 150
163
172
182
196
1,156

$2,019

22
23
22
23
23
109

7
8
8
12
10
78

$123

-
-
-
-
-
1

BNY Mellon

129

Total healthcare benefits

$ 222

Notes to Consolidated Financial Statements (continued)

Fair value measurement of plan investment assets

In accordance with ASC 715, BNY Mellon has
established a three-level hierarchy for fair value
measurements of its pension plan investment assets
based upon the transparency of inputs to the valuation
of an asset as of the measurement date. The valuation
hierarchy is consistent with guidance in ASC 820
which is detailed in Note 24 of the Notes to the
Financial Statements.

The following is a description of the valuation
methodologies used for instruments measured at fair
value, as well as the general classification of such
instruments pursuant to the valuation hierarchy.

Cash and currency

This category consists primarily of foreign currency
balances. Foreign currency is translated monthly
based on current exchange rates.

Master Trust

There is no readily available market quotation for this
trust. The trust’s fair value is based on the securities in
the trust which typically is the amount which the trust
might reasonably expect to receive for the security
upon a sale. This trust is valued on a daily basis. The
pension plan’s ownership in the trust is represented by
units of participation.

the underlying funds as provided by the fund
managers. These funds are typically valued on a
quarterly basis. The Plan’s venture capital investments
and non-registered investments are valued at NAV as
a practical expedient for fair value.

Collective trust funds

There are no readily available market quotations for
these funds. The fund’s fair value is based on
securities in the portfolio which typically is the
amount which the fund might reasonably expect to
receive for the security upon a sale. These funds are
either valued on a daily or monthly basis.

Corporate and government obligations

Certain corporate and government obligations are
valued at the closing price reported in the active
market in which the bond is traded. Other corporate
and government obligations are valued based on
yields currently available on comparable securities of
issuers with similar credit ratings. When quoted prices
are not available for identical or similar bonds, the
bond is valued using discounted cash flows that
maximizes observable inputs, such as current yields of
similar instruments, but includes adjustments for
certain risks that may not be observable, such as credit
and liquidity risks.

U.S. Treasury securities

Common and preferred stock and exchange traded
funds

Valued at the closing price reported in the active
market in which the individual security is traded.

These types of securities are valued at the closing
price reported in the active market in which the
individual securities are traded, if available. Where
there is no readily available market quotations, we
determine fair value primarily based on pricing
sources with reasonable levels of price transparency.

Venture capital investments and non-registered
investment companies

There are no readily available market quotations for
these funds. The investment’s fair values are based on
the Plan’s ownership percentage of the fair value of

Hedge fund of funds

There are no readily available market quotations for
these funds. The fund’s fair value is based on NAVs
of the funds in the portfolio which reflects the value of
the underlying securities. The fair value of the
underlying securities is typically the amount which
the fund might reasonably expect to receive for the
security upon a sale for those hard to value or illiquid
securities within the hedge fund portfolio. For
securities that are readily valued, fair value is the
closing price at the end of the period. These funds are
valued on a monthly basis.

130 BNY Mellon

Notes to Consolidated Financial Statements (continued)

The following tables present the fair value of each major category of plan investment assets as of Dec. 31, 2009,
by captions and by ASC 820 valuation hierarchy (as described above).

Plan investment assets measured at fair value on a recurring basis—domestic plans at Dec. 31, 2009

(in millions)

Exchange traded funds
Master Trust
Collective trust funds
Common and preferred stock
Corporate debt obligations
U.S. and sovereign government obligations
Venture capital and partnership interests
Hedge funds of funds
Non-registered investment companies

Level 1

Level 2

Level 3

3
-
-
718
-
374
-
-
-

-
142
912
-
795
96
-
26
-

-
-
-
-
-
-
110
91
4

Total
fair value

3
142
912
718
795
470
110
117
4

Total domestic plan investment assets at fair value

$1,095

$1,971

$205

$3,271

Plan investment assets measured at fair value on a recurring basis—foreign plans at Dec. 31, 2009

(in millions)

Cash and currency
Collective trust funds
Common stock
Corporate debt obligations
Sovereign government obligations
Venture capital and partnership interests

Level 1

Level 2

Level 3

14
-
176
-
39
-

-
258
-
9
-
-

-
-
-
-
-
36

Total
fair value

14
258
176
9
39
36

Total foreign plan investment assets at fair value

$ 229

$ 267

$ 36

$ 532

BNY Mellon has $347 million of pension and post
retirement plan investment assets in alternative
investment funds valued using net asset value. These
investments are redeemable at net asset value under
agreements with the underlying funds.

Alternative investments of $122 million, contain a
redemption provision which requires notice of 90
days.

Changes in Level 3 fair value measurements

Our alternative investment funds consist primarily of
venture capital and partnership interests and hedge
fund of funds. As of Dec. 31, 2009, there were $43
million of unfunded commitments relating to our
venture capital and partnership interests.

The table below includes a rollforward of the plan
investment assets for the year ended Dec. 31, 2008
(including the change in fair value), for financial
instruments classified in Level 3 of the valuation
hierarchy.

BNY Mellon

131

Notes to Consolidated Financial Statements (continued)

Fair value measurements using significant unobservable inputs—domestic plans—for the year ended Dec. 31, 2009

(in millions)

Venture capital and partnership interests
Hedge funds of funds
Non-registered investment companies

Total plan investment assets at fair

value

Fair value at
Dec. 31, 2008

Total realized/
unrealized
gains (losses)

Purchases,
issuances and
settlements, net

Transfers
in/out-of
Level 3

Fair value at
Dec. 31, 2009

$108
-
81

$189

$(3)
-
7

$ 4

$ 5
91
(84)

$ 12

-
-
-

$110
91
4

$205

Fair value measurements using significant unobservable inputs—foreign plans for the year ended Dec. 31, 2009

(in millions)

Fair value at
Dec. 31, 2008

Total realized/
unrealized
gains (losses)

Purchases,
issuances and
settlements, net

Transfers
in/out-of
Level 3

Fair value at
Dec. 31, 2009

Venture capital and partnership interests

Total plan investment assets at fair

value

$ 33

$ 3

$ 36

Changes in
unrealized gains
and (losses)
related to plan
assets held at
Dec. 31, 2009

$(13)
-
-

$(13)

Change in
unrealized gains
and (losses)
related to plan
assets held at
Dec. 31, 2009

$ 3

Defined contribution plans

We have an Employee Stock Ownership Plan
(“ESOP”) covering certain domestic full-time
employees with more than one year of service. The
ESOP works in conjunction with the defined benefit
pension plan. Employees are entitled to the higher of
their benefit under the ESOP or such defined benefit
pension plan at retirement. Benefits payable under the
defined benefit pension plan are offset by the
equivalent value of benefits earned under the ESOP.

Contributions are made equal to required principal
and interest payments on borrowings by the ESOP. At
Dec. 31, 2009 and Dec. 31, 2008, the ESOP owned
8.1 million and 8.5 million shares of our stock,
respectively. The fair value of total ESOP assets were
$246 million and $247 million at Dec. 31, 2009 and
Dec. 31, 2008. There were no contributions in 2009
and 2008 and $3.6 million in 2007. There was no
ESOP related expense in 2009 and 2008 and $3
million in 2007.

We have defined contribution plans, excluding the
ESOP, for which we recognized a cost of $98 million
in 2009, $107 million in 2008, and $85 million in
2007.

Effective September 2008, the Benefits Investment
Committee appointed Fiduciary Counselors, Inc. to
serve as the independent fiduciary to (i) make certain
fiduciary decisions related to the continued prudence

of offering the common stock of BNY Mellon or its
affiliates as an investment option under the plans other
than with respect to plan sponsor decisions, and
(ii) select and monitor any internally managed
investments (active or passive, including mutual
funds) of BNY Mellon or its affiliates to be offered to
participants as investment options under the Plan.

22. Company financial information

Our bank subsidiaries are subject to dividend
limitations under the Federal Reserve Act, as well as
national and state banking laws. Under these statutes,
prior regulatory consent is required for dividends in
any year that would exceed the bank’s net profits for
such year combined with retained net profits for the
prior two years. Additionally, such bank subsidiaries
may not declare dividends in excess of net profits on
hand, as defined, after deducting the amount by which
the principal amount of all loans, on which interest is
past due for a period of six months or more, exceeds
the allowance for credit losses. The Bank of New
York Mellon, which is a New York state chartered
bank, is also prohibited from paying dividends in
excess of net profits. As a result of charges related to
the restructuring of the investment securities portfolio
in the third quarter of 2009, The Bank of New York
Mellon and BNY Mellon, N.A. currently require
regulatory consent prior to paying a dividend. Despite
this limitation, management estimates that liquidity at
the Parent will continue to be sufficient to meet BNY
Mellon’s ongoing quarterly dividends at current rates.

132 BNY Mellon

Notes to Consolidated Financial Statements (continued)

Under the first and more significant of these
limitations, our bank subsidiaries could declare
dividends of approximately $136 million in 2010 plus
net profits earned in the remainder of 2010.

The payment of dividends also is limited by minimum
capital requirements imposed on banks. As of Dec.
31, 2009, BNY Mellon’s bank subsidiaries exceeded
these minimum requirements.

The bank subsidiaries declared dividends of $659
million in 2009, $575 million in 2008 and $627
million in 2007. The Federal Reserve Board and the
OCC have issued additional guidelines that require
bank holding companies and national banks to
continually evaluate the level of cash dividends in
relation to their respective operating income, capital
needs, asset quality and overall financial condition.

The Federal Reserve Board has issued a policy
statement with respect to the payment of cash
dividends by bank holding companies. The policy
statement provides that as a matter of prudent
banking, a bank holding company should not maintain
a rate of cash dividends unless its net income
available to common shareholders has been sufficient
to fully fund the dividends, and the prospective rate of
earnings retention appears to be consistent with the
holding company’s capital needs, asset quality and
overall financial condition. The Federal Reserve
Board can also prohibit a dividend if payment would
constitute an unsafe or unsound banking practice.

The Federal Reserve Act limits and requires collateral
for extensions of credit by our insured subsidiary
banks to BNY Mellon and certain of its non-bank
affiliates. Also, there are restrictions on the amounts
of investments by such banks in stock and other
securities of BNY Mellon and such affiliates, and
restrictions on the acceptance of their securities as
collateral for loans by such banks. Extensions of
credit by the banks to each of our affiliates are limited
to 10% of such bank’s regulatory capital, and in the
aggregate for BNY Mellon and all such affiliates to
20%, and collateral must be between 100% and 130%
of the amount of the credit, depending on the type of
collateral.

Our insured subsidiary banks are required to maintain
reserve balances with Federal Reserve Banks under
the Federal Reserve Act and Regulation D. Required
balances averaged $2.0 billion and $1.2 billion for the
years 2009 and 2008, respectively.

In addition, under the National Bank Act, if the capital
stock of a national bank is impaired by losses or
otherwise, the OCC is authorized to require payment
of the deficiency by assessment upon the bank’s
shareholders, pro rata, and to the extent necessary, if
any such assessment is not paid by any shareholder
after three months notice, to sell the stock of such
shareholder to make good the deficiency.

The Parent’s condensed financial statements are as
follows:

Condensed Income Statement—The Bank of
New York Mellon Corporation (Parent
Corporation) (a)

Year ended Dec. 31
(in millions)

Dividends from bank subsidiaries
Dividends from nonbank subsidiaries
Interest revenue from bank subsidiaries
Interest revenue from nonbank subsidiaries
Gain (loss) on securities held for sale
Other revenue

Total revenue

Interest (including $23 in 2009, $79 in 2008

and $149 in 2007 to subsidiaries)

Other expense

Total expense

Income (loss) before income taxes and
equity in undistributed net income of
subsidiaries

Provision (benefit) for income taxes
Equity in undistributed net income (loss):

Bank subsidiaries
Nonbank subsidiaries

Net income (loss)

2009

2008

2007 (b)

611
176
228
146
(2)
81

$ 495
237
214
234
(72)
54

$ 564
321
210
242
(15)
68

1,240

1,162

1,390

366
338

704

710
737

1,447

769
152

921

536
(357)

(285)
(433)

469
(106)

(2,271)
294

875
396

844
620

(1,084)

1,419

2,039

Redemption charge and preferred dividends

(283)

(33)

Net income (loss) applicable to common

shareholders’ of The Bank of New York
Mellon

$(1,367) $1,386

$2,039

(a)

Includes results of discontinued operations and the extraordinary
(losses).

(b) Results for 2007 include six months of BNY Mellon and six months of

legacy The Bank of New York Company, Inc.

BNY Mellon

133

Notes to Consolidated Financial Statements (continued)

Condensed Balance Sheet—The Bank of New
York Mellon Corporation (Parent Corporation)

Condensed Statement of Cash Flows—The
Bank of New York Mellon Corporation (Parent
Corporation)

(in millions)

2009

2008

Year ended Dec. 31

Dec. 31,

Assets:
Cash and due from banks
Securities
Loans—net of allowance
Investment in and advances to

subsidiaries and associated companies:

Banks
Other

Subtotal

Corporate-owned life insurance
Other assets

$ 4,649
233
113

$ 5,376
316
213

23,671
19,420

43,091

1,058
2,757

21,013
18,459

39,472

1,013
917

(in millions)

Operating activities:
Net income (loss)
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization
Equity in undistributed net (income)/

loss of subsidiaries

Change in accrued interest receivable
Change in accrued interest payable
Change in taxes payable
Other, net

Net cash provided by operating

Dec. 31,
2008

2009

2007 (a)

$(1,084) $ 1,419

$ 2,039

1,977
(41)
(1)
(482)
(455)

(1,271)
58
2
(84)
880

(1,464)
(24)
(17)
(439)
471

$51,901

$47,307

activities

(73)

1,021

583

Investing activities:
Purchases of securities
Proceeds from sales of securities
Change in loans
Acquisitions of, investments in, and

advances to subsidiaries

Other, net

Net cash used in investing activities

Financing activities:
Net change in commercial paper
Proceeds from issuance of long-term debt
Repayments of long-term debt
Change in advances from subsidiaries
Issuance of common stock
Treasury stock acquired
Cash dividends paid
Series B preferred stock issued/

(repurchased)

Warrant issued/(repurchased)
Tax benefit realized on share based

payment awards

Net cash provided by (used) in

financing activities

Change in cash and due from banks
Cash and due from banks at beginning of

(9)
129
110

(566)
-

(336)

(4)
3,350
(1,277)
59
1,387
(28)
(673)

(198)
346
11

(1,131)
9

(963)

(49)
2,647
(3,814)
321
222
(308)
(1,129)

(3,000)
(136)

2,779
221

(318)

(727)

904

962

(956)
813
180

(566)
(10)

(539)

(159)
4,617
(982)
433
495
(113)
(884)

-
-

3,462

3,506

year

5,376

4,414

908

Cash and due from banks at end of year

$ 4,649

$ 5,376

$ 4,414

Supplemental disclosures

Interest paid
Income taxes paid (b)
Income taxes refunded (b)
Payments (received from) paid to

subsidiaries

Net income taxes paid

$
367
$ 1,980
(609)

$
708
$ 1,916
(37)

$
785
$ 1,053
(142)

(967)

(1,025)

(820)

404

854

(a) Results for 2007 include six months of BNY Mellon and six months of

legacy The Bank of New York Company, Inc.
Includes discontinued operations.

(b)

Total assets

Liabilities:
Deferred compensation
Commercial paper
Affiliate borrowings
Other liabilities
Long-term debt

Total liabilities

Shareholders’ equity

500
12
3,355
2,649
16,408

22,924

28,977

487
16
3,296
775
14,683

19,257

28,050

Total liabilities and shareholders’

equity

$51,901

$47,307

134 BNY Mellon

Notes to Consolidated Financial Statements (continued)

23. Fair value of financial instruments

Loans and commitments

The carrying amounts of our financial instruments
(i.e., monetary assets and liabilities) are determined
under different accounting methods—see Note 1 to
the Consolidated Financial Statements. The following
disclosure discusses these instruments on a uniform
fair value basis. However, active markets do not exist
for a significant portion of these instruments,
principally loans and commitments. As a result, fair
value determinations require significant subjective
judgments regarding future cash flows. Other
judgments would result in different fair values.
Among the assumptions we used are discount rates
ranging principally from 0.05% to 6.27% at Dec. 31,
2009 and 0.08% to 3.25% at Dec. 31, 2008. The fair
value information supplements the basic financial
statements and other traditional financial data
presented throughout this report.

Note 24, “Fair value measurement” presents assets
and liabilities measured at fair value by the three level
valuation hierarchy established under ASC 820, as
well as a roll forward schedule of fair value
measurements using significant unobservable inputs.
Note 25, “Fair value option” presents the instruments
for which fair value accounting was elected and the
corresponding income statement impact of those
instruments.

A summary of the practices used for determining fair
value is as follows.

Interest-bearing deposits with banks

The fair value of interest-bearing deposits with banks
is based on discounted cash flows.

Securities, trading activities, and derivatives used for
ALM

The fair value of securities and trading assets and
liabilities is based on quoted market prices, dealer
quotes, or pricing models. Fair value amounts for
derivative instruments, such as options, futures and
forward rate contracts, commitments to purchase and
sell foreign exchange, and foreign currency swaps, are
similarly determined. The fair value of
over-the-counter interest rate swaps is the discounted
value of projected future cash flows, adjusted for
other factors including, but not limited to and if
applicable, optionality and implied volatilities, as well
as counterparty credit.

For residential mortgage loans, fair value is estimated
using discounted cash flow analyses, adjusting where
appropriate for prepayment estimates, using interest
rates currently being offered for loans with similar
terms and maturities to borrowers. To determine the
fair value of other types of loans, BNY Mellon uses
discounted future cash flows using current market
rates. The fair value of commitments to extend credit,
standby letters of credit, and commercial letters of
credit is based upon the cost to settle the commitment.

Other financial assets

Fair value is assumed to equal carrying value for these
assets due to their short maturity.

Deposits, borrowings and long-term debt

The fair value of noninterest-bearing deposits and
payables to customers and broker-dealers is assumed
to be their carrying amount. The fair value of interest-
bearing deposits, borrowings, and long-term debt is
based upon current rates for instruments of the same
remaining maturity or quoted market prices for the
same or similar issues.

BNY Mellon

135

Notes to Consolidated Financial Statements (continued)

Summary of financial instruments

Dec. 31, 2009

Dec. 31, 2008

24. Fair value measurement

Carrying
amount

Estimated
fair
value

Carrying
amount

Estimated
fair
value

$ 56,302
60,461
6,001

$ 56,374
60,544
6,001

$ 39,126
43,707
11,102

$ 39,183
42,756
11,102

32,673

32,712

38,968

39,002

422
18,793

709
69,531

(in millions)

Assets:

Interest-bearing

deposits with banks

Securities
Trading assets
Loans and

commitments
Derivatives used for

ALM

Other financial assets
Total financial

assets

$174,652

$174,846

$203,143

$202,283

Assets of discontinued

operations

Non-financial assets

Total assets

Liabilities:

Noninterest-bearing

deposits

Interest-bearing

deposits

Payables to customers
and broker-dealers

Borrowings
Long-term debt
Trading liabilities
Derivatives used for

ALM
Total financial
liabilities

Liabilities of

discontinued
operations
Non-financial
liabilities
Total liabilities

2,242
35,330
$212,224

2,242

-
34,369
$237,512

$ 33,477

$ 55,816

101,573

101,570

103,857

103,858

10,721
3,922
17,234
6,396

10,721
3,922
17,110
6,396

9,274
8,083
15,865
8,085

9,274
8,083
15,211
8,085

$173,394

$173,267

$200,999

$200,346

1,608

8,219
$183,221

8,424
$209,423

The table below summarizes the carrying amount of
the hedged financial instruments and the related
notional amount of the hedge and estimated fair value
(unrealized gain/(loss)) of the derivatives that were
linked to these items:

Hedged financial instruments
(in millions)

Carrying
amount

Notional
amount

Unrealized
Gain (Loss)

At Dec. 31, 2009:
Loans
Securities held-for-sale
Deposits
Long-term debt

At Dec. 31, 2008:
Loans
Securities held-for-sale
Deposits
Long-term debt

1 $

216
26
12,378

211
25
11,599

- $
-
-
422

-
(12)
(4)
(55)

8 $

6 $

219
600
11,106

218
590
10,548

- $
-
8
701

-
(19)
-
-

136 BNY Mellon

We adopted guidance related to “Fair Value
Measurement”, included in ASC 820, effective Jan. 1,
2008. ASC 820 defines fair value as the price that
would be received to sell an asset, or paid to transfer a
liability, in an orderly transaction between market
participants at the measurement date and establishes a
framework for measuring fair value. It 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 and
expands the disclosures about instruments measured at
fair value. ASC 820 requires consideration of a
company’s own creditworthiness when valuing
liabilities.

Effective Jan. 1, 2009, we adopted guidance related to
“Determining Fair Value When the Volume and Level
of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions
That Are Not Orderly”, included in ASC 820. This
ASC provides guidance on how to determine the fair
value when the volume and level of activity for the
asset or liability have significantly decreased and
reemphasizes that the objective of a fair value
measurement remains an exit price notion. In those
circumstances, further analysis of transactions or
quoted prices is needed, and a significant adjustment
to the transactions or quoted prices may be necessary
to estimate fair value in accordance with ASC 820.
This guidance also requires additional disclosures for
instruments within the scope of ASC 820 to include
inputs and valuation techniques used, change in
valuation techniques and related inputs, if any, and
more disaggregated information relating to debt and
equity securities.

Notes to Consolidated Financial Statements (continued)

within the range that is most representative of fair
value under current market conditions.

We also adopted guidance related to the fair value
option for financial assets and financial liabilities
included in ASC 825, effective Jan. 1, 2008. ASC 825
provides an option to elect fair value as an alternative
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.

Determination of fair value

Following is a description of our valuation
methodologies for assets and liabilities measured at
fair value. We have established processes for
determining fair values. Fair value is based upon
quoted market prices, where available. For financial
instruments where quotes from recent exchange
transactions are not available, we determine fair value
based on discounted cash flow analysis, comparison to
similar instruments, and the use of financial models.
Discounted cash flow analysis is dependent upon
estimated future cash flows and the level of interest
rates. Model-based pricing uses inputs of observable
prices for interest rates, foreign exchange rates, option
volatilities and other factors. Models are benchmarked
and validated by an independent internal risk
management function. Our valuation process takes
into consideration factors such as counterparty credit
quality, liquidity, concentration concerns,
observability of model parameters and the results of
stress tests. Valuation adjustments may be made to
ensure that financial instruments are recorded at fair
value.

Most derivative contracts are valued using internally
developed models which are calibrated to observable
market data and employ standard market pricing
theory for their valuations. An initial “risk-neutral”
valuation is performed on each position assuming
time-discounting based on an AA credit curve. Then,
to arrive at a fair value that incorporates counterparty
credit risk, a credit adjustment is made to these results
by discounting each trade’s expected exposures to the
counterparty using the counterparty’s credit spreads,
as implied by the credit default swap market. We also
adjust expected liabilities to the counterparty using
BNY Mellon’s own credit spreads, also implied by the
credit default swap market. Accordingly, the valuation
of our derivative position is sensitive to the current
changes in our own credit spreads as well as those of
our counterparties.

In certain cases, we may face additional costs to exit
large risk positions or recent prices may not be
observable for instruments that trade in inactive or
less active markets. The costs to exit large risk
positions are based on evaluating the negative change
in the market during the time it would take for us to
bring those positions to normal market levels for those
instruments. Upon evaluating the uncertainty in
valuing financial instruments subject to liquidity
issues, we make an adjustment to their value. The
determination of the liquidity adjustment includes the
availability of external quotes, the time since the latest
available quote and the price volatility of the
instrument.

Certain parameters in some financial models are not
directly observable and, therefore, are based on
managements’ estimates and judgments. These
financial instruments are normally traded less
actively. Examples include certain credit products
where parameters such as correlation and recovery
rates are unobservable. We apply valuation
adjustments to mitigate the possibility of error and
revision in the model based estimated value.

The methods described above may produce a current
fair value calculation that may not be indicative of net
realizable value or reflective of future fair values. We
believe our methods of determining fair value are
appropriate and consistent with other market
participants. However, the use of different
methodologies or different assumptions to value
certain financial instruments could result in a different
estimate of fair value.

Valuation hierarchy

ASC 820 establishes a three-level valuation hierarchy
for disclosure of fair value measurements based upon
the transparency of inputs to the valuation of an asset
or liability as of the measurement date. The three
levels are described below.

Level 1: Inputs to the valuation methodology are
quoted prices (unadjusted) for identical assets or
liabilities in active markets. Level 1 assets and
liabilities include debt and equity securities and
derivative financial instruments actively traded on
exchanges and U.S. Treasury securities and U.S.
Government securities that are actively traded in
highly liquid over the counter markets.

Level 2: Observable inputs other than Level 1 prices,
for example, quoted prices for similar assets and

BNY Mellon

137

Notes to Consolidated Financial Statements (continued)

liabilities in active markets, quoted prices for identical
or similar assets or liabilities in markets that are not
active, and inputs that are observable or can be
corroborated, either directly or indirectly, for
substantially the full term of the financial instrument.
Level 2 assets and liabilities include debt instruments
that are traded less frequently than exchange traded
securities and derivative instruments whose model
inputs are observable in the market or can be
corroborated by market observable data. Examples in
this category are certain variable and fixed rate agency
and non-agency securities, corporate debt securities
and derivative contracts.

Level 3: Inputs to the valuation methodology are
unobservable and significant to the fair value
measurement. Examples in this category include
interests in certain securitized financial assets, certain
private equity investments, and derivative contracts
that are highly structured or long-dated.

A financial instrument’s categorization within the
valuation hierarchy is based upon the lowest level of
input that is significant to the fair value measurement.

Following is a description of the valuation
methodologies used for instruments measured at fair
value, as well as the general classification of such
instruments pursuant to the valuation hierarchy.

Loans and unfunded lending-related commitments

Where quoted market prices are not available, we
generally base the fair value of loans and unfunded
lending-related commitments on observable market
prices of similar instruments, including bonds, credit
derivatives and loans with similar characteristics. If
observable market prices are not available, we base
the fair value on estimated cash flows adjusted for
credit risk which are discounted using an interest rate
appropriate for the maturity of the applicable loans or
the unfunded commitments.

Unrealized gains and losses on unfunded lending
commitments carried at fair value are classified in
Other assets and Other liabilities, respectively. Loans
and unfunded lending commitments carried at fair
value are generally classified within Level 2 of the
valuation hierarchy.

Securities

Where quoted prices are available in an active market,
we classify the securities within Level 1 of the
valuation hierarchy. Securities are defined as both

138 BNY Mellon

long and short positions. Level 1 securities include
highly liquid government bonds, certain mortgage
products and exchange-traded equities.

If quoted market prices are not available, we estimate
fair values using pricing models, quoted prices of
securities with similar characteristics, or discounted
cash flows. Examples of such instruments, which
would generally be classified within Level 2 of the
valuation hierarchy, include certain agency and
non-agency mortgage-backed securities, commercial
mortgage-backed securities and European floating rate
notes.

For securities where quotes from recent transactions
are not available for identical securities, we determine
fair value primarily based on pricing sources with
reasonable levels of price transparency that employ
financial models or obtain comparison to similar
instruments to arrive at “consensus” prices.

Specifically, the pricing sources obtain recent
transactions for similar types of securities (e.g.,
vintage, position in the securitization structure) and
ascertain variables such as discount rate and speed of
prepayment for the types of transaction and apply
such variables to similar types of bonds. We view
these as observable transactions in the current market
place and classify such securities as Level 2. Pricing
sources discontinue pricing any specific security
whenever they determine there is insufficient
observable data to provide a good faith opinion on
price.

In addition, we have significant investments in more
actively traded agency RMBS 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.

In 2009, we securitized approximately $5.0 billion,
fair value, of our investment securities portfolio into a
Grantor Trust. The Grantor Trust includes Alt-A,
prime and subprime RMBS. We sold the Class A
Notes and retained Class B certificates with a fair
value of approximately $4.2 billion. The fair value of
the retained securities was based on the observable
market prices of the underlying securities and is
considered Level 2 in the fair value hierarchy.

For securities with bond insurance, the financial
strength of the insurance provider is analyzed and that

Notes to Consolidated Financial Statements (continued)

information is included in the fair value assessment
for such securities.

In certain cases where there is limited activity or less
transparency around inputs to the valuation, we
classify those securities in Level 3 of the valuation
hierarchy. Securities classified within Level 3 may
include certain asset-backed securities CLOs, and
other retained interests in securitizations depending on
their structure.

At Dec. 31, 2009, market prices were consistent with
our internally modeled prices. As a result,
approximately 99% of our securities were valued by
pricing sources with reasonable levels of price
transparency. Approximately 1% of our securities
were priced based on economic models and
non-binding dealer quotes, and are included in Level 3
of the ASC 820 hierarchy.

Other short-term U.S. government-backed commercial
paper and borrowings from Federal Reserve related
to asset-backed commercial paper

At Dec. 31, 2009, there were no balances outstanding
for these instruments. At Dec. 31, 2008, these
instruments were classified in Level 2 of the valuation
hierarchy. The fair value of these instruments was
estimated using pricing models.

Derivatives

We classify exchange-traded derivatives valued using
quoted prices in Level 1 of the valuation hierarchy.
Examples include exchanged-traded equity and
foreign exchange options. Since few other classes of
derivative contracts are listed on an exchange, most of
our derivative positions are valued using internally
developed models that use as their basis readily
observable market parameters and we classify them in
Level 2 of the valuation hierarchy. Such derivatives
include basic interest rate swaps and options and
credit default swaps. Derivatives valued using models
with significant unobservable market parameters and
that are traded less actively or in markets that lack two
way flow, are classified in Level 3 of the valuation
hierarchy. Examples include long-dated interest rate
or currency swaps, where swap rates may be
unobservable for longer maturities; and certain credit
products, where correlation and recovery rates are
unobservable. 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. The fair

value of these interest rate swaps compose less than
1% of the fair value of our derivative financial
instruments. Additional disclosures of derivative
instruments are provided in Note 27 of the Notes to
Consolidated Financial Statements.

Seed capital

In our Asset Management segment we manage
investment assets, including equities, fixed income,
money market and alternative investment funds for
institutions and other investors; as part of that activity
we make seed capital investments in certain funds.
Seed capital is included in trading assets, securities
available-for-sale and other assets, depending on the
nature of the investment. When applicable, we value
seed capital based on the published net asset value
(“NAV”) of the fund. We include funds in which
ownership interests in the fund are publicly-traded in
an active market and institutional funds in which
investors trade in and out daily in Level 1 of the
valuation hierarchy. We include open-end funds
where investors are allowed to sell their ownership
interest back to the fund less frequently than daily and
where our interest in the fund contains no other rights
or obligations in Level 2 of the valuation hierarchy.
However, we generally include investments in funds
which allow investors to sell their ownership interest
back to the fund less frequently than monthly in Level
3, unless actual redemption prices are observable.

For other types of investments in funds, we consider
all of the rights and obligations inherent in our
ownership interest, including the reported NAV as
well as other factors that affect the fair value of our
interest in the fund. To the extent the NAV
measurements reported for the investments are based
on unobservable inputs or include other rights and
obligations (e.g., obligation to meet cash calls), we
generally classify them in Level 3 of the valuation
hierarchy.

Certain interests in securitizations

For certain interests in securitizations which are
classified in securities available-for-sale and other
assets, we use discounted cash flow models which
generally include assumptions of projected finance
charges related to the securitized assets, estimated net
credit losses, prepayment assumptions and estimates
of payments to third-party investors. When available,
we compare our fair value estimates and assumptions
to market activity and to the actual results of the
securitized portfolio. Changes in these assumptions

BNY Mellon

139

Notes to Consolidated Financial Statements (continued)

may significantly impact our estimate of fair value of
the interests in securitizations; accordingly, we
generally classify them in Level 3 of the valuation
hierarchy.

comparable public companies, changes in market
outlook and the financing environment. Nonpublic
private equity investments are included in Level 3 of
the valuation hierarchy.

Private equity investments

Our Other segment includes holdings of nonpublic
private equity investment through funds managed by
third party investment managers and, to a lesser
extent, direct investment in private equities.
Nonpublic private equity investments generally lack
quoted market prices, are less liquid and may be long
term; accordingly, we must apply significant
judgment in determining their fair value. We value
private equity investments initially based upon the
transaction price which we subsequently adjust to
reflect expected exit values as evidenced by financing
and sale transactions with third parties or through
ongoing reviews by the investment managers.

Private equity investments also include publicly held
equity investments, generally obtained through the
initial public offering of privately held equity
investments. These equity investments are often held
in a partnership structure. Publicly held investments
are marked-to-market at the quoted public value less
adjustments for regulatory or contractual sales
restrictions or adjustments to reflect the difficulty in
selling a partnership interest.

Discounts for restrictions are quantified by analyzing
the length of the restriction period and the volatility of
the equity security. These equity investments are
primarily classified in Level 2 of the valuation
hierarchy.

The investment managers consider a number of
factors in changes in valuation including current
operating performance and future expectations of the
particular investment, industry valuations of

The following tables present the financial instruments
carried at fair value at Dec. 31, 2009 and 2008, by
caption on the consolidated balance sheet and by ASC
820 valuation hierarchy (as described above).

140 BNY Mellon

Notes to Consolidated Financial Statements (continued)

Assets and liabilities measured at fair value on a recurring basis at
Dec. 31, 2009
(dollar amounts in millions)

Level 1

Level 2

Level 3

Netting (a)

Total carrying
value

Available-for-sale securities:

U.S. Treasury
U.S. government agencies
State and political subdivisions
Agency RMBS
Alt-A RMBS
Prime RMBS
Subprime RMBS
Other RMBS
Commercial MBS
Asset-backed CLOs
Other asset-backed securities
Equity securities (b)
Other debt securities (b)
Grantor Trust Class B certificates

Total available-for-sale

Trading assets:

Debt and equity instruments (c)
Derivative assets

Total trading assets

Loans
Other assets (d)

Total assets at fair value
Percent of assets prior to netting

Trading liabilities:

Debt and equity instruments
Derivative liabilities

Total trading liabilities

Other liabilities (e)

Total liabilities at fair value
Percent of liabilities prior to netting

$ 6,378
-
-
-
-
-
-
-
-
-
-
461
76
-
6,915

524
3,801

4,325

2
14

-
1,260
520
18,455
537
1,512
447
1,770
2,590
383
836
860
11,331
4,160
44,661

745
14,317

15,062

12
685

-
-
-
-
-
-
-
-
-
6
-
-
50
-
56

-
-
-
-
-
-
-
-
-
-
-
-
-
-
-

170
146

316

25
164

-
(13,702)

(13,702)

-
-

$ 6,378
1,260
520
18,455
537
1,512
447
1,770
2,590
389
836
1,321
11,457
4,160
51,632

1,439
4,562

6,001

39
863

$11,256

$60,420

$561

$(13,702)

$58,535

15.6%

83.6%

0.8%

442
3,872

4,314
2

752
14,671

15,423
605

-
92

92
3

-
(13,433)

(13,433)
-

$ 1,194
5,202

6,396
610

$ 4,316

$16,028

$ 95

$(13,433)

$ 7,006

21.1%

78.4%

0.5%

BNY Mellon

141

Notes to Consolidated Financial Statements (continued)

Assets and liabilities measured at fair value on a recurring basis at
Dec. 31, 2008
(dollar amounts in millions)

Level 1

Level 2

Level 3

Netting (a)

Total carrying
value

Available-for-sale securities:

U.S. Treasury
U.S. Government agencies
State and political subdivisions
Agency RMBS
Alt-A RMBS
Prime RMBS
Subprime RMBS
Other RMBS
Commercial MBS
Asset-backed CLOs
Other asset-backed securities
Equity securities (b)
Other debt securities (b)

Total available-for-sale

Other short-term U.S. government-backed commercial paper
Trading assets:

Debt and equity instruments (c)
Derivative assets

Total trading assets

Other assets (d)

Total assets at fair value
Percent of assets prior to netting

Borrowing from Federal Reserve related to asset-backed commercial

paper

Trading liabilities:

Debt and equity instruments
Derivative liabilities

Total trading liabilities

Other liabilities (e)

Total liabilities at fair value
Percent of liabilities prior to netting

440
-
-
-
-
-
-
-
-
-
-
575
41

1,056
-

691
7,965

8,656

682

341
1,299
883
10,899
2,962
4,704
937
2,401
2,472
418
1,116
775
1,392

30,599
5,629

1,189
19,065

20,254

988

-
-
-
-
-
-
-
-
-
22
17
13
357

409
-

20
83

103

200

-
-
-
-
-
-
-
-
-
-
-
-
-

-
-

-
(17,911)

(17,911)

781
1,299
883
10,899
2,962
4,704
937
2,401
2,472
440
1,133
1,363
1,790

32,064
5,629

1,900
9,202

11,102

1,870

$10,394

$57,470

$712

$(17,911)

$50,665

15.2%

83.8%

1.0%

$ 5,591

605
7,662

8,267
2

204
18,336

18,540
719

-
149

149
-

-
(18,871)

(18,871)
-

809
7,276

8,085
721

$ 8,269

$24,850

$149

$(18,871)

$14,397

24.9%

74.7%

0.4%

(a) ASC 815 permits the netting of derivative receivables and derivative payables under legally enforceable master netting agreements

(b)
(c)
(d)

(e)

and permits the netting of cash collateral.
Includes seed capital and certain interests in securitizations.
Includes loans classified as trading assets and certain interests in securitizations.
Includes private equity investments, seed capital and derivatives in designated hedging relationships. Includes certain financial
instruments previously carried at fair value such as private equity investments whose accounting basis has not changed under an ASC
825 fair value option election.
Included within other liabilities is the fair value adjustment for certain unfunded lending-related commitments and derivatives in
designated hedging relationships and support agreements.

Changes in Level 3 fair value measurements

The tables below include a roll forward of the balance
sheet amounts for the years ended Dec. 31, 2009 and
2008 (including the change in fair value), for financial
instruments classified in Level 3 of the valuation
hierarchy.

Our classification of a financial instrument in Level 3
of the valuation hierarchy is based on the significance
of the unobservable factors to the overall fair value

measurement. However, these instruments generally
include other observable components that are actively
quoted or validated to third party sources;
accordingly, the gains and losses in the table below
include changes in fair value due to observable
parameters as well as the unobservable parameters in
our valuation methodologies. We also frequently
manage the risks of Level 3 financial instruments
using securities and derivatives positions that are
Level 1 or 2 instruments which are not included in the
table; accordingly, the gains or losses below do not

142 BNY Mellon

Notes to Consolidated Financial Statements (continued)

reflect the effect of our risk management activities
related to the Level 3 instruments.

In accordance with ASC 820, BNY Mellon adjusts the
discount rate on securities to reflect what they would
sell for in an orderly market (model price) and
compares the model prices to prices provided by
pricing sources. If the difference between the model

price and the prices provided by pricing sources is
outside of established thresholds, the securities are
included in Level 3. In 2009, BNY Mellon transferred
securities from Level 3 to Level 2 because the price of
the securities provided by the pricing sources
converged with the model price of the securities
determined by BNY Mellon.

Fair value measurements using significant
unobservable inputs year ended Dec. 31, 2009

(in millions)

Available-for-sale securities:

Asset-backed CLOs
Other asset-backed securities
Equity securities
Other debt securities

Total available-for-sale

Trading assets:

Debt and equity instruments
Derivative assets

Total trading assets

Loans
Other assets

Total assets

Trading liabilities:

Derivative liabilities

Other liabilities

Total liabilities

Total realized/unrealized
gains/(losses) recorded in

Income

Comprehensive
income

Fair value
Dec. 31,
2008

Purchases,
issuances and
settlements,
net

Transfers
in/
(out) of
Level 3

Fair value
Dec. 31,
2009

Change in
unrealized gains and
(losses) related to
instruments held at
Dec. 31, 2009

$ 22 $ (76)
-
-
(99)

17
13
357

$ 60
1
2
(7)

409

(175) (a)

56 (a)

20
83

103

-
200

21
51

72 (b)

(1)
(40) (c)

(2)
(4)

(6)

-
-

-
-
1
(19)

(18)

(20)
(1)

(21)

(5)
11

-
(18)
(16)
(182)

(216)

151
17

168

31
(7)

6
-
-
50

170
146

316

25
164

$ 712 $(144)

$ 50

$(33)

$ (24)

$561

$(149) $ 56 (b)
(6) (c)

$(149) $ 50

$ (3)
-

$ (3)

-
-

4
3

$ (92)
(3)

$ (95)

-
-
-
-

3
(16)

(13)

(1)
-

$(14)

$(21)
(2)

$(23)

Fair value measurements using significant
unobservable inputs year ended Dec. 31, 2008

(in millions)

Available-for-sale securities
Trading assets:

Debt and equity instruments
Derivative assets

Other assets

Total assets

Trading liabilities:

Debt and equity instruments
Derivative liabilities

Other liabilities

Total liabilities

Total realized/unrealized
gains/
(losses) recorded in

Income

Comprehensive
income

Fair value
Dec. 31,
2007

Purchases,
issuances and
settlements,
net

Transfers
in/
(out) of
Level 3

Fair value
Dec. 31,
2008

Change in
unrealized gains and
(losses) related to
instruments held at
Dec. 31, 2008

$ 853 $(106) (a)

$ (57) (a)

$(270)

$(11)

$ 409

-
166
243

(15)

4 (b)
3 (c)

(6)
(87)
-

(6)
(19)
(50)

47
19
4

20
83
200

$1,262 $(114)

$(150)

$(345)

$ 59

$ 712

- $

(34)
(50)

-
(99) (b)
10 (c)

$ (84) $ (89)

-
(14)
-

$ (14)

-
(2)
42

-
-
(2)

$ 40

$ (2)

-
(149)
-

$(149)

(12)
(52)
5

$(208)

-
(127)
11

$(116)

(a) Realized gains (losses) are reported in securities gains (losses). Unrealized gains (losses) are reported in accumulated other
comprehensive income (loss) except for the credit portion of OTTI losses which are recorded in securities gains (losses).

(b) Reported in foreign exchange and other trading activities.
(c) Reported in foreign exchange and other trading activities, except for derivatives in designated hedging relationships which are

recorded in interest revenue and interest expense.

BNY Mellon

143

Notes to Consolidated Financial Statements (continued)

Assets and liabilities measured at fair value on a
nonrecurring basis

Under certain circumstances we make adjustments to
fair value our assets, liabilities and unfunded lending-
related commitments although they are not measured
at fair value on an ongoing basis. An example would

be the recording of an impairment of an asset. The
following table presents the financial instruments
carried on the consolidated balance sheet by caption
and by level in the fair value hierarchy as of Dec. 31,
2009 and 2008, for which a nonrecurring change in
fair value has been recorded during the years ended
Dec. 31, 2009 and 2008.

Assets measured at fair value on a nonrecurring basis at Dec. 31, 2009
(in millions)

Loans (a)
Other assets (b)

Total assets at fair value on a nonrecurring basis

Assets measured at fair value on a nonrecurring basis at Dec. 31, 2008
(in millions)

Loans (a)
Other assets (b)

Total assets at fair value on a nonrecurring basis

Level 1

Level 2

Level 3

$-
-

$298
4

$302

$91
-

$91

Level 1

Level 2

Level 3

$14
-

$14

$43
6

$49

$161
-

$161

Total carrying
value

$389
4

$393

Total carrying
value

$218
6

$224

(a) During the years ended Dec. 31, 2009 and 2008, the fair value of these loans was reduced $18 million and $86 million, based on the
fair value of the underlying collateral as allowed by ASC 310, Accounting by Creditors for Impairment of a loan, with an offset to the
allowance for credit losses.

(b) Other assets received in satisfaction of debt. The fair value of these assets was reduced less than $1 million in 2009 and was reduced

$4 million in 2008, based on the fair value of the underlying collateral with an offset in other revenue.

25. Fair value option

ASC 825 provides an option to elect fair value as an
alternative measurement for selected financial assets,
financial liabilities, unrecognized firm commitments,
and written loan commitments not previously carried
at fair value. Unfunded loan commitments are valued
using quotes from dealers in the loan markets, and are
included in Level 3 of the ASC 820 hierarchy.

At Dec. 31, 2008, $5.6 billion of other short-term U.S.
government-backed commercial paper and $5.6
billion of borrowings from the Federal Reserve related
to asset-backed commercial paper were held at fair
value. There were no balances outstanding for these
instruments at Dec. 31, 2009.

Changes in fair value under the fair value option
election

The following table presents the changes in fair value
included in foreign exchange and other trading
activities in the consolidated income statement for the
years ended Dec. 31, 2009 and 2008.

Foreign exchange and other trading activities

(in millions)

Loans
Other liabilities

Year ended Dec. 31,

2009

$3
-

2008

$70
(1)

The fair market value of unfunded lending-related
commitments for which the fair value option was
elected was a liability of less than $1 million at Dec.
31, 2009 and $3 million at Dec. 31, 2008 and is
included in other liabilities. The contractual amount of
such commitments was $110 million at both Dec. 31,
2009 and Dec. 31, 2008.

26. Commitments and contingent liabilities

In the normal course of business, various
commitments and contingent liabilities are
outstanding which are not reflected in the
accompanying consolidated balance sheets.

Our significant trading and off-balance sheet risks are
securities, foreign currency and interest rate risk
management products, commercial lending
commitments, letters of credit and securities lending
indemnifications. We assume these risks to reduce
interest rate and foreign currency risks, to provide

144 BNY Mellon

Notes to Consolidated Financial Statements (continued)

customers with the ability to meet credit and liquidity
needs, to hedge foreign currency and interest rate
risks, and to trade for our own account. These items
involve, to varying degrees, credit, foreign exchange,
and interest rate risk not recognized in the balance
sheet. Our off-balance sheet risks are managed and
monitored in manners similar to those used for
on-balance sheet risks. Significant industry
concentrations related to credit exposure at Dec. 31,
2009 are disclosed in the Financial institutions
portfolio exposure table and the Commercial portfolio
exposure table below.

Financial institutions
portfolio exposure
(in billions)

Insurance
Banks
Securities industry
Asset managers
Government
Other

Total

Commercial portfolio
exposure
(in billions)
Services and other
Manufacturing
Energy and utilities
Media and telecom

Total

Dec. 31, 2009
Unfunded
commitments

Total
exposure

$ 6.0
2.9
2.1
2.8
2.9
1.8

$18.5

$ 6.4
6.2
5.7
3.8
3.0
2.4

$27.5

Dec. 31, 2009
Unfunded
commitments

Total
exposure

$ 7.7
6.4
6.3
2.1

$22.5

$ 8.7
7.3
6.9
2.6

$25.5

Loans

$0.4
3.3
3.6
1.0
0.1
0.6

$9.0

Loans

$1.0
0.9
0.6
0.5

$3.0

Major concentrations in securities lending are
primarily to broker-dealers and are generally
collateralized with cash. Securities lending
transactions are discussed below.

A summary of our off-balance sheet credit risks, net
of participations, at Dec. 31, 2009 and 2008 follows:

Off-balance sheet credit risks
(in millions)

Lending commitments (a)
Standby letters of credit (b)
Commercial letters of credit
Securities lending indemnifications
Support agreements

Dec. 31

2009

2008

$ 32,454
11,359
789
247,560
86

$ 38,822
13,084
705
325,975
244

(a) Net of participations totaling $541 million and $986 million

at Dec. 31, 2009 and Dec. 31, 2008, respectively.

(b) Net of participations totaling $2.2 billion at Dec. 31, 2009

and $2.7 billion at Dec. 31, 2008.

Included in lending commitments are facilities which
provide liquidity 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 considers
factors other than the financial strength of the
monoline insurer.

The total potential loss on undrawn lending
commitments, standby and commercial letters of
credit, and securities lending indemnifications is equal
to the total notional amount if drawn upon, which
does not consider the value of any collateral.

Since many of the commitments are expected to
expire without being drawn upon, the total amount
does not necessarily represent future cash
requirements. A summary of lending commitment
maturities are as follows: $11.8 billion less than one
year; $20.4 billion in one to five years, and $0.3
billion over five years.

Standby letters of credit (“SBLC”) principally support
corporate obligations. As shown in the off-balance
sheet credit risks table, the maximum potential
exposure of SBLCs at Dec. 31, 2009 was $11.4 billion
and $13.1 billion at Dec. 31, 2008 and includes $1.0
billion and $1.1 billion that were collateralized with
cash and securities at Dec. 31, 2009 and 2008,
respectively. At Dec. 31, 2009 approximately $7.4
billion of the SBLCs will expire within one year and
the remaining $4.0 billion will expire within one to
five years.

We must recognize, at the inception of standby letters
of credit and foreign and other guarantees, a liability
for the fair value of the obligation undertaken in
issuing the guarantee. As required by ASC 460—
Guarantees, the fair value of the liability, which was
recorded with a corresponding asset in other assets,
was estimated as the present value of contractual
customer fees.

The estimated liability for losses related to these
commitments and SBLCs, if any, is included in the
allowance for unfunded commitments. The allowance
for lending related commitments was $125 million at
Dec. 31, 2009 and $114 million at Dec. 31, 2008.

Payment/performance risk of SBLCs is monitored
using both historical performance and internal ratings
criteria. BNY Mellon’s historical experience is that
SBLCs typically expire without being funded. SBLCs
below investment grade are monitored closely for

BNY Mellon

145

Notes to Consolidated Financial Statements (continued)

payment/performance risk. The table below shows
SBLCs by investment grade:

Standby letters of credit

Investment grade
Noninvestment grade

Dec. 31,

2009

2008

83% 89%
17% 11%

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 $789 million at Dec. 31, 2009, compared with
$705 million at Dec. 31, 2008.

A securities lending transaction is a fully
collateralized transaction in which the owner of a
security agrees to lend the security (typically through
an agent, in our case, 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 normally matures in less
than 90 days. We generally lend securities with
indemnification against broker default. Securities
lending transactions were collateralized at 102%
primarily 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. Securities lending transactions are
generally entered into only with highly-rated
counterparties. Securities lending indemnifications
were secured by collateral of $254 billion at Dec. 31,
2009 and $335 billion at Dec. 31, 2008. We recorded
$259 million of fee revenue from securities lending
transactions in 2009 compared with $789 million in
2008.

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.

Our potential exposure to support agreements was
approximately $86 million at Dec. 31, 2009 compared

with $244 million at Dec. 31, 2008. Potential support
agreement exposure is determined 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.

We provided services to three QSPEs at Dec. 31,
2009. These QSPEs, as defined by ASC 860—
Transfers and Servicing were designed to be passive
investment vehicles and therefore, we do not
consolidate them. See Note 17 of the Notes to
Consolidated Financial Statements for additional
information.

Operating leases

Net rent expense for premises and equipment was
$327 million in 2009, $362 million in 2008 and $276
million in 2007.

At Dec. 31, 2009, we were obligated under various
noncancelable lease agreements, some of which
provide for additional rents based upon real estate
taxes, insurance, and maintenance and for various
renewal options. A summary of the future minimum
rental commitments under noncancelable operating
leases, net of related sublease revenue, is as follows:
2010—$347 million; 2011—$325 million; 2012—
$285 million; 2013—$265 million; 2014—$229
million; and 2015 through 2029—$1.324 billion.

Other

We have provided standard representations for
underwriting agreements, acquisition and divestiture
agreements, sales of loans and commitments, and
other similar types of arrangements and customary
indemnification for claims and legal proceedings
related to providing financial services. Insurance has
been purchased to mitigate certain of these risks. We
are a minority equity investor in, and member of,
several industry clearing or settlement exchanges
through which foreign exchange, securities, or other
transactions settle. Certain of these industry clearing
or settlement exchanges require their members to
guarantee their obligations and liabilities or to provide
financial support in the event other partners do not
honor their obligations. It is not possible to estimate a
maximum potential amount of payments that could be
required with such agreements.

146 BNY Mellon

Notes to Consolidated Financial Statements (continued)

Legal proceedings

In the ordinary course of business, BNY Mellon and
its subsidiaries are routinely defendants in or parties to
a number of pending and potential legal actions,
including actions brought on behalf of various classes
of claimants, and regulatory matters. Claims for
significant monetary damages are asserted in certain
of these actions and proceedings. In regulatory
enforcement matters, claims for disgorgement and the
imposition of penalties and/or other remedial
sanctions are possible. Due to the inherent difficulty
of predicting the outcome of such matters, we cannot
ascertain what the eventual outcome of these matters
will be; however, on the basis of current knowledge
and after consultation with legal counsel, we do not
believe that judgments or settlements, if any, arising
from pending or potential legal actions or regulatory
matters, either individually or in the aggregate, after
giving effect to applicable reserves and insurance
coverage, will have a material adverse effect on the
consolidated financial position or liquidity of BNY
Mellon, although they could have a material effect on
net income for a given period. BNY Mellon intends to
defend itself vigorously against all of the claims
asserted in these legal actions.

As previously disclosed in the Company’s Form 8-K
dated Oct. 23, 2009, the Federal Customs Service of
the Russian Federation (the “Customs Service”) and
The Bank of New York Mellon, a subsidiary of BNY
Mellon, have settled the litigation filed by the
Customs Service seeking $22.5 billion. Pursuant to a
Settlement and Release Agreement filed therewith, the
Customs Service withdrew its claim, the proceedings
were terminated by the Russian Arbitrazh Court, and
the Customs Service and The Bank of New York
Mellon exchanged mutual releases. Without any
admission of liability, The Bank of New York Mellon
agreed to pay $14 million in trial costs and expenses
to the Customs Service in consideration for the
settlement.

As previously disclosed, The Bank of New York
Mellon filed a proof of claim on Jan. 18, 2008, in the
Chapter 11 bankruptcy of Sentinel Management
Group, Inc. (“Sentinel”), seeking to recover
approximately $312 million loaned to Sentinel and
secured by securities and cash in an account
maintained by Sentinel at The Bank of New York
Mellon. Pursuant to a Plan of Reorganization
confirmed by the Bankruptcy Court on Dec. 8, 2008,
$370 million of cash has been set aside as a reserve, to
be used by The Bank of New York Mellon if its proof
of claim is allowed in the bankruptcy.

On March 3, 2008, the bankruptcy trustee filed an
adversary complaint against The Bank of New York
Mellon seeking to disallow The Bank of New York
Mellon’s claim and seeking damages against The
Bank of New York Mellon for allegedly aiding and
abetting Sentinel insiders in misappropriating
customer assets and improperly using them as
collateral for the loan. As previously disclosed, the
Commodities Futures Trading Commission (“CFTC”)
has been investigating The Bank of New York Mellon
in connection with its relationship to Sentinel. Also as
previously disclosed, The Bank of New York Mellon
has received a notice from the Division of
Enforcement (the “Division”) of the CFTC indicating
that the Division is considering a recommendation to
the Commission that it file a civil enforcement action
against The Bank of New York Mellon for possible
violations of the Commodity Exchange Act and CFTC
regulations. The Bank of New York Mellon responded
to the CFTC on Jan. 29, 2010 explaining why it
believes an enforcement action is unwarranted.

As previously disclosed, BNY Mellon is required to
file information and withholding tax returns with the
IRS for its various business lines. In 2007, we
discovered certain inconsistencies in supporting
documentation and records for BNY Mellon’s
corporate trust business and other business lines, and
initiated an extensive company-wide review. We
disclosed this matter to the IRS on a voluntary basis
and we continue to cooperate with the IRS in its
review of this matter. BNY Mellon has recorded a $13
million reserve as of Dec. 31, 2009, which represents
its estimate of the potential tax reporting
inconsistencies based on the remediation status and
discussions with the IRS to date.

As previously disclosed, in 2001 we entered into a
transaction that involved the payment of U.K.
corporate income taxes that were credited against our
U.S. corporate income tax liability. On Aug. 17, 2009,
we received a Statutory Notice of Deficiency
disallowing tax benefits for the 2001 and 2002 tax
years related to this transaction. The total exposure on
this transaction for all years (2001-2006) is
approximately $900 million, including interest. On
Nov. 10, 2009, BNY Mellon filed a petition with the
U.S. Tax Court contesting the disallowance of the
benefits. A final decision is not expected before 2011.

BNY Mellon believes the tax benefits associated with
the transaction were consistent with statutory and
judicial authority existing at the time the transaction
was entered into. In the event BNY Mellon is

BNY Mellon

147

Notes to Consolidated Financial Statements (continued)

unsuccessful in defending its position, the IRS has
agreed not to assess underpayment penalties.

Based on a probability assessment of various potential
outcomes, we currently believe our accruals for tax
liabilities are adequate for all open years. Probabilities
and outcomes are reviewed as events unfold, and
adjustments to the tax liabilities are made when
appropriate.

As previously disclosed, BNY Mellon self-disclosed
to the SEC, in April 2008, that Mellon Financial
Markets LLC (“MFM”) placed orders on behalf of
issuers to purchase their own Auction Rate Securities
(“ARS”). The SEC and certain state authorities,
including the Texas State Securities Board, Florida
Office of Financial Regulation, and the New York
Attorney General are investigating these transactions.
MFM is cooperating fully with the investigations.

As previously disclosed, BNY Capital Markets, Inc.
(now BNY Mellon Capital Markets LLC, “BNY
MCM”) entered into a letter of Acceptance, Waiver
and Consent with the Financial Industry Regulatory
Authority, Inc. (“FINRA”) relating to the sale of ARS
in April 2009. Two institutional customers not
included in the FINRA settlement filed lawsuits in
February and April 2009 and one such customer filed
an arbitration proceeding against BNY MCM in
December 2008, alleging misrepresentations and
omissions in the sale of ARS to them.

As previously disclosed, BNY Mellon became aware
of circumstances suggesting that employees of Mellon
Securities LLC (“Mellon Securities”), which executes
orders to purchase and sell securities on behalf of
Mellon Investor Services LLC, failed to comply with
certain best execution and regulatory requirements in
connection with agency cross trades. BNY Mellon
self-disclosed this matter to FINRA and the SEC on a
voluntary basis. In June 2009, the SEC obtained a
formal order of investigation. Mellon Securities is
cooperating fully with the investigation. We are
currently in discussions with the SEC staff concerning
a resolution to this matter. There can be no assurance
we will be able to reach an agreement.

As previously disclosed, a number of participants in
the securities lending program, which is associated
with BNY Mellon’s asset servicing business, have
filed or threatened lawsuits against BNY Mellon or its
affiliates. The lawsuits were filed on various dates in
2008 and 2009. The participants allege that they have
incurred losses, including losses related to
investments in Sigma Finance Inc. and Lehman

148 BNY Mellon

Brothers Holdings, Inc., and seek damages as to those
losses. Certain of these cases seek to proceed as class
actions. The participants assert contractual, statutory,
and common law claims, including claims for
negligence and breach of fiduciary duty.

As previously disclosed, Bernard L. Madoff has
pleaded guilty to engaging in a massive investment
fraud through his company, Bernard L. Madoff
Investment Securities LLC (“Madoff”). Ivy Asset
Management LLC (“Ivy”), a subsidiary of BNY
Mellon that primarily manages funds-of-hedge-funds,
has not had any funds-of-funds investments with
Madoff since 2000. Several investment managers
contracted with Ivy as a sub-advisor and one pension
fund contracted with Ivy as investment manager; a
portion of these funds were invested with Madoff and
likely suffered losses as a result of the Madoff fraud.

In 2008 and 2009, BNY Mellon and its affiliates,
including Ivy, received subpoenas and document
requests in connection with a number of regulatory
inquiries regarding Madoff and have been cooperating
with these inquiries.

BNY Mellon or its affiliates have been named in a
number of civil lawsuits filed in December 2008 and
on various dates in 2009 relating to certain investment
funds that invested money with Madoff. Ivy acted as a
sub-advisor to the managers of some of those funds.
Plaintiffs allege that the funds suffered losses in
connection with the Madoff investments. Plaintiffs
assert various causes of action against BNY Mellon or
its affiliates, and other parties, including securities and
common-law fraud. Certain of the cases seek to
proceed as class actions and/or to assert derivative
claims on behalf of the funds.

As previously disclosed, The Bank of New York
Mellon has been named as a defendant in a number of
putative class actions and non-class actions brought
by numerous plaintiffs, in connection with its role as
indenture trustee for debt issued by affiliates of
Medical Capital Corporation (“Medical Capital”). The
actions, filed in late 2009, allege that The Bank of
New York Mellon breached its fiduciary and
contractual obligations to the holders of the
underlying securities, and seek unspecified damages.
In a separate action, the SEC has alleged that Medical
Capital, along with certain of its affiliates and
principals, engaged in securities fraud. The court
ordered the appointment of a permanent receiver over
Medical Capital. The Bank of New York Mellon is
not a party to the SEC action.

Notes to Consolidated Financial Statements (continued)

Beginning in December 2009, certain governmental
authorities requested information or served subpoenas
on BNY Mellon, seeking information relating to
foreign exchange trades executed in connection with
custody services BNY Mellon provides to certain
governmental entities and public pension plans. BNY
Mellon is cooperating with these inquiries.

27. Derivative instruments

We use derivatives to manage exposure to market
risk, interest rate risk, credit risk and foreign currency
risk, to generate profits from proprietary trading and
to assist customers with their risk management
objectives.

The notional amounts for derivative financial
instruments express the dollar volume of the
transactions; however, credit risk is much smaller. We
perform credit reviews and enter into netting
agreements to minimize the credit risk of foreign
currency and interest rate risk management products.
We enter into offsetting positions to reduce exposure
to foreign exchange and interest rate risk.

Use of derivative financial instruments involves
reliance on counterparties. Failure of a counterparty to
honor its obligation under a derivative contract is a
risk we assume whenever we engage in a derivative
contract. In 2009 and 2008, counterparty default
losses on both trading and hedging derivatives were
$4 million and $20 million, respectively.

Hedging derivatives

We utilize interest rate swap agreements to manage
our exposure to interest rate fluctuations. For hedges
of fixed-rate loans, asset-backed securities, deposits
and long-term debt, the hedge documentation
specifies the terms of the hedged items and the
interest rate swaps and indicates that the derivative is
hedging a fixed-rate item and is a fair value hedge,
that the hedge exposure is to the changes in the fair
value of the hedged item due to changes in benchmark
interest rates, and that the strategy is to eliminate fair
value variability by converting fixed-rate interest
payments to LIBOR.

The fixed rate loans hedged generally have an original
maturity of 10 to 11 years and are not callable. These
loans are hedged with “pay fixed rate, receive variable
rate” swaps with similar notional amounts, maturities,
and fixed rate coupons. The swaps are not callable. At
Dec. 31, 2009, $1 million of loans were hedged with

interest rate swaps, which had notional values of $1
million.

The securities hedged have an original weighted
average life of 10 years or less and are generally
callable six months prior to maturity. These securities
are hedged with “pay fixed rate, receive variable rate”
swaps of the same maturity, repricing and fixed rate
coupon. At Dec. 31, 2009, $211 million of securities
were hedged with interest rate swaps that had notional
values of $211 million.

The fixed rate deposits hedged generally have original
maturities of 5 to 11 years and are not callable. These
deposits are hedged with receive fixed rate, pay
variable rate swaps of similar maturity, repricing and
fixed rate coupon. The swaps are not callable. At
Dec. 31, 2009, $25 million of deposits were hedged
with interest rate swaps that had notional values of
$25 million.

The fixed rate long-term debt hedged generally have
original maturities of 5 to 30 years. We issue both
callable and non-callable debt. The non-callable debt
is hedged with simple interest rate swaps similar to
those described for deposits. Callable debt is hedged
with callable swaps where the call dates of the swaps
exactly match the call dates of the debt. At Dec. 31,
2009, $12.1 billion of debt was hedged with interest
rate swaps that had notional values of $11.6 billion.

In addition, we enter into foreign exchange hedges.
We use forward foreign exchange contracts with
maturities of 12 months or less to hedge our Sterling,
Euro and Indian Rupee foreign exchange exposure
with respect to forecasted revenue transactions in
non-U.S. entities that have the U.S. dollar as their
functional currency. As of Dec. 31, 2009, the hedged
forecasted foreign currency transactions and linked
FX forward hedges were $109 million (notional), with
$0.3 million of pre-tax losses recorded in other
comprehensive income. These losses are expected to
be reclassified to income over the next nine months.

We also use forward foreign exchange contracts with
original maturities of 10 months or less to hedge our
Euro and Japanese Yen foreign exchange exposure
with respect to forecasted foreign currency net
revenue where we cannot elect hedge accounting. At
Dec. 31, 2009, these economic hedges had a U.S.
dollar equivalent notional value of $37 million, with
$3.6 million of pre-tax losses from those FX forward
hedges recorded in foreign exchange and other trading
activities.

BNY Mellon

149

Notes to Consolidated Financial Statements (continued)

Forward foreign exchange contracts are also used to
hedge the value of our net investments in foreign
subsidiaries. These forward contracts usually have
maturities of less than two years. The derivatives
employed are designated as net investments hedges of
changes in value of our foreign investments due to
exchange rates, such that changes in value of the
forward exchange contracts offset the changes in
value of the foreign investments due to changes in
foreign exchange rates. The change in fair market
value of these contracts is deferred and reported
within accumulated translation adjustments in
shareholders’ equity, net of tax effects. At Dec. 31,
2009, foreign exchange contracts, with notional
amounts totaling $3.5 billion, were designated as
hedges.

In addition to forward foreign exchange contracts, we
also designate non-derivative financial instruments as
hedges of our net investments in foreign subsidiaries.
Those non-derivative financial instruments designated
as hedges of our net investments in foreign

subsidiaries were all long-term liabilities of BNY
Mellon in various currencies, and, at Dec. 31, 2009,
had a combined U.S. dollar equivalent value of $890
million.

Ineffectiveness related to derivatives and hedging
relationships was recorded in income as follows:

Ineffectiveness

(in millions)

Fair value hedges on loans
Fair value hedges of securities
Fair value hedges of deposits and

long-term debt
Cash flow hedges
Other (b)

Total

Year ended Dec. 31,

2009

2008

2007 (a)

$(0.1)
0.1

$ 0.2
(0.1)

$ 0.1
0.1

2.2
-
0.1

28.4
(0.1)
0.1

5.8
0.1
(0.2)

$ 2.3

$28.5

$ 5.9

(a) Results for 2007 include six months of BNY Mellon and six
months of legacy The Bank of New York Company, Inc.
Includes ineffectiveness recorded on foreign exchange
hedges.

(b)

The following table summarizes the notional amount and credit exposure of our total derivative portfolio at
Dec. 31, 2009 and 2008.

Impact of derivative instruments on the balance sheet

(in millions)

Derivatives designated as hedging instruments (b):
Interest rate contracts
Foreign exchange contracts

Total derivatives designated as hedging instruments

Derivatives not designated as hedging instruments (c):
Interest rate contracts
Equity contracts
Credit contracts
Other contracts

Total derivatives not designated as hedging instruments

Total derivatives fair value (d)
Effect of master netting agreements

Fair value after effect of master netting agreements

Notional Value

Asset Derivatives
Fair Value (a)

Liability Derivatives
Fair Value (a)

Dec. 31,
2009

Dec. 31,
2008

Dec. 31,
2009

Dec. 31,
2008

Dec. 31,
2009

Dec. 31,
2008

11,836
3,645

$ 11,362
3,397

$1,030,847
7,710
806
259,402

$867,873
14,396
1,328
240,425

408
-

408

$ 13,754
483
3
4,024

928
680

$ 1,608

$ 18,452
742
86
7,833

106
97

203

$ 14,211
570
6
3,848

162
-

162

$ 17,818
713
-
7,615

$ 18,264

$ 27,113

$ 18,635

$ 26,146

$ 18,672
(13,702)

$ 28,721
(17,911)

$ 18,838
(13,433)

$ 26,308
(18,871)

$ 4,970

$ 10,810

$ 5,405

$ 7,437

(a) Derivative financial instruments are reported net of cash collateral received and paid of $429 million and $160 million, respectively at

Dec. 31, 2009 and $817 million and $1.8 billion, respectively at Dec. 31, 2008.

(b) The fair value of asset derivatives and liability derivatives designated as hedging instruments is recorded as other assets and other

liabilities, respectively, on the balance sheet.

(c) The fair value of asset derivatives and liability derivatives not designated as hedging instruments is recorded as trading assets and

trading liabilities, respectively, on the balance sheet.

(d) Fair values are on a gross basis, before consideration of master netting agreements, as required by ASC 815.

150 BNY Mellon

Notes to Consolidated Financial Statements (continued)

At Dec. 31, 2009 approximately $619 billion
(notional) of interest rate contracts will mature within
one year, $244 billion between one and five years, and
the balance after five years. At Dec. 31, 2009
approximately $250 billion (notional) of foreign

Impact of derivative instruments on the income statement
(in millions)

exchange contracts will mature within one year, $8
billion between one and five years, and the balance
after five years.

Derivatives in fair value hedging
relationships

Interest rate contracts

Location of gain (loss)
recognized in income on
derivatives

Net interest revenue

Amount of
gain (loss) recognized in
income on derivatives
Year ended Dec. 31,

2009

$(406)

2008

$632

Location of gain (loss)
recognized in income on
hedged item

Amount of gain
(loss) recognized
in hedged item
Year ended Dec. 31,
2008

2009

Net interest revenue

$408

$(603)

Amount of
gain (loss)
recognized in OCI
on derivative
(effective portion)
Year ended Dec. 31,
2008

2009

Location of gain
(loss) reclassified
from accumulated
OCI into income
(effective portion)

$
-
(1.4)

$(1.4)

$30.0 Net interest revenue
14.4 Other revenue

$44.4

Amount of gain
(loss) reclassified
from accumulated
OCI into income
(effective portion)
Year ended Dec. 31,
2008

2009

$25.9
5.9

$31.8

$ 3.3
7.5

$10.8

Location of gain
(loss) recognized in
income on derivatives
(ineffective portion and
amount excluded from
effectiveness testing)

Net interest revenue
Other revenue

Amount of
gain (loss)
recognized in OCI
on derivatives
(effective portion)
Year ended Dec. 31,
2008

2009

Location of gain
(loss) reclassified
from accumulated
OCI into income
(effective portion)

Amount of gain
(loss) reclassified
from accumulated
OCI into income
(effective portion)
Year ended Dec. 31,
2008

2009

Location of gain
(loss) recognized in
income on derivative
(ineffective portion and
amount excluded from
effectiveness testing)

$(298)

$848 Net interest revenue

Other revenue

Amount of gain (loss)
recognized in income on
derivatives (ineffectiveness
portion and amount
excluded from
effectiveness testing)
Year ended Dec. 31,

2009

$-
-

2008

$(0.1)
-

$(0.1)

Amount of gain (loss)
Recognized in income on
derivatives (Ineffectiveness
portion and amount
excluded from
effectiveness testing)
Year ended Dec. 31,

2009

$0.1

2008

$0.1

Derivatives in cash flow
hedging relationships

Interest rate contracts
FX contracts

Total

Derivatives in net
investment hedging
relationships

FX contracts

Trading activities (including trading derivatives)

We manage trading risk through a system of position
limits, a value-at-risk (“VAR”) methodology based on
Monte Carlo simulations, 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 one of several
statistical models used to develop economic capital
results, which are 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.

BNY Mellon

151

Notes to Consolidated Financial Statements (continued)

Revenue from foreign exchange and other trading
activities included the following:

Foreign exchange and other
trading activities
(in millions)

Foreign exchange
Fixed income
Credit derivatives
Other

Total

2009

2008

2007 (a)

$ 850
242
(84)
28

$1,036

$1,197
147
30
88

$1,462

$593
115
59
19

$786

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

Foreign exchange includes income from purchasing
and selling foreign currencies and currency forwards,
futures, and options. Fixed income reflects results
from futures and forward contracts, interest rate
swaps, foreign currency swaps, options and fixed
income securities. Credit derivatives include revenue
from credit default swaps. Other primarily includes
income from equity securities and equity derivatives.

Counterparty credit risk and collateral

We assess credit risk of our counterparties through
regular periodic examination of their financial
statements, confidential communication with the
management of those counterparties and regular
monitoring of publicly available credit rating
information. This and other information is used to
develop proprietary credit rating metrics used to
assess credit quality.

Collateral requirements are determined after a
comprehensive review of the credit quality of each
counterparty. Collateral is generally held in the form
of cash or highly liquid government securities.
Collateral requirements are monitored and adjusted
daily.

outstanding contracts that are in net liability positions.
Certain collateral agreements would require us to
immediately post additional collateral to cover some
or all of BNY Mellon’s liabilities to a counterparty.

The following table shows the fair value of contracts
falling under early termination provisions that were in
net liability positions as of Dec. 31, 2009 for three key
ratings triggers.

If BNY Mellon’s rating
was changed to:

Potential close-out
exposures (fair value)

A3/A-
Baa2/BBB
Bal/BB+

$ 469 million
$ 504 million
$1,310 million

Additionally, if BNY Mellon’s debt rating had fallen
below investment grade on Dec. 31, 2009, existing
collateral arrangements would have required us to
post an additional $667 million of collateral.

28. Business segments

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.

Additional disclosures concerning the fair value of
derivative instruments are provided in Note 24 of the
Notes to Consolidated Financial Statements.

The accounting policies of the business segments are
the same as those described in Note 1 of the Notes to
Consolidated Financial Statements.

Disclosure of Contingent Features in
Over-the-Counter (“OTC”) Derivative Instruments

Certain of BNY Mellon’s OTC derivative contracts
and/or collateral agreements contain provisions that
would require us to take certain actions if our public
debt rating fell to a certain level. Early termination
provisions, or “close-out” agreements, in those
contracts could trigger immediate payment of

In 2009, the financial results MUNB were moved
from the Other segment into discontinued operations.
Historical results for the Other segment have been
restated to reflect these changes.

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

152 BNY Mellon

Notes to Consolidated Financial Statements (continued)

customer relationships, operating processes and the
financial impact of funding 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:

Sector/Segment
Asset and Wealth Management sector

Asset Management segment

Primary types of revenue

Š Asset and wealth management fees from:

Wealth Management segment

Institutional Services sector
Asset Servicing segment

Issuer Services segment

Clearing Services segment

Treasury Services segment

Other segment

Mutual funds
Institutional clients
Private clients
Performance fees

Š Distribution and servicing fees
Š Wealth management fees from high-net-worth

individuals, families, endowments and
foundations and related entities.

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 services fees, including:

Broker-dealer services
Registered investment advisor services

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

Š Financing-related fees
Š Leasing operations
Š Corporate treasury activities
Š Global markets and institutional banking

services
Š Business exits
Š M&I expenses

BNY Mellon

153

Notes to Consolidated Financial Statements (continued)

Business segment information is reported on a
continuing operations basis for all periods presented.
See Note 4 of the 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 Support and other indirect expenses are

allocated to segments based on internally-
developed methodologies.

Š The FDIC special emergency deposit assessment

is considered a corporate charge and was
therefore recorded in the Other segment.
Recurring FDIC expense is allocated to
segments based on average deposits generated
within each segment.

Š Management of the investment securities

portfolio is a shared service contained in the
Other segment. As a result, gains and losses
associated with the valuation of the securities
portfolio are included in the Other segment.
Š Support agreement charges are recorded in the

segment in which the charges occurred.

Š The restructuring charges recorded in 2009 and
2008 resulted from corporate initiatives and
therefore were 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 M&I expenses are a corporate level item and are

therefore recorded in the Other segment.

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
from 2008 compared with 2007. 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.

Total revenue includes approximately $1.6 billion and
$2.0 billion in 2009 and 2008, respectively, of
international operations domiciled in the U.K. which
is 21% and 14% of total revenue, respectively.

154 BNY Mellon

Notes to Consolidated Financial Statements (continued)

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

For the year ended Dec. 31, 2009

(dollars in millions)

Fee and other revenue
Net interest revenue

Total revenue

Provision for credit

losses

Noninterest expense

Asset
Management

Wealth
Management

$ 2,280
31

$ 2,311

-
1,948

$ 578
194

$ 772

1
578

Total Asset
and Wealth
Management
Sector

$ 2,858
225

$ 3,083

Asset
Servicing

Issuer
Services

Clearing
Services

Treasury
Services

Total
Institutional
Services
Sector

$ 3,369
892

$ 1,611
768

$ 1,190
340

878
616

$ 4,261

$ 2,379

$ 1,530

$ 1,494

1
2,526

-
2,941

-
1,302

-
1,021

-
794

700

Other
Segment

$ (5,134)
74

(5,060)

331
979

Total
Continuing
Operations

4,772
2,915

7,687

332
9,563

7,048
2,616

9,664

-
6,058

Income before taxes

363

$ 193

556

$ 1,320

$ 1,077

509

3,606

$ (6,370)

$ (2,208)

Pre-tax operating

margin (a)
Average assets

16%

25%

18%

31%

45%

33%

47%

37%

$12,567

$9,278

$21,845

$60,804

$50,746

$18,455

$26,046

$156,051

N/M
$32,043

N/M
$209,939 (b)

For the year ended Dec. 31, 2008

(dollars in millions)

Fee and other revenue
Net interest revenue

Total revenue

Provision for credit losses
Noninterest expense

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

$ 2,794
75

2,869

-
2,641

624
200

824

-
634

190

$ 3,418
275

$ 4,416
1,086

3,693

-
3,275

5,502

-
3,783

$ 1,851 $ 1,292 $

710

2,561

-
1,413

321

1,613

-
1,130

418

$ 1,719

$ 1,148 $

483 $

-
840

867

977
730

8,536
2,847

$ (1,240)
(263)

$ 10,714
2,859

1,707

11,383

(1,503)

-
7,166

104
1,082

13,573

104
11,523

4,217

$ (2,689)

1,946

Income before taxes

228

Pre-tax operating margin (a)
Average assets

23%

11%

31%

45%

30%

51%

37%

$13,267

$10,044

$23,311

$59,150

$35,169 $18,358 $25,603

$138,280

N/M
$45,925

14%

$207,516 (b)

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

(dollars in millions)

Fee and other revenue
Net interest revenue

Total revenue

Provision for credit losses
Noninterest expense

Asset
Management

Wealth
Management

Total Asset
and Wealth
Management
Sector

Asset
Servicing

Issuer
Services

Clearing
Services

Treasury
Services

$1,872
10

1,882

-
1,372

$ 423
111

534

-
413

$ 2,295
121

$ 2,957
693

2,416

-
1,785

3,650

-
2,497

$ 1,660 $ 1,130 $

567

2,227

-
1,159

303

1,433

-
1,047

Total
Institutional
Services
Sector

Other
Segment

$ 6,488
2,084

8,572

-
5,366

270
40

310

(11)
943

Total
Continuing
Operations

9,053
2,245

11,298

(11)
8,094

$ 3,206

$ (622)

3,215

741
521

1,262

-
663

599

Income before taxes

$ 510

$ 121

631

$ 1,153

$ 1,068 $

386 $

Pre-tax operating margin (a)
Average assets

27%

23%

26%

32%

48%

27%

47%

37%

$7,636

$5,702

$13,338

$38,016

$25,658 $14,967 $18,497

$97,138

N/M
$36,771

28%

$147,247 (b)

(a)
(b)

Income before taxes divided by total revenue
Including average assets of discontinued operations of $2,188 million in 2009, $2,441 million in 2008 and $1,395 million in 2007,
consolidated average assets were $212,127 million for 2009, $209,957 million for 2008 and $148,642 million for 2007.

BNY Mellon

155

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders
The Bank of New York Mellon Corporation:

We have audited the accompanying consolidated balance sheets of The Bank of New York Mellon Corporation
and subsidiaries (“BNY Mellon”) as of December 31, 2009 and 2008, and the related consolidated statements of
income, changes in equity, and cash flows for each of the years in the three-year period ended December 31, 2009.
These consolidated financial statements are the responsibility of BNY Mellon’s management. Our responsibility is
to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits 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 the financial statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of BNY Mellon as of December 31, 2009 and 2008, and the results of their operations and their
cash flows for each of the years in the three-year period ended December 31, 2009, in conformity with
U.S. generally accepted accounting principles.

As discussed in Note 2 to the consolidated financial statements, in 2009, BNY Mellon changed their methods of
accounting for other-than-temporary impairments and, in 2008, changed their methods of accounting for fair value
measurements and elected the fair value option for certain financial assets.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), BNY Mellon’s internal control over financial reporting as of December 31, 2009, based on criteria
established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO), and our report dated February 26, 2010 expressed an unqualified opinion on
the effectiveness of BNY Mellon’s internal control over financial reporting.

New York, New York
February 26, 2010

156 BNY Mellon

Directors, Senior Management and Executive Committee

Catherine A. Rein
Retired Senior Executive Vice
President and Chief Administrative
Officer
MetLife, Inc.
Insurance and financial services
company

William C. Richardson
President and Chief Executive Officer
Emeritus
The W. K. Kellogg Foundation
Private foundation

Samuel C. Scott III
Retired Chairman, President and Chief
Executive Officer
Corn Products International, Inc.
Global producers of corn-refined
products and ingredients

John P. Surma
Chairman and Chief Executive Officer
United States Steel Corporation
Steel manufacturing

Wesley W. von Schack
Retired Chairman, President and Chief
Executive Officer
Energy East Corporation
Energy services company

Senior Management

Robert P. Kelly
Chairman and Chief Executive Officer

Gerald L. Hassell
President

Directors
Ruth E. Bruch
Retired Senior Vice President and
Chief Information Officer
Kellogg Company
Cereal and convenience foods

Nicholas M. Donofrio
Retired Executive Vice President,
Innovation and Technology
IBM Corporation
Developer, manufacturer and provider
of advanced information technologies
and services

Gerald L. Hassell
President
The Bank of New York Mellon
Corporation

Edmund F. (Ted) Kelly
Chairman, President and Chief
Executive Officer
Liberty Mutual Group
Multi-line insurance company

Robert P. Kelly
Chairman and Chief Executive Officer
The Bank of New York Mellon
Corporation

Richard J. Kogan
Retired Chairman, President and Chief
Executive Officer
Schering-Plough Corporation
International research-based
development and manufacturing

Michael J. Kowalski
Chairman and Chief Executive Officer
Tiffany & Co.
International designer, manufacturer
and distributor of jewelry and fine
goods

John A. Luke, Jr.
Chairman and Chief Executive Officer
MeadWestvaco Corporation
Manufacturer of paper, packaging and
specialty chemicals

Robert Mehrabian
Chairman, President and Chief
Executive Officer
Teledyne Technologies, Inc.
Advanced industrial technologies

Mark A. Nordenberg
Chancellor and Chief Executive Officer
University of Pittsburgh
Major public research university

Executive Committee

Richard F. Brueckner
Chief Executive Officer,
Pershing LLC

Arthur Certosimo
Chief Executive Officer,
Broker-Dealer Services and
Alternative Investment Services

Steven G. Elliott
Senior Vice Chairman

Thomas P. (Todd) Gibbons
Chief Financial Officer

Timothy F. Keaney
Co-Chief Executive Officer,
BNY Mellon Asset Servicing

Carl Krasik
General Counsel

David F. Lamere
Chief Executive Officer,
BNY Mellon Wealth Management

Jonathan Little
Vice Chairman, BNY Mellon Asset
Management
Chairman, BNY Mellon Asset
Management International

Ronald P. O’Hanley
Chief Executive Officer,
BNY Mellon Asset Management

James P. Palermo
Co-Chief Executive Officer,
BNY Mellon Asset Servicing

Karen B. Peetz
Chief Executive Officer,
Financial Markets and Treasury
Services

Lisa B. Peters
Chief Human Resources Officer

Brian G. Rogan
Chief Risk Officer

Kurt D. Woetzel
Chief Information Officer

BNY Mellon

157

Cumulative Total Shareholder Return (5 Years)

Performance Graph

$200

$150

$100

$50

2004

2005

2006

2007

2008

2009

The Bank of New York Mellon Corporation
S&P 500
S&P 500 Financial Index
Peer Group

The Bank of New York Mellon Corporation
S&P 500 Financial Index
S&P 500
Peer Group

2004

2005

2006

2007

$100.0
100.0
100.0
100.0

$ 98.1
106.5
104.9
106.1

$124.5
127.0
121.5
128.6

$148.5
103.5
128.2
107.2

2008

$88.6
46.3
80.7
58.8

2009

$ 89.3
54.3
102.1
66.4

This graph shows The Bank of New York Mellon Corporation’s cumulative total shareholder returns over the
five-year period from Dec. 31, 2004 to Dec. 31, 2009. The graph reflects total shareholder returns for The Bank of
New York Company, Inc. from Dec. 31, 2004 to June 29, 2007, and for The Bank of New York Mellon
Corporation from July 2, 2007 to Dec. 31, 2009. June 29, 2007 was the last day of trading on the NYSE of The
Bank of New York Company, Inc. common stock and July 2, 2007 was the first day of trading on the NYSE of
The Bank of New York Mellon Corporation common stock. We are showing combined The Bank of New York
Company, Inc.—The Bank of New York Mellon Corporation shareholder returns because The Bank of New York
Mellon Corporation does not have a five-year history as a public company. Our peer group is composed of asset
managers and institutional service providers that represent our primary competitors. We also utilize the S&P 500
Financial Index as a benchmark against our performance. The graph also shows the cumulative total returns for
the same five-year period of the S&P 500 Index, the S&P 500 Financial Index, as well as our peer group listed
below. The comparison assumes a $100 investment on Dec. 31, 2004 in The Bank of New York Company, Inc.
common stock (which was converted on a 0.9434 for one basis into The Bank of New York Mellon Corporation
common stock on July 1, 2007), in the S&P 500 Financial Index, in the S&P 500 Index and in the peer group
detailed below and assumes that all dividends were reinvested.

Peer Group*

American Express Company
Bank of America Corporation
BlackRock, Inc.
The Charles Schwab Corporation

Citigroup Inc.
JPMorgan Chase & Co.
Northern Trust Corporation
The PNC Financial Services Group, Inc.

Prudential Financial, Inc.
State Street Corporation
U.S. Bancorp
Wells Fargo & Company

* Returns are weighted by market capitalization at the beginning of the measurement period.

158 BNY Mellon

CORPORATE INFORMATION

BNY Mellon is the corporate brand of The Bank of New
York Mellon Corporation. BNY Mellon is a global financial
services company focused on helping clients manage and
service their financial assets, operating in 34 countries and
serving more than 100 markets. The company is a leading
provider of financial services for institutions, corporations
and high-net-worth individuals, providing superior asset
management and wealth management, asset servicing,
issuer services, clearing services and treasury services
through a worldwide client-focused team. At December
31, 2009, the company had $22.3 trillion in assets under
custody and administration, $1.1 trillion in assets under
management, serviced $12 trillion in outstanding debt and
processed global payments averaging $1.6 trillion per day.
Additional information is available at
www.bnymellon.com.

CORPORATE HEADQUARTERS
One Wall Street, New York, NY 10286,
+ 1 212 495 1784 www.bnymellon.com

ANNUAL MEETING
The Annual Meeting of Shareholders will be held in
Pittsburgh, PA, at the Omni William Penn Hotel,
530 William Penn Place, at 9 a.m. Tuesday, April 13, 2010.

EXCHANGE LISTING
BNY Mellon’s common stock is traded on the New York
Stock Exchange under the trading symbol BK. BNY Capital
IV 6.875% Preferred Trust Securities Series E (symbol
BKPrE) and BNY Capital V 5.95% Preferred Trust
Securities Series F (symbol BKPrF) are also listed on
the New York Stock Exchange.

STOCK PRICES
Prices for BNY Mellon’s common stock can be viewed at
www.bnymellon.com/investorrelations.

CORPORATE GOVERNANCE
Corporate governance information is available online at
www.bnymellon.com/governance.

CORPORATE SOCIAL RESPONSIBILITY
Information about BNY Mellon’s commitment to
corporate social responsibility, including our Equal
Employment Opportunity/Affirmative Action policies,
is available at www.bnymellon.com/csr. To obtain a copy
of BNY Mellon’s Corporate Social Responsibility Report,
e-mail csr@bnymellon.com.

INVESTOR RELATIONS
Visit www.bnymellon.com/investorrelations or call
+1 212 635 1855.

DIVIDEND PAYMENTS
Subject to approval of the board of directors, dividends are
paid on BNY Mellon’s common stock on or about the 10th
day of February, May, August and November.

FORM 10-K AND SHAREHOLDER PUBLICATIONS
For a free copy of BNY Mellon’s Annual Report on Form
10-K or quarterly reports on Form 10-Q as filed with the
Securities and Exchange Commission, send a written
request by e-mail to corpsecretary@bnymellon.com or by
mail to the Secretary of The Bank of New York Mellon
Corporation, One Wall Street, New York, NY 10286.

The 2009 Annual Report, as well as Forms 10-K,
10-Q and 8-K and quarterly earnings and other
news releases can be viewed and printed at
www.bnymellon.com/investorrelations.

TRANSFER AGENT AND REGISTRAR
BNY Mellon Shareowner Services
480 Washington Boulevard
Jersey City, NJ 07310
www.bnymellon.com/shareowner

SHAREHOLDER SERVICES
BNY Mellon Shareowner Services maintains the records
for our registered shareholders and can provide a variety
of services at no charge such as those involving:
• Change of name or address
• Consolidation of accounts
• Duplicate mailings
• Dividend reinvestment enrollment
• Direct deposit of dividends
• Transfer of stock to another person

For assistance from BNY Mellon Shareowner Services,
visit www.bnymellon.com/shareowner/isd or call
+1 800 205 7699.

DIRECT STOCK PURCHASE AND DIVIDEND
REINVESTMENT PLAN
The Direct Stock Purchase and Dividend Reinvestment
Plan provides a way to purchase shares of common stock
directly from BNY Mellon at the current market value.
Nonshareholders may purchase their first shares of BNY
Mellon’s common stock through the Plan, and sharehold-
ers may increase their shareholding by reinvesting cash
dividends and through optional cash investments. Plan
details are in a prospectus, which may be viewed online at
www.bnymellon.com/shareowner/isd or obtained in a hard
copy by calling +1 866 353 7849.

ELECTRONIC DEPOSIT OF DIVIDENDS
Registered shareholders may have quarterly dividends
paid on BNY Mellon’s common stock deposited elec-
tronically to their checking or savings accounts, free of
charge. To have your dividends deposited electronically,
go to www.bnymellon.com/shareowner/isd to set up your
account(s) for direct deposit. If you prefer, you may also
send a written request by e-mail to
shrrelations@bnymellon.com or by mail to BNY Mellon
Shareowner Services, P.O. Box 358016, Pittsburgh, PA
15252-8016. For more information, call +1 800 205 7699.

SHAREHOLDER ACCOUNT ACCESS
By Internet
24 hours a day/7 days a week
www.bnymellon.com/shareowner/isd

Shareholders can register to receive shareholder
information electronically by enrolling in MLink.
To enroll, access www.bnymellon.com/shareowner/isd
and follow two easy steps.

By phone
24 hours a day/7 days a week
Toll-free in the U.S. +1 800 205 7699
Outside the U.S. +1 201 680 6578

Telecommunications Device for the Deaf (TDD) lines
Toll-free in the U.S. +1 800 231 5469
Outside the U.S. +1 201 680 6610

By mail
BNY Mellon Shareowner Services
P.O. Box 358016
Pittsburgh, PA 15252-8016

The contents of the listed Internet sites are not incorporated in this Annual Report.

The Bank of New York Mellon Corporation
One Wall Street
New York, NY 10286
+1 212 495 1784