The Bank of New York Mellon Annual Report 2010

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FY2010 Annual Report · The Bank of New York Mellon

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FOCUSED • STRONG •

BNY Mellon 2010 ANNUAL REPORT

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

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

FINANCIAL RESULTS

Net income (loss) from continuing operations
Net (loss) from discontinued operations

Net income (loss)

Net (income) loss attributable to noncontrolling interests
Redemption charge and preferred dividends

Net income (loss) applicable to common shareholders of

The Bank of New York Mellon Corporation

Earnings per common share — diluted (a)
Continuing operations
Discontinued operations

Net income (loss) applicable to common stock

CONTINUING OPERATIONS - KEY DATA

Total revenue
Total expenses
Fee revenue as a percentage of total revenue

excluding net securities gains (losses) (c)

Percentage of non-U.S. fee, net interest revenue and income of

consolidated asset management funds, net of noncontrolling interests (d)

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

BALANCE SHEET

Total assets
Total The Bank of New York Mellon Corporation
common shareholders’ equity

CAPITAL RATIOS AT DEC. 31 (f)

Tier 1 capital ratio
Total (Tier 1 plus Tier 2) capital ratio
Common shareholders’ equity to total assets ratio (c)
Tangible common shareholders’ equity to tangible assets
of operations ratio — Non-GAAP (c)
Tier 1 common to risk-weighted assets ratio (c)

2010 2009

2,647
(66)

(813)
(270)

2,581
(63)
—

(1,083)
(1)
(283)

2,518

(1,367)

2.11
(0.05)

(0.93)
(0.23)

2.05 (b)

(1.16)

13,875
10,170

7,654
9,530

78%

36%

$
$

1,172
25.0

$
$

78%

32%

1,115
22.3

$ 247,259 (e)

$ 212,224

32,354

28,977

13.4%
16.3
13.1

5.8
11.8

12.1%
16.0
13.7

5.2
10.5

(a)

� Diluted earnings per common share for 2009 was calculated using average basic shares.

Adding back the dilutive shares would result in anti-dilution.

� Does not foot due to rounding.

See Supplemental Information beginning on page 66 for a calculation of these ratios.

� See Operations of consolidated asset management funds beginning on page 10 for additional information.

Includes assets of consolidated asset management funds, at fair value.
See Note 2 of the Notes to Consolidated Financial Statements beginning on page 102 for additional information.
Includes discontinued operations.

(b)
(c)
(d)
(e)

(f)

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TO OUR SHAREHOLDERS

The last few years have been an extraordinary period for the financial services industry, beginning with the
financial crisis of 2008. A rebuilding phase began in 2009, as financial institutions began repairing their
balance sheets, writing down bad loans and securities, raising new capital and refocusing on the future.
That work continued in 2010. However, unlike many financial institutions, in 2009 BNY Mellon worked to
put our asset quality issues behind us through decisive actions to materially de-risk our balance sheet.
This enabled us to begin the year with a stronger balance sheet, allowing us to focus on growing revenue,
investing for the future and delivering improved performance.

Investing for organic growth remains critical to our success. In the high-growth economies of the Asia
Pacific region, we were particularly active in 2010, having:

•

launched an asset management joint venture in Shanghai, BNY Mellon Western Fund Management
Company, which will offer local investment products for Chinese retail investors and international
investors globally;

received banking licenses in Beijing and Shanghai; and

expanded our asset management distribution licensing in Korea.

We were also able to capitalize on the fact that some major financial institutions wanted to raise capital,
which led to two significant and attractive asset servicing acquisitions:

•

� We acquired Global Investment Servicing (GIS), a leading provider of custody, fund accounting,

transfer agency and outsourcing solutions to fund managers globally. The GIS acquisition established
BNY Mellon as the No. 2 provider of fund accounting, administration and transfer agency services to
fund managers globally and added a more global mix of alternative investor service clients. GIS has
4,500 employees with operations in the U.S., Ireland and Poland.

•

� We also acquired BHF Asset Servicing GmbH, which catapulted us from the No. 14 provider by asset

size in Germany, the largest national economy in Europe, to No. 2, expanding our domestic capabilities
there tremendously.

Together, these acquisitions strengthened our ability to serve financial institutions by broadening our
product mix, global presence and scale. Together, these transactions were immediately accretive to
earnings, are meeting our expectations and should create excellent value for our shareholders over time.

In addition, our Wealth Management business, which is the eighth largest wealth manager in the U.S.,
acquired its third office outside the U.S. with I(3) in Toronto, giving us entry into Canada’s high-net-worth
market.

In order to maintain our strong capital ratios and fund the $2.6 billion cost of the above acquisitions,
we raised $677 million in common equity.

MEASURING OUR PERFORMANCE
It is helpful for shareholders to understand how we gauge our financial performance over time. We use a
number of external and internal measures.

External measures:
•

Total shareholder return: 9.4 percent in 2010, outperforming our trust bank peers and placing us
in the second quartile of our broader 12-member peer group

•

� Debt rating: Remains among the strongest in the U.S., with a Moody’s rating of Aa21 and an S&P rating

of AA-1, a source of pride

•

� Debt spreads versus U.S. banks (five years): Remains among the best in our industry

Internal measures:
•

Revenue growth: Fee revenue grew nicely, up 6 percent over 2009, compared to no growth for the
median of our 12-member peer group.

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Return on tangible equity: 26.3 percent2 for the full year 2010

Book value per share: At year-end 2010, $26.06, up 9 percent over 2009

We were also ranked for the second consecutive year as the safest bank in the U.S. by
Global Finance magazine.

OUR STRATEGY
Our business model is simple. We gather clients’ financial assets around the world and are paid recurring
fees to invest, administer and monitor them. To do this, we are only in two businesses: asset management
(25 percent of revenue3) and securities servicing (75 percent of revenue3). Our clients are the world’s
leading financial institutions, corporations, governments and high-net-worth individuals. We provide them
with the highest level of client service and satisfaction, and that’s reflected in the top rankings we receive
in key client surveys. This helps us attract and retain business.

Our business model provides strong opportunities for growth. As financial assets grow and globalize,
we benefit. We are also increasing our exposure to faster-growing emerging markets. We are focused
primarily on organic growth, as it creates the greatest value for our shareholders. We sometimes
supplement that growth with acquisitions of key products and distribution capabilities if they meet
our strict financial hurdles, as we did in 2010. We also have opportunities to operate more efficiently
by improving where and how work is done and consolidating our systems.

Let me discuss how our business model performed, as well as our outlook:

•

� Asset and wealth management – In 2010, we grew Asset and Wealth Management fees 7 percent
to $2.9 billion and grew assets under management to a record level of more than $1.1 trillion. Our
growth was the cumulative effect of record net long-term flows, focused acquisitions, improving
equity markets and stronger investment performance versus benchmarks. The business continued to
benefit from the acquisition of Insight Investment Management Limited, which we acquired in late
2009 and continues to nicely exceed our expectations. During the year, we combined Asset
Management and Wealth Management under one CEO, which we expect will provide good revenue
and expense synergies over time.

Going forward, our asset and wealth management businesses will benefit from higher savings rates,
continued equity market improvement, ongoing international expansion and, eventually, rising
short-term interest rates.

•

Securities servicing – Fees from Asset Servicing, which is our largest component of securities
servicing, grew 27 percent in 2010, benefiting from the GIS and BHF acquisitions, organic growth
and market lift. Assets under custody and administration grew by 12 percent from the prior year to a
record level of $25 trillion, reflecting the positive impact of $1.5 trillion in new business wins as
well as the impact of the acquisitions. Average deposits for securities servicing were $126 billion, up
5 percent versus 2009. The level of net interest revenue we earn from investing the balances that our
clients keep with us continues to be negatively impacted by persistently low short-term interest rates.

As the markets continue to strengthen, our securities servicing businesses will benefit from market
share gains, greater cross-border financial flows, global mergers and acquisitions activity and, eventu-
ally, rising short-term interest rates. Two of our businesses face some growth challenges. Corporate
Trust is expected to have muted growth until the bond underwriting and securitization markets
recover. The domestic cash management side of our Treasury Services business is a low- growth
business, but it helps support our other businesses. We are focused on making it more efficient.

OUR MANAGEMENT TEAM
During 2010, we made significant leadership changes to prepare the company to meet its growth goals
and to strengthen our management team. We restructured to address the changed business environment
and provide significant new or expanded opportunities for a number of our key leaders. We hired Curtis
Arledge as our new Asset and Wealth Management CEO and Jane Sherburne as our new General Counsel,
joining an already strong management team.

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REGULATORY REFORM
During 2010, there were two significant regulatory developments:

•

The first was the passage of the Dodd-Frank Act, which includes a number of important provisions,
including the creation of a resolution authority for non-bank entities (preventing another Lehman-type
situation) and the formation of a systemic risk council to improve oversight of the financial system.
We welcome these urgently needed reforms, having led calls for meaningful reform and engaged with
key legislators and regulators to ensure the legislation addressed these issues. I am pleased to note
that the changes are not expected to impact our revenue base, since our primary businesses are asset
management and securities servicing. However, Dodd-Frank does add new expenses to all financial
institutions.

•

� Also during 2010, the Basel Committee agreed on new global regulatory standards for bank capital
adequacy and liquidity, known as Basel III, intended to promote a safer and more resilient financial
system. Basel III set a minimum common equity level of 7 percent for all banks globally, effective in
2019. We expect to exceed this level by the end of 2011.

OUR USE OF CAPITAL
It’s important to note that our business model generated approximately $3 billion2 worth of capital in
2010, which helped keep our balance sheet strong and provides us with great flexibility. In 2011, pending
regulatory approval, our first capital priority is to return capital to shareholders through dividends and
stock buybacks, which I know you would welcome.

ACTING RESPONSIBLY
I urge U.S. legislators to turn their attention to other key matters that threaten our nation’s prosperity and
status as the world’s largest economy:

•

� We must get our own federal fiscal deficit under control and begin delivering on a credible plan to
balance our books. Waiting is irresponsible — it only makes the risks higher and solutions more
painful. While the recommendations of the National Commission on Fiscal Policy and Reform were
not perfect, most agree they provide an excellent start.

•

The debate has now begun on the future of our mortgage system. It was a core reason for the
economic downturn, with tragic results for homeowners and taxpayers. We must set national
standards for qualifying for a mortgage. We should encourage banks to carry the loans on their
balance sheets, as well as sell them through securitizations, where they maintain some level of
risk or “skin in the game.” This will diversify the investor base from the 100 percent government-
guaranteed securitization market that we have today. Without fundamental change, the U.S. will
experience yet another housing crisis in the future.

•

� We need to ensure that U.S. corporate tax rates are competitive globally to make it attractive for

companies to add jobs here. The U.S. has the highest effective rate of the 36 countries we operate
in around the world. By addressing this, we could substantially improve job creation and help make
U.S. companies more competitive in a global economy.

•

Finally, we need to improve the quality of our education system so that we’re preparing workers for
21st century jobs. The U.S. is now ranked 35th in math and 25th in science worldwide. This is one
area where government policy, corporate citizenship and individual efforts can make a difference.

We can address each of these issues, but it’s going to take hard work and leadership.

CORPORATE SOCIAL RESPONSIBILITY
Our commitment to Corporate Social Responsibility is reflected in our leadership in governance,
environmental sustainability, employee engagement and other areas. Our community support is one area
we have continued to strengthen. Our Community Partnership program empowers employees to volunteer
and give to the organizations they care about most. Employee contributions through this program have
increased 50 percent since the merger. Between employee giving and company matching, we contributed
$14 million and thousands of volunteer hours in 2010. We also donated an additional $21 million in grants
and charitable sponsorships, with much of it focusing on basic needs and workforce development.

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For example, we launched an initiative to provide education, job training and career development to at-risk
teens transitioning into adulthood. The initiative is bold and transformative and has already inspired
other companies to join the effort.

LOOKING FORWARD
Entering 2011, there is cause for cautious optimism. The global economy continues to slowly recover, and
our company started the year with good growth in our core businesses and improving pipelines and new
business results. In executing our strategy in the current environment, we have five key areas of focus:

•

Expand our footprint, product capabilities and brand in key centers internationally.

•

� Deepen relationships with our major clients, delivering the resources of our entire company to them.

•

Strengthen and streamline our operations, technology platforms and infrastructure. To maintain
quality while providing better economics to our shareholders, we have been consolidating positions
into our global growth centers, which have lower costs and provide greater career opportunities for our
people. When we began this initiative in the third quarter of 2008, 25 percent of our staff was in our
growth centers. Since then, employment in these locations has increased to 30 percent, toward a goal
of 35 percent in 2015. We’re also continuing to invest approximately $100 million per year in
re-engineering activities to bring down the cost of delivering our services, retiring systems and
improving procurement to maximize our purchasing power.

•

� Maintain one of the strongest balance sheets in the industry. In October, our Board of Directors

approved our Risk Appetite Statement, which defines the type and level of risk our company is able
and willing to assume in our credit exposures and business activities. It will guide our actions,
helping us deliver more consistent returns to our shareholders. Our clients have clearly told us they
want to partner with strong financial institutions, and we believe this is in the best interests of our
shareholders, too.

•

Finally, dealing with the litigation resulting from the financial crisis. Having navigated the crisis and
largely cleaned up its balance sheets, the industry is now in what I would label the last phase, which is
dealing with litigation by plaintiffs seeking to recover losses. We will navigate through this, too.

Underpinning these efforts is a culture centered on delivering great client service, upholding the highest
ethical standards, and engaging and supporting a diverse and inclusive global workforce.

We will work hard to achieve strong financials, increase our competitive advantage, expand in new
locations, provide more services and solutions to our clients, and continue to develop our management
team and employees globally.

In closing, I must thank our nearly 50,000 employees around the globe for their client focus and
commitment to outperformance, and our Board for its wise counsel and support. I thank
Dr. Robert Mehrabian, who has announced his retirement from our Board. He has been a director of
BNY Mellon since the merger and, before that, was a member of the Mellon Financial board since 1994.
He’s been an invaluable counselor to me and our leadership team. I also recognize the contributions of
Steven G. Elliott, a colleague and friend who retired as Senior Vice Chairman after 23 years with the
company, including seven on the boards of Mellon Financial and BNY Mellon. Most important of all,
I thank our shareholders for your confidence in our company. Your company is even better positioned
today to capitalize on improving markets and deliver the results you expect.

Yours sincerely,

Robert P. Kelly
Chairman and Chief Executive Officer

1 Senior debt ratings at the holding company level

2 For a reconciliation of this non-GAAP number, see page 69 of our Annual Report.

3 Excludes the Other segment. Asset management includes wealth management.

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FINANCIAL SECTION

THE BANK OF NEW YORK MELLON CORPORATION
2010 ANNUAL REPORT
TABLE OF CONTENTS

Financial Summary

. . . . . . . . . . . . . . . . . . . .

Management’s Discussion and Analysis of

Financial Condition and Results of
Operations:

Results of Operations:

Page
2

Financial Statements:

Consolidated Income Statement . . . . . . . .
Consolidated Balance Sheet . . . . . . . . . . .
Consolidated Statement of Cash Flows . . .
Consolidated Statement of Changes in

Page

General . . . . . . . . . . . . . . . . . . . . . . . .
Overview . . . . . . . . . . . . . . . . . . . . . .
2010 events . . . . . . . . . . . . . . . . . . . .
Summary of financial results . . . . . . .
Fee and other revenue . . . . . . . . . . . .
Operations of consolidated asset

management funds . . . . . . . . . . . . .
Net interest revenue . . . . . . . . . . . . . .
Noninterest expense . . . . . . . . . . . . . .
Support agreements . . . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . .
Review of businesses . . . . . . . . . . . . .
International operations . . . . . . . . . . .
Critical accounting estimates . . . . . . .
Consolidated balance sheet review . .
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) . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . .

Equity . . . . . . . . . . . . . . . . . . . . . . . . . . .

Notes to Consolidated Financial Statements:
Note 1—Summary of significant accounting

and reporting policies . . . . . . . . . . . . . . . . . .

Note 2—Accounting changes and new

accounting guidance . . . . . . . . . . . . . . . . . . . 102

Note 3—Acquisitions and dispositions . . . . . . . 104

Note 4—Discontinued operations . . . . . . . . . . . 105

Note 5—Securities . . . . . . . . . . . . . . . . . . . . . . . 106

Note 6—Loans and asset quality . . . . . . . . . . . . 110

Note 7—Goodwill and intangible assets . . . . . . 115

Note 8—Other assets . . . . . . . . . . . . . . . . . . . . . 117

Note 9—Deposits . . . . . . . . . . . . . . . . . . . . . . . 118

Note 10—Net interest revenue . . . . . . . . . . . . . 118

Note 11—Other noninterest expense . . . . . . . . . 118

Note 12—Restructuring charges . . . . . . . . . . . . 119

Note 13—Income taxes . . . . . . . . . . . . . . . . . . . 120

Note 14—Extraordinary (loss)—consolidation

of commercial paper conduit . . . . . . . . . . . . . 121

Note 15—Long-term debt . . . . . . . . . . . . . . . . . 122

Note 16—Securitizations and variable interest

entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122

Note 17—Shareholders’ equity . . . . . . . . . . . . . 125

Note 18—Comprehensive results . . . . . . . . . . . 126

Note 19—Stock–based compensation . . . . . . . . 127

Note 20—Employee benefit plans . . . . . . . . . . . 129

Note 21—Company financial information . . . . 135

Note 22—Fair value of financial

instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . 138

Note 23—Fair value measurement . . . . . . . . . . 140

Note 24—Fair value option . . . . . . . . . . . . . . . . 148

Note 25—Commitments and contingent

liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149

Note 26—Derivative instruments . . . . . . . . . . . 154

Note 27—Review of businesses . . . . . . . . . . . . 158

Note 28—International operations . . . . . . . . . . 161

Note 29—Supplemental information to the

Consolidated Statement of Cash Flows . . . . . 162

Report of Independent Registered Public

Accounting Firm . . . . . . . . . . . . . . . . . . . . . 163

Directors, Senior Management and

Executive Officers . . . . . . . . . . . . . . . . . . . . 164

Performance Graph . . . . . . . . . . . . . . . . . . . . . 165

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
Income of consolidated asset management funds (c)
Net 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

Net income (loss) from continuing operations

Net income (loss) from discontinued operations
Extraordinary (loss) on consolidation of commercial paper

conduits, net of tax

Net income (loss)

Net (income) loss attributable to noncontrolling interests (c)
Redemption charge and preferred dividends

Net income (loss) applicable to common shareholders of

2010

2009

2008

2007 (a)

2006 (b)

$ 10,697
226
27
2,925

13,875
11
10,170

3,694
1,047

2,647
(66)

2,581
(63)
-

$ 10,108
-

$ 12,342
-

(5,369)
2,915

7,654
332
9,530

(2,208)
(1,395)

(813)
(270)

(1,083)
(1)
(283)

(1,628)
2,859

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)

The Bank of New York Mellon Corporation

$ 2,518

$ (1,367)

$ 1,386

$ 2,039

$ 2,847

Earnings per diluted common share applicable to common

shareholders of The Bank of New York Mellon Corporation:

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

2.11
(0.05)

(0.93)
(0.23)

1.21
0.01
(0.02)

2.35
0.01
(0.19)

2.04
1.91

Net income (loss) applicable to common stock

2.05 (d) $

(1.16) (e) $

1.20

2.17

3.93 (d)

At Dec. 31
Interest-earning assets
Assets of operations
Total assets (c)
Deposits
Long-term debt
Preferred (Series B) stock
Total The Bank of New York Mellon Corporation

common shareholders’ equity

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) (f)

$180,541
232,493
247,259
145,339
16,517
-

$161,537
212,224
212,224
135,050
17,234
-

$184,591
237,512
237,512
159,673
15,865
2,786

$144,883
197,656
197,656
118,125
16,873
-

$ 77,462
103,206
103,206
62,146
8,773

32,354

28,977

25,264

29,403

11,429

$ 1,172

$ 1,115

928

$ 1,121

142

25.0
9.2
278

22.3
8.8
247

20.2
7.5
326

23.1
10.0
633

15.5
6.3
399

(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 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) Includes the impact of adopting ASC 810. See Operations of consolidated asset management funds and Note 2 of the Notes to

Consolidated Financial Statements for additional information.

(d) Does not foot due to rounding.
(e) Diluted earnings per common share for 2009 was calculated using average basic shares. Adding back the dilutive shares would result

in anti-dilution.

(f) Represents the securities on loan, both cash and non-cash, managed by the Asset Servicing business.

BNY Mellon

Financial Summary (continued)

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

Net income basis:
Return on common equity (c)
Return on tangible common equity (c)
Return on average assets (c)

Continuing operations basis:
Return on common equity (c)(d)
Non-GAAP adjusted (c)(d)

Return on tangible common equity – Non-GAAP (c)(d)

Non-GAAP adjusted (c)(d)

Pre-tax operating margin (d)
Non-GAAP adjusted (d)

Fee revenue as a percentage of total revenue excluding net

securities gains (losses) (d)

Fee revenue per employee (based on average

headcount) (in thousands)

Percentage of non-U.S. fee, net interest revenue
and income of consolidated asset management
funds, net of noncontrolling interests

Net interest margin (on fully taxable equivalent basis)

Cash dividends per common share
Common dividend payout ratio
Dividend yield
Closing common stock price per common share
Market capitalization (in billions)
Book value per common share – GAAP (d)
Tangible book value per common share – Non-GAAP (d)
Full-time employees
Year-end common shares outstanding (in thousands)
Average total equity to average total assets

Capital ratios at Dec. 31 (f)
Tier 1 capital ratio
Total (Tier 1 plus Tier 2) capital ratio
Leverage capital ratio
BNY Mellon shareholders’ equity to total assets ratio (d)
Tangible BNY Mellon shareholders’ equity to tangible

assets of operations ratio – Non-GAAP (d)

Tier 1 common equity to risk-weighted assets ratio (d)

2010

2009

2008

2007 (a)

2006 (b)

8.1%
25.6
1.06

8.3%
9.8
26.3
28.0
27
32

N/M
N/M
N/M

N/M

9.3%

N/M
32.1
N/M
31

5.0%
20.7
0.67

5.0%
14.2
20.5
48.7
14
39

11.0%
29.3
1.49

10.9%
13.6
29.2
33.6
28
36

27.6%
50.7
2.67

14.3%
15.5
26.7
28.0
32
35

241

290

291

262

36%

1.70

0.36
17.6%
1.2%

32%

1.82

0.51
N/M

1.8%

33% (e)

1.89 (e)

0.96
80.0%
3.4%

32%

2.05

0.95
43.6%
1.9%

30%

2.01

0.91
23.1%
2.2%

30.20
37.5
26.06
8.91
48,000
1,241,530

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

28.33
32.5
22.00
5.18
42,500
1,148,467

48.76
55.9
25.66
8.00
41,200
1,145,983

$ 41.73
29.8
16.03
7.73
22,400
713,079

13.1%

13.4%

13.7%

13.6%

9.7%

13.4%
16.3
5.8
13.1

5.8
11.8

12.1%
16.0
6.5
13.7

5.2
10.5

13.2%
16.9
6.9
10.6

3.8
9.4

9.3%
13.2
6.5
14.9

5.2
7.6

8.2%
12.5
6.7
11.1

5.7
6.7

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

(c) Calculated before the extraordinary losses in 2008 and 2007.
(d) See Supplemental Information beginning on page 66 for a calculation of these ratios.
(e) Excluding the SILO/LILO charge, 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.
Includes discontinued operations.

(f)

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

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 an FTE basis has no
impact on net income. Certain immaterial
reclassifications have been made to prior periods to

BNY Mellon

place them on a basis comparable with the current
period presentation. See “Supplemental information –
Explanation of Non-GAAP financial measures”
beginning on page 66 for a reconciliation of financial
measures presented in accordance with GAAP to
adjusted non-GAAP financial measures.

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. 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.

Overview

BNY Mellon is the corporate brand of The Bank of
New York Mellon Corporation (NYSE symbol: BK).
BNY Mellon is a leading manager and servicer of
global financial assets, operating in 36 countries and
serving more than 100 markets. Our global client base
consists of the world’s largest financial institutions,
corporations, government agencies, high-net-worth
individuals, families, endowments and foundations
and related entities. At Dec. 31, 2010, we had $25.0
trillion in assets under custody and administration and
$1.17 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 from the global
growth in financial assets and 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
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; increasing the 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 ratio of Tier 1 capital to risk-
weighted assets of 10%. We expect to update our
capital targets once Basel III guidelines are finalized.

Results of Operations (continued)

2010 events

Acquisition of Global Investment Servicing, Inc.

On July 1, 2010, BNY Mellon acquired Global
Investment Servicing, Inc. (“GIS”) for cash of $2.3
billion. GIS provides a comprehensive suite of
products that 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.

At June 30, 2010, GIS had approximately $719 billion
in assets under administration, including $449 billion
in assets under custody. GIS is included in the
Institutional Services Group for reporting purposes.

At Dec. 31, 2010, approximately $6.8 billion of
deposits related to GIS are expected to transition to
BNY Mellon by the end of 2011. Until the transition
is completed, we will receive net economic value
payments for these deposits.

Acquisition of BHF Asset Servicing GmbH

On Aug. 2, 2010, BNY Mellon acquired BHF Asset
Servicing GmbH (“BAS”) for cash of
EUR281 million (US$370 million). This transaction
included the purchase of Frankfurter Service
Kapitalanlage – Gesellschaft mbH (“FSKAG”), a
wholly owned fund administration affiliate.

BAS and FSKAG became part of BNY Mellon’s
Asset Servicing business. The combined business
offers a full range of tailored solutions for investment
companies, financial institutions and institutional
investors in Germany with EUR569 billion (US$744
billion) in assets under custody and administration and
depotbanking volume of EUR122 billion (US$159
billion) at acquisition.

The aforementioned acquisitions were accretive to
earnings in 2010.

BNY Mellon Western Fund Management manages
domestic Chinese securities in a range of local retail
fund products. BNY Mellon Western Fund
Management also focuses on leveraging distribution
within the Chinese banking and securities sectors.

Acquisition of I3 Advisors

On Sept. 1, 2010, BNY Mellon acquired I3 Advisors
of Toronto, an independent wealth advisory company
with more than C$3.8 billion in assets under
advisement at acquisition. This was BNY Mellon’s
first wealth management acquisition in Canada.

Common stock offering

In June 2010, BNY Mellon priced 25.9 million
common shares in an underwritten public offering, at
$27.00 per common share. In connection with this
offering, BNY Mellon entered into a forward sale
agreement with a forward purchaser, who borrowed
and sold to the public through the underwriters shares
of the Company’s common stock. In September 2010,
BNY Mellon settled the forward sale agreement. At
settlement, BNY Mellon received net proceeds of
approximately $677 million. The proceeds were
primarily used to fund the acquisition of GIS.

Adoption of new accounting standards

On Jan. 1, 2010, we adopted ASC 810, Consolidation
issued by the Financial Accounting Standards Board
(“FASB”). This statement requires ongoing
assessments to determine whether an entity is a
variable interest entity (“VIE”) and whether an
enterprise is the primary beneficiary of a VIE and,
accordingly, must consolidate the VIE in the
enterprise’s financial statements. Adoption of this new
statement increased consolidated total assets on our
balance sheet at Dec. 31, 2010 by $14.6 billion for the
consolidation of certain asset management funds, seed
capital investments and securitizations. See below and
Notes 2 and 16 to the Notes to Consolidated Financial
Statements for additional information.

Asset Management joint venture in Shanghai

Summary of financial results

In July 2010, the China Securities Regulatory
Commission authorized BNY Mellon and Western
Securities to establish a joint venture fund
management company in China. The new company,
BNY Mellon Western Fund Management Company
Limited (“BNY Mellon Western Fund Management”),
is owned by BNY Mellon (49%) and Western
Securities (51%).

We reported net income from continuing operations
applicable to the common shareholders of BNY
Mellon of $2.6 billion, or $2.11 per diluted common
share in 2010. This compares with a net loss from
continuing operations of $1.1 billion, or $0.93 per
diluted common share in 2009 and net income from
continuing operations of $1.4 billion, or diluted
earnings per common share of $1.21, in 2008.

BNY Mellon

Results of Operations (continued)

In 2010, the net income applicable to common
shareholders, including discontinued operations,
totaled $2.5 billion, or $2.05 per diluted common
share, compared with a net loss of $1.4 billion, or
$1.16 per diluted common share, in 2009 and net
income of $1.4 billion, or $1.20 per diluted common
share, in 2008.

Highlights of 2010 results

Š Assets under custody and administration

(“AUC”) totaled a record $25.0 trillion at Dec.
31, 2010 compared with $22.3 trillion at Dec.
31, 2009. This increase was primarily driven by
the acquisitions of GIS and BAS (collectively,
“the Acquisitions”), higher market values and
net new business. (See “Institutional Services
Group” beginning on page 22.)

Š Assets under management (“AUM”) totaled a

record $1.17 trillion at Dec. 31, 2010 compared
with $1.12 trillion at Dec. 31, 2009. The
increase was driven by higher market values and
net new business. (See “Asset and Wealth
Management Group” beginning on page 18.)
Š Securities servicing fee revenue totaled $5.6
billion in 2010 compared with $5.0 billion in
2009. Asset servicing revenue increased as a
result of the Acquisitions, higher market values
and net new business. The increase in clearing
services revenue was primarily driven by the
GIS acquisition. Issuer services revenue was flat
compared to 2009. (See “Institutional Services
Group” beginning on page 22.)

Š Asset and wealth management fees, including
performance fees totaled $2.9 billion in 2010
compared with $2.7 billion in 2009. The
increase reflects higher market values globally,
the full year impact of the Insight acquisition
and new business, partially offset by a reduction
in money market fees due to higher fee waivers
and outflows in money markets. (See “Asset
Management business” and “Wealth
Management business” beginning on page 20.)

Š Foreign exchange and other trading revenue

totaled $886 million in 2010 compared with $1.0
billion in 2009. The decrease primarily resulted
from both lower fixed income and derivatives
trading revenue and lower foreign exchange
revenue. (See “Fee and other revenue”
beginning on page 8.)
Investment income and other revenue totaled
$467 million in 2010 compared with
$337 million in 2009. The increase primarily
reflects positive foreign currency translations
and higher equity investment income. (See “Fee
and other revenue” beginning on page 8.)

BNY Mellon

Š Net interest revenue totaled $2.9 billion in both

2010 and 2009 as a higher yield on the
restructured investment securities portfolio and
higher interest-earning assets in 2010 were
offset by lower spreads. (See “Net interest
revenue” beginning on page 11.)

Š The provision for credit losses was $11 million
in 2010 compared with $332 million in 2009.
The decrease in the provision primarily reflects
a 66% decline in criticized assets compared with
Dec. 31, 2009. (See “Asset quality and
allowance for credit losses” beginning on page
45.)

Š Noninterest expense totaled $10.2 billion in

2010 compared with $9.5 billion in 2009. The
increase reflects the impact of the Acquisitions,
the full-year impact of the Insight acquisition
and higher compensation expense. (See
“Noninterest expense” beginning on page 14.)
Š Merger and integration (“M&I”) expenses were
$139 million (pre-tax), or $0.07 per diluted
common share in 2010 compared with
$233 million (pre-tax), or $0.12 per diluted
common share in 2009. (See “Noninterest
expense” beginning on page 14.)

Š The unrealized net of tax gain on our total

investment securities portfolio was $150 million
at Dec. 31, 2010 compared with a net of tax loss
of $705 million at Dec. 31, 2009. The
improvement in the valuation of the investment
securities portfolio was due to the decline in
interest rates and the tightening of credit
spreads. (See “Consolidated balance sheet
review” beginning on page 38.)

Š Our Tier 1 capital ratio was 13.4% at Dec. 31,
2010, compared with 12.1% at Dec. 31, 2009.
The increase primarily reflects earnings
retention, the third quarter 2010 common equity
issuance of $677 million and lower risk-
weighted assets, partially offset by the impact of
the Acquisitions. (See “Capital” beginning on
page 55.)

Results for 2009

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 and a net loss applicable to common
shareholders, including discontinued operations, of
$1.4 billion, or $1.16 per diluted common share.
These results were primarily driven by:

Investment securities (pre-tax) net losses of $5.4
billion in 2009 reflecting the restructuring of the
investment securities portfolio.

Results of Operations (continued)

Š A provision for credit losses of $332 million in
2009, reflecting a higher number of downgrades
and deterioration in certain industry sectors.

Š M&I expenses of $233 million (pre-tax).
Š 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 Troubled Asset Relief
Program (“TARP”) Capital Purchase Program
and $86.5 million for dividends/accretion on the
Series B preferred stock.

Results for 2009 also included lower securities
servicing revenue, lower asset and wealth
management fees and lower foreign exchange and
other trading revenue.

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 revenue,
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.

BNY Mellon

Results of Operations (continued)

Fee and other revenue

(dollars in millions unless otherwise noted)

2010

2009

2008

Securities servicing fees:
Asset servicing
Securities lending revenue
Issuer services
Clearing services

Total securities servicing fees

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

Total fee revenue – GAAP

$ 2,939
150
1,460
1,005

$ 2,314
259
1,463
962

$ 2,581
789
1,685
1,065

5,554
2,868 (a)
886
517
210
195
308 (a)
159

4,998
2,677
1,036
519
326
215
226
111

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

10,697

10,108

12,342

2010
vs.
2009

2009
vs.
2008

27%
(42)
-
4

11
7
(14)
-
(36)
(9)
36
43

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

(18)
(17)
(29)
1
(23)
16
9
(48)

(18)

Income of consolidated asset management funds, net of noncontrolling

interests

Total fee revenue – Non-GAAP

Net securities gains (losses)

167 (a)

10,864
27

10,108
(5,369)

12,342
(1,628)

N/M

7
N/M

N/M

(18)
N/M

Total fee and other revenue – Non-GAAP (b)

$10,891

$ 4,739

$10,714

130%

(56)%

Fee revenue as a percentage of total revenue excluding securities gains

(losses) (c)

Market value of AUM at period end (in billions)
Market value of AUC and administration at period end (in trillions)

78%

$ 1,172
$ 25.0

$ 1,115
$ 22.3

79%
$
928
$ 20.2

5%
12%

20%
10%

(a) Asset and wealth management fees exclude $125 million and investment income excludes $42 million as a result of consolidating

certain asset management funds. These fees, net of noncontrolling interests, are included in income of consolidated asset management
funds. This change resulted from adopting ASC 810, see “Operations of consolidated asset management funds” beginning on page 10.
(b) Total fee and other revenue on a GAAP basis was $10,724 million in 2010, $4,739 million in 2009 and $10,714 million in 2008. Total

fee revenue from the Acquisitions was $480 million in 2010.

Fee revenue

Fee revenue increased 6% in 2010 compared with
2009, primarily reflecting the impact of the
Acquisitions, the full-year impact of the Insight
acquisition, improved market values and new
business, partially offset by lower foreign exchange
and other trading revenue, lower distribution and
servicing fees and lower securities lending revenue.

Securities servicing fees

Securities servicing fees were impacted by the
following compared to 2009:

• Asset servicing fees increased 27%, reflecting the
impact of the Acquisitions, higher market values,
net new business and asset inflows from existing
clients.

• Securities lending revenue decreased 42% as a

result of narrower spreads and lower loan balances.
In 2010, securities lending loan balances stabilized
and spreads normalized.

• Issuer services fees were flat as higher Depositary
Receipts revenue resulting from higher issuance,
corporate action and service fees was offset by
lower Corporate Trust fee revenue, reflecting
continued weakness in the structured debt markets
and lower money market related distribution fees,
and lower Shareowner Services revenue, reflecting
lower corporate action fees.

• Clearing services fees increased 4%, primarily as a
result of the impact of the GIS acquisition and
growth in mutual fund assets, partially offset by
lower money market related distribution fees.

See the “Institutional Services Group” in “Review of
businesses” for additional details.

BNY Mellon

Results of Operations (continued)

Asset and wealth management fees

Asset and wealth management fees totaled $2.9 billion
in 2010, an increase of 7% compared with 2009.
Adjusted for performance fees and income from
consolidated asset management funds, net of
noncontrolling interests, these fees increased 11%,
compared with 2009. The increase reflects improved
market values, the Insight acquisition and the impact
of net new business.

Total AUM for the Asset and Wealth Management
Group were a record $1.17 trillion at Dec. 31, 2010,
compared with $1.12 trillion at Dec. 31, 2009. The
increase was primarily due to higher market values
and net new business. Long-term inflows in 2010
were $48 billion and benefited from strength in
institutional fixed income and global equity products
and positive retail flows. The S&P 500 index was
1258 at Dec. 31, 2010, compared with 1115 at Dec.
31, 2009, a 13% increase.

See the “Asset and Wealth Management businesses”
in “Review of businesses” for additional details
regarding the drivers of asset and wealth management
fees.

Foreign exchange and other trading revenue

Foreign exchange and other trading revenue, which is
primarily reported in the Asset Servicing business,
decreased $150 million, or 14%, from $1,036 million
in 2009. In 2010, foreign exchange revenue totaled
$787 million, a decrease of 7% compared with 2009,
driven by lower volatility. Other trading revenue
totaled $99 million in 2010, a decrease of 47%
compared with 2009, largely due to lower fixed
income and derivatives trading revenue.

Treasury services

Treasury services fees, which are primarily reported in
the Treasury Services business, include fees related to
funds transfer, cash management and liquidity
management. Treasury services fees were flat
compared with 2009.

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

The $116 million decrease in distribution and
servicing fee revenue in 2010 compared with 2009
primarily reflects lower money market assets under
management and higher redemptions in 2009. 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 business, include capital
markets fees, loan commitment fees and credit-related
trade fees. Financing-related fees decreased
$20 million from 2009 primarily as a result of lower
capital markets and credit related fees, primarily
reflecting our strategy to reduce targeted risk
exposure.

Investment income

Investment income
(in millions)

2010

2009

2008

Corporate/bank-owned life

insurance

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

Total investment income

$150
69
51
29
9

$308

$151
90
(28)
(18)
31

$226

$145
89
54
1
(82)

$207

Investment income, which is primarily reported in the
Other and Asset Management businesses, 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 with 2009, primarily reflects higher equity
investment revenue, driven by the write-down of
certain equity investments in 2009, and higher private
equity gains, partially offset by lower lease residual
gains and lower seed capital gains.

BNY Mellon

2009 compared with 2008

Fee and other revenue decreased in 2009 compared
with 2008, primarily reflecting net securities losses
recorded in 2009. Net securities losses totaled $5.4
billion in 2009 compared with losses of $1.6 billion in
2008. The loss in 2009 primarily resulted from a
charge related to restructuring the investment
securities portfolio.

Fee and other revenue was also impacted by the
following:

• Asset servicing revenue decreased, primarily due to
lower average market values in 2009, lower client
activity and a stronger U. S. dollar, partially offset
by new business;

• Securities lending revenue decreased, primarily as a
result of lower spreads and lower loan balances;
• Issuer services revenue decreased as a result of

lower Depositary Receipts revenue, lower
Corporate Trust fees and lower Shareowner
Services revenue;

• Asset and wealth management revenue decreased

due to lower average global market values in 2009,
lower money market related fees due to increased
fee waivers and short-term outflows, and a stronger
U. S. dollar;

• Foreign exchange and other trading revenue

decreased primarily as a result of lower foreign
exchange revenue driven by lower volumes and a
lower valuation of credit default swaps;

• Other revenue decreased primarily reflecting a
lower level of foreign currency translation.

Operations of consolidated asset
management funds

On Jan. 1, 2010, we adopted ASC 810. See Notes 2
and 16 in the Notes to Consolidated Financial
Statements for additional information. Adoption of
this standard resulted in an increase in consolidated
total assets on our balance sheet at Dec. 31, 2010, of
$14.6 billion, or an increase of approximately 7%
from Dec. 31, 2009.

We also separately disclosed the following on the
income statement.

Results of Operations (continued)

Other revenue

Other revenue
(in millions)

Asset-related gains
Expense reimbursements from

joint ventures

Economic value payments
Other income (loss)

2010

$ 22

2009

$ 76

37
7
93

31
-
4

2008

$ 45

29
-
140

Total other revenue

$159

$111

$214

Other revenue includes asset-related gains, expense
reimbursements from joint ventures, economic value
payments 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. Economic value payments relate to deposits
from the GIS acquisition that have not yet transferred
to BNY Mellon. Other income (loss) primarily
includes foreign currency translation, other
investments and various miscellaneous revenues.

Total other revenue increased compared with 2009,
primarily reflecting higher foreign currency
translations partially offset by lower asset-related
gains. The decrease in asset-related gains compared
with 2009 primarily reflects a gain on the sale of the
VISA shares recorded in 2009.

Net investment securities gains (losses)

Net investment securities gains totaled $27 million in
2010 compared with losses totaling $5.4 billion in
2009. The loss in 2009 primarily resulted from a
charge related to restructuring the investment
securities portfolio.

The following table details investment securities gains
(losses) by type of security. See “Consolidated
balance sheet review” for further information on the
investment securities portfolio.

Net securities gains (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 securities
gains (losses)

2010

$(13)
-
(4)
(3)
-
-
-
-
-
47

2009

2008

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

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

$ 27

$(5,369)

$(1,628)

10 BNY Mellon

Results of Operations (continued)

Income from consolidated asset management funds,
net of noncontrolling interests
(in millions)

2010

2009

Operations of consolidated asset

management funds

Noncontrolling interest of consolidated

asset management funds

$226

Income from consolidated asset
management funds, net of
noncontrolling interests

$167

Prior to the adoption of ASC 810 on Jan. 1, 2010,
income from consolidated asset management funds,
net of noncontrolling interests would have been
disclosed on the income statement as follows.

(in millions)

Asset and wealth management revenue
Investment income

Total

2010

$125
42

$167

2009

2008

$
-

2008

Net interest revenue

(dollars in millions)

Net interest revenue (non-FTE)
Tax equivalent adjustment

Net interest revenue (FTE) – Non-GAAP

SILO/LILO charges

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

Non-GAAP

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

2010

$ 2,925
19

2,944
-

2009

$ 2,915
18

2,933
-

2008

$ 2,859
21

2,880
489

2010
vs.
2009

2009
vs.
2008

N/M

$ 2,944

$172,793

$ 2,933

$160,955

$ 3,369

$152,201

1.70%

1.82%

1.89%

(13)%

7%
(12)bps

6%
(7)bps

Non-GAAP

1.70%

1.82%

2.21%

(12)bps

(39)bps

Net interest revenue totaled $2.9 billion in 2010,
essentially unchanged compared with 2009. Net
interest revenue in 2010 reflects a higher yield on the
restructured investment securities portfolio, net of lost
interest on the securities sold and higher average
interest-earning assets, primarily offset by narrower
spreads.

The net interest margin was 1.70% in 2010 compared
with 1.82% in 2009. The lower net interest margin in
2010 was driven by lower spreads and higher interest-
earning assets in a lower-rate environment, which
more than offset the higher yield on the restructured
investment securities portfolio.

Average interest-earning assets were $172.8 billion in
2010, compared with $161.0 billion in 2009. The
increase in 2010 from 2009 was driven by higher
client deposit levels in 2010. Average total securities
increased to $60.9 billion in 2010, up from $53.2
billion in 2009, reflecting our strategy to invest in
high-quality, government-guaranteed securities.

2009 compared with 2008

Net interest revenue was $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.

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
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
Assets of consolidated asset management funds

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
Trading liabilities
Other borrowed funds:
Domestic offices
Foreign offices

Total other borrowed funds

Payables to customers and broker-dealers
Long-term debt

Total interest-bearing liabilities

Total noninterest-bearing deposits
Other liabilities
Liabilities of discontinued operations
Liabilities of consolidated asset management funds

Total liabilities

Noncontrolling interests
The Bank of New York Mellon Corporation shareholders’ equity
Total liabilities, temporary equity and permanent equity

Average rates

0.98%
0.34
1.37
1.50

4.21
2.33
1.57
2.43

1.50
3.34
6.48

6.68
1.16
3.90

2.79
0.26
2.68
3.38
2.06%

0.10%
0.26
0.17
0.27
0.14

0.33
0.05
0.20
0.21
0.19
0.80
1.32

2.97
0.39
2.12
0.09
1.80
0.45%

2010
Interest

$ 554
49
64
88

231
356
151
738 (a)

119
674
41

981
173
1,154

71
-
71
2,059
$3,552 (b)

26
4
-
16
46

18
1
129
148
194
43
21

41
3
44
6
300
$ 608

Average balance

$ 56,679
14,253
4,660
5,900

5,485
15,305
9,615
30,405

7,857
20,140
627

14,683
14,906
29,589

2,568
115
2,683
60,896
$172,793
(522)
3,832
47,978

404 (c)

13,355
$237,840

$ 25,490
1,396
368
5,622
32,876

5,364
1,423
64,567
71,354
104,230
5,356
1,630

1,386
677
2,063
6,439
16,673
$136,391
35,208
21,767

404 (c)

12,218
205,988
752
31,100
$237,840

Net interest margin – taxable equivalent basis
Percentage of assets attributable to foreign offices (d)
Percentage of liabilities attributable to foreign offices
(a) Includes fees of $46 million in 2010. Non-accrual loans are included in the average loan balance; the associated income, recognized on the cash basis, is included

43%

1.70%

in interest.

(b) The tax equivalent adjustment was $19 million in 2010, and is based on the federal statutory tax rate (35%) and applicable state and local taxes.
(c) Average balances and rates are impacted by allocations made to match assets of discontinued operations with liabilities of discontinued operations.
(d) Includes the Cayman Islands branch office.

12 BNY Mellon

Results of Operations (continued)

Average balances and interest rates (continued)

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

Average
balance

2009

Interest

Average
rates

Average
balance

2008

Interest

Average
rates

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:

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

$ 683
43
9
31
69

1.22%
0.36
2.95
0.97
1.59

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

$1,753
27
71
149
183

3.77%
0.56
3.03
2.30
3.37

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
Trading liabilities
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

262
362
250
874 (b)

50
592
47

832
244
1,076

4.83
2.41
2.15
2.72

1.54
3.70
6.92

4.07
2.24
3.43

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

2.57
1.40
2.54
3.41
2.19%

18
5
8
23
54

13
1
103
117
171
-
11

26
5
31
7
6
366
$ 592

0.09%
0.47
0.85
0.47
0.21

0.25
0.09
0.15
0.16
0.17
-
0.88

2.68
0.85
1.99
2.25
0.12
2.17
0.47%

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 (d)

$212,127

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

5,182
866
66,520
72,568
98,206
2,695
1,283

980
592
1,572
317
5,262
16,893
$126,228
36,446
18,760
2,188 (d)

307
157
563
1,027 (b)

5.05
0.75 (a)
3.97
2.49 (a)

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 (c)

3.92
3.44
3.88
5.13
3.64% (a)

$ 134
12
58
124
328

184
25
1,228
1,437
1,765
46
4

57
29
86
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
0.77

3.32
3.00
3.21
2.25
1.25
3.93
2.15%

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 (d)

$209,957

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

11,801
1,420
55,539
68,760
91,913
4,624
585

1,704
970
2,674
2,348
5,495
16,353
$123,992
33,724
20,979
2,441 (d)

Total noninterest-bearing deposits
Other liabilities
Liabilities of discontinued operations
Total liabilities
Total equity
Total liabilities and equity
Net interest margin – taxable equivalent basis
Percentage of assets attributable to foreign offices (e)
Percentage of liabilities attributable to foreign offices
(a) Includes the impact of the SILO/LILO charge in 2008. Excluding this charge, 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%.
(b) Includes fees of $43 million in 2009 and $35 million in 2008. Non-accrual loans are included in the average loan balance; the associated income, recognized on

181,136

28,821

$209,957

183,622
28,505
$212,127

35%

37%
34

1.82%

the cash basis, is included in interest.

(c) The tax equivalent adjustments were $18 million in 2009 and $21 million in 2008, and are based on the federal statutory tax rate (35%) and applicable state and

local taxes.

(d) Average balances and rates are impacted by allocations made to match assets of discontinued operations with liabilities of discontinued operations.
(e) Includes the Cayman Islands branch office.

BNY Mellon

1.89% (a)

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
Software
Distribution and servicing
Furniture and equipment
Business development
Subcustodian
Other

Subtotal

Special litigation reserves
Support agreement charges
FDIC special assessment
Amortization of intangible assets
Restructuring charges
Merger and integration expenses

Total noninterest expense

2010

2009

2008

$ 3,237
1,193
785

$ 2,985
996
719

$ 3,242
1,247
700

5,215
1,099
588
410
377
315
271
247
903

9,425 (a)
164
(7)
-
421
28
139

4,700
1,017
564
367
393
309
214
203
908

8,675
N/A
(15)
61
426
150
233

5,189
1,021
570
331
517
323
278
255
1,008

9,492
N/A
894
-
473
181
483

2010
vs.
2009

2009
vs.
2008

8%
20
9

11
8
4
12
(4)
2
27
22
(1)

9
N/M
N/M
N/M
(1)
(81)
(40)

(8)%
(20)
3

(9)
-
(1)
11
(24)
(4)
(23)
(20)
(10)

(9)
N/M
N/M
N/M
(10)
(17)
(52)

$10,170

$ 9,530

$11,523

(17)%

Total staff expense as a percentage of total revenue (b)
Full-time employees at period end

38%

48,000

61%

42,200

38%

42,500

14%

(1)%

(a) Noninterest expense from the Acquisitions was $381 million in 2010.
(b) Excluding investment securities gains (losses) and the 2008 SILO/LILO charge, total staff expense as a percentage of total revenue

(Non-GAAP) was 38% in 2010, 36% in 2009 and 33% in 2008.

Total noninterest expense increased $640 million, or
7%, compared with 2009, reflecting the impact of the
Acquisitions and the full-year impact of the Insight
acquisition, which impacted virtually all expense
categories, higher incentive, litigation, business
development and software expenses.

Staff expense

Given our mix of fee-based businesses, which are
staffed with high-quality professionals, staff expense
comprised approximately 55% of total noninterest
expense in 2010, excluding special litigation reserves,
support agreement charges, amortization of intangible
assets, restructuring charges and M&I expenses.

Staff expense is comprised of:

Š compensation expense, which includes:

– base salary expense, primarily driven by

headcount;
the cost of temporary help and overtime; and

–

– severance expense;

incentive expense, which includes:

– 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,

– stock-based compensation expense; and
Š employee benefit expense, primarily medical

benefits, payroll taxes, pension and other

retirement benefits.

The increase in staff expense compared with 2009
reflects the impact of the Acquisitions and the full-
year impact of the Insight acquisition, higher incentive
expense primarily in the Asset Management business
and the annual merit increase, which was effective in
the second quarter of 2010. The higher incentive
expense primarily resulted from increased earnings,
reflecting higher market levels, increased performance
fees and the impact of adjusting compensation to
market levels.

14 BNY Mellon

Results of Operations (continued)

Non-staff expense

2009 compared with 2008

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 special litigation
reserves, support agreement charges, FDIC special
assessment, amortization of intangible assets,
restructuring charges and M&I expense totaled $4.2
billion in 2010 compared with $4.0 billion in 2009.
The increase primarily reflects the impact of the
Acquisitions and the full-year impact of the Insight
acquisition. Also impacting noninterest expense in
2010 compared with 2009 were higher professional,
legal and other purchased services, higher software
expense, higher business development expense in
support of new business growth, higher volume driven
subcustodian expense and higher litigation expense.

Given the severity of the economic downturn, the
financial services industry has seen a continuing
increase in the level of litigation activity. As a result,
we anticipate litigation costs to continue to exceed
historic trend levels. For additional information on
litigation matters, see Note 25 of the Notes to
Consolidated Financial Statements.

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

For additional information on restructuring charges,
see Note 12 of the Notes to Consolidated Financial
Statements.

In 2010, we incurred $139 million of M&I expenses
related to the Acquisitions and the merger with
Mellon Financial.

The Financial Services Compensation Scheme
(“FSCS”) is the UK’s compensation fund of last resort
for customers of authorized financial services firms. It
covers business conducted by firms authorized by the
Financial Services Authority (“FSA”) in the UK. Due
to the insolvency of a UK investment firm in 2009,
BNY Mellon and other financial institutions doing
business in the UK expect to incur an additional FSCS
levy in 2011. BNY Mellon expects the FSCS levy to
slightly increase noninterest expense in 2011.

Total noninterest expense was $9.5 billion in 2009, a
decrease of $2.0 billion or 17% compared with 2008.
The decrease primarily reflects lower support
agreement charges, strong expense control, merger-
related synergies and a stronger U.S. dollar in 2009.
Noninterest expense in 2009 also included the
following activity:

Š A pre-tax restructuring charge of $139 million
related to our global location strategy and
$11 million associated with our workforce
reduction program announced in 2008.
Š M&I expenses of $233 million related to the

merger with Mellon Financial comprised of the
following: integration/conversion costs
($160 million); personnel related costs
($57 million); and one-time costs ($16 million).
Š A special assessment of $61 million paid to the

FDIC.

Support agreements

In 2008, we voluntarily entered into agreements under
which we committed to 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 were designed to enable these funds to
continue to operate at a stable net asset value.

In 2010, we recorded a credit to support agreement
charges of $7 million (pre-tax). This credit was driven
by a reduction in the support agreement reserve
primarily due to improved pricing of Lehman
securities, partially offset by a decision to support five
Dreyfus money market funds primarily for a realized
loss which arose from the financial crisis. At Dec. 31,
2010, the value of Lehman securities increased to
approximately 23.0% from 19.5% at Dec. 31, 2009.

At Dec. 31, 2010, our additional potential maximum
exposure to support agreements was approximately
$116 million, after deducting the reserve, assuming
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
($103 million), as well as other client support
agreements ($13 million).

BNY Mellon

Results of Operations (continued)

Income taxes

BNY Mellon recorded an income tax provision, on a
continuing operations basis, of $1.0 billion (28.3%
effective tax rate) in 2010 compared with an income
tax benefit of $1.4 billion (63.2% effective tax rate) in
2009 and an income tax provision of $491 million
(25.2% effective tax rate) in 2008. The 2010 effective
tax rate on our continuing operations reflects a higher
proportion of income earned in lower-taxed foreign
jurisdictions. The 2009 effective tax rate on our loss
from continuing operations was 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.
Excluding the impact of restructuring charges, M&I
expenses and special litigation reserves, the effective
tax rate was 29.0% in 2010. Excluding the impact of
investment securities losses, M&I expenses, FDIC
special assessment, restructuring charges and benefits
from discrete tax items, 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%.

We expect the effective tax rate to be approximately
30-31% in 2011.

Review of businesses

The results of our businesses are presented and
analyzed as follows:

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 businesses along
product and service lines.

16 BNY Mellon

For information on the accounting principles of our
businesses, the primary types of revenue generated by
each business and how our businesses are presented
and analyzed, see Note 27 of the Notes to
Consolidated Financial Statements.

Information on our businesses is reported on a
continuing operations basis for all periods presented.
See Note 4 to the Notes to Consolidated Financial
Statements for a discussion of discontinued
operations.

The results of our businesses in 2010 were driven by
the following factors. Higher market values and new
business benefited the Asset and Wealth management
businesses, while increases in the Issuer Services
business from higher customer deposit balances and
Depositary Receipts revenue were offset by the
continued weakness in the structured debt markets.
Results in Asset Servicing benefited from the
Acquisitions, higher market values and new business
but were negatively impacted by lower foreign
currency volatility, as well as narrower spreads and
lower loan balances in securities lending. Money
market fee waivers also continue to suppress results in
Asset Management, Issuer and Clearing Services,
while lower New York Stock Exchange (“NYSE”)
share volumes, down 19% in 2010, continued to
impact results in Clearing Services. Compared with
2009, net interest revenue increased in several
businesses, driven by the higher yield related to the
restructured investment securities portfolio and a
higher level of interest-earning assets, partially offset
by low spreads resulting from the lower interest rate
environment.

Noninterest expense increased compared with 2009 in
Asset Servicing and Clearing Services primarily as a
result of the Acquisitions. Noninterest expense also
increased compared with 2009 in Asset Management,
reflecting higher incentive expense resulting from
increased performance fees and the full-year impact of
the Insight acquisition.

Net securities gains (losses) and restructuring charges
are recorded in the Other business. In addition, M&I
expenses are a corporate level item and are therefore
recorded in the Other business.

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.

2010

1258
1140
5900
5468
2653
323
1658
445
552

2009

1115
948
5413
4568
2269
301
1581
549
564

2008

903
1221
4434
5368
1577
275
1237
660
577

Increase/(Decrease)

2010 vs. 2009

2009 vs. 2008

13%
20
9
20
17
7
5
(19)
(2)

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

On a daily average basis, the S&P 500 Index and the
FTSE 100 Index increased 20% in 2010 versus 2009.
The period end S&P 500 Index increased 13% at Dec.
31, 2010, versus Dec. 31, 2009. The period end FTSE
100 Index increased 9% at Dec. 31, 2010, versus Dec.
31, 2009. The period end NASDAQ Composite Index
increased 17% at Dec. 31, 2010, versus Dec. 31, 2009.
NYSE and NASDAQ share volumes decreased 19%
and 2% respectively in 2010 compared with 2009.

The changes in the value of market indices primarily
impact fee revenue in the Asset and Wealth
Management businesses and to a lesser extent our
securities servicing businesses.

At Dec. 31, 2010, 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 to 2% and fully diluted earnings per

common share on a continuing operations basis by
$0.06-$0.07. If global equity markets over or under
perform the S&P 500 Index, the impact to fee revenue
and earnings per share could be different.

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, 2010, we estimate that
an immediate 100 basis point increase in overnight
interest rates from current rates would increase annual
pre-tax income by approximately $450 million. Both
fee revenue and net interest revenue would benefit
from this increase.

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

For the year ended
Dec. 31, 2010
(dollar amounts
in millions)
Fee and other revenue
Net interest revenue

Total revenue
Provision for credit

losses

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

amortization of
intangible assets:
Noninterest
expense
Income before taxes
Pre-tax operating
margin (b)

$ 2,644 (a)

(1)
2,643

-
2,082

561 (a)

590
227
817

2
611
204

Asset

Wealth Management Asset

Management Management

Total Asset
and Wealth

Group
$ 3,234
226
3,460

Issuer Clearing Treasury
Servicing Services Services Services
841
$ 3,809
632
864
1,473
4,673

$ 1,152 $
368
1,520

$ 1,576
903
2,479

Total
Institutional
Services
Group
$ 7,378
2,767
10,145

Total
Continuing
Other Operations
$

279
(68)
211

$ 10,891 (a)
2,925
13,816

2
2,693
765

-
3,399
$ 1,274

-
1,354
$ 1,125

-
1,138

382 $

-
769
704

-
6,660
$ 3,485

9
817
(615)

11
10,170
$ 3,635 (a)

21%

25%

22%

27%

45%

25%

48%

$26,307

$10,618

$36,925

$66,678

$51,623

$21,361 $26,519

34% N/M
$34,330

$166,181

26%
$237,436 (c)

$ 1,881
762

575
240

$ 2,456
1,002

$ 3,352
1,321

$ 1,271
1,208

$ 1,109 $
411

746
727

$ 6,478
3,667

815
(613)

$ 9,749
4,056

29%

28%

49%

27%

49%

36% N/M

29%

(a) Total fee and other revenue and income before taxes for 2010 includes income from consolidated asset management funds of

$226 million net of income attributable to noncontrolling interests of $59 million. The net of these income statement line items of
$167 million is included above in fee and other revenue.

(b) Income before taxes divided by total revenue.
(c) Including average assets of discontinued operations of $404 million for 2010, consolidated average assets were $237,840 million.

BNY Mellon

Results of Operations (continued)

For the year ended Dec. 31, 2009

Total Asset
and Wealth

(dollar amounts in millions)

Management Management

Group

Asset

Wealth Management Asset

Clearing Treasury
Servicing Services Services Services

Issuer

Total
Institutional
Services
Group

Total
Continuing
Other Operations

Fee and other revenue
Net interest revenue

$ 2,247
32

$ 578
194

Total revenue

Provision for credit losses
Noninterest expense

2,279

-
1,915

772

1
583

$ 2,825 $ 3,406 $ 1,617 $ 1,190 $

226

3,051

1
2,498

894

4,300

-
2,956

768

2,385

-
1,305

340

1,530

-
1,021

835 $ 7,048 $ (5,134) $ 4,739

2,915

613

2,615

1,448

-
772

9,663

-
6,054

(5,060)

331
978

7,654

332
9,530

Income before taxes

364

$ 188

552 $ 1,344 $ 1,080 $

509 $

676 $ 3,609 $ (6,369) $ (2,208)

Pre-tax operating margin (a)
Average assets

Excluding amortization of

intangible assets:

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

16%

24%

18%

31%

45%

33%

47%

37% N/M

N/M

$12,564

$9,276

$21,840 $60,842 $50,752 $18,455 $25,971 $156,020 $32,079 $209,939 (b)

$ 1,696
583

$ 538
233

$ 2,234 $ 2,928 $ 1,224 $
1,372

1,161

816

994 $
536

747 $ 5,893 $
701

3,770

977 $ 9,104
(1,782)

(6,368)

26%

30%

27%

32%

49%

35%

49%

39% N/M

N/M

(a) Income before taxes divided by total revenue.
(b) Including average assets of discontinued operations of $2,188 million in 2009, consolidated average assets were $212,127 million.

For the year ended Dec. 31, 2008

(dollar amounts in millions)

Management Management

Asset

Total Asset
and Wealth
Wealth Management Asset
Group

Clearing Treasury
Servicing Services Services Services

Issuer

Total
Institutional
Services
Group

Total
Continuing
Other Operations

Fee and other revenue
Net interest revenue

$ 2,794
75

Total revenue

Provision for credit losses
Noninterest expense

2,869

-
2,641

Income before taxes

228

624
200

824

-
639

185

$ 3,418
275

3,693

-
3,280

$ 4,429 $ 1,859 $ 1,292 $
710

1,086

321

956 $ 8,536 $ (1,240) $ 10,714
2,859
730

2,847

(263)

5,515

-
3,784

2,569

-
1,416

1,613

-
1,130

1,686

11,383

(1,503)

13,573

-
831

-
7,161

104
1,082

104
11,523

413

$ 1,731 $ 1,153 $

483 $

855 $ 4,222 $ (2,689) $ 1,946

Pre-tax operating margin (a)
Average assets

23%

11%

$13,267

$10,044

$23,311

31%

51%
$59,150 $35,169 $18,358 $25,603 $138,280 $45,925 $207,516 (b)

37% N/M

45%

30%

14%

Excluding amortization of

intangible assets:

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

$ 2,386
483

585
239

$ 2,971
722

$ 3,760 $ 1,335 $ 1,104 $
1,234

1,755

509

804 $ 7,003 $ 1,076 $ 11,050
2,419
882

(2,683)

4,380

17%

29%

20%

32%

48%

32%

52%

38% N/M

18%

(a) Income before taxes divided by total revenue.
(b) Including average assets of discontinued operations of $2,441 million in 2008, consolidated average assets were $209,957 million in

2008.

Asset and Wealth Management Group

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

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 a record $1.17
trillion at Dec. 31, 2010, an increase of 5% compared
with $1.12 trillion at Dec. 31, 2009. The increase
primarily reflects higher market values and new
business, offset in part by money market net outflows.

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.

18 BNY Mellon

Results of Operations (continued)

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

AUM at period end, by product type
(in billions)

Equity securities
Money market
Fixed income securities
Alternative investments and overlay

Total AUM

(a) Results for 2006 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

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

Changes in market value of AUM in the Asset and Wealth Management Group
(in billions)

Beginning balance market value of AUM
Net inflows (outflows):

Long-term
Money market

Total net inflows (outflows)

Net market/currency impact
Acquisitions/divestitures

Ending balance market value of AUM

style. This is most prevalent for institutional assets
where amounts we manage for individual clients are
typically large.

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

Performance fees, included in asset and wealth
management fee revenue on the income statement, are
earned in the Asset and Wealth Management Group.
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.

2010

$ 368
341
249
214

$1,172

2010

$ 639
454
79

$1,172

2009

$ 339
360
235
181

$1,115

2009

$ 611
416
88

$1,115

2008

$270
402
168
88

$928

2008

$445
400
83

$928

2007

2006 (a)

$ 460
296
218
147

$1,121

$ 39
38
21
44

$142

2007

2006 (a)

$ 671
349
101

$1,121

$105
15
22

$142

2010

2009

2008

$1,115

$ 928

$1,121

48
(18)

30
27
-

(6)
(49)

(55)
95
147

(43)
92

49
(235)
(7)

$1,172

$1,115

$ 928

BNY Mellon

Results of Operations (continued)

Asset Management business

(dollar amounts in millions,
unless otherwise noted)

Revenue:

Asset and wealth management:

2010
vs.
2009 2009

2010

Mutual funds
Institutional clients
Private clients
Performance fees

$1,066 $1,098
1,074
789
151
135
123
93

(3)%
36
12
32

Total asset and wealth

management revenue

Distribution and servicing
Other

Total fee and other revenue

Net interest revenue (expense)

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

2,414
201
29

14
2,115
(28)
279
(147) N/M

2,644
(1)

2,247

18
32 N/M

2,643

2,279

1,862

1,678

781
201
19

601
219
18

30
(8)
6

Income before taxes

$ 561 $ 364

54%

Memo: Income before taxes (ex.

amortization of intangible assets)

$ 762 $ 583

31%

Pre-tax operating margin
Pre-tax operating margin (ex.

21%

16%

amortization of intangible assets) (a)

29%

26%

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

$1,107 $1,045

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

$
$

48 $
(18) $

(9)
(49)

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

intangible assets, support agreement charges and investment
securities gains (losses) was 29% for both 2010 and 2009.

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

20 BNY Mellon

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 business 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 business are also
impacted by sales of fee-based products. In addition,
performance fees may be generated when the
investment performance exceeds various benchmarks
and satisfies other criteria. Expenses in this business
are mainly driven by staffing costs, incentives,
distribution and servicing expense, and product
distribution costs.

In July 2010, the China Securities Regulatory
Commission (“CSRC”) authorized BNY Mellon and
Western Securities to establish a joint venture fund
management company in China. The new company,
BNY Mellon Western Fund Management Company
Limited, is owned by BNY Mellon (49%) and
Western Securities (51%). BNY Mellon Western
Fund Management manages domestic Chinese
securities in a range of local retail fund products.
BNY Mellon Western Fund Management also focuses
on leveraging distribution within the Chinese banking
and securities sectors.

In November 2009, we acquired Insight, which
specializes in liability-driven investment solutions,
active fixed income and alternative investments. The
acquisition of Insight impacted fee revenue and
noninterest expense in 2010 compared with 2009.

Review of financial results

In 2010, Asset Management had pre-tax income of
$561 million compared with $364 million in 2009.
Excluding amortization of intangible assets and
support agreement charges, pre-tax income was
$781 million in 2010 compared with $601 million in
2009. Results for 2010 reflect improved market
values, the full-year impact of the Insight acquisition
and net new business, partially offset by higher
incentive expenses.

Asset and wealth management revenue in the Asset
Management business was $2.4 billion in 2010
compared with $2.1 billion in 2009. The increase
reflects improved market values, the full-year impact
of the Insight acquisition, higher performance fees and
net new business, partially offset by a reduction in
money market fees due to higher fee waivers and
money market outflows.

Results of Operations (continued)

The Asset Management business generated 500 basis
points of positive operating leverage in 2010
compared with 2009, excluding intangible
amortization and support agreement charges.

In 2010, 44% of asset and wealth management fees in
the Asset Management business 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 both 2010
and 2009.

Distribution and servicing fees were $201 million in
2010 compared with $279 million in 2009. The
decrease resulted from lower money market assets
under management and higher redemption fees in
prior periods.

Other fee revenue was $29 million in 2010 compared
with a loss of $147 million in 2009 and includes
$9 million of securities gains in 2010 and $78 million
of securities losses in 2009. The improvement also
includes a higher value of seed capital investments in
2010.

Revenue generated in the Asset Management business
includes 51% from non-U.S. sources in 2010 and 42%
in 2009. The increase is primarily due to the full-year
impact of the Insight acquisition.

Noninterest expense (excluding amortization of
intangible assets and support agreement charges) was
$1.9 billion in 2010 compared with $1.7 billion in
2009. The increase primarily resulted from higher
incentives expense resulting from an increase in
performance fees, as well as the impact of adjusting
compensation to market levels, and the full-year
impact of the Insight acquisition.

Support agreement charges in 2010 primarily reflect a
decision to support five Dreyfus money market funds
primarily for a realized loss which arose from the
financial crisis. The support agreement charges in
2009 related to the final charge for four Dreyfus
money market funds support agreements entered into
in 2008.

2009 compared with 2008

Income before taxes was $364 million in 2009,
compared with $228 million in 2008. Income before
taxes (excluding amortization of intangible assets and
support agreement charges) was $601 million in 2009
compared with $818 million in 2008. Fee and other
revenue decreased $547 million, primarily due to the

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 divestiture
of three small investment boutiques in 2009. The
decrease was partially offset by the impact of the
Insight acquisition in the fourth quarter of 2009 and
changes in the market value of seed capital
investments. Noninterest expense (excluding
amortization of intangible assets and support
agreement charges) decreased $373 million in 2009
compared with 2008 primarily due to staff reductions,
expense management, the consolidation of investment
processes and a stronger U.S. dollar.

Wealth Management business

(dollar amounts in millions, unless
otherwise noted)

Revenue:

2010
vs.
2009 2009

2010

Asset and wealth management
Other

540 $ 519
50
59

(15)

Total fee and other revenue

Net interest revenue

Total revenue

Provision for credit losses
Noninterest expense (ex. amortization

590
227

817
2

578
194

2
17

772

6
1 N/M

of intangible assets)

575

538

Income before taxes (ex. amortization

of intangible assets)

Amortization of intangible assets

240
36

233
45

3
(20)

Income before taxes

204 $ 188

Pre-tax operating margin
Pre-tax operating margin (ex.

25%

24%

amortization of intangible assets)

29%

30%

Average loans
Average assets
Average deposits

$ 6,451 $5,821
10,618
9,276
8,208
6,772

11%
14%
21%

Market value of total client assets

under management and custody at
period end (in billions)

Business description

166 $ 154

In the Wealth Management business, we offer a full
array of investment management, wealth and estate
planning and private banking solutions to help clients
protect, grow and transfer their wealth. Clients include
high-net-worth individuals and families, charitable
gift programs, endowments and foundations and
related entities. Client assets reached $166 billion at
year-end, and BNY Mellon Wealth Management was
ranked as the nation’s 8th largest wealth manager and
3rd largest private banker. We serve our clients
through an expansive network of office sites in 17
states and 4 countries, including 16 of the top 25
domestic wealth markets.

BNY Mellon

Results of Operations (continued)

The results of the Wealth Management business are
driven by the level and mix of assets managed and
under custody, the level of activity in client accounts
and private banking volumes. Net interest revenue is
determined by loan and deposit volumes and the
interest rate spread between customer rates and
internal funds transfer rates on loans and deposits.
Expenses of this business are driven by staff expense
in the investment management, sales, service and
support groups.

On Sept. 1, 2010, we acquired I3 Advisors of Toronto,
an independent wealth advisory company with more
than C$3.8 billion under advisement at acquisition.

Review of financial results

Income before taxes was $204 million in 2010
compared with $188 million in 2009. Income before
taxes (excluding amortization of intangible assets)
was $240 million in 2010 compared with $233 million
in 2009. Results compared with 2009 reflect growth in
fee revenue and net interest revenue, partially offset
by higher noninterest expense.

Total fee and other revenue was $590 million in 2010
compared with $578 million in 2009. The increase
was driven by higher equity market levels and the
acquisition of I3 Wealth Advisors.

Client assets under management and custody were
$166 billion at Dec. 31, 2010, an increase of $12
billion, or 8%, compared with $154 billion at Dec. 31,
2009. The increase was driven by higher equity
market levels and the acquisition of I3 Wealth
Advisors.

Net interest revenue increased $33 million in 2010
compared with 2009, primarily due to higher deposit
levels, growth in high-quality loans and the higher
yield on the restructured investment securities
portfolio, partially offset by spread compression on
deposits. Average deposit balances increased $1.4
billion, or 21%, while average loan balances increased
$630 million, or 11%.

Noninterest expense (excluding amortization of
intangible assets) increased $37 million compared
with 2009, due to higher compensation, marketing,
litigation and FDIC expenses and the acquisition of I3
Wealth Advisors.

2009 compared with 2008

Income before taxes was $188 million in 2009
compared with $185 million in 2008. Income before
taxes (excluding amortization of intangible assets and
support agreement charges), decreased $21 million.
Fee and other revenue decreased $46 million due to
lower average equity market levels and lower capital
market fees, partially offset by organic growth. Net
interest revenue decreased $6 million as a result of
deposit spread tightening. Noninterest expense
(excluding amortization of intangible assets and
support agreement charges) decreased $32 million due
to workforce reductions, strong expense control and
the impact of merger-related synergies.

Institutional Services Group

We are one of the leading global securities servicing
providers, with assets under custody and
administration at Dec. 31, 2010 of $25.0 trillion, an
increase of 12% from $22.3 trillion at Dec. 31, 2009,
primarily reflecting the Acquisitions, as well as higher
market values and new business. Equity securities
constituted 32% and fixed-income securities
constituted 68% of the assets under custody and
administration at Dec. 31, 2010, compared with 29%
equity securities and 71% fixed income securities at
Dec. 31, 2009. The shift in composition was due
primarily to an increase in equity market valuations.
Assets under custody and administration at Dec. 31,
2010, consisted of assets related to custody, mutual
funds, and corporate trust businesses of $20.1 trillion,
broker-dealer services assets of $3.2 trillion and all
other assets of $1.7 trillion.

Market value of securities on loan at Dec. 31, 2010,
increased to $278 billion from $247 billion at Dec. 31,
2009. The increase reflects higher asset valuations and
the GIS acquisition, partially offset by lower
government volumes.

22 BNY Mellon

Results of Operations (continued)

On July 1, 2010, we completed the acquisition of GIS and on Aug. 2, 2010, we completed the acquisition of BAS.
See the “2010 events” section for additional information. These acquisitions were integrated into the Institutional
Services businesses.

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)

2010

2009

2008

2007

2006 (a)

$25.0
$ 278

$22.3
$ 247

$20.2
$ 326

$23.1
$ 633

$15.5
$ 399

(a) Results for 2006 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 $1.1 trillion at Dec. 31, 2010, $905 billion at Dec. 31, 2009, $697 billion at Dec. 31, 2008,
and $989 billion at Dec. 31, 2007.

Asset Servicing business

(dollar amounts in millions,
unless otherwise noted)

Revenue:

Securities servicing fees-

asset servicing

Securities lending revenue
Foreign exchange and other

trading revenue

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

2010

2009

2010
vs.
2009

$ 2,804
106

$ 2,215
221

27%
(52)

693
206

3,809
864

4,673

793
177

(13)
16

3,406
894

4,300

12
(3)

3,378

2,961

1,295
47
(26)

1,339
28
(33)

(3)
68
21

Income before taxes

$ 1,274

$ 1,344

(5)%

Memo: Income before taxes (ex.
amortization of intangible
assets)

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

Average assets
Average deposits

Business description

$ 1,321

$ 1,372

(4)%

27%

31%

28%

32%

$66,678
56,820

$60,842
52,907

10%
7

The Asset Servicing business includes global custody,
global fund services, securities lending, outsourcing,

performance and risk analytics, alternative investment
services, securities clearance, collateral management,
derivative services 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, asset
managers, insurance companies and central banks.

The results of the Asset Servicing business are driven
by a number of factors which include: the level of
transaction activity; the range of services provided,
including custody, accounting, fund administration,
daily valuations, performance measurement and risk
analytics, securities lending, and investment manager
backoffice outsourcing; and the market value of assets
under administration and custody. Market interest
rates impact both securities lending revenue and the
earnings on client 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 remain a key revenue driver in broker-
dealer services.

Our Asset Servicing business also generates foreign
exchange trading revenues, which 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. As part of our foreign exchange business, we
offer a standing instruction program that provides a
cost-effective and efficient option, to our clients, for
handling a high volume of small transactions or
difficult to execute transactions in restricted and

BNY Mellon

Results of Operations (continued)

emerging markets currencies. Our foreign exchange
platform provides custody clients and their investment
managers an end-to-end solution that transfers to
BNY Mellon much of the burden, risk and
infrastructure cost associated with foreign exchange
transactions. Custody clients and their investment
managers have the option of executing their
transactions pursuant to the standing instruction
program, through any of the other foreign exchange
trading options made available by BNY Mellon, or
with another foreign exchange provider.

Business expenses are principally driven by staffing
levels and technology investments.

We are one of the leading global securities servicing
providers, with a total of $25.0 trillion of assets under
custody and administration at Dec. 31, 2010. We
continue to maintain our number one ranking in two
major global custody surveys. We are the largest
custodian for U.S. corporate and public pension plans
and we service 44% of the top 50 endowments. We
are a leading custodian in the UK and service 25% of
UK pensions. European asset servicing continues to
grow across all products, reflecting significant cross-
border investment and capital flow.

We are one of the largest providers of fund services in
the world, servicing $5.6 trillion in assets. We are the
second largest administrator in the alternative
investment services industry based on assets. We
service 44% of the funds in the U.S. exchange-traded
funds marketplace.

In securities lending, we are one of the largest lenders
of U.S. Treasury securities and depositary receipts and
service a lending pool of more than $2.6 trillion in 31
markets. We are one of the largest global providers of
performance and risk analytics, with $8.9 trillion in
assets under measurement.

BNY Mellon is a leader in both global securities and
U.S. Government securities clearance. At Dec. 31,
2010, we cleared and settled equity and fixed income
transactions in over 100 markets and handled most of
the transactions cleared through the Federal Reserve
Bank of New York for 14 of the 18 primary dealers.
We are an industry leader in collateral management,
servicing $1.8 trillion in tri-party balances worldwide
at Dec 31, 2010.

Review of financial results

Income before taxes was $1.3 billion in both 2010 and
2009. Income before taxes, excluding amortization of

24 BNY Mellon

intangible assets and support agreement charges, was
$1.3 billion in both 2010 and 2009. Revenue in 2010
was impacted by the Acquisitions, higher market
values and new business, primarily offset by an
increase in noninterest expenses driven by the
Acquisitions, higher volume-driven expenses and
expense incurred to support business growth. Asset
servicing won $1.5 trillion of new business in 2010.

Revenue generated in the Asset Servicing business
includes 40% from non-U.S. sources in 2010
compared with 37% in 2009.

Securities servicing fees increased $589 million in
2010 compared with 2009, driven by the impact of the
Acquisitions, higher market values, new business and
asset inflows from existing clients.

Securities lending revenue decreased $115 million
compared to 2009. The decrease primarily reflects
lower volumes, driven by a lower demand for U.S.
Government securities, and lower spreads. Spreads
decreased 44% and volumes decreased 4% compared
with 2009.

Foreign exchange and other trading revenue decreased
$100 million compared with 2009, primarily reflecting
lower volatility partially offset by higher volumes and
new business.

Net interest revenue decreased $30 million compared
with 2009, primarily driven by narrower spreads on
deposits, offset in part by the higher yield related to
the restructured investment securities portfolio and
higher deposit levels.

Noninterest expense (excluding amortization of
intangible assets and support agreement charges)
increased $417 million compared with 2009. The
increase in expenses primarily reflects the impact of
the Acquisitions, higher sub-custodian fees resulting
from higher asset values and transaction volumes,
higher professional, legal and other purchased
services and increased expenses in support of business
growth.

2009 compared with 2008

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. Fee and other
revenue decreased $1.0 billion, primarily due to lower

Results of Operations (continued)

securities lending revenue, lower foreign exchange
and other trading revenue, lower market values for
most of 2009 and a stronger U.S. dollar, partially
offset by new business. Net interest revenue decreased
$192 million, primarily driven by lower spreads.
Noninterest expense (excluding amortization of
intangible assets and support agreement charges)
decreased $258 million, primarily due to lower
incentive expense, strong overall expense control and
a stronger U.S. dollar.

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,
escrow services and employee stock plan
administration.

Fee revenue in the Issuer Services business depends
on:

Issuer Services business

(dollar amounts in millions)

2010

2009

2010
vs.
2009

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

$ 1,459
117

$ 1,462
155

(25)

1,576
903

2,479

1,617
768

2,385

(3)
18

1,271

1,224

1,208
83

1,161
81

4
2

Income before taxes

$ 1,125

$ 1,080

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%

$51,623
$47,219

$50,752
$45,936

2%
3%

1,363

1,330

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

BNY Mellon is the leading provider of corporate trust
services for all major debt categories across
conventional, structured finance and specialty debt.
BNY Mellon services $12.0 trillion in outstanding
debt from 61 locations, in 20 countries. We serve as
depositary for 1,363 sponsored American and global
depositary receipt programs, acting in partnership
with leading companies from 68 countries. In addition

the volume and type of issuance of fixed income
securities;

Š depositary receipts issuance and cancellation

volume;

Š corporate actions impacting depositary receipts;

and
stock transfer, corporate actions and equity
trading volumes.

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

Role of BNY Mellon, as a trustee, for mortgage-
backed securitizations

BNY Mellon acts as trustee and document custodian
for certain mortgage-backed security (“MBS”)
securitization trusts. The role of trustee for MBS
securitizations is limited. Our primary role as trustee
is to calculate and distribute monthly bond payments
to bondholders. As a document custodian, we are
required to notify the mortgage service providers and
the seller of the loan whether the files contain the
mortgage note and other required documents. BNY
Mellon, either as document custodian or trustee, does
not receive mortgage underwriting files (the files that
contain information related to the credit worthiness of
the borrower). As trustee or custodian, we have no
responsibility or liability for the quality of the
portfolio; we are liable only for performance of the
limited duties as described above and in the trust
document.

Review of financial results

Income before taxes increased $45 million in 2010
compared with 2009. The results reflect higher net
interest revenue and Depositary Receipts revenue,
partially offset by weakness in the structured debt
markets.

Revenue generated in the Issuer Services business
includes 44% from non-U.S. sources in 2010
compared with 40% in 2009.

BNY Mellon

Results of Operations (continued)

Total fee and other revenue decreased $41 million in
2010 compared with 2009, as a result of:

Clearing Services business

Š Corporate Trust revenue – Decreased due to
continued weakness in the structured debt
markets and lower money market related
distribution fees due to the low interest rate
environment.

Š Depositary Receipts revenue – Increased due to
higher issuance, corporate action and servicing
fees as well as new business. In 2010, Depositary
Receipts issuances exceeded cancellations by
$2.2 billion, an increase of $1.0 billion from
2009.

Š Shareowner Services revenue – Decreased due to
lower transfer agency and corporate action fees.

Net interest revenue increased $135 million in 2010
compared with 2009, driven by a higher yield related
to the restructured investment securities portfolio and
increased deposits. Average deposits were $47.2
billion in 2010 compared with $45.9 billion in 2009.

Noninterest expense (excluding amortization of
intangible assets) increased $47 million in 2010
compared with 2009 driven by higher FDIC expense,
professional, legal and other purchased services
expense, subcustodian expenses and the anticipated
settlement of a withholding tax matter with the
Internal Revenue Service.

2010

2009

2010
vs.
2009

993
159

948
242

(34)

1,152
368

1,520

1,190
340

1,530

(3)
8

(1)

1,109

994

(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 payables to customers

411
29

382

536
27

509

(23)
7

(25)%

25%

33%

27%

35%

4,901
$21,361
$ 5,891

4,995
$18,455
$ 4,326

(2)%
16%
36%

and broker-dealers

$ 6,429

$ 5,262

22%

2009 compared with 2008

Business description

Income before taxes was $1.1 billion in both 2009 and
2008. Fee and other revenue decreased $242 million,
reflecting lower global issuances and lower overall
corporate actions that were partially offset by the
benefit of new business. Net interest revenue
increased $58 million, primarily driven by higher
customer deposit balances primarily in Corporate
Trust. Noninterest expense (excluding amortization of
intangible assets) decreased $111 million reflecting
lower staff expense due to a 21% decrease in
incentive expense and credit monitoring charges
related to lost tapes recorded in 2008.

Our Clearing Services business consists of Pershing’s
global clearing and execution business in over 60
markets. Located in 21 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
100,000 investment professionals and 1,500
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, Albridge Solutions, Coates Analytics, the
Lockwood companies, and international affiliates in
Canada, Ireland, the UK, India and Singapore.

26 BNY Mellon

Results of Operations (continued)

Revenue in this business includes transactional
revenue from trade execution and clearance for
broker-dealer services, registered investment advisor
services and prime brokerage services, which are
primarily driven by retail and institutional investor
trading volumes. Revenue is also generated from
securities lending and investing cash balances held for
investors.

A substantial amount of revenue in this business is
also generated from non-transactional activities, such
as: providing services to mutual funds and money
market funds, asset gathering, retirement account
administration; and other services.

Business expenses are driven by staff, technology
investment, equipment and space required to support
the services provided by the business and the cost of
execution and clearance and custody of securities.

Review of financial results

Income before taxes was $382 million in 2010
compared with $509 million in 2009. The decrease
reflects lower trading volumes, lower cash
management related distribution fees and higher
expenses related to new business conversions.
Revenue comparisons were impacted by historically
low interest rates, which created higher levels of cash
management fee waivers and lower spreads on interest
bearing balances.

Total fee and other revenue decreased $38 million in
2010 compared with 2009. The decrease reflects a
decline in trading volumes and lower cash
management related distribution fees, partially offset
by the impact of the GIS acquisition and higher
mutual fund balances and positions. Trading volumes
on the NYSE were down 19% in 2010 compared with
2009.

Net interest revenue increased $28 million compared
with 2009, reflecting the higher yield related to the
restructured investment securities portfolio and higher
loan volume, partially offset by lower spreads.
Average margin loans were up 36% in 2010. This
increase was driven by increased prime brokerage and
broker-dealer activity.

Noninterest expense (excluding amortization of
intangible assets) increased $115 million in 2010
compared with 2009, primarily reflecting the impact
of the GIS acquisition, new business conversions,

including the first phase of the conversion of a large
global wealth management firm, and the impact of
adjusting compensation to market levels.

In the fourth quarter of 2010, we completed the first
phase of the conversion of a large global wealth
management firm. We expect to complete the final
phase of the conversion in the first quarter of 2011
and anticipate that the revenue related to this new
business will exceed expenses in the second quarter of
2011.

2009 compared with 2008

Income before taxes was $509 million in 2009
compared with $483 million in 2008. Total fee and
other revenue decreased 8%, reflecting lower cash
management related distribution fees and trading
volumes. Net interest revenue increased $19 million
reflecting wider spreads. Noninterest expense
(excluding amortization of intangible assets)
decreased $110 million reflecting lower compensation
costs and strong expense control.

Treasury Services business

(dollars in millions)

2010

2009

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)

Amortization of intangible assets

Income before taxes

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

Average loans
Average assets
Average deposits

2010
vs.
2009

(1)%
3

1
3

500
341

841
632

503
332

835
613

1,473

1,448

746

747

727
23

704

701
25

676

48%

47%

4
(8)

49%

$10,012
$26,519
$22,405

$12,434
25,971
21,816

(19)%
2%
3%

BNY Mellon

Results of Operations (continued)

Business description

Review of financial results

The Treasury Services business 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.

Business expenses are driven by staff, equipment and
space required to support the services provided, as
well as operating services in support of volume
increases.

With a network of more than 2,000 correspondent
financial institutions, our Treasury Services group
delivers high-quality performance in global payments,
trade services, cash management, capital markets,
foreign exchange and derivatives. We help clients in
their efforts to optimize cash flow, manage liquidity
and make payments more efficiently around the world
in more than 100 currencies. We are the fourth largest
Fedwire and CHIPS payment processor, processing
about 160,000 global payments daily totaling an
average of $1.6 trillion.

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.

Income before taxes was $704 million in 2010,
compared with $676 million in 2009. Revenue from
the GIS acquisition and strong expense control were
partially offset by lower money market fees and lower
financing-related revenue.

The Treasury Services business generated 200 basis
points of positive operating leverage in 2010
compared with 2009, excluding amortization of
intangible assets.

Total fee and other revenue increased $6 million in
2010 compared with 2009. The increase was driven
by the impact of the GIS acquisition and an
improvement in the mark-to-market adjustment on
credit default swaps, partially offset by lower money
market fees and lower global payment fees.

The increase in net interest revenue compared with
2009 primarily reflects a higher yield on the
restructured investment securities portfolio partially
offset by lower average loan balances reflecting our
strategy to reduce targeted risk exposure.

Noninterest expense (excluding amortization of
intangible assets) in 2010 was essentially unchanged
compared with 2009, as the impact of the GIS
acquisition was primarily offset by strong expense
control.

2009 compared with 2008

Income before taxes was $676 million in 2009,
compared with $855 million in 2008. Total fee and
other revenue decreased $121 million, reflecting
mark-to-market losses on the credit derivatives
portfolio used to economically hedge loans. Net
interest revenue decreased $117 million compared
with 2008, reflecting lower loan levels and tighter
spreads resulting from the lower interest rate
environment in 2009. Noninterest expense (excluding
amortization of intangible assets) decreased
$57 million, primarily due to merger-related synergies
and strong expense control.

28 BNY Mellon

Results of Operations (continued)

Other Businesses

(dollars in millions)

Revenue:

Fee and other revenue
Net interest revenue (expense)

Total revenue

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

Income (loss) before taxes (ex. special
litigation reserves, FDIC special
assessment, amortization of intangible
assets, restructuring charges and M&I
expenses)

Special litigation reserves
FDIC special assessment
Amortization of intangible assets
Restructuring charges
M&I expenses

Income (loss) before taxes

Average assets
Average deposits

Business description

(282)
164
-
2
28
139

(5,924)
N/A
61
1
150
233

(615)

$ (6,369)

$34,330
$ 4,689

$32,079
$ 7,221

On Jan. 15, 2010, we completed the sale of Mellon
United National Bank (“MUNB”), our national bank
located in Florida. We applied discontinued
operations accounting to this business. This business
was formerly included in the Other businesses group.

The Other business primarily includes:

Š
the results of the lease financing portfolio;
Š corporate treasury activities, including our

investment securities portfolio;

Š 33.2% equity interest in BNY ConvergEx Group;

and

Š business exits and corporate overhead.

Revenue primarily reflects:

Š net interest revenue from the lease financing

portfolio;
interest income remaining after transfer pricing
allocations;
fee and other revenue from corporate and bank-
owned life insurance; and

Š gains (losses) associated with the valuation of

investment securities and other assets.

Expenses include:

2010

2009

279
(68)

211
9

$ (5,134)
74

(5,060)
331

Š M&I expenses;
Š
Š direct expenses supporting lease financing,

restructuring charges;

investing and funding activities; and
Š certain corporate overhead not directly

attributable to the operations of other businesses.

Review of financial results

484

533

Income before taxes was a loss of $615 million in
2010 compared with a loss of $6.4 billion in 2009.

The Other business includes the following activity in
2010:

Š net securities gains of $15 million;
Š
lease residual gains of $69 million;
Š a provision for credit losses of $9 million;
Š a $164 million charge related to special litigation
reserves taken in the first quarter of 2010; and

Š M&I expenses of $139 million related to the

Acquisitions and the Mellon Financial merger.

2009 compared with 2008

Income before taxes was a loss of $6.4 billion in 2009
compared with a loss of $2.7 billion in 2008. Total fee
and other revenue decreased primarily due to net
securities losses related to the restructured investment
securities portfolio recorded in 2009. Net interest
revenue increased $337 million primarily reflecting
the SILO/LILO charge recorded in 2008. The
provision for credit losses increased $227 million in
2009 reflecting downgrades in the insurance, media
and residential mortgage portfolios.

International operations

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

Our clients include some of the world’s largest asset
managers, insurance companies, corporations,
financial intermediaries, local authorities and pension
funds. 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.

BNY Mellon

Results of Operations (continued)

We conduct business through subsidiaries, branches,
and representative offices in 36 countries. We have
operational centers based in Brussels, Cork, Dublin,
Navan, Wexford, Luxembourg, Singapore, Wroclaw,
throughout the United Kingdom including London,
Manchester, Brentwood, Edinburgh and Poole, and
Chennai and Pune in India.

At Dec. 31, 2010, we had approximately 9,000
employees in Europe, the Middle East and Africa
(“EMEA”), approximately 7,000 employees in the
Asia-Pacific region (“APAC”) and approximately 700
employees in other global locations, primarily Brazil.

At Dec. 31, 2010, our cross-border assets under
custody and administration were $9.2 trillion
compared with $8.8 trillion at Dec. 31, 2009. This
increase primarily reflects higher market values as the
FTSE 100 and MSCI EAFE® indices increased 9%
and 5%, respectively.

In Europe, we maintain a significant presence in the
Undertakings for Collective Investment in
Transferable Securities Directives (“UCITS”)
servicing field. In Ireland, BNY Mellon is the largest
administrator of third-party assets and largest provider
of trustee services. In Luxembourg, BNY Mellon is a
top 10 ranked fund administrator. We provide global
clearance services in more than 100 markets and
service $1.8 trillion in daily tri-party balances
spanning 40 markets.

In July the acquisition of GIS expanded our securities
servicing and alternative investment services
businesses worldwide and enhanced our managed
account platform, performance reporting capabilities
and business intelligence tools for broker-dealer and
registered investment advisor clients.

In August, we completed the acquisition of BAS
which expanded BNY Mellon’s existing capabilities
to include German domestic custody and KAG fund
administration.

We serve as the depositary for 1,363 sponsored
American and global depositary receipt programs,
acting in partnership with leading companies from 68
countries. As the world’s leading provider of
corporate trust and agency services, BNY Mellon
services $12.0 trillion in outstanding debt from 61
locations, in 20 countries, for clients including
governments and their agencies, multi-national
corporations, financial institutions and other entities
that access the global debt markets. We leverage our
global footprint and expertise to deliver customized

30 BNY Mellon

and market-driven solutions across a full range of debt
issuer and related investor services.

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 11th in the institutional marketplace and are
the 6th largest asset manager active in Europe. We are
also a market leader in the field of liability-driven
investments.

In July we created, with Western Securities, a joint
venture fund management company in China. The
new company, BNY Mellon Western Fund
Management Company Limited manages domestic
Chinese securities in a range of local retail fund
products.

At Dec. 31, 2010, approximately 34% of BNY
Mellon’s AUM were managed by our international
operations, compared with 32% in 2009. The increase
primarily resulted from net long-term inflows and
improved market values.

We process 160,000 global payments daily, totaling
an average of $1.6 trillion. With payment services
provided in more than 100 currencies through more
than 2,000 correspondent bank accounts worldwide,
we are a recognized leader in receivables and payables
processing.

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, securities servicing products and
alternative investments.

We are also 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 administration, and management,
are impacted by the translation of financial results

Results of Operations (continued)

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, noninterest expense and assets
under management and custody and administration.
Conversely, if the U.S. dollar appreciates, the
translated levels of fee revenue, net interest revenue,
noninterest expense and assets under management and
custody and administration 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

2010

2009

2008

$1.5545
1.3373

$1.6154
1.4348

$1.4626
1.3976

$1.5457
1.3270

$1.5659
1.3946

$1.8552
1.4713

International clients accounted for 36% of revenue in
2010 compared with 53% in 2009. Excluding the
impact of the net investment securities losses,
international clients accounted for 36% of revenue in
2010 compared with 32% in 2009. Income from
international continuing operations was $1.5 billion in
2010 compared with $1.1 billion in 2009.

In 2010, revenues from EMEA were $3.5 billion,
compared with $2.8 billion in 2009 and $3.6 billion in
2008. Revenues from EMEA were up 24% for 2010
compared to 2009. The increase in 2010 primarily
reflects improved market values and the acquisitions
of Insight and BAS, partially offset by a stronger U.S.
dollar in 2010. Revenue from EMEA in 2010 was
spread across most of our businesses. Asset Servicing
generated 44%, Asset Management 27%, Issuer
Services 19%, Treasury Services 6% and Clearing
Services 4% of revenues from EMEA. Income from
continuing operations from EMEA was $916 million

in 2010 compared with $667 million in 2009 and
$859 million in 2008.

Revenues from APAC were $745 million in 2010
compared with $669 million in 2009 and $796 million
in 2008. The increase in APAC revenue in 2010
resulted from higher depositary receipts revenue and
net interest revenue. Revenue from APAC in 2010
was generated by the following businesses: Asset
Management 27%, Treasury Services 27%, Asset
Servicing 23%, Issuer Services 21% and Clearing
Services 2%. Income from continuing operations from
APAC was $295 million in 2010 compared with
$222 million in 2009 and $247 million in 2008.

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 2010 compared with 2009,
and 2009 compared with 2008, was negatively
impacted by the strength of the U.S. dollar versus the
Euro and British pound. For additional information
regarding our International operations, see Note 28 of
the Notes to Consolidated Financial Statements.

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.

BNY Mellon

Results of Operations (continued)

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 (a)

(in millions)

2010:

France*
Germany*
Netherlands*
Australia *
Switzerland *
Belgium*
Japan**
United Kingdom **
Hong Kong **

2009:

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

2008:

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

Banks and
other
financial

Public
institutions (b) sector

Commercial,
industrial
and other

Total
cross-border
outstandings (c)

$6,109
7,007
4,338
2,663
2,839
2,411
2,261
533
1,908

$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

$ 20
15
-
-
-
-
-
-
-

$ 56
75
-
-
377
-
-
1

$
-
140
-
-
-
-

$ 124
312
1,205 (d)
275
30
184
7
1,411
18

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

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

$6,253
7,334
5,543
2,938
2,869
2,595
2,268
1,944
1,926

$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

(a) At Dec. 31, 2010, exposures to Spain and Ireland totaled $1.7 billion and included $481 million in investment securities and $1.1

billion in short-term placements.
(b) Primarily short-term placements.
(c) Excludes assets of consolidated asset management funds.
(d) Primarily European floating rate notes.

Emerging markets exposure

At Dec. 31, 2010, our emerging markets exposures,
totaled approximately $9.1 billion. These exposures
consisted primarily of interest-bearing deposits with
banks and short-term loans, and a $347 million
investment in Wing Hang Bank Limited (“Wing
Hang”), which is located in Hong Kong. This
compares with emerging market exposure of $7.9
billion in 2009, including an investment of
$316 million in Wing Hang.

Critical accounting estimates

Our significant accounting policies are described in
Note 1 of the Notes to Consolidated Financial
Statements under “Summary of Significant

32 BNY Mellon

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. Further information on policies
related to the allowance for loan losses and allowance
for lending-related commitments can be found under
“Summary of significant accounting and reporting
policies” in Note 1 of the Notes to Consolidated
Financial Statements, 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 23 of the Notes to
Consolidated Financial Statements. Further
information on policies related to goodwill and
intangible assets can be found in “Goodwill and

Results of Operations (continued)

intangible assets” in Note 7 of the Notes to
Consolidated Financial Statements. Additional
information on pensions can be found in “Employee
benefit plans” in Note 20 of the Notes to Consolidated
Financial Statements.

Allowance for loan losses and allowance for
lending-related commitments

In 2010, we expanded the description of the elements
of the allowance for loan losses and lending related
commitments from three to four. This change did not
impact the methodology used to calculate the
allowance or provision for credit losses. The four
elements of the allowance for loan losses and
allowance for lending-related commitments consist of:
(1) an allowance for impaired credits (nonaccrual
loans over $1 million); (2) an allowance for higher
risk-rated credits and pass-rated credits; (3) an
allowance for residential mortgage loans (previously
included in element 2); and (4) an unallocated
allowance based on general economic conditions and
risk factors in our individual markets for our current
portfolio. Further discussion of the four elements can
be found in Note 1 of the Notes to Consolidated
Financial Statements.

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.

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. 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. The allowance for
higher risk-rated and pass-rated credits are assigned
probability of default ratings 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 for residential mortgage loans is

determined by segregating six mortgage pools into
delinquency periods ranging from current through
foreclosure with the delinquency periods assigned a
probability of default. A specific loss given default
based on a combination of external loss data from
third party databases and internal loss history is
assigned for each mortgage pool. For each pool, the
expected loss is calculated using the above factors.
The resulting expected loss factor is applied against
the loan balance to determine the reserve held for each
pool. Changes in the estimates of probability of
default, risk ratings, loss given default/recovery rates,
and cash flows could have a direct impact on the
allocated allowance for loan losses.

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

The 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 $75 million, while if each
credit were rated one grade worse, the allowance
would have increased by $111 million. Similarly, if
the loss given default were one rating worse, the
allowance would have increased by $32 million, while
if the loss given default were one rating better, the
allowance would have decreased by $54 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 $2 million, respectively.

A key variable in determining the allowance is
management’s judgment in determining the size of the
unallocated allowance. At Dec. 31, 2010, the
unallocated allowance was $116 million, or 20% of
the total allowance. At Dec. 31, 2010, if the
unallocated allowance, as a percentage of the total
allowance, was 5% higher or lower, the allowance
would have increased by approximately $38 million
or decreased by approximately $34 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.

BNY Mellon

Results of Operations (continued)

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.

The pricing sources discontinue pricing any specific
security whenever they determine there is insufficient
observable data to provide a good faith opinion on
price. The pricing sources did not discontinue pricing
for any securities in our investment securities
portfolio at Dec. 31, 2010.

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

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.

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.

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

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.
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 23 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 – Includes
derivative financial instruments that are actively
traded on exchanges, principally foreign exchange
futures and forward contracts.

Level 2 – Derivative financial instruments – Includes
the majority of our derivative financial instruments
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.

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.

34 BNY Mellon

Results of Operations (continued)

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, we 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 26 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. See
Note 24 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.

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 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 2010, the housing market and broader
economy improved slightly. As a result, we adjusted
our non-agency RMBS estimated default and loss
severity assumptions to decrease estimated defaults
and increased 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 the 2007, 2006 and late-2005
non-agency RMBS and Grantor Trust portfolios at
Dec. 31, 2010 and 2009. If actual delinquencies,
default rates and loss severity assumptions worsen, we
would expect additional impairment losses to be
recorded in future periods.

BNY Mellon

Results of Operations (continued)

Net securities gains in 2010 were $27 million
compared with losses of $5.4 billion in 2009. The
losses in 2009 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 including the securities previously held by
the Grantor Trust, credit-related impairment charges
on these securities would have increased by $3 million
(pre-tax) or decreased by $3 million (pre-tax) at
Dec. 31, 2010.

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.

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
($18.0 billion at Dec. 31, 2010) and indefinite-lived
intangible assets ($2.7 billion at Dec. 31, 2010) are
not amortized but are subject to tests for impairment

36 BNY Mellon

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.

Key judgments in accounting for intangibles include
useful life and classification between goodwill and
indefinite-lived intangibles or other intangibles which
require amortization. At Dec. 31, 2010, we had $23.7
billion of goodwill, indefinite-lived intangibles, and
other intangible assets.

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

Pension accounting

BNY Mellon has defined benefit pension plans
covering approximately 26,600 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 several pension plans overseas. As of Dec.
31, 2010, the U.S. plans accounted for 83% of the
projected benefit obligation. The pension expense for
BNY Mellon plans was $47 million in 2010 compared
to a pension credit of $17 million in 2009 and a
pension credit of $20 million in 2008.

Effective Jan. 1, 2011, the U.S. pension plan was
amended to reduce benefits earned by participants for
service after 2010, and to freeze plan participation
such that no new employees will enter the plan after
Dec. 31, 2010. This change in the pension plan is
expected to reduce pension expense by approximately
$40 million in 2011.

A net pension expense of approximately $87 million
is expected to be recorded by BNY Mellon in 2011,
assuming currency exchange rates at Dec. 31, 2010.
The expected increase in pension expense in 2011 is
primarily driven by the change in plan assumptions
partially offset by the plan changes mentioned above.

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

Results of Operations (continued)

Since 2008, 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/

2011

2010

2009

2008

7.50% 8.00%
5.71

6.21

8.00%
6.38

$3,836 $3,861 $3,651 $3,706
29.48
47.15

33.12

27.97

N/A $

(15) $

32 $

(expense)

N/A

(32)

(15)

(19)

Total net pension credit/

(expense)

N/A $

(47) $

17 $

(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.

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 5.71% as of Dec. 31, 2010.

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.

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 $1.1 billion 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

Increase in
pension expense

(Decrease) in
pension expense

return on plan assets

(100) bp

(50) bp

50 bp

100 bp

Change in pension

expense
Discount rate
Change in pension

expense

Market-related value of

plan assets

Change in pension

expense

ESOP stock price
Change in pension

expense

$ 44

$ 22

$(22)

$ (44)

(50) bp

(25) bp

25 bp

50 bp

$ 33

$ 17

$(16)

$ (31)

(20)%

(10)%

10%

20%

$ 168

$ 84

$(84)

$(164)

$ (10)

$ (5)

$ 5

$ 10

$ 13

$ 6

$ (6)

$ (12)

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.

BNY Mellon

Results of Operations (continued)

Consolidated balance sheet review

At Dec. 31, 2010, total assets were $247.3 billion
compared with $212.2 billion at Dec. 31, 2009.
Deposits totaled $145.3 billion at Dec. 31, 2010, and
$135.1 billion at Dec. 31, 2009. The increase in
consolidated total assets resulted from the addition of
$14.6 billion for the adoption of ASC 810, a higher
level of both interest-bearing and noninterest-bearing
deposits and the impact of the Acquisitions. Total
assets averaged $237.8 billion in 2010, compared with
$212.1 billion in 2009. The increase in average assets
primarily reflects the factors mentioned above. Total
deposits averaged $139.4 billion in 2010 and $134.7
billion in 2009.

At Dec. 31, 2010, we had approximately $55.4 billion
of liquid funds and $22.2 billion of cash (including
approximately $18.5 billion of overnight deposits with
the Federal Reserve and other central banks) for a
total of approximately $77.6 billion of available
funds. This compares with available funds of $70.9
billion at Dec. 31, 2009. Our percentage of liquid
assets to total assets was 31% at Dec. 31, 2010,
compared with 33% at Dec. 31, 2009. Our interest-
bearing deposits with banks are all placed with large
highly rated global financial institutions. The average
life of the interest-bearing deposits is approximately
47 days.

Investment securities were $66.3 billion or 27% of
total assets at Dec. 31, 2010, compared with $56.0
billion or 26% of total assets at Dec. 31, 2009. The
increase primarily reflects a higher level of U.S.
Treasury securities, securities acquired in the
Acquisitions and an increase in the unrealized gain on
the securities portfolio.

Loans were $37.8 billion or 15% of total assets at
Dec. 31, 2010, compared with $36.7 billion or 17% of
total assets at Dec. 31, 2009. The increase in loan
levels was primarily due to higher margin loans.

Total shareholders’ equity applicable to BNY Mellon
was $32.4 billion at Dec. 31, 2010, and $29.0 billion
at Dec. 31, 2009. The increase in total shareholders’
equity primarily reflects retained earnings in 2010, the
improvement in our investment securities portfolio
due to the decline in interest rates and the tightening
of credit spreads, and the issuance of $677 million of
common equity.

BNY Mellon, through its involvement in the
Government Securities Clearing Corporation
(“GSCC”), settles government securities transactions
on a net basis for payment and delivery through the
Fed wire system. As a result, at Dec. 31, 2010, the
assets and liabilities of BNY Mellon were reduced by
$2.5 billion for the netting of repurchase agreements
and reverse repurchase agreement transactions
executed with the same counterparty under
standardized Master Repurchase Agreements. This
netting is performed in accordance with FASB
Interpretation No. 41 (ASC 210-20) “Offsetting of
Amounts Related to Certain Repurchase and Reverse
Repurchase Agreements”.

Investment securities

In the discussion of our investment securities
portfolio, we have included certain credit ratings
information because the information indicates the
degree of credit risk to which we are exposed, and
significant changes in ratings classifications for our
investment portfolio could indicate increased credit
risk for us and could be accompanied by a reduction
in the fair value of our investment securities portfolio.

38 BNY Mellon

Results of Operations (continued)

The following table shows the distribution of our total investment securities portfolio:

Investment securities portfolio Dec. 31,
2009

Dec. 31, 2010

2010
change in
unrealized Amortized
cost

Fair value gain/(loss)

Fair value
as a % of

Ratings

Fair amortized Unrealized AAA/ A+/ BBB+/ BB+ and Not
rated

cost (a) gain/(loss) AA- A- BBB-

lower

value

(dollar amounts in millions)

Watch list: (b)
European floating rate notes (c)
Commercial MBS
Prime RMBS
Alt-A RMBS
Subprime RMBS
Credit cards
Other

Total Watch list (b)

Agency RMBS
Sovereign debt/sovereign

guaranteed

U.S. Treasury securities
Grantor Trust:

Alt-A RMBS (d)
Prime RMBS (d)
Subprime RMBS (d)

Foreign covered bonds
FDIC-insured debt
U.S. Government agency debt
Other

$ 5,503
2,302
1,684
779
470
610
465

11,813
19,016

$ 248
153
167
94
127
21
34

$ 5,067 $ 4,636
2,281
1,373
671
533
517
331

2,225
1,454
690
724
512
308

844
139

10,980
19,780

10,342
20,157

8,753
6,378
4,160
N/A
N/A
N/A
-
2,003
1,260
2,489

41
(35)
467
N/A
N/A
N/A
(16)
6
(27)
(18)

8,536
12,650
-
2,164
1,626
128
2,884
2,428
1,007
3,833

8,585
12,635
-
2,513
1,825
158
2,868
2,474
1,005
3,807

91%

102
93
74
73
99
48

89
102

100
100
-
66
76
71
99
102
100
99

$(431)
56
(81)
(19)
(191)
5
23

94% 6%
92
5
52 14
5
28
65 12
2 97
1
3

-%
3
7
1
7
1
24

-%
-
27
66
16
-
19

-
-

(638)
377

75 11
-
100

49
(15)
-
349
199
30
(16)
46
(2)
(26)

100
100
-
3
2
14
100
100
100
52

-
-
-
4
3
-
-
-
-
5

3
-

-
-
-
3
-
-
-
-
-
4

9
-

-
-
-
90
95
86
-
-
-
1

Total investment securities

$55,872

$1,401

$66,016 $66,369 (e)

96%

$ 353 (e) 87% 2%

(a) Amortized cost before impairments.
(b) The “Watch list” includes those securities we view as having a higher risk of impairment charges.
(c) Includes RMBS, commercial MBS, and other securities.
(d) These RMBS were previously included in the Grantor Trust and were marked to market in 2009. We believe these RMBS would receive

higher credit ratings if these ratings incorporated, as additional credit enhancement, the difference between the written-down
amortized cost and the current face amount of each of these securities.

(e) Includes a $60 million unrealized gain on derivatives hedging securities available for sale.

The fair value of our investment securities portfolio
was $66.4 billion at Dec. 31, 2010, compared with
$55.9 billion at Dec. 31, 2009. The increase in the fair
value of the securities portfolio primarily reflects a
higher level of U.S. Treasury securities, securities
acquired in the Acquisitions and an increase in the
unrealized gain of the securities portfolio.

At Dec. 31, 2010, the total investment securities
portfolio had an unrealized pre-tax gain of
$353 million compared with an unrealized pre-tax loss
of $1.0 billion at Dec. 31, 2009. The unrealized net of
tax gain on our investment securities
available-for-sale portfolio included in other
comprehensive income was $151 million at Dec. 31,
2010, compared with a loss of $619 million at Dec.
31, 2009. The improvement in the valuation of the
investment securities portfolio was due to the decline
in interest rates and the tightening of credit spreads.

In 2009, we established a Grantor Trust in connection
with the restructuring of our investment securities

portfolio. The Grantor Trust is in the process of being
dissolved. The securities previously held in the
Grantor Trust are included in our securities portfolio.
The investment securities previously included in the
Grantor Trust were marked down to approximately
60% of face value in 2009. At Dec. 31, 2010, these
securities were trading above adjusted amortized cost
with a total unrealized pre-tax gain of $578 million.

At Dec. 31, 2010, 87% of the securities in our
portfolio were rated AAA/AA-, compared with 86%
at Dec. 31, 2009.

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

At Dec. 31, 2010, we had $1.7 billion of accretable
discount related to the restructuring of the investment
securities portfolio. The discount related to these
transactions had a remaining average life of

BNY Mellon

The following table shows the fair value of the
European floating rate notes by geographical location
at Dec. 31, 2010. The unrealized loss on these
securities was $431 million at Dec. 31, 2010, an
improvement of $248 million from an unrealized loss
of $679 million at Dec. 31, 2009.

European floating rate notes at Dec. 31, 2010 (a)
United

(in millions)

Kingdom Netherlands

Other

Total
fair
value

RMBS
Other

Total

$2,178
274

$2,452

$1,061
81

$1,142

$ 752
290

$3,991
645

$1,042

$4,636

(a) 94% of these securities are in the AAA to AA- ratings

category.

Included in our investment 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)

State and political subdivisions
Mortgage-backed securities

Total fair value

Amortized cost less securities losses
Mark-to-market unrealized (loss)

(pre-tax)

Dec. 31, Dec. 31,
2009

2010

$539
109

$648 (a)

$685

$610
137

$747

$761

$ (37)

$ (14)

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

$741 million.

At Dec. 31, 2010, securities guaranteed by monoline
insurers were rated 46% AAA to AA-, 15% A+ to A-,
15% BBB+ to BBB- and 24% BB+ and lower. The
decrease in the fair value of these securities from Dec.
31, 2009, reflects maturities, calls and paydowns. In
all cases, when purchasing the securities, we reviewed
the credit quality of the underlying securities, as well
as the insurer.

See Note 23 of the Notes to Consolidated Financial
Statements for the detail of securities by level in the
fair value hierarchy.

Results of Operations (continued)

approximately 4.1 years. The accretion of discount
related to these securities increases net interest
revenue and is recorded on a level yield basis. The
discount accretion totaled $458 million in 2010 and
$91 million in 2009.

Also, at Dec. 31, 2010, we had $779 million of net
amortizable purchase premium relating to investment
securities with a remaining average life of
approximately 3.3 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 $242 million in
2010 and $68 million in 2009.

Net securities gains in 2010 were $27 million. The
following table provides pre-tax securities gains
(losses) by type.

Net securities gains (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 securities gains

(losses)

2010

$(13)
-
(4)
(3)
-
-
-
-
-
47

2009

2008

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

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

$ 27

$(5,369)

$(1,628)

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

At Dec. 31, 2010, the investment securities portfolio
includes $57 million of assets not accruing interest
primarily related to securities issued by Lehman or its
affiliates. These securities are held at market value.

40 BNY Mellon

Results of Operations (continued)

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, 2010.

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 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

$ 1,194 0.91%
8,677 1.27
2,738 2.80
-
-
-
-
-
-
-
-

$ 465 2.99%
540 1.30
-
-
-
-
-

-
-
-
-
-

$ 5
50
8
445
-
-
-

9.05% $ 7,784 1.84% $
2.21
7.74
4.48
-
-
-

5,661 2.16
1,050 3.09
264 1.31
-
-
-

-% $ 9,448
-
14,928
-
-
3,796
-
-
709
-
-
30,398
30,398 5.47
788
788 1.52
2,585
2,585 0.40

-
-
-

Total

$12,609 1.57%

$1,005 2.08%

$508

4.35% $14,759 2.05% $33,771 4.99% $62,652

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

-
-
-
-
-
-

-%
-
-
-
-
-

-
-
-
-
-
-

-%
-
-
-
-
-

-
2
20
97
-
-

-% $

6.88
6.67
6.60
-
-

$119

6.61% $

-
-
-
-
-
-

-% $
-
-
-
-
-

-% $
-
-
-
-
-
-
-
3,532 1.93
4 1.68

-
2
20
97
3,532
4

-% $ 3,536 1.93% $ 3,655

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

We also have equity investments categorized as other
assets (parenthetical amounts indicate carrying values
at Dec. 31, 2010). Included in other assets are joint
ventures and other equity investments ($1.6 billion),
seed capital ($185 million), Federal Reserve Bank
stock ($400 million), private equity investments
($143 million), and tax advantaged low-income
housing investments ($466 million). For additional
information on the fair value of our private equity
investments and seed capital, see Note 23 of the Notes
to Consolidated Financial Statements.

Our equity investment in Wing Hang had a fair value
of $827 million (book value of $347 million) based on
its share price at Dec. 31, 2010. 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 $6 million,
$2 million and $26 million in 2010, 2009 and 2008,
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
$143 million at Dec. 31, 2010, down $44 million from
$187 million at Dec. 31, 2009. At Dec. 31, 2010,
private equity investments consisted of investments in
private equity funds of $137 million, direct equity of
less than $1 million, and leveraged bond funds of
$6 million. Investment income was $29 million in
2010.
At Dec. 31, 2010, we had $35 million of unfunded
investment commitments to private equity funds. If
unused, the commitments expire between 2011 and
2015.
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.

BNY Mellon

Results of Operations (continued)

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, 2010
Unfunded
commitments

Total
exposure

Loans

Dec. 31, 2009
Unfunded
commitments

Total
exposure

$15.8
18.8

$25.1
20.4

$ 8.7
3.0

$18.5
22.5

$27.2
25.5

34.6
1.8
1.6
0.1
-
-
-

38.1
-

45.5
8.3
3.2
3.2
2.1
6.0
0.8

69.1
6.8

11.7
6.2
2.0
3.5
2.2
6.0
0.4

32.0
4.7

41.0
1.8
1.7
0.1
-
-
-

44.6
-

52.7
8.0
3.7
3.6
2.2
6.0
0.4

76.6
4.7

Loans

$ 9.3
1.6

10.9
6.5
1.6
3.1
2.1
6.0
0.8

31.0
6.8

$37.8

$38.1

$75.9

$36.7

$44.6

$81.3

At Dec. 31, 2010, total exposures were $75.9 billion, a
decrease of 7% from $81.3 billion at Dec. 31, 2009,
reflecting a decrease in institutional, commercial real
estate and lease financing exposures, partially offset
by an increase in margin loans.

We tightly monitor risk within our loan portfolio and
continue to reduce risk by:

Š Focusing on investment grade names to support

cross selling.

Financial institutions

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 60% of our total lending
exposure.

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

Financial institutions
portfolio exposure
(dollar amounts in billions)

Dec. 31, 2010

Loans

Unfunded
commitments

Total % Inv % due
<1 yr
grade

exposure

Loans

Securities industry
Banks
Insurance
Asset managers
Government
Other

Total

$3.9
4.2
0.1
0.8
0.2
0.1

$9.3

$ 2.3
2.2
5.0
2.4
2.1
1.8

$15.8

$ 6.2
6.4
5.1
3.2
2.3
1.9

$25.1

90%
80
98
99
92
95

91%

95%
93
30
85
51
54

73%

$3.3
3.3
0.4
1.0
0.1
0.6

$8.7

Dec. 31, 2009
Unfunded
commitments

Total
exposure

$ 2.1
2.9
6.0
2.8
2.9
1.8

$18.5

$ 5.4
6.2
6.4
3.8
3.0
2.4

$27.2

The financial institutions portfolio exposure was
$25.1 billion at Dec. 31, 2010, compared to
$27.2 billion at Dec. 31, 2009. The change from
Dec. 31, 2009, primarily reflects decreases in
insurance, government and asset manager exposure,
partially offset by increased exposure to broker-
dealers. Financial institution exposures are high
quality with 91% meeting the investment grade

equivalent criteria of our rating system at Dec. 31,
2010. These exposures are generally short-term, with
73% 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.

42 BNY Mellon

Results of Operations (continued)

As a conservative measure, our internal credit rating
classification for international counterparties caps
the rating based upon the sovereign rating of the
country where the counterparty resides regardless of
the credit rating of the counterparty or the underlying
collateral.

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 99% meeting our investment grade
equivalent ratings criteria at Dec. 31, 2010. These
exposures are generally short-term liquidity facilities
with the vast majority to regulated mutual funds.

Commercial

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

Commercial portfolio exposure

Dec. 31, 2010

(dollar amounts in billions)

Loans

Unfunded
commitments

Total % Inv % due
<1 yr
grade

exposure

Loans

Services and other
Manufacturing
Energy and utilities
Media and telecom

Total

$0.7
0.4
0.3
0.2

$1.6

$ 5.9
5.9
5.4
1.6

$18.8

$ 6.6
6.3
5.7
1.8

$20.4

87%
89
97
73

89%

37%
20
15
26

25%

$1.0
0.9
0.6
0.5

$3.0

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

The commercial portfolio exposure decreased 20% to
$20.4 billion at Dec. 31, 2010, from $25.5 billion at
Dec. 31, 2009, reflecting our strategy to reduce
targeted risk exposure. Our goal is to migrate toward a
predominantly investment grade portfolio.

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

Percent of the portfolios
that are investment grade

Financial institutions
Commercial

Dec. 31 Dec. 31, Dec. 31,
2008

2010

2009

91%
89%

85%
80%

90%
80%

Our credit strategy is to focus on investment grade
names to support cross-selling opportunities, avoid
single name/industry concentrations and exit high-risk
portfolios. Each customer is assigned an internal
rating grade, which is mapped to an external rating
agency grade equivalent based upon a number of
dimensions which are continually evaluated and may
change over time. The execution of our strategy, as
well as an adjustment in the credit ratings of our
existing portfolio, has resulted in a higher percentage
of the portfolio that is investment grade at Dec. 31,
2010, compared with Dec. 31 2009.

Wealth management loans and mortgages

Wealth Management loans and mortgages are
primarily composed of loans to high-net-worth
individuals, which are secured by marketable
securities and/or residential property. Wealth
management mortgages are primarily interest-only
adjustable rate mortgages with an average loan to
value ratio of 61% at origination. In the wealth
management portfolio, 1% of the mortgages were past
due at Dec. 31, 2010.

At Dec. 31, 2010, the private wealth mortgage
portfolio was comprised of the following geographic
concentrations: New York – 25%; Massachusetts –
17%; California – 17%; Florida – 8%; and other –
33%.

Commercial real estate

Our commercial real estate facilities are focused on
experienced owners and are structured with moderate
leverage based on existing cash flows. Our
commercial real estate lending activities 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 knowledge of
local market conditions. Development loans are

BNY Mellon

Results of Operations (continued)

structured with moderate leverage, and in most
instances, involve some level of recourse to the
developer. Our commercial real estate exposure
totaled $3.2 billion at Dec. 31, 2010 compared with
$3.7 billion at Dec. 31, 2009.

At Dec. 31, 2010, approximately 70% of our
commercial real estate portfolio is secured. The
secured portfolio is diverse by project type with
approximately 58% secured by residential buildings,
21% secured by office buildings, 8% secured by retail
properties, and 13% secured by other categories.
Approximately 96% of the unsecured portfolio is
allocated to investment grade real estate investment
trusts (“REITs”) under revolving credit agreements.

At Dec. 31, 2010, our commercial real estate portfolio
is comprised of the following geographic
concentrations: New York metro – 49%; investment
grade REITs – 29%; and other – 22%.

Lease financings

The lease financing portfolio consisted of non-airline
exposures of $3.0 billion and $210 million of airline
exposures at Dec. 31, 2010. Approximately 90% of
the lease financing exposure is investment grade, or
investment grade equivalent.

At Dec. 31, 2010, the non-airline portion of the lease
financing portfolio consisted of $3.0 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 lease
financing, counterparty rating equivalents at Dec. 31,
2010, were as follows:

Š 9% of the counterparties are AA or better;
Š 38% are A;
Š 48% are BBB; and
Š 5% are non-investment grade

At Dec. 31, 2010, our $210 million of exposure to the
airline industry consisted of $12 million of real estate
lease exposure, as well as the airline lease financing
portfolio which included $72 million to major U.S.
carriers, $114 million to foreign airlines and
$12 million to U.S. regional airlines.

In 2010, the U.S domestic airline industry has shown
significant improvement in revenues and yields.
Despite this improvement, these carriers continue to

44 BNY Mellon

have extremely high debt levels. Combined with their
high fixed-cost operating models, the domestic
airlines remain vulnerable. As such, we continue to
maintain a sizable allowance for loan losses against
these exposures and continue to closely monitor the
portfolio.

We utilize the lease financing portfolio as part of our
tax management strategy.

Other residential mortgages

The other residential mortgage portfolio primarily
consists of 1-4 family residential mortgage loans and
totaled $2.1 billion at Dec. 31, 2010. Included in this
portfolio is approximately $745 million 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,
2010, the remaining prime and Alt-A mortgage loans
in this portfolio had a weighted-average loan-to-value
ratio of 75% at origination and approximately 30% 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, Maryland and the
tri-state area (New York, New Jersey and
Connecticut).

To determine the projected loss on the prime and
Alt-A mortgage portfolio, we calculate the total
estimated defaults of these mortgages and multiply
that amount by an estimate of realizable value upon
sale in the marketplace (severity).

At Dec. 31, 2010, we had less than $15 million in
subprime mortgages included in the other 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.

Other loans

Other loans primarily includes loans to consumers that
are fully collateralized with equities, mutual funds and
fixed income securities, as well as bankers
acceptances.

Results of Operations (continued)

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.

Loans by product - at year end

(in millions)

Domestic:

Financial institutions
Commercial
Wealth Management loans and mortgages
Commercial real estate
Lease financing (b)
Other residential mortgages
Overdrafts
Other
Margin loans

Total domestic

Foreign:

Financial institutions
Commercial
Lease financings (b)
Government and official institutions
Other (primarily overdrafts)

Total foreign

Total loans

2010

2009

2008

2007

2006 (a)

$ 4,630
1,250
6,506
1,592
1,605
2,079
4,524
771
6,810

$ 5,509
2,324
6,162
2,044
1,703
2,179
3,946
407
4,657

$ 5,546
5,786
5,333
3,081
1,809
2,505
4,835
485
3,977

$ 8,934
5,099
4,521
3,019
1,980
3,115
4,037
363
5,210

$ 9,694
3,390
1,355
1,371
2,228
2,927
1,728
52
5,167

29,767

28,931

33,357

36,278

27,912

4,626
345
1,545
-
1,525

8,041

3,147
634
1,816
52
2,109

7,758

3,755
573
2,154
1,434
2,121

4,892
852
2,935
312
5,662

10,037

14,653

3,184
1,033
3,298
9
2,357

9,881

$37,808

$36,689

$43,394

$50,931

$37,793

(a) Results for 2006 include legacy The Bank of New York Company, Inc. only.
(b) Includes unearned income on domestic and foreign lease financings of $2,036 million at Dec. 31, 2010, $2,282 million at Dec. 31,

2009, $2,836 million at Dec. 31, 2008, $4,050 million at Dec. 31, 2007 and $3,336 million at Dec. 31, 2006.

Maturity of loan portfolio

International loans

The following table shows the maturity structure of
our loan portfolio at Dec. 31, 2010.

Maturity of loan portfolio at Dec. 31, 2010 (a)

(in millions)

Domestic:
Financial institutions
Commercial
Commercial real

estate
Overdrafts
Other
Margin loans

Subtotal

Foreign

Within
1 year

Between
1 and 5

After
years 5 years

Total

$ 4,285
149

$ 345
1,094

-
7

$ 4,630
1,250

647
4,524
537
6,810

16,952
6,242

362
-
-
-

1,801
254

583
-
234
-

824
-

1,592
4,524
771
6,810

19,577
6,496

Total

$23,194

$2,055 (b) $824 (b)$26,073

(a) Excludes loans collateralized by residential properties, lease
financings and wealth management loans and mortgages.
(b) Variable rate loans due after one year totaled $2.8 billion

and fixed rate loans totaled $125 million.

We have credit relationships in the international
markets, particularly in areas associated with our
securities servicing and trade finance activities.
Excluding lease financings, these activities resulted in
outstanding international loans of $6.5 billion and
$5.9 billion as of Dec. 31, 2010 and 2009,
respectively. This increase primarily resulted from an
increase in loans to financial institutions.

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.

BNY Mellon

Results of Operations (continued)

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

Allowance for credit losses activity

(dollar amounts in millions)
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
Financial institutions
Lease financing
Wealth management loans and mortgages
Other residential mortgage
Foreign
Other

Total charge-offs

Recoveries:

Commercial
Commercial real estate
Financial institutions
Lease financing
Wealth management loans and mortgages
Other residential mortgage
Foreign
Other

Total recoveries
Net charge-offs

Provision for credit losses
Transferred to discontinued operations
Acquisitions/dispositions and other
Balance, Dec. 31,
Domestic
Foreign
Unallocated

2010
$ 6,810
30,998
37,808
36,305

555
47
26
628

(5)
(8)
(25)
-
(4)
(46)
-
-
(88)

15
1
2
-
-
2
-
-
20
(68)
11
-
-

2009
$ 4,657
32,032
36,689
36,424

2008
$ 3,977
39,417
43,394
48,132

2007 (a)

2006 (a)

$ 5,210
45,721
50,931
41,515

$ 5,167

32,626

37,793
33,612

448
19
62
529

(90)
(31)
(34)
-
(1)
(60)
-
-
(216)

-
-
-
1
1
-
-
-
2
(214)
332
(19)
-

341
37
116
494

(21)
(15)
(9)
-
(1)
(20)
(17)
-
(83)

2
-
-
3
1
-
4
-
10
(73)
104
27
(23)

312
23
102
437

(22)
-
-
(36)
-
-
(19)
(1)
(78)

1
-
-
13
-
-
1
-
15
(63)
(11)
1
130

343
31
96
470

(27)

(2)

(29)

7
2
16
(13)
(20)

408
47
116
571
498
73
0.19%
11.91
1.32
1.61
1.51
1.84

555
47
26
628
503
125
0.59%
34.08
1.37
1.57
1.71
1.96

448
19
62
529
415
114
0.15%
13.80
0.96
1.05
1.22
1.34

341
37
116
494
327
167
0.15%
12.75
0.64
0.72
0.97
1.08

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
(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 reflect legacy The Bank of New York Company, Inc.

(b) The allowance for credit losses at Dec. 31, 2010, and 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.

46 BNY Mellon

312
23
102
437
287
150
0.04%
2.97
0.76
0.88
1.16
1.34

Results of Operations (continued)

Net charge-offs were $68 million in 2010,
$214 million in 2009 and $73 million in 2008.
Charge-offs in 2010 included $46 million of other
residential mortgages primarily located in California,
New York and Florida, $17 million related to a
mortgage company, partially offset by $10 million of
net recoveries from the media portfolio. 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.

The provision for credit losses was $11 million in
2010 compared with $332 million in 2009 and
$104 million in 2008. The decrease in the provision
for credit losses in 2010 compared with 2009
primarily reflects broad improvement in the quality of
the credit portfolio driven by a 66% decrease in
criticized assets compared with Dec. 31, 2009,
primarily in the insurance, automotive and media
portfolios. Criticized assets include impaired credits
and higher risk-rated credits. Also impacting the
provision for credit losses were decreases in
nonperforming loans, particularly in the insurance
portfolio.

The total allowance for credit losses was $571 million
at Dec. 31, 2010, and $628 million Dec. 31, 2009. The
decrease in the allowance for credit losses reflects a
lower provision in 2010 resulting from a 66% decline
in criticized assets.

The ratio of the total allowance for credit losses to

year-end non-margin loans was 1.84% at Dec. 31,

2010, and 1.96% at Dec. 31, 2009. The decrease

reflects the decline in criticized assets in 2010. The

ratio of the allowance for loan losses to year-end

non-margin loans remained stable at 1.61% at Dec.

31, 2010, compared with 1.57% at Dec. 31, 2009.

We had $6.8 billion of secured margin loans on our
balance sheet at Dec. 31, 2010, compared with
$4.7 billion at Dec. 31, 2009. 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.

Based on an evaluation of the four elements of the
allowance for credit losses, as discussed in Note 1 of
Notes to Consolidated Financial Statements, as well as
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

2010 (a) 2009 (a) 2008 (a) 2007 (a) 2006 (b)

13%

Commercial
Other residential mortgages 33
12
Lease financing
2
Financial institutions
6
Wealth management (c)
6
Commercial real estate
8
Foreign
20
Unallocated

24%
25
12
12
9
7
7
4

30%
15
15
9
5
10
4
12

33%
5
15
6
3
7
8
23

31%

Total

100% 100% 100% 100% 100%

(a) Excludes discontinued operations in 2010 and 2009. The

allowance for credit losses includes discontinued operations
in 2008 and 2007.

(b) Reflects legacy The Bank of New York Company, Inc. only.
(c) Includes the allowance for wealth management mortgages.

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 20%
at Dec. 31, 2010, an increase from 4% at Dec. 31,
2009. We believe the unallocated allowance, at
Dec. 31, 2010, is appropriate given the uncertainty of
the economy’s direction and the potential for
continued credit quality and valuation pressures in the
residential mortgage and commercial real estate
portfolios.

BNY Mellon

Results of Operations (continued)

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
(dollars in millions)

Loans:

Other residential mortgages
Wealth management
Commercial real estate
Commercial
Foreign
Financial institutions

Total nonperforming loans

Other assets owned

2010

2009

2008

2007

2006 (a)

$ 244
59
44
34
7
5

393
6

$ 190
58
61
65
-
172

546
4

97
2
130
14
-
41

284
8

20
-
40
15
87
24

186
4

2
-
-
26
9
-

37
1

Total nonperforming assets (b)

$ 399 (c) $ 550

$ 292

$ 190

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

1.1%

1.5%

0.7%

0.4%

0.1%

126.7
124.8
145.3
143.1

92.1
91.5
115.0
114.2

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

(a) Reflects legacy The Bank of New York Company, Inc. only.
(b) Nonperforming assets at Dec. 31, 2010, and Dec. 31, 2009, exclude discontinued operations. Nonperforming assets at Dec. 31, 2008,

and 2007 include discontinued operations of $96 million and $18 million, respectively.

(c) The adoption of ASC 810 resulted in BNY Mellon consolidating loans of consolidated asset management funds of $13.8 billion at

Dec. 31, 2010 into trading assets. These loans are not part of BNY Mellon’s loan portfolio. Included in these loans are $218 million of
nonperforming loans. These loans are recorded at fair value and therefore do not impact the provision for credit losses and allowance
for loan losses, and accordingly are excluded from the nonperforming assets table above.

Nonperforming assets were $399 million at Dec. 31,
2010, a decrease of $151 million compared with
Dec. 31, 2009. The decrease primarily resulted from
repayments of $136 million in the insurance portfolio,
$24 million in the commercial real estate portfolio,
$11 million in the commercial loan portfolio, charge-
offs of $86 million in the financial institutions,
commercial real estate, commercial, wealth
management, and other residential mortgage
portfolios, and sales of $25 million from the other
residential mortgage portfolio and $21 from the
commercial loan portfolio. Also in 2010, $10 million
in the commercial portfolio and $19 million in other
residential mortgages returned to accrual status.
Additions in 2010 included $145 million in the other
residential mortgages portfolio, $17 million in the
commercial loans portfolio, $14 million in
commercial real estate portfolio, $12 million in the
wealth management loan portfolio and $7 million in
the financial institutions loan portfolio.

48 BNY Mellon

Nonperforming assets activity
(in millions)

Balance at beginning of year

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

Balance at end of year

2010

$ 550
202
(32)
(86)
(236)
-
1

$ 399

2009

$ 292
611
(12)
(151)
(71)
(96)
(23)

$ 550

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

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

2010

2009

2008

2007

2006 (a)

Domestic:

Consumer
Commercial

Total domestic
Foreign

$21
12

33
-

$ 93
338

431
-

$ 27
315

342
-

$
-
343

343
-

$ 9
7

16
-

Total past due loans $33

$431

$342

$343

$16

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

Results of Operations (continued)

Past due loans at Dec. 31, 2010 were primarily
comprised of $21 million of other residential
mortgages and $12 million of commercial real estate
loans. The $398 million decrease in past due loans
compared with 2009 primarily resulted from the
repayment of a loan to an asset manager that had
previously filed for bankruptcy. For additional
information, see Note 6 of the Notes to Consolidated
Financial Statements.

Deposits

Total deposits were $145.3 billion at Dec. 31, 2010,
an increase of 8% compared with $135.1 billion at
Dec. 31, 2009. The increase in deposits reflects higher
domestic deposits.

Noninterest-bearing deposits were $38.7 billion at
Dec. 31, 2010, compared with $33.5 billion at
Dec. 31, 2009. Interest-bearing deposits were
$106.6 billion at Dec. 31, 2010, compared with
$101.6 billion at Dec. 31, 2009.

The aggregate amount of deposits by foreign
customers in domestic offices was $9.7 billion and
$11.0 billion at Dec. 31, 2010 and 2009, respectively.

Deposits in foreign offices totaled approximately
$73 billion at Dec. 31, 2010, and approximately
$71 billion at Dec. 31, 2009. 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, 2010.

Domestic time deposits > $100,000 at Dec. 31, 2010
Other
Time
deposits

Certificates
of deposits

(in millions)

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

Total

$264
17
34
53

$368

Short-term borrowings

$28,864
-
-
-

Total

$29,128
17
34
53

$28,864

$29,232

We fund ourselves primarily through deposits and
other borrowings, which are comprised of federal
funds purchased and securities sold under repurchase
agreements, trading liabilities, payables to customers

and broker-dealers, commercial paper, other borrowed
funds and long-term debt. Certain other borrowings,
for example, securities sold under repurchase
agreements, require the delivery of securities as
collateral.

See “Liquidity and dividends” below for a discussion
of long-term debt and liquidity metrics that we
monitor and The Bank of New York Mellon
Corporation parent company’s (the “Parent”) limited
reliance on short-term borrowings.

Information related to federal funds purchased and
securities sold under repurchase agreements is
presented below.

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

2010

2009

2008

Maximum daily balance during

the year

Average daily balance
Weighted-average rate during

the year

Ending balance at Dec. 31
Average rate at Dec. 31

$16,006
$ 5,356

$9,076
$2,695

$15,530
$ 4,624

0.80%

1.00%

$ 5,602

$3,348

$ 1,372

2.12%

0.01%

0.14%

Federal funds purchased and securities sold under
repurchase agreements

(dollar amounts in millions)

Maximum daily balance during

the quarter

Average daily balance
Weighted average rate during

the quarter
Ending balance
Average rate at period end

Quarter ended

Dec. 31,
2010

Sept. 30, Dec. 31,
2009

2010

$12,080
$ 7,256

$16,006
$ 5,984

$4,955
$3,361

2.13%

0.09%

0.14%

$ 5,602

$ 3,301

$3,348

2.12%

0.12%

0.01%

Federal funds purchased and securities sold under
repurchase agreements were $5.6 billion at Dec. 31,
2010, compared with $3.3 billion at Dec. 31, 2009,
and Sept. 30, 2010. The increase compared to both
prior periods primarily relates to the consolidation of
repurchase agreement activity performed on behalf of
clients at our asset management subsidiary in Brazil at
Dec. 31, 2010. The increase in interest rates compared
with prior periods primarily relates to higher interest
rates in Brazil.

BNY Mellon

Commercial paper

Quarter ended

(dollar amounts in millions)

Maximum daily balance during

Average daily balance
Weighted average rate during

the quarter
Ending balance
Average rate at period end

Dec. 31,
2010

Sept. 30, Dec. 31,
2009

2010

$ 53
$ 13

$ 128
$ 32

$ 201
$ 154

0.03%
$ 10
0.05%

0.07%
$
9
0.05%

0.01%
$ 12
0.02%

Commercial paper outstanding was $10 million at
Dec. 31, 2010, compared with $12 million at Dec. 31,
2009, and $9 million at Sept. 30, 2010.

Information related to other borrowed funds is
presented below.

Other borrowed funds
(dollar amounts in millions)

Maximum daily balance during

the year

Average daily balance
Average rate during the year
Balance at Dec. 31
Average rate at Dec. 31

2010

2009

2008

$5,359
$2,045

$4,789
$1,375

$4,056
$2,400

2.14%

2.28%

3.25%

$2,858

$ 477

$ 755

1.77%

2.79%

1.65%

Other borrowed funds

Quarter ended

(dollar amounts in millions)

Maximum daily balance during

the quarter

Average daily balance
Weighted average rate during

the quarter
Ending balance
Average rate at period end

Dec. 31,
2010

Sept. 30, Dec. 31,
2009

2010

$5,359
$1,986

$2,611
$2,036

$3,009
$ 856

1.66%

1.67%

1.97%

$2,858

$2,220

$ 477

1.77%

1.31%

2.79%

Other borrowed funds primarily include: term federal
funds purchased under agreement to resell;
borrowings under lines of credit by our Pershing
subsidiaries; and overdrafts of subcustodian account
balances in our securities servicing businesses.
Overdrafts in these accounts typically relate to timing
differences for settlements of these business activities.
Other borrowed funds were $2.9 billion at Dec. 31,
2010, compared with $477 million at Dec. 31, 2009,
and $2.2 billion at Sept. 30, 2010.

Results of Operations (continued)

Information related to payables to customers and
broker-dealers is presented below.

Payables to customers and broker-dealers
(dollar amounts in millions)

2010

2009

2008

the quarter

Maximum daily balance during

the year

Average daily balance (a)
Weighted-average rate during

the year

Ending balance at Dec. 31
Average rate at Dec. 31

$11,039
$ 6,439

$10,721
$ 5,262

$12,433
$ 5,495

0.09%

0.12%

1.25%

$ 9,962

$10,721

$ 9,274

0.12%

0.07%

0.35%

(a) Excludes average noninterest-bearing payables to customers
and broker-dealers of $4.8 billion in 2010, $4.4 billion in
2009 and $2.8 billion in 2008.

Payables to customers and broker-dealers

(dollar amounts in millions)

Maximum daily balance during

the quarter

Average daily balance (a)
Weighted average rate during

the quarter
Ending balance
Average rate at period end

Quarter ended

Dec. 31,
2010

Sept. 30, Dec. 31,
2009

2010

$10,565
$ 5,878

$10,895
$ 6,910

$10,721
$ 6,476

0.11%

0.08%

0.07%

$ 9,962

$10,895

$10,721

0.12%

0.08%

0.07%

(a) Excludes average noninterest-bearing payables to customers
and broker-dealers of $4.8 billion in the fourth quarter
of 2010, $4.8 billion in the third quarter of 2010 and
$4.9 billion in the fourth quarter of 2009.

Payables to customers and broker-dealers represent
funds held payable on demand and short sale
proceeds. Payables to customers and broker-dealers
were $10.0 billion at Dec. 31, 2010, $10.7 billion at
Dec. 31, 2009, and $10.9 billion at Sept. 30, 2010.
Payables to customers and broker-dealers are driven
by customer trading activity and their expectations of
market asset levels.

Information related to commercial paper is presented
below.

Commercial paper
(dollar amounts in millions)

Maximum daily balance during

the year

Average daily balance
Weighted-average rate during

the year

Ending balance at Dec. 31
Average rate at Dec. 31

2010

2009

2008

$ 128
$ 18

$ 537
$ 196

$4,215
$ 274

0.05% 0.01%
$ 10
0.05% 0.02%

$ 12

2.95%

$ 138

0.05%

50 BNY Mellon

Results of Operations (continued)

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 efficiently,
especially during periods of market stress. Liquidity
risk is the risk that BNY Mellon cannot meet its cash
and collateral obligations at a reasonable cost for both
expected and unexpected cash flow, without adversely
affecting daily operations or financial conditions.
Liquidity risk can arise from cash flow mismatches,
market constraints from inability to convert assets to
cash, inability to raise cash in the markets or deposit
run-off.

Our overall approach to liquidity management is to
ensure that sources of liquidity are sufficient in
amount and diversity such that changes in funding
requirements at the Parent and at the various bank
subsidiaries can be accommodated routinely without
material adverse impact on earnings, daily operations
or our financial condition.

BNY Mellon seeks to maintain an adequate liquidity
cushion in both normal and stressed environments and
seeks to diversify funding sources by line of business,
customer and market segment. Additionally, we seek
to maintain liquidity ratios within approved limits and
liquidity risk tolerance; maintain a liquid asset buffer
that can be liquidated, financed and/or pledged as
necessary; and control the levels and sources of
wholesale funds.

Potential 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.

When monitoring liquidity, we evaluate multiple
metrics to ensure ample liquidity for expected and
unexpected events. Metrics include cashflow
mismatches, asset maturities, access to debt and
money markets, debt spreads, peer ratios,
unencumbered collateral, funding sources and balance
sheet liquidity ratios. We have begun to monitor the
Basel III liquidity coverage ratio as applied to us,
based on our current interpretation of Basel III. Ratios
we currently monitor as part of our standard analysis
include total loans as a percentage of total deposits,
deposits as a percentage of total assets, foreign
deposits as a percentage of total assets, purchased
funds as a percentage of total assets, liquid assets as a
percentage of total assets and liquid assets as a
percentage of purchased funds. All of these ratios

exceeded our minimum guidelines at Dec. 31, 2010.
We also perform stress tests to verify sufficient
funding capacity is accessible after conducting
multiple economic scenarios.

At Dec. 31, 2010, we had approximately $55.4 billion
of liquid funds and $22.2 billion of cash (including
approximately $18.5 billion in overnight deposits with
the Federal Reserve and other central banks) for a
total of approximately $77.6 billion of available
funds. This compares with available funds of
$70.9 billion at Dec. 31, 2009. Our percentage of
liquid assets to total assets was 31% at Dec. 31, 2010,
compared with 33% at Dec. 31, 2009. The decrease
from Dec. 31, 2009, primarily resulted from the
adoption of ASC 810 (SFAS No. 167), which
increased the consolidated total assets on our balance
sheet by $14.6 billion at Dec. 31, 2010.

On an average basis for 2010 and 2009, non-core
sources of funds such as money market rate accounts,
certificates of deposit greater than $100,000, federal
funds purchased, trading liabilities and other
borrowings were $34.9 billion and $25.1 billion,
respectively. The increase primarily reflects higher
levels of money market rate accounts and federal
funds purchased. Average foreign deposits, primarily
from our European-based securities servicing
business, were $71.4 billion in 2010 compared with
$72.6 billion in 2009. Domestic savings and other
time deposits averaged $7.0 billion in 2010 compared
with $6.1 billion in 2009.

Average payables to customers and broker-dealers
were $6.4 billion in 2010 and $5.3 billion in 2009.
Long-term debt averaged $16.7 billion in 2010 and
$16.9 billion in 2009. Average noninterest-bearing
deposits decreased to $35.2 billion in 2010 from
$36.4 billion in 2009. A significant reduction in our
securities servicing businesses would reduce our
access to deposits.

The Parent has five major sources of liquidity:

Š cash on hand;
Š dividends from its subsidiaries;
Š access to the commercial paper market;
Š a revolving credit agreement with third party

financial institutions; and

Š access to the long-term debt and equity markets.

As a result of charges recorded in 2009 related to the
restructuring of the investment securities portfolio,
The Bank of New York Mellon and BNY Mellon,
N.A. are required to obtain consent from our

BNY Mellon

Results of Operations (continued)

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 dividends at the current
level of $0.09 per share, as well as any increase to the
dividend approved as part of our capital plan which
was submitted to the Federal Reserve in 2011. In
addition, at Dec. 31, 2010, non-bank subsidiaries of
the Parent had liquid assets of approximately
$1.2 billion.

program will have a maturity not exceeding 397 days
from the date of issuance. There was no commercial
paper outstanding under this program at Dec. 31,
2010.

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, 2010, was 6 basis points. The
credit agreement requires us to maintain:

Any increase in BNY Mellon’s ongoing quarterly
dividends would require consultation with the Federal
Reserve. The Federal Reserve’s current guidance
provides that, for large bank holding companies like
us, dividend payout ratios exceeding 30% of after-tax
net income will receive particularly close scrutiny.

Restrictions on our ability to obtain funds from our
subsidiaries are discussed in more detail in Note 21 of
the Notes to Consolidated Financial Statements.

In 2010 and 2009, the Parent’s average commercial
paper borrowings were $18 million and $186 million,
respectively. The Parent had cash of $3.2 billion at
Dec. 31, 2010, compared with $4.4 billion at Dec. 31,
2009. The decrease in Parent cash resulted primarily
from the paydown of long-term debt in 2010. The
Parent issues commercial paper, on an overnight
basis, to certain custody clients with excess demand
deposit balances. Overnight commercial paper
outstanding issued by the Parent was $10 million and
$12 million at Dec. 31, 2010 and 2009, respectively.
Net of commercial paper outstanding, the Parent’s
cash position at Dec. 31, 2010, decreased by $1.2
billion compared with Dec. 31, 2009, reflecting
maturities of long-term debt.

The Parent’s reliance on short-term unsecured funding
sources such as commercial paper, federal funds and
Eurodollars purchased, certificates of deposit, time
deposits and bank notes is limited. 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, 2010, the
Parent met its liquidity target.

In July 2010, the Parent launched a new commercial
paper program, which is in addition to the program
discussed above, under which it may issue
commercial paper to certain institutional accredited
investors in transactions exempt from the registration
requirements of the Securities Act of 1933, as
amended. Commercial paper notes issued under this

52 BNY Mellon

shareholder’s equity of $5 billion;

Š
Š a ratio of Tier 1 capital plus the allowance for

credit losses to nonperforming assets of at least
2.5;

Š a double leverage ratio less than 130%; and
Š 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, 2010.

We also have the ability to access the capital markets.
In June 2010, we filed shelf registration statements on
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, as well as common stock issued under the
Direct Stock Purchase and Dividend Reinvestment
Plans.

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, 2010, were as follows:

Debt ratings at Dec. 31, 2010

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

Aa2
Aa3

AA-
A+

AA- AA (low)
A+ A (high)

Aaa
Aaa

AA
AA

AA-
AA

AA
AA

debt

Long-term deposits

Aaa
Aaa

AA
AA

AA- (a)
AA

AA
AA

Outlook

Stable Stable Stable

Stable
(long-term)

(a) Represents senior debt issuer default rating.

Results of Operations (continued)

In April 2010, one of the rating agencies announced
that regulatory changes in the Dodd-Frank Wall Street
Reform and Consumer Protection Act (the “Dodd-
Frank Act”), could result in lower debt and deposit
ratings for U.S. banks and other financial institutions
whose ratings currently benefit from assumed
government support. The rating agency anticipates
that once implementing regulations clarify the final
form of regulatory reform, the potentially affected
ratings would be placed under review. The rating
agency further indicated it would consider the pace
over which any benefits resulting from regulatory
reform would accrue versus the likely pace over
which systemic support would be curtailed. Currently,
the ratings for the Parent benefit from one notch of
“lift” and The Bank of New York Mellon and BNY
Mellon, N.A. benefit two notches of “lift” as a result
of the rating agency’s government support
assumptions. Other institutions benefit between one
and five notches of “lift.” If these rating changes
occur as proposed, the Parent, The Bank of New York
Mellon and BNY Mellon, N.A. would remain at the
highest level for all U.S. bank holding companies and
U.S. banks.

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

Long-term debt decreased to $16.5 billion at Dec. 31,
2010 from $17.2 billion at Dec. 31, 2009, primarily
due to $1.85 billion of senior and subordinated long
term debt that matured in 2010 and $750 million of
retail medium-term notes that were called in 2010.

In 2010, we issued $650 million of Senior Notes
maturing in 2015 with a 2.95% interest rate,
$600 million of Senior Notes maturing in 2016 with a
2.5% interest rate, and $100 million of Floating Rate
Senior Notes maturing in 2013.

The Parent has $1.3 billion of long-term debt that will
mature in 2011 and has the option to call $592 million
of subordinated debt in 2011, which it may call and
refinance if market conditions are favorable.

We have $850 million of trust preferred securities that
are freely callable in 2011. These securities qualify as
Tier 1 capital. Any decision to call these securities will
be based on interest rates, the availability of cash and
capital, and regulatory conditions, as well as the
implementation of the Dodd-Frank Act, which
eliminates these trust preferred securities from the Tier
1 capital of large bank holding companies, including

BNY Mellon, over a three-year period beginning Jan.
1, 2013.

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, 2010 and 2009, was 100.7%, and 104.8%,
respectively. Our target double leverage ratio is a
maximum of 120%. The double leverage ratio is
monitored by regulators and rating agencies and is an
important constraint on our ability to invest in our
subsidiaries and expand our businesses.

Pershing LLC, an indirect subsidiary of BNY Mellon,
has committed and uncommitted lines of credit in place
for liquidity purposes which are guaranteed by the
Parent. The committed line of credit of $935 million
extended by 14 financial institutions matures in March
2011. We expect this line of credit will be renewed. In
2010, the daily average borrowing against this line of
credit was $93 million. Additionally, Pershing LLC has
another committed line of credit for $125 million
extended by one financial institution that matures in
September 2011. The daily average borrowing against
this line of credit was $1 million during 2010. Pershing
LLC has six separate uncommitted lines of credit,
amounting to $1.4 billion in aggregate. Average daily
borrowing under these lines was $592 million, in
aggregate, during 2010.

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

shareholders’ equity of $5 billion;

Š
Š a ratio of Tier 1 capital plus the allowance for

credit losses to nonperforming assets of at least
2.5; and

Š a double leverage ratio less than 130%.

We are currently in compliance with these covenants.

Pershing Limited, an indirect UK-based subsidiary of
BNY Mellon, has committed and uncommitted lines
of credit in place for liquidity purposes, which are

BNY Mellon

Results of Operations (continued)

guaranteed by the Parent. The committed line of credit
of $233 million extended by five financial institutions
matures in March 2011. We expect this line to be
renewed. The average daily borrowing under this line
was $5 million, in aggregate, in 2010. Pershing
Limited has three separate uncommitted lines of credit
amounting to $250 million in aggregate. In 2010,
average daily borrowing under these lines was less
than $1 million in aggregate.

Statement of cash flows

Cash provided by operating activities was $4.1 billion
in 2010, compared with $3.8 billion in 2009 and
$2.9 billion in 2008. In 2010 and 2008, the cash flows
from operations in 2008 were principally the result of
earnings. 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 changes in
trading activities, were a significant source of funds.

In 2010, cash used for investing activities was $14.9
billion compared with cash provided by investing
activities of $23.1 billion in 2009 and $56.0 billion
used for investing activities in 2008. In 2010,
purchases of securities available-for-sale, an increase
in interest-bearing deposits with the Federal Reserve
and other central banks, and the Acquisitions were a
significant use of funds. 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 2010, cash provided by financing activities was
$10.8 billion, compared to $28.0 billion used for
financing activities in 2009 and $51.8 billion provided
by financing activities in 2008. In 2010, change in
deposits, federal funds purchased and securities sold
under repurchase agreements, other funds borrowed
and the proceeds from issuances of long-term debt
were significant sources of funds, partially offset by
repayments of long-term debt. 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.

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.

Contractual obligations at Dec. 31, 2010

(in millions)

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)
Unfunded pension and post retirement benefits
Capital leases

Total contractual obligations

(a) Including interest.

Payments due by period

Less than

Over
1 year 1-3 years 3-5 years 5 years

Total

$ 33,359 $ 33,359
73,235
5,602
9,962
2,868
1,988
51
29

73,278
5,602
9,962
2,868
21,883
389
48

-
17
-
-
-
6,163
75
19

-
22
-
-
-
4,929
75
-

-
4
-
-
-
8,803
188
-

$147,389 $127,094

$6,274

$5,026

$8,995

54 BNY Mellon

Results of Operations (continued)

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

Other commitments at Dec. 31, 2010

(in millions)

Securities lending indemnifications
Lending commitments
Standby letters of credit
Operating leases
Commercial letters of credit
Investment commitments (a)
Purchase obligations (b)
Support agreements

Total commitments

Amount of commitment expiration per period
Over
Less than
5 years
1 year

1-3 years

3-5 years

Total

$278,069
29,100
8,483
2,225
512
230
903
116

$278,069
10,513
6,113
311
500
27
448
-

-
$
16,306
2,183
550
12
6
377
13

$319,638

$295,981

$19,447

-
$
1,944
187
427
-
2
55
103

$2,718

-
337
-
937
-
195
23
-

$1,492

(a) Includes private equity and Community Reinvestment Act commitments.
(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, 2010, $289 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 $52 million. At this
point, it is not possible to determine when these
amounts will be settled or resolved.

Off-balance sheet arrangements

Capital

Capital data
(dollar amounts in millions except per
share amounts; common shares in
thousands)

At period end:
BNY Mellon shareholders’ equity to

total assets ratio

Total BNY Mellon shareholders’ equity $
Tangible BNY Mellon shareholders’

2010

2009

13.1%

13.7%

32,354

28,977

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 25 of the
Notes to Consolidated Financial Statements for a
further discussion of our off-balance sheet
arrangements.

equity – Non-GAAP (a)
Book value per common share
Tangible book value per common

$
$

11,057
26.06

$
$

9,540
23.99

share – Non-GAAP (a)

8.91
$
30.20
Closing common stock price per share $
$
37,494
Market capitalization
1,241,530
Common shares outstanding

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

Full-year:
Average common equity to average

assets

Cash dividends per common share
Dividend yield

13.1%
0.36
1.2%

13.4%
0.51
1.8%

(a) See Supplemental information beginning on page 65 for a

reconciliation of GAAP to non-GAAP.

Total The Bank of New York Mellon Corporation
shareholders’ equity increased compared with
Dec. 31, 2009. The increase primarily reflects
earnings retention in 2010, an unrealized gain in the
investment securities portfolio resulting from a
decline in interest rates and tighter credit spreads and
the issuance of $677 million (25.9 million shares) of
common equity in 2010.

In June 2010, BNY Mellon priced 25.9 million
common shares in an underwritten public offering, at
$27.00 per common share. In connection with this
offering, BNY Mellon entered into a forward sale

BNY Mellon

Results of Operations (continued)

agreement with a forward purchaser, who borrowed
and sold to the public through the underwriters shares
of the Company’s common stock. BNY Mellon settled
the forward sale agreement in September 2010 and
received net proceeds of $677 million from this
transaction.

The unrealized net of tax gain on our
available-for-sale securities portfolio recorded in other
comprehensive income was $151 million at Dec. 31,
2010, compared with an unrealized net of tax loss of
$619 million at Dec 31, 2009. The improvement
primarily reflects a decline in interest rates and tighter
credit spreads.

In January 2011, we declared a quarterly common
stock dividend of $0.09 per common share that was
paid on Feb. 9, 2011, to shareholders of record as of
the close of business on Jan. 31, 2011.

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 corporation are
expected by the regulators to be well capitalized.

As of Dec. 31, 2010 and 2009, 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).

Our consolidated and largest bank subsidiary, The Bank of New York Mellon, capital ratios are shown below.

Consolidated and largest bank subsidiary capital ratios

Well Adequately
capitalized

capitalized

Dec. 31,

2010

2009

Consolidated capital ratios:

Tier 1
Total capital
Leverage – guideline
Tangible BNY Mellon shareholders’ equity to tangible assets of operations

ratio – Non-GAAP (a)

Tier 1 common equity to risk-weighted assets ratio (a)

The Bank of New York Mellon capital ratios:

Tier 1
Total capital
Leverage

(a) See Supplemental information beginning on page 65 for a calculation of this ratio.
N/A - Not applicable at the consolidated company level.

6%
10
5

N/A
N/A
N/A

4%
8
3

13.4%
16.3
5.8

5.8%
11.8

11.4%
15.3
5.3

12.1%
16.0
6.5

5.2%
10.5

11.2%
15.0
6.3

If a bank holding company or bank fails to qualify as
“adequately capitalized”, regulatory sanctions and
limitations are imposed. At Dec. 31, 2010, 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, 2010
(in millions)

Tier 1 capital
Total capital
Leverage

Consolidated

$7,512
6,413
1,802

The Bank of
New York
Mellon

$4,667
4,519
592

The Tier 1 capital ratio varies depending on the size of
the balance sheet at quarter-end and the level and
types of investments. 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 is higher.

Our Tier 1 capital ratio was 13.4% at Dec. 31, 2010,
compared with 12.1% at Dec. 31, 2009. The increase
in the Tier 1 capital ratio compared with Dec. 31,
2009, primarily reflects earnings retention, the 2010
common equity issuance of $677 million and lower
risk-weighted assets, partially offset by the impact of
the Acquisitions. The Acquisitions, net of the equity
raise, reduced Tier 1 and Tier 1 common ratios by
approximately 195 basis points and the tangible
common shareholders’ equity ratio by approximately
100 basis points. At Dec. 31, 2010, our total assets
were $247.3 billion compared with $212.2 billion at

56 BNY Mellon

Results of Operations (continued)

Dec. 31, 2009. The increase in assets did not impact
our risk-weighted assets as the increase was primarily
in lower risk-weighted government investments and
deposits with the Federal Reserve and other central
banks, as well as assets of consolidated asset
management funds which are discussed below. Our
Tier 1 leverage ratio was 5.8% at Dec. 31, 2010,
compared with 6.5% at Dec. 31, 2009. The decrease
primarily reflects higher average assets in 2010
compared with 2009 and the impact of the
Acquisitions.

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 ASU 2009-16 and ASU 2009-17. As a result of
applying ASU 2009-17, BNY Mellon consolidated
approximately $14 billion of collateralized loan
obligation (“CLO”) funds into trading assets and
liabilities as of Dec. 31, 2010. Any loss from the
assets of these funds will be absorbed by the senior
and junior noteholders of the funds and not by BNY
Mellon. The resulting regulatory capital required for
these zero-risk positions is de minimis. The final rule
allows for a phase-in of 50% of the effect on risk-
weighted assets and allowance for loan losses

includable in Tier 2 capital that results from
implementation of this standard for the quarter ending
Dec. 31, 2010, with full phase-in for the quarter
ending March 31, 2011. BNY Mellon elected to defer
the implementation of ASC 810 for capital purposes.
At Dec. 31, 2010, had we fully phased-in the
implementation of ASC 810, our Tier 1 capital ratio
would have been negatively impacted by
approximately 2 basis points.

A billion dollar change in risk-weighted assets
changes the Tier 1 ratio by approximately 13 basis
points while a $100 million change in common equity
changes the Tier 1 ratio by approximately 10 basis
points.

Our tangible BNY Mellon shareholders’ equity to
tangible assets of operations ratio was 5.8% at Dec.
31, 2010, up from 5.2% at Dec. 31, 2009. The
increase compared with the prior year primarily
reflects earnings retention, the $677 million common
equity issuance and an improvement in the value of
our investment securities portfolio.

At Dec. 31, 2010, we had approximately $1.7 billion
of trust preferred securities outstanding, net of
issuance costs, all of which qualifies as Tier 1 capital.

The following tables present the components of our Tier 1 and Total risk-based capital and risk-weighted assets at
Dec. 31, 2010 and 2009.

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

Common shareholders’ equity
Trust preferred securities
Adjustments for:

Goodwill and other intangibles (b)
Pensions/cash flow hedges
Securities valuation allowance
Merchant banking investment

Total Tier 1 capital

Tier 2 capital:

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

Total Tier 2 capital
Total risk-based capital

Dec. 31,

2010

2009

$ 32,354
1,676

$ 28,977
1,686

(21,297)
1,053
(170)
(19)
13,597

(19,437)
1,070
619
(32)
12,883

5
2,381
571
2,957
$ 16,554

3
3,429
665
4,097
$ 16,980

(a) On a regulatory basis as determined under Basel 1 guidelines and including discontinued operations.
(b) Reduced by deferred tax liabilities associated with non-tax deductible identifiable intangible assets of $1,625 million at Dec. 31, 2010,
and $1,680 million at Dec. 31, 2009, and deferred tax liabilities associated with tax deductible goodwill of $816 million at Dec. 31,
2010, and $720 million at Dec. 31, 2009.

BNY Mellon

Results of Operations (continued)

Components of risk-weighted assets (a)

2010

2009

(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

Balance
sheet/
notional
amount

72,424
66,307
6,276
5,169
37,808
(498)
59,773
$ 247,259

29,845
279,931
10,696
1,438,995
$1,759,467

Risk-
weighted
assets

$ 10,718
18,230
-
304
24,368
-
21,127
$ 74,747

$ 10,946
101
9,341
4,678
$ 25,066
1,594
$101,407
$235,905

Balance
sheet/
notional
amount

67,396
56,049
6,001
3,535
36,689
(503)
43,057
$ 212,224

33,598
249,120
14,426
1,314,246
$1,611,390

Risk-
weighted
assets

$ 11,923
17,633
-
17
25,746
-
20,589
$ 75,908

$ 12,180
132
11,886
4,552
$ 28,750
1,670
$106,328
$196,857

Average assets for leverage capital purposes
(a) On a regulatory basis as determined under Basel 1 guidelines and including discontinued operations.

Stock repurchase programs

Share repurchases during fourth quarter 2010

(common shares
in thousands)

October 2010
November 2010
December 2010

Fourth quarter 2010

Total shares
repurchased

Average price
per share

Total shares
repurchased as part of a
publicly announced plan

6
1
35

42(a)

$26.98
25.73
29.02

$28.65

-
-
-

Maximum number (or
approximate dollar value)
of shares (or units) that
may yet be purchased
under plans or programs

33,800
33,800
33,800

33,800

(a) These shares were purchased at a purchase price of approximately $1 million from employees, primarily in connection with the

employees’ payment of taxes upon the vesting of restricted stock.

On Dec. 18, 2007, the Board of Directors of BNY
Mellon authorized the repurchase of up to 35 million
shares of common stock. There is no expiration date
on this repurchase program.

Risk management

Governance

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 the control processes with respect to
the Company’s inherent risks. They also review and
assess the risk management activities of the Company

and the Company’s fiduciary risk policies and
activities. Policy formulation and day-to-day oversight
of the Risk Management Framework is delegated to
the Chief Risk Officer, who, together with the Chief
Auditor and Chief Compliance Officer, helps ensure
an effective risk management governance 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 are financially
literate within the meaning of the NYSE listing
standards, and two of whom have been determined 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

58 BNY Mellon

Results of Operations (continued)

expertise within the meaning of the NYSE listing
standards, and who have banking and financial
management expertise within the meaning of the
FDIC rules. The Audit Committee meets on a regular
basis to perform an oversight review of the integrity
of the financial statements and financial reporting
process, compliance with legal and regulatory
requirements, our independent registered public
accountant’s qualifications and independence, and the
performance of our registered public accountant and
internal audit function. The Audit Committee also
reviews management’s assessment of the adequacy of
internal controls. The functions of the Audit
Committee are described in more detail in its charter,
a copy of which is available on our website,
www.bnymellon.com.

The Senior Risk Management Committee (“SRMC”)
is the most senior management body responsible for
ensuring that emerging risks are weighed against the
corporate risk appetite and that any material
amendments to the risk appetite statement are
properly vetted and recommended to the Executive
Committee and the Board for approval. The SRMC
also reviews any material breaches to our risk appetite
and approves action plans required to remediate the
issue. SRMC provides oversight for the risk
management, compliance and ethics framework. The
Chief Executive Officer, Chief Risk Officer and Chief
Financial Officer are among SRMC’s members.

Risk appetite statement

BNY Mellon defines risk appetite as the level of risk
it is normally willing to accept while pursuing the
interests of our major stakeholders, including our
clients, shareholders, employees and regulators. The
Company has adopted the following as its risk
appetite statement: “Risk taking is a fundamental
characteristic of providing financial services and
arises in every transaction we undertake. Our risk
appetite is driven by the fact that we are a leading
provider of financial services and play a major role in
the global marketplace. As a result, we are committed
to maintaining a balance sheet, which remains strong
throughout market cycles, to meet the expectations of
our major stakeholders, including our clients,
shareholders, employees and regulators. The balance
sheet will be characterized by strong liquidity,
superior asset quality, ready access to external funding
sources at competitive rates and a strong capital
structure that supports our risk taking activities and is
adequate to absorb potential losses. These
characteristics support our goal of superior debt rating

versus our peers (currently “AA” at the holding
company level). To that end, the company’s Risk
Management Framework has been designed to:

Š ensure that appropriate risk tolerances (“limits”)
are in place to govern our risk taking activities
across all businesses and risk types;

Š ensure that our risk appetite principles permeate
the company culture and are incorporated into
our strategic decision-making processes;

Š ensure rigorous monitoring and reporting of key
risk metrics to senior management and the board
of directors; and

Š ensure that there is an on-going, and forward-

looking, capital planning process to support our
risk taking activities.”

Primary risk types

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

Operational The risk of loss resulting from inadequate or
failed internal processes, human factors and
systems, or from external events.

Market

Credit

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.

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.

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

Results of Operations (continued)

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. We continue to improve our
ability to gather and monitor our risk information
across the enterprise.

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.

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:

Š Board Oversight and Governance – The Risk

Committee of the Board approves and oversees
our operational risk management strategy in
addition to credit and market risk. The Risk
Committee meets regularly to review and
approve operational risk management initiatives,
discuss key risk issues, and review the
effectiveness of the risk management systems.

Š Accountability of Businesses – Business

managers are responsible for maintaining an

effective system of internal controls

commensurate with their risk profiles and in

accordance with BNY Mellon policies and

procedures.

60 BNY Mellon

Market risk

In addition to the Risk Committee and SRMC,
oversight of market risk is performed by certain
committees and through executive review meetings.
Detailed reviews of derivative trading positions and of
all model validations/stress tests results are conducted
during the Global Markets Weekly Risk Review.
Senior managers from Risk Management and Sales
and Trading attend the review.

Business Risk meetings for the Global Markets and
Capital Markets businesses also provide a forum for
market risk oversight. The goal of Business Risk
meetings, which are held at least quarterly, is to
review key risk and control issues and related
initiatives facing all lines of business including Global
Markets and Capital Markets. The following activities
are also addressed during Business Risks meetings:

Š Reporting of all new Monitoring Limits and

changes to existing limits;

Š Monitoring of trading exposures, VaR, market
sensitivities and stress testing results; and
Š Reporting results of all model validations.

The Derivatives Documentation Committee reviews
and approves variations in the Company’s
documentation standards as it relates to derivative
transactions. In addition, this committee reviews all
outstanding confirmations to identify potential
exposure to the Company. Finally, the Risk
Quantification and Modelling Committee validates
and reviews backtesting results.

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.

Results of Operations (continued)

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 Credit Portfolio Managers
(“CPMs”) and the Chief Credit Officer (“CCO”). The
CPMs 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 Enterprise Risk Architecture (“ERA”),
formerly the Portfolio Management Division within
the Risk Management and Compliance Sector. The
ERA 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 Institutional, Wealth and Commercial Real Estate,
where most of our credit risk is created, unfunded
commitments are assigned a usage given default
percentage. Borrowers/Counterparties are assigned
ratings by CPMs and the CCO on an 18-grade scale,
which translate 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 ERA is called economic capital. Our
economic capital model estimates the capital required
to support the overall credit risk portfolio. Using a
Monte Carlo simulation engine and measures of
correlation among borrower defaults, the economic
model examines extreme and highly unlikely
scenarios of portfolio credit loss in order to estimate
credit-related capital, and then allocates that capital to
individual borrowers and exposures. The credit-
related capital calculation supports a second tier of
policy standards and limits by serving as an input to
both profitability analysis and concentration limits of
capital at risk with any one borrower, industry or
country.

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 ERA 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.

Global compliance

Our global compliance function provides leadership,
guidance, and oversight to help our businesses
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 key committees of BNY
Mellon and provides regular updates to the Audit and
Risk Committees 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.

Economic capital

The ERA is responsible for the calculation
methodologies and the estimates of the inputs used in
those methodologies for the determination of expected

BNY Mellon has implemented a methodology to
quantify economic capital. We define economic
capital as the capital required to protect against

BNY Mellon

Results of Operations (continued)

unexpected economic losses over a one-year period at
a level consistent with the solvency of a firm with a
target debt rating. We quantify economic capital
requirements for the risks inherent in our business
activities using statistical modeling techniques and
then aggregate them at the consolidated level. A
capital reduction, or diversification benefit, is applied
to reflect the unlikely event of experiencing an
extremely large loss in each type of risk at the same
time. Economic capital levels are directly related to
our risk profile. As such, it has become a part of our
internal capital assessment process and, along with
regulatory capital, is a key component to ensuring that
the actual level of capital is commensurate with our
risk profile, and is sufficient to provide the financial
flexibility to undertake future strategic business
initiatives.

The framework and methodologies to quantify each of
our risk types have been developed by the ERA 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 26 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, 2010, and 2009.

VAR (a)

2010

(in millions)

Average Minimum Maximum Dec. 31

Interest rate
Foreign exchange
Equity
Credit
Diversification
Overall portfolio

$ 1.2
$ 5.9
0.7
2.7
1.3
3.6
0.6
0.2
(5.3) N/M
3.5
7.5

$10.9
5.0
7.6
1.3
N/M
11.4

$ 4.3
0.7
2.1
0.2
(3.4)
3.9

62 BNY Mellon

VAR (a)

2009

(in millions)

Average Minimum Maximum Dec. 31

Interest rate
Foreign exchange
Equity
Credit
Diversification
Overall portfolio

$ 5.8
$ 2.8
2.4
0.8
2.7
1.3
0.7
2.9
(6.1) N/M
3.9
7.7

$11.7
5.6
8.1
7.5
N/M
13.5

$ 6.9
1.0
1.6
0.7
(2.1)
8.1

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

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 2010, interest rate risk generated 46% of
average VAR, credit risk generated 5% of average
VAR, equity risk generated 28% of average VAR, and
foreign exchange risk accounted for 21% of average
VAR. During 2010, 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
2010, the volatility of this index decreased
approximately 18 basis points from 2009.

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

Distribution of trading revenues (losses) (a)

Quarter ended

(dollar amounts Dec. 31, March 31, June 30, Sept. 30, Dec. 31,
in millions)
2010
Revenue range:

2010
Number of days

2010

2009

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

1
5
13
22
21

-
3
15
22
21

1
2
18
21
22

2
3
27
23
9

1
7
15
23
17

(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 treatment under our
regulatory requirements.

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.

Results of Operations (continued)

As required by ASC 820 – Fair Value Measurements
and Disclosures, we 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, 2010, our over-the-counter (“OTC”)
derivative assets of $4.3 billion included a credit
valuation adjustment (“CVA”) deduction of
$78 million, including $27 million related to the
declining credit quality of CDO counterparties and
Lehman. Our OTC derivative liabilities of $5.3 billion
included debit valuation adjustments (“DVA”) of
$30 million related to our own credit spread. In 2010,
we charged-off a $38 million realized loss against the
CVA reserves. The CVA, net of the charge-off,
decreased foreign exchange and other trading revenue

Foreign exchange and other trading
counterparty risk rating profile (a)

Rating:

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.

$2 million in 2010. Adjustments to our own credit
spread, the DVA, did not impact foreign exchange and
other trading revenue in 2010.

At Dec. 31, 2009, our OTC derivative assets of $4.8
billion included a 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 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. This information
indicates the degree of risk to which we are exposed
and significant changes in ratings classifications for
which our foreign exchange and other trading activity
could result in increased risk for us.

Dec. 31, March 31,
2010

2009

Quarter ended
June 30,
2010

Sept. 30, Dec. 31,
2010

2010

56%
22
15
7

54%
23
16
7

52%
19
22
7

47%
18
24
11

100%

52%
18
21
9
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.

deposits, market spreads, changes in the prepayment
behavior of loans and securities and the impact of
derivative financial instruments used for interest rate
risk management purposes. These assumptions have
been developed through a combination of historical
analysis and future expected pricing behavior and are
inherently uncertain. As a result, the earnings
simulation model cannot precisely estimate net
interest revenue or the impact of higher or lower
interest rates on net interest revenue. Actual results
may differ from projected results due to timing,
magnitude and frequency of interest rate changes, and
changes in market conditions and management’s
strategies, among other factors.

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

These scenarios do not reflect strategies that
management could employ to limit the impact as
interest rate expectations change. The table below

BNY Mellon

Results of Operations (continued)

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 evaluate the effect on earnings by running various
interest rate ramp scenarios from a baseline scenario.
These scenarios are reviewed to examine the impact
of large interest rate movements. Interest rate
sensitivity is quantified by calculating the change in
pre-tax net interest revenue between the scenarios
over a 12-month measurement period.

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

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

Dec. 31, 2010
%
$

up 200 bps vs. baseline
up 100 bps vs. baseline
Long-term up 50 bps, short-term unchanged (a)
Long-term down 50 bps,

$143
127
110

4.9%
4.4
3.8

short-term unchanged (a)

(98)

(3.3)

(a) Long-term is equal to or greater than one year.

The baseline scenario’s Fed Funds rate in the Dec. 31,
2010, 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. The up 200 basis point and the up 100
basis point Dec. 31, 2010, scenarios assume 10-year
rates rising 92 and 63 basis points, respectively.

We also project future cash flows from our assets and
liabilities over a long-term horizon and then discount
these cash flows using instantaneous parallel shocks to
prevailing interest rates. This measure reflects the
structural balance sheet interest rate sensitivity by
discounting all future cash flows. The aggregation of these
discounted cash flows is the Economic Value of Equity
(“EVE”). The following table shows how the EVE would
change in response to changes in interest rates:

Estimated changes in EVE at Dec. 31, 2010

Rate change:

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

The asymmetrical accounting treatment of the impact
of a change in interest rates on our balance sheet may
create a situation in which an increase in interest rates
can adversely affect reported equity and regulatory
capital, even though economically there may be no
impact on our economic capital position. For example,
an increase in rates will result in a decline in the value
of our fixed income investment portfolio, which will
be reflected through a reduction in other
comprehensive income in our shareholders’ equity,
thereby affecting our tangible common equity
(“TCE”) ratios. Under current accounting rules, to the
extent 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, 2010, 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, 2010
(in basis points)

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

(86)
(41)

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, 2010, net investments in foreign
operations totaled approximately $9.4 billion and
were spread across 14 foreign currencies.

2.8%
1.7

Business continuity

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

We are prepared for events that could damage our
physical facilities, cause delay or disruptions to
operational functions, including telecommunications

64 BNY Mellon

Results of Operations (continued)

networks, or impair our employees, clients, vendors
and counterparties. Key elements of our business
continuity strategies are extensive planning and
testing, and diversity of business operations, data
centers and telecommunications infrastructure.

We have established multiple geographically diverse
locations for our funds transfer and broker-dealer
services operational units, which provide redundant
functionality to facilitate uninterrupted operations.

Our securities clearing, mutual fund accounting and
custody, securities lending, master trust, Unit
Investment Trust, corporate trust, stock transfer, item
processing, wealth management and treasury units
have common functionality in multiple sites designed
to facilitate continuance of operations or rapid
recovery. In addition, we have recovery positions for
over 12,800 employees on a global basis of which
over 8,000 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.

Due to BNY Mellon’s robust business recovery
systems and processes, we are not materially impacted
by climate change, nor do we expect material impacts
in the near term. We have and will continue to
implement processes and capital projects to deal with
the risks of the changing climate. The company has
invested in the development of products and services
that support the markets related to climate change.

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 of operations is
a measure of capital strength that provides additional
useful information to investors, supplementing the
Tier 1 capital ratio which is utilized by regulatory
authorities. Unlike the Tier 1 capital ratio, the tangible
common shareholders’ equity ratio fully incorporates
those changes in investment securities valuations
which are reflected in total 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 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 net securities gains (losses), SILO/LILO
charges and noncontrolling interests related to
consolidated asset management funds; expense
measures which exclude restructuring charges, an
FDIC special assessment, support agreement charges,
asset-based taxes, M&I expenses, special litigation
reserves and amortization of intangible assets; 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

66 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 primarily relate to the merger
with Mellon Financial Corporation in 2007 and the
Acquisitions in 2010. 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
regards to the exclusion of net securities gains (losses),
BNY Mellon’s primary businesses are Asset and
Wealth Management and Institutional Services. The
management of these businesses 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. The investment securities portfolio
is managed within the Other group of businesses. 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. With
regards to higher yields related to the restructured
investment securities portfolio, client deposits serve as
the primary funding source for our investment
securities portfolio and we typically allocate all interest
revenue to the businesses generating the deposits.
Accordingly, the higher yield related to the restructured
investment securities portfolio has been included in the
results of our 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 and the
benefit of tax settlements permits investors to calculate
the tax impact of BNY Mellon’s primary businesses.

The presentation of financial measures excluding
special litigation reserves provides investors with the
ability to view performance metrics on the basis that
management views results. The presentation of income

Supplemental Information (unaudited) (continued)

of consolidated asset management funds, net of
noncontrolling interests related to the consolidation of
certain asset management funds, permits investors to
view revenue on a basis consistent with prior periods.
BNY Mellon believes that these presentations, as a
supplement to GAAP information, gives investors a
clearer picture of the results of its primary businesses.

In this Annual Report, certain amounts are presented
on an FTE basis. We believe that this presentation

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

Less: Net securities gains (losses)

Noncontrolling interests of consolidated asset
management funds
Add: SILO/LILO charges

Support agreement charges
FDIC special assessment
M&I expenses
Restructuring charges
Asset-based taxes
Special litigation reserves
Amortization of intangible assets

Income (loss) from continuing operations before income taxes

excluding net securities gains (losses), noncontrolling interests
of consolidated asset management funds, SILO/LILO charges,
support agreement charges, FDIC special assessment, M&I
expenses, restructuring charges, asset-based taxes, special
litigation reserves and amortization of intangible assets –
Non-GAAP

Fee and other revenue – GAAP
Income of consolidated asset management funds – GAAP
Net interest revenue – GAAP

Total revenue – GAAP
Less: Net securities gains (losses)

Noncontrolling interests of consolidated asset
management funds
Add: SILO/LILO charges

Total revenue excluding net securities gains (losses),

noncontrolling interests of consolidated asset management
funds and SILO/LILO charges – Non-GAAP

Pre-tax operating margin (c)
Pre-tax operating margin, excluding net securities gains (losses),

noncontrolling interests of consolidated asset management funds,
SILO/LILO charges, support agreement charges, FDIC special
assessment, M&I expenses, restructuring charges, asset-based
taxes, special litigation reserves and amortization of intangible
assets – Non-GAAP (c)

provides comparability of amounts arising from both
taxable and tax-exempt sources, and is consistent with
industry practice. The adjustment to an FTE basis has
no impact on net income.

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

2010

2009

2008

2007 (a)

2006 (b)

$ 3,694
27

$ (2,208)
(5,369)

$ 1,946
(1,628)

$ 3,215
(201)

$2,183
2

59
-
N/A
-
139
28
-
164
421

-
-
N/A
61
233
150
20
N/A
426

-
489
894
-
483
181
-
N/A
473

-
-
3
-
404
-
-
N/A
314

106

N/A
76

$ 4,360

$ 4,051

$ 6,094

$ 4,137

$10,724
226
2,925

13,875
27

59
-

$ 4,739
-
2,915

7,654
(5,369)

$10,714
-
2,859

13,573
(1,628)

$ 9,053
-
2,245

11,298
(201)

-
-

-
489

-
-

$2,363

$5,339

1,499

6,838
2

$13,789

27%

$13,023
N/M

$15,690

$11,499

$6,836

14%

28%

32%

31%

39%

36%

35%

(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 include legacy The Bank of New York Company, Inc. only.
(c) Income (loss) before taxes divided by total revenue.

BNY Mellon

Supplemental Information (unaudited) (continued)

Reconciliation of fee revenue as a percentage of total revenue
(dollars in millions)

Fee and other revenue – GAAP
Less: Net securities gains (losses)

Total fee revenue – GAAP

Fee and other revenue – GAAP
Income of consolidated asset management funds – GAAP
Net interest revenue – GAAP

Total revenue – GAAP
Less: Net securities gains (losses)

Noncontrolling interests of consolidated asset

management funds
Add: SILO/LILO charges

Total revenue excluding net securities gains (losses),

noncontrolling interest of consolidated asset management
funds and SILO/LILO charges – Non-GAAP

Fee revenue as a percentage of total revenue excluding securities
gains (loss), noncontrolling interests of consolidated asset
management funds and SILO/LILO charges

2007 (a)

2006 (b)

2010

$10,724
27

$10,697

$10,724
226
2,925

13,875
27

59
-

2009

$ 4,739
(5,369)

$10,108

$ 4,739
-
2,915

7,654
(5,369)

2008

$10,714
(1,628)

$12,342

$10,714
-
2,859

13,573
(1,628)

$ 9,053
(201)

$ 9,254

$ 9,053
-
2,245

11,298
(201)

-
-

-
489

-
-

$5,339
2

$5,337

$5,339
-
1,499

6,838
2

-
-

$13,789

$13,023

$15,690

$11,499

$6,836

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 include legacy The Bank of New York Company, Inc. only.

Asset servicing revenue
(in millions)

Asset servicing revenue
Less: Securities lending fee revenue

Asset servicing revenue excluding securities lending fee revenue

Asset and wealth management fee revenue
(dollars in millions)

Asset and wealth management fee revenue
Less: Performance fees
Add: Revenue from consolidated asset management funds,

net of noncontrolling interests

Asset and wealth management fee revenue excluding

performance fees

2010

$ 3,089
150

$ 2,939

2010

$ 2,868
121

2009

$ 2,677
93

2009

$ 2,573
259

$ 2,314

2008

$ 3,218
83

2008

$3,370
789

$2,581

2010 vs.
2009

125

$ 2,872

$ 2,584

$ 3,135

11%

68 BNY Mellon

Supplemental Information (unaudited) (continued)

Return on common equity and tangible common equity – continuing
operations
(dollars in millions)

2010

2009

2008

2007 (a)

2006 (b)

Net income (loss) applicable to common shareholders of The

Bank of New York Mellon Corporation before
extraordinary loss

Less: Net income (loss) from discontinued operations

Net income (loss) from continuing operations applicable to
common shareholders of The Bank of New York Mellon

Add: Amortization of intangible assets

Net income (loss) from continuing operations applicable to
common shareholders of The Bank of New York Mellon
Corporation before extraordinary loss excluding amortization
of intangible assets – Non-GAAP

Less: Net securities gains (losses)
Add: SILO/LILO/tax settlements
Support agreement charges
FDIC special assessment
M&I expenses
Restructuring charges
Discrete tax benefits and the benefit of tax settlements
Special litigation reserves

Net income (loss) from continuing operations applicable to
common shareholders of The Bank of New York Mellon
Corporation before extraordinary loss excluding net 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,
special litigation reserves and amortization of intangible assets
– 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

$ 2,518
(66)

$ (1,367)
(270)

$ 1,412
14

$ 2,219
10

$ 2,847
1,371

2,584
264

(1,097)
265

1,398
292

2,209
194

1,476
50

2,848
17
-
N/A
-
91
19
-
98

(832)
(3,360)

-
N/A
36
144
94
(267)
N/A

1,690
(983)
410
533
-
288
107
-
N/A

2,403
(119)
-
2
-
238
-
-
N/A

1,526
1
-
-
-
72
-
-
N/A

$ 3,039
$31,100
17,029
5,664
816

$ 2,535
$27,198
16,042
5,654
720

$ 4,011
$28,212
16,525
5,896
599

$ 2,762
$20,234
10,739
3,769
495

$ 1,597
$10,333
4,394
772
384

assets

1,625

1,680

1,841

2,006

162

Average tangible common shareholders’ equity – Non-GAAP

$10,848

$ 7,902

$ 8,231

$ 8,227

$ 5,713

Return on common equity before extraordinary loss – GAAP
Return on common equity before extraordinary loss excluding net
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, special litigation reserves and amortization of
intangible assets – Non-GAAP

Return on tangible common equity before extraordinary loss –

8.3%

N/M

5.0%

10.9%

14.3%

9.8%

9.3%

14.2%

13.6%

15.5%

Non-GAAP

26.3%

N/M

20.5%

29.2%

26.7%

Return on tangible common equity before extraordinary loss
excluding net 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 special litigation
reserves – Non-GAAP

28.0%

32.1%

48.7%

33.6%

28.0%

(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 include legacy The Bank of New York Company, Inc. only.

BNY Mellon

Supplemental Information (unaudited) (continued)

Equity to assets and book value per common share
(dollars in millions

unless otherwise noted)

BNY Mellon 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 BNY Mellon shareholders’ equity at

2010

2009

Dec. 31,

2008

2007

2006 (a)

32,354
18,042
5,696

28,977
16,249
5,588

25,264
15,898
5,856

29,403
16,331
6,402

$ 11,429
5,008
1,453

816

1,625

720

1,680

599

1,841

495

2,006

384

162

period end – Non-GAAP

11,057

9,540

5,950

9,171

$ 5,514

Total assets at period end – GAAP
Less: Assets of consolidated asset
management funds

Total assets of operations – Non-GAAP

Less: Goodwill

Intangible assets
Cash on deposit with the Federal Reserve

and other central banks (b)

U.S. Government-backed
commercial paper (b)

$ 247,259

$ 212,224

$ 237,512

$ 197,656

$103,206

14,766

232,493
18,042
5,696

212,224
16,249
5,588

237,512
15,898
5,856

18,566

7,375

53,278

5,629

197,656
16,331
6,402

103,206
5,008
1,453

Tangible total assets at period end – Non-GAAP

$ 190,189

$ 183,012

$ 156,851

$ 174,843

$ 96,745

BNY Mellon shareholders’ equity to total

assets – GAAP

Tangible BNY Mellon shareholders’ equity to
tangible assets of operations – Non-GAAP

Period end common shares

outstanding (in thousands)

Book value per common share
Tangible book value per common

share – Non-GAAP

13.1%

13.7%

10.6%

14.9%

11.1%

5.8%

5.2%

3.8%

5.2%

5.7%

1,241,530

1,207,835

1,148,467

1,145,983

713,079

26.06

8.91

23.99

7.90

22.00

5.18

25.66

$ 16.03

8.00

7.73

(a) The 2006 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

2010

13,597
1,676
-

2009

12,883
1,686
-

Dec. 31,

2008

15,402
1,654
2,786

2007

11,259
2,030
-

11,921

11,197

10,962

9,229

2006 (b)

$ 6,350
1,150

$ 5,200

Total risk-weighted assets

$ 101,407

$ 106,328

$ 116,713

$ 120,866

$ 77,567

Tier 1 common equity to risk-weighted assets ratio

11.8%

10.5%

9.4%

7.6%

6.7%

(a) On a regulatory basis using Tier 1 capital as determined under Basel 1 guidelines. Includes discontinued operations.
(b) Legacy The Bank of New York Company, Inc. only.

70 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:

2010 over (under) 2009

2009 over (under) 2008

Due to change in

Average
balance

Average
rate

Net
change

Average
balance

Average
rate

Net
change

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:

(4)
17
23

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
Trading liabilities
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

$(138)

$(129)

$ 295

$(1,365)

$(1,070)

(2)

(5)
16
(4)

(34)
(12)
(61)
(107)

(1)
(61)
(3)

430
(142)
288

5
(1)
4
227
$ (13)

1
(3)
(4)
(11)
(17)

4
-
30
34
17

42
7

3
(3)
-

(9)
33
19

(31)
(6)
(99)
(136)

69
82
(6)

149
(71)
78

21
(1)
20
243
$ 27

8
(1)
(8)
(7)
(8)

5
-
26
31
23

43
10

15
(2)
13

(60)
(55)
(31)

(32)
(55)
(89)
(176)

44
201
(5)

(132)
111
(21)

(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)

8
(2)
6
225
$ 227

(24)
(2)
(26)
(744)
$(2,247)

(16)
(4)
(20)
(519)
$(2,020)

$ 34
2
(21)
(22)
(7)

$ (150)
(9)
(29)
(79)
(267)

$ (116)
(7)
(50)
(101)
(274)

(69)
(7)
204
128
121

(14)
6

(22)
(8)
(30)

(102)
(17)
(1,329)
(1,448)
(1,715)

(171)
(24)
(1,125)
(1,320)
(1,594)

(32)
1

(9)
(16)
(25)

(46)
7

(31)
(24)
(55)

(4)
(1)
(61)
-

(7)
-
(66)
$ 16
$ 11

(46)
(3)
21
$ 55
$ 172

-
(60)
(297)
$(2,128)
$ (119)

(46)
(63)
(276)
$(2,073)
53
$

3
6
(38)
(29)

70
143
(3)

(281)
71
(210)

16
-
16
16
$ 40

7
2
(4)
4
9

1
-
(4)
(3)
6

1
3

12
1
13

(3)
1
(5)
$ 16
$ 24

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

$
$ (13)

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.

BNY Mellon

Recent Accounting and Regulatory Developments

ASU 2010-29—Disclosure of Supplementary Pro
Forma Information for Business Combinations

business strategy and would fall into one of the
following three classifications:

In December 2010, the FASB issued ASU 2010-29,
“Disclosure of Supplementary Pro Forma Information
for Business Combinations.” This ASU specifies that
if a public entity presents comparative financial
statements, the entity would disclose revenue and
earnings of the combined entity as though the business
combination(s) that occurred during the current year
had occurred as of the beginning of the comparable
prior annual reporting period only. This ASU also
expands the supplemental pro forma disclosures under
Topic 805 to include a description of the nature and
amount of material, nonrecurring pro forma
adjustments directly attributable to the business
combination. The ASU was effective prospectively
for business combinations consummated on or after
Jan. 1, 2011.

ASU 2011-01—Deferral of the Effective Date of
Disclosures about Troubled Debt Restructurings in
Update No. 2010-20

In January 2011, the FASB issued ASU 2011-01,
“Deferral of the Effective Date of Disclosures about
Troubled Debt Restructurings in Update
No. 2010-20.” This ASU temporarily delays the
effective date of the disclosures about troubled debt
restructurings in Update 2010-20 for public entities.
The delay is intended to allow the FASB time to
complete its deliberations on what constitutes a
troubled debt restructuring. The guidance is
anticipated to be effective for interim and annual
periods ending after June 15, 2011.

Proposed ASU—Accounting for Financial Instruments
and Revisions to the Accounting for Derivative
Instruments and Hedging Activities

In May 2010, the FASB issued Proposed ASU,
“Accounting for Financial Instruments and Revisions
to the Accounting for Derivative Instruments and
Hedging Activities.” Under this proposed ASU, most
financial instruments would be measured at fair value
in the balance sheet. In January 2011, the FASB
determined preliminarily not to require certain
financial assets to be measured at fair value on the
balance sheet. The decision is subject to change until a
final financial instruments standard is issued, which is
expected later in 2011.

Measurement of a financial instrument would be
determined based on its characteristics and an entity’s

72 BNY Mellon

Š Fair value—Net income—encompasses

financial assets used in an entity’s trading or
held-for-sale activities. Changes in fair value
would be recognized in net income.

Š Fair value—Other comprehensive

income—includes financial assets held primarily
for investing activities, including those used to
manage interest rate or liquidity risk. Changes in
fair value would be recognized in other
comprehensive income.

Š Amortized cost—includes financial assets

related to the advancement of funds (through a
lending or customer-financing activity) that are
managed with the intent to collect those cash
flows (including interest and fees).

The Board tentatively decided that the business
strategy should be determined by the business
activities that an entity uses in acquiring and
managing financial assets.

Supplementary Document—Impairment

On Jan. 31, 2011, the FASB issued a Supplementary
Document, “Impairment”. The Supplementary
Document proposes to replace the incurred loss
impairment models under U.S. GAAP with an
expected loss impairment model. The document
focuses on when and how credit impairment should be
recognized. The proposal is limited to open portfolios
of assets such as portfolios that are constantly
changing, through originations, purchases, transfers,
write-offs, sales and repayments. The proposal in the
Supplementary Document would apply to loans and
debt instruments under U.S. GAAP that are managed
on an “open” portfolio basis provided they are not
measured at fair value with changes in fair value
recognized in net income. Comments on this proposal
are due on April 1, 2011.

Proposed ASU—Amendments for Common Fair Value
Measurement and Disclosure Requirements in U.S.
GAAP and IFRSs

In June 2010, the FASB issued Proposed ASU,
“Amendments for Common Fair Value Measurement
and Disclosure Requirements in U.S. GAAP and
IFRSs.” This proposed ASU would change the
wording used to describe many of the principles and
requirements in U.S. GAAP for measuring fair value
and for disclosing information about fair value

Recent Accounting and Regulatory Developments (continued)

measurements, and would change how the fair value
measurement guidance in ASC 820 is applied. This
proposed ASU would also require several new
disclosures: (a) measurement uncertainty disclosures,
(b) reasons if an entity’s use of an asset is different
from its highest and best use, and (c) fair value
hierarchy disclosures for financial instruments not
measured at fair value. Comments on this proposed
ASU were due on Sept. 7, 2010. The effective date
will be determined after the FASB considers the
feedback on this proposed ASU.

Proposed ASU—Revenue from Contracts with
Customers

In June 2010, the FASB issued Proposed ASU,
“Revenue from Contracts with Customers.” This
proposed ASU is the result of a joint project of the
FASB and IASB to clarify the principles for
recognizing revenue and develop a common standard
for U.S. GAAP and IFRS. This proposed ASU would
establish a broad principle that would require an entity
to identify the contract with a customer, identify the
separate performance obligations in the contract,
determine the transaction price, allocate the
transaction price to the separate performance
obligations and recognize revenue when each separate
performance obligation is satisfied. In February 2011,
the FASB and IASB revised several aspects of the
original proposal to include distinguishing between
goods and services, segmenting contracts, accounting
for warranty obligations, and deferring contract
origination costs. The FASB and IASB plan to issue a
final standard in June 2011.

Proposed ASU—Disclosure of Certain Loss
Contingencies

In July 2010, the FASB issued Proposed ASU,
“Disclosure of Certain Loss Contingencies.” This
proposed ASU would require an entity to disclose
qualitative and quantitative information about loss
contingencies to enable financial statement users to
understand the nature of loss contingencies, their
potential magnitude and their potential timing (if
known). Available information may be limited during
the early stages of a loss contingency’s life cycle and
therefore, disclosure may be less extensive in early
stages of a loss contingency. In subsequent reporting
periods, disclosure may be more extensive as
additional information about a potentially unfavorable
outcome becomes available. Additionally, an entity
may aggregate disclosures about similar contingencies
so that the disclosures are understandable and not too
detailed. An entity would also then disclose the basis

for aggregation. On Oct. 27, 2010, the FASB
announced that is has decided to rule out a 2010
effective date. The FASB did not project a new
proposed effective date pending its redeliberations on
the proposal.

FASB and IASB project on Leases

In August 2010, the FASB and IASB issued a joint
Proposed ASU, “Leases.” This proposed ASU would
require that lessees and lessors apply a right of use
model in accounting for all leases, including leases of
right of use assets in subleases (other than leases of
biological and intangible assets, leases to explore for
or use natural resources and leases of some investment
property). The model would require lessees to
recognize an asset representing the right to use the
underlying property over the estimated lease term (the
right of use asset) and a liability to make future lease
payments in their balance sheet. Lessees would no
longer classify each lease as either operating or
capital, and the model would fundamentally change
the accounting and reporting of leases currently
classified as operating leases and substantially
increase both assets and liabilities of lessees. A lessor
would recognize an asset representing its right to
receive lease payments and, depending on its exposure
to risks or benefits associated with the underlying
asset, would either recognize a lease liability while
continuing to recognize the underlying asset
(performance obligation approach), or derecognize the
rights in the underlying asset that it transfers to the
lessee and continue to recognize a residual asset
representing its rights to the underlying asset at the
end of the lease term (derecognition approach).
Comments on this proposed ASU were due on Dec.
15, 2010. The effective date will be determined after
the FASB considers the feedback on this proposed
ASU.

Proposed ASU—How the Carrying Amount of a
Reporting Unit Should Be Calculated When
Performing Step 1 of the Goodwill Impairment Test

In October 2010, the FASB issued Proposed ASU,
“How the Carrying Amount of a Reporting Unit
Should Be Calculated When Performing Step 1 of the
Goodwill Impairment Test.” This proposed ASU
would clarify that the equity premise is the only
method an entity can use for purposes of calculating
the carrying amount of a reporting unit. The equity
premise reflects the net amount of all of the assets and
liabilities assigned to the reporting unit(s) of a
reporting entity. Additionally, this proposed ASU
would modify Step 1 of the goodwill impairment test

BNY Mellon

Recent Accounting and Regulatory Developments (continued)

for reporting units with zero or negative carrying
amounts. For those reporting units, an entity would be
required to perform Step 2 of the goodwill impairment
test if there are adverse qualitative factors that indicate
that it is more likely than not that a goodwill
impairment exists. The qualitative factors are
consistent with existing guidance. Lastly, this
proposed ASU does not allow any previously
recognized goodwill impairment taken as a result of
applying an alternative premise before adopting this
proposed ASU to be reversed. Comments on this
proposed ASU were due on Nov. 5, 2010. This
proposed ASU would be effective for annual and
interim periods beginning Jan. 1, 2011.

Proposed ASU—Clarifications to Accounting for
Troubled Debt Restructurings by Creditors

In October 2010, the FASB issued Proposed ASU,
“Clarifications to Accounting for Troubled Debt
Restructurings by Creditors.” This proposed ASU
would provide clarifying guidance for creditors when
determining whether they granted concessions and
whether the debtor is experiencing financial difficulty.
Comments on this proposed ASU were due on Dec.
13, 2010. The FASB has tentatively decided for
purposes of measuring impairment of a receivable
restructured in a troubled debt restructuring, this
proposed ASU would be effective on a prospective
basis for restructurings occurring on or after Jan. 1,
2011. Creditors would be precluded from using the
borrower’s effective rate test to assess whether a
restructuring is troubled. Furthermore, the proposed
ASU would specify that the absence of a market rate
for a loan with risks similar to the restructured loan is
an indicator of a troubled debt restructuring, but not a
determinative factor, and that the assessment should
consider all of the modified terms of the restructuring,
including any additional collateral or guarantees. For
purposes of identifying and disclosing troubled debt
restructurings, this proposed ASU would be effective
for interim and annual periods ending June 30, 2011.

Proposed ASU—Offsetting

In January 2011, the FASB issued Proposed ASU,
“Offsetting”. Under this proposal an entity would be
required to offset a recognized financial asset and a
recognized financial liability when it has an
unconditional and legally enforceable right of setoff
and intends either to settle the financial asset and
financial liability on a net basis or to realize the
financial asset and settle the financial liability
simultaneously. An entity that fails to satisfy either
criterion would be prohibited from offsetting the

74 BNY Mellon

financial asset and the financial liability in the
statement of financial position. This proposal would
require an entity to disclose information about
offsetting and related arrangements to enable users of
its financial statements to understand the effect of
those arrangements on its financial position.
Comments on this proposed ASU are due on April 28,
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

Evolving regulatory environment

On July 21, 2010, President Obama signed the Dodd-
Frank Wall Street Reform and Consumer Protection
Act (the “Dodd-Frank Act”). This new law broadly
affects the financial services industry by establishing a
framework for systemic risk oversight, creating a
resolution authority for institutions determined to be
systemically important, mandating higher capital and
liquidity requirements, requiring banks to pay
increased fees to regulatory agencies and containing
numerous other provisions aimed at strengthening the
sound operation of the financial services sector. It will
fundamentally change the system of oversight
described under “Business—Supervision and
Regulation” in Part I, Item 1 of our Annual Report on
Form 10-K. Many aspects of the law are subject to
further rulemaking and will take effect over several
years, making it difficult to anticipate the overall
financial impact to BNY Mellon or across the
industry.

We are currently assessing the following regulatory
developments, which may have an impact on BNY
Mellon’s business.

FDIC assessment base and rates changes

On Feb. 7, 2011 the FDIC approved a final rule on
Assessments, Dividends, Assessment Base and Large
Bank Pricing. The rule implements changes to the
deposit insurance assessment system that mandates
the Dodd-Frank Act to require the FDIC to amend the
assessment base used for calculating deposit insurance
assessments. Consistent with the Dodd-Frank Act, the
rule defines the assessment base to be average
consolidated total assets of the insured depository

Recent Accounting and Regulatory Developments (continued)

institution during the assessment period, minus
average tangible equity and in certain cases,
adjustments for custody and banker’s banks.

The FDIC rule adjusts the assessment base for custodial
banks in recognition of the fact that such banks need to
hold liquid assets to facilitate the payments and
processes associated with their custody and safekeeping
accounts. The rule limits the custody bank assessment
adjustment to 0% risk-weighted assets plus 50% of those
assets with a Basel risk-weighting of 20%, up to the
average amount of deposit transaction accounts on the
custodial bank’s balance sheet which can be directly
linked to fiduciary or custody and safekeeping accounts.

The rule also adjusts the assessment rates to mitigate
the impact of the expanded assessment base on the
overall amount of assessment revenue. The base rate
schedule, which includes adjustments for unsecured
debt, depository institution debt and brokered
deposits, also creates a separate category for large and
highly complex institutions ( this category would
include both The Bank of New York Mellon and BNY
Mellon, N.A.). The proposal provides a broad range of
assessment rates (2.5-45 basis points) for large and
highly complex institutions.

BNY Mellon expects the FDIC assessment rule to
have a minimal impact in 2011.

FDIC Restoration Plan

On Oct. 19, 2010, the FDIC proposed a
comprehensive, long-range plan for Deposit Insurance
Fund management and adopted a Restoration Plan.
The Restoration Plan will forego the uniform 3 basis
point assessment rate increase previously scheduled to
go in effect Jan. 1, 2011, and keep the current rate
schedule in effect. Current assessment rates will
remain in effect until the reserve ratio reaches 1.15%,
which is expected to occur at the end of 2018. The
Restoration Plan also increases the designated reserve
ratio, pursuant to the requirements of the Dodd-Frank
Act, to 1.35% by Sept. 30, 2020, rather than 1.15% by
the end of 2016, and calls for the FDIC to pursue
further rulemaking in 2011 regarding the statutory
requirement that the FDIC offset the effect on small
institutions of this requirement. The Restoration Plan
is effective immediately.

Federal Reserve’s assessment of comprehensive
capital plans

On Nov. 17, 2010, the Federal Reserve issued Revised
Temporary Addendum to SR letter 09-4. The letter

described the process the Federal Reserve will follow
to assess comprehensive capital plans of the
19 Supervisory Capital Assessment Program bank
holding companies including any request to take
capital actions such as increased dividends or stock
buybacks. The comprehensive capital plans, which
were prepared using Basel I capital guidelines,
included bank developed baseline and stress
projections as well as a supervisory stress projection
using adverse macroeconomic assumptions provided
by the Federal Reserve.

The Company also provided the Federal Reserve with
projections covering the time period it will take us to
fully comply with Basel III capital guidelines,
including the 7% Tier 1 common, 8.5% Tier 1 and 3%
leverage ratios. Certain templates were submitted to
the Federal Reserve on Dec. 22, 2010, and the capital
plan was filed by Jan. 7, 2011. The Federal Reserve is
expected to provide a response to first quarter capital
actions, such as a dividend increase and share
repurchases, no later than March 21, 2011, and
feedback on the comprehensive capital plan by
April 30, 2011.

Establishment of a Risk-Based Capital Floor

In December 2010, the regulatory agencies issued a
notice of proposed rulemaking (“NPR”) which would
amend the advanced risk-based capital adequacy
standards to be consistent with provisions of the
Dodd-Frank Act and also amend the general risk-
based capital rules to provide additional flexibility and
to create capital requirements for certain assets not
held by depository institutions. The NPR would revise
the advanced approaches rule by replacing the
transitional floors set forth by the Basel Committee
with a permanent risk-based capital floor.

The Dodd-Frank Act states that applicable agencies
will establish minimum risk-based capital
requirements that shall not be less than the “generally
applicable” capital requirements, which shall serve as
a floor for any capital requirements the agencies may
require. The proposed permanent floor will equal the
Tier 1 and total risk-based capital requirements under
the current generally applicable risk-based capital
rules. Each quarter the minimum Tier 1 capital ratio
and the total risk-based capital ratio must be
calculated under both the general risk-based capital
rules and the advanced approaches risk-based capital
rules and then the lower of both the Tier 1 and total
risk-based capital ratios must be used.

BNY Mellon

Recent Accounting and Regulatory Developments (continued)

Comments on the NPR must be received by Feb. 28,
2011. This NPR is not expected to have a significant
impact on banking organizations.

FDIC’s Executive Compensation Proposal

The Dodd-Frank Act requires federal regulators to
prescribe regulations or guidelines regarding
incentive-based compensation practices at certain
financial institutions. On Feb. 7, 2011, the FDIC
issued an interagency NPR which, among other
things, would require certain executive officers of
covered financial institutions with total consolidated
assets of $50 billion or more, such as ours, to defer at
least 50% of their annual incentive-based
compensation for a minimum of three years. The NPR
will be published for a 45-day comment period
following approval by all of the other agencies
involved in the rulemaking, including the Federal
Reserve and the SEC.

Capital requirements

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 Basel II that sets capital
requirements for operational risk and refines the
existing capital requirements for credit risk. In the
United States, regulators are mandating the adoption of
Basel II 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. In December
2010, the Basel Committee released its final framework
for strengthening international capital and liquidity
regulation, now officially identified by the Basel
Committee as “Basel III”. Additional information on
Basel II and Basel III is presented below.

Basel II

In the U.S., Basel II became effective on April 1,
2008. Under the final rule, 2009 was the first year for
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. As previously
mentioned, the regulatory agencies have proposed to
eliminate the transitional floor periods under Basel II.

76 BNY Mellon

Beginning Jan. 1, 2008 we implemented the Basel II
Standardized Approach in the United Kingdom,
Belgium and Luxembourg. In the U.S., BNY Mellon
began the Basel II parallel run in the second quarter of
2010. Our capital models are currently with the
Federal Reserve for their approval. Under Basel II
guidelines, our risk-weighted assets for credit risk
exposures are expected to decline. However, we
expect the Basel II requirement that operational risk
be included in risk-weighted assets will more than
offset the decline in credit exposure. Under Basel I,
securitizations that fall below investment grade are
included in risk-weighted assets. Under Basel II,
securitizations that fall below investment grade are
deducted 50% from Tier 1 and 50% from total capital.

Based on our current estimates for Basel II at Dec. 31,
2010, our Tier 1 and Total capital ratios would have
exceeded well-capitalized guidelines.

Basel III

Under Basel III standards, when fully phased in on
Jan. 1, 2019, banking institutions will be required to
satisfy three risk-based capital ratios:

Š A Tier 1 common equity ratio of at least 7.0%,
4.5% attributable to a minimum Tier 1 common
equity ratio and 2.5% attributable to a “capital
conservation buffer”;

Š A Tier 1 capital ratio of at least 6.0%, exclusive
of the capital conservation buffer (8.5% upon
full implementation of the capital conservation
buffer); and

Š A total capital ratio of at least 8.0%, exclusive of
the capital conservation buffer (10.5% upon full
implementation of the capital conservation
buffer).

Basel III also provides for a “countercyclical capital
buffer,” generally to be imposed when national
regulators determine that excess aggregate credit
growth becomes associated with a buildup of systemic
risk, that would be a Tier 1 capital add-on to the
capital conservation buffer in the range of 0% to 2.5%
when fully implemented (potentially resulting in total
buffers of between 2.5% and 5%).

The capital conservation buffer is designed to absorb
losses during periods of economic stress. Banking
institutions with a Tier 1 common equity ratio above
the minimum but below the conservation buffer (or
below the combined capital conservation buffer and
countercyclical capital buffer, when the latter is
applied) will face constraints on dividends, equity
repurchases and compensation based on the amount of
the shortfall.

Recent Accounting and Regulatory Developments (continued)

The phase-in of the new rules is to commence on Jan.
1, 2013. On that date, banking institutions will be
required to meet the following minimum capital
ratios:

Š 3.5% Tier 1 common equity to risk-weighted

assets;

Š 4.5% Tier 1 capital to risk-weighted assets; and
Š 8.0% Total capital to risk-weighted assets.

The phase-in of the capital conservation buffer will
commence on Jan. 1, 2016, and the rules will be fully
phased-in by Jan. 1, 2019.

For systemically important banks, the Federal Reserve
may increase the capital buffer. The purpose of these
new capital requirements is to ensure financial
institutions are better capitalized to withstand periods
of unfavorable financial and economic conditions.
These capital rules are subject to interpretation and
implementation by U.S. regulatory authorities.

Under Basel III, certain items, to the extent they
exceed 10% of Tier 1 capital individually, or 15% of
Tier 1 capital in the aggregate, would be deducted
from our capital. These items include:

Š Deferred tax assets that arise from timing

differences; and

Š Significant investments in unconsolidated

financial institutions.

At Dec. 31, 2010, BNY Mellon did not exceed the
15% threshold, but we exceeded the 10% threshold
for significant investment in unconsolidated financial
institutions by approximately $500 million.

Also, pension assets recorded on the balance sheet are
a deduction from capital, and Basel III does not add
back to capital the adjustment to other comprehensive
income that Basel I and Basel II make for pension
liabilities and available-for-sale-securities.

Similar to Basel II, the Basel III proposal also
incorporates the risk-weighted asset impact of
operational risk, which will be partially offset by a
decline in credit exposure.

Additionally, Basel III changes the treatment of
securitizations that fall below investment grade.
Under Basel II guidelines, securitizations that fall
below investment grade are deducted equally from
Tier I and total capital. However, under Basel III,
banking institutions will be required to apply a
1,250% risk weight to these securitizations and
include them as a component of risk-weighted assets.

Our fee-based model enables us to maintain a
relatively low risk asset mix, primarily composed of
high-quality securities, central bank deposits, liquid
placements and predominantly investment grade
loans. As a result of our asset mix, we have the
flexibility to manage to a lower level of risk-weighted
assets over time.

Given that the Basel III rules are subject to change,
we cannot be certain of the impact the new regulations
will have on our capital ratios. However, given our
balance sheet strength and ongoing internal capital
generation, we currently estimate that our Tier 1
common ratio, under Basel III guidelines, will be
above 7% by Dec. 31, 2011. This estimated ratio
includes an anticipated dividend increase and potential
share repurchases in 2011, assuming Federal Reserve
approval.

Leverage Requirement

Basel I and Basel II do not include a leverage
requirement as an international standard. However,
even though a leverage requirement has not been an
international standard in the past, the U.S. banking
agencies’ capital regulations do require bank holding
companies and banks to comply with a minimum
leverage ratio requirement (Basel III will impose a
leverage requirement as an international standard).
The Federal Reserve Board’s existing leverage ratio
for bank holding companies is that the bank holding
company maintain a ratio of Tier 1 capital to its total
consolidated quarterly average assets (as defined for
regulatory purposes), net of the loan loss reserve,
goodwill and certain other intangible assets. The rules
require a minimum leverage ratio of 3% for bank
holding companies that either have the highest
supervisory rating or have implemented the Federal
Reserve Board’s risk-adjusted measure for market
risk. All other bank holding companies are required to
maintain a minimum leverage ratio of 4%. The
Federal Reserve Board has not advised us of any
specific minimum leverage ratio applicable to us. At
Dec. 31, 2010, our leverage ratio was 5.8%. Also, the
rules indicate that the Federal Reserve Board will
consider a “tangible Tier 1 leverage ratio” in
evaluating proposals for expansion or new activities.
The tangible Tier 1 leverage ratio is the ratio of a
banking organization’s Tier 1 capital (excluding
intangibles) to total assets (excluding intangibles).

IFRS

International Financial Reporting Standards (“IFRS”)
are a set of standards and interpretations adopted by
the International Accounting Standards Board. The

BNY Mellon

Recent Accounting and Regulatory Developments (continued)

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
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. 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 through the end
of 2011, when the SEC plans to consider requiring
U.S. public companies to adopt IFRS.

In February 2010, the SEC issued a statement
confirming their position that they continue to believe
that a single set of high-quality, globally accepted
accounting standards would benefit U.S. investors.
The SEC continues to support the dual goals of
improving financial reporting in the U.S. and reducing
country-by-country disparities in financial reporting.
The SEC is developing a work plan to aid in its
evaluation of the impact of IFRS on the U.S.
securities market. If the SEC determines in 2011 to
incorporate IFRS into the U.S. financial reporting
system, and the work plan validates the four-to-five
year timeline for implementation, the first time that
U.S. companies would be required to report under
IFRS would be no earlier than 2015.

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. Such countries
include Belgium, Brazil, the Netherlands, Australia
and Hong Kong. Other countries that have established
an IFRS conversion time frame which will affect our
statutory reporting include Canada (2011), South
Korea (2011), Argentina (2012), the United Kingdom
(2013), Ireland (2013) and Taiwan (2013).

78 BNY Mellon

Selected Quarterly Data (unaudited)

(dollar amounts in millions,
except per share amounts)
Consolidated income statement
Total fee and other revenue
Income of consolidated asset management

funds

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

Net income (loss) from continuing

operations

Net loss from discontinued operations

Net income (loss)

Net (income) loss attributable to

noncontrolling interests

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

Net income (loss) applicable to common

stock

Diluted earnings per share
Continuing operations
Discontinued operations

Net income (loss) applicable to common

2010

2009

Quarter ended

Dec. 31

Sept. 30

June 30 March 31

Dec. 31

Sept. 30

June 30

March 31

$ 2,972

$ 2,668

$ 2,555

$ 2,529

$ 2,577

$ (2,223)

$ 2,253

$ 2,132

59
720
3,751
(22)
2,803

970
265

705
(11)
694

(15)
-

37
718
3,423
(22)
2,611

834
220

614
(3)
611

11
-

65
722
3,342
20
2,316

1,006
304

702
(10)
692

(34)
-

65
765
3,359
35
2,440

884
258

626
(42)
584

(25)
-

-
724

3,301
65
2,564

672
(41)

713
(119)

594

(1)
-

-
716

(1,507)
147
2,311

(3,965)
(1,527)

(2,438)
(19)

(2,457)

(1)
-

-
700

2,953
61
2,379

513
12

501
(91)

410

2
(236)

-
775

2,907
59
2,276

572
161

411
(41)

370

(1)
(47)

679

0.55
(0.01)

622

0.51
-

0.55 (a) $

0.51

0.55
(0.01)

0.51
-

658

0.55
(0.01)

0.54

0.55
(0.01)

559

0.50
(0.04)

0.46

0.49
(0.03)

593

$ (2,458)

0.59
(0.10)

(2.04)
(0.02)

176

0.23
(0.08)

0.49

(2.05) (a) $

0.15

0.59
(0.10)

(2.04)
(0.02)

0.23
(0.08)

322

0.31
(0.04)

0.28 (a)

0.31
(0.04)

stock

0.54

0.51

0.54

0.46

0.49

(2.05) (a) $

0.15

0.28 (a)

$ 76,447
65,370
37,529
187,597
241,734
256,409
151,401
16,624

$ 70,244
57,993
36,769
172,759
226,378
240,325
137,231
16,798

$ 69,021
54,030
36,664
167,119
216,801
228,841
134,591
16,462

$ 67,929
55,352
34,214
163,429
212,685
225,415
134,364
16,808

$ 66,897
55,573
35,239
164,075
214,205
214,205
133,395
17,863

$ 61,319
53,889
34,535
155,159
205,786
205,786
128,552
17,393

$ 63,255
51,903
37,029
157,265
208,533
208,533
131,748
16,793

$ 79,697
43,465
38,958
167,427
220,119
220,119
145,034
15,493

32,379

31,868

30,462

29,715

28,843

28,144

26,566

25,189

1.54%
8.5%
26%

1.67%
7.8%
24%

1.74%
8.8%
30%

1.89%
8.2%
26%

1.77%
9.8%
20%

1.85%
N/M
N/M

1.80%
4.0%
17%

1.87%
5.8%
20%

Average balances
Interest-bearing deposits with banks
Securities
Loans
Total interest-earning assets
Assets of operations
Total assets
Deposits
Long-term debt
Total The Bank of New York Mellon
Corporation shareholders’ equity

Net interest margin (FTE) (b)
Annualized return on common equity (b)
Pre-tax operating margin (b)
Common stock data (c)
Market price per share range:

High
Low
Average
Period end close

$ 30.63
24.65
27.49
30.20
0.09
$ 37,494

$ 26.95
23.78
25.44
26.13
0.09
$ 32,413

$ 32.65
24.63
29.01
24.69
0.09
$ 29,975

$ 31.46
26.35
29.20
30.88
0.09
$ 37,456

$ 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

Dividends per common share
Market capitalization (d)
(a) Amount does not foot due to rounding.
(b) Continuing operations basis.
(c) At Dec. 31, 2010, there were 26,125 shareholders registered with our stock transfer agent, compared with 27,727 at Dec. 31, 2009, and 29,428 at Dec.
31, 2008. In addition, there were approximately 44,051 of BNY Mellon’s current and former employees at Dec. 31, 2010, 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.

(d) At period end.

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;
BNY Mellon’s plans and strategies, product launches,
areas of focus and long-term financial goals;
expectations with respect to litigation costs, the
impact of FSCS levies and our effective tax rate for
2011; statements on the planned conversion of our
wealth management acquisition and revenue expected
from this acquisition; expectations with respect to fees
and assets, factors affecting the performance of our
businesses: the impact of foreign exchange rates on
our financial results and levels of assets under custody
and management; 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, effects of delinquencies, default rates and
loss severity assumptions on impairment losses; and
long-term financial goals, objectives and strategies. In
addition, these forward-looking statements relate to:
our focus on increasing the percentage of revenue and
income from outside the U.S.; expectations with
respect to climate change, reasons why our businesses
are compatible with our strategies and goals; growth
in our businesses and assets; globalization of the
investment process; deposit levels; expectations with
respect to earnings per share; assumptions with
respect to pension plans, including expenses and
expected future returns; 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 credit strategies; goals
with respect to our commercial loan portfolios;
descriptions of our allowance for credit losses and
loan losses; statements with respect to an increase in
our dividends and our liquidity targets; the effect of a
significant reduction in our securities servicing
business on our access to deposits; the impact of a
change in rating agencies’ method of review on BNY
Mellon’s ratings; expectations with respect to capital,
including anticipated repayment and call of
outstanding 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; statements
on our target double leverage ratios and our target
capital ratios; expectations with respect to the well

80 BNY Mellon

capitalized status of BNY Mellon and its bank
subsidiaries; plans for and the effects of the
implementation of Basel II and Basel III; compliance
with the requirements of the Sound Practices Paper;
statements regarding maintaining a strong balance
sheet and a superior debt rating; descriptions of our
risk management framework; statements regarding
risks that we may face and the impact of such risks;
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 business
continuity plans; the effect of geopolitical factors and
other external factors on risk; timing and impact of
adoption of recent accounting pronouncements; the
overall financial impact of Dodd-Frank; the FDIC’s
rule regarding adjustments to the assessment base and
the impact of the assessment rule; timing of the
Federal Reserve’s response to capital actions and
feedback on the capital plan; the FDIC’s amendments
to the risk-based capital standards and its impact on
banking organizations; the FDIC’s proposal regarding
incentive-based compensation; the impact of Basel II
guidelines on risk-weighted assets; the Federal
Reserve’s plan regarding capital buffer; the SEC’s
plans regarding IFRS; ability to realize benefit of
deferred tax assets including carryovers; calculations
of the fair value of our option grants; statements with
respect to unrecognized tax benefits and compensation
costs; our assessment of the adequacy of our accruals
for tax liabilities; amount of dividends bank
subsidiaries can pay without regulatory waiver;
estimations of reasonable possible loss with respect to
legal proceedings and 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

Forward-looking Statements (continued)

Mellon, can be found in the “Risk Factors” section of
BNY Mellon’s Annual Report on Form 10-K for the
year ended Dec. 31, 2010, 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.

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”)—Includes
assets beneficially owned by our clients or customers
which we hold in various capacities that are either
actively or passively managed, as well as the value of
hedges supporting customer liabilities. These assets
and liabilities 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 acts as an independent collateral manager
positioned between the buyer and seller to ensure
proper collateralization throughout the term of the
transaction. Services include verification of securities
eligibility and maintenance of margin requirements.

Collateralized Debt Obligations (“CDOs”)—A type
of asset-backed security and structured credit product

82 BNY Mellon

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.

Dodd-Frank Wall Street Reform and Consumer
Protection Act (the “Dodd-Frank Act”)—
Regulatory reform legislation signed into law on
July 21, 2010. This new law broadly affects the
financial services industry by establishing a
framework for systemic risk oversight, creating a

Glossary (continued)

resolution authority, mandating higher capital and
liquidity requirements, requiring banks to pay
increased fees to regulatory agencies and containing
numerous other provisions aimed at strengthening the
sound operation of the financial services sector.

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.

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.

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.

eXtensible Business Reporting Language
(“XBRL”)—a language for the electronic
communication of business and financial data.

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.

Foreign exchange contracts—Contracts that provide
for the future receipt or delivery of foreign currency at
previously agreed-upon terms.

Forward rate agreements—Contracts to exchange
payments on a specified future date, based on a
market change in interest rates from trade date to
contract settlement date.

Fully Taxable Equivalent (“FTE”)—Basis for
comparison of yields on assets having ordinary

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
diverse strategies that are unavailable to mutual funds,
including selling short, leverage, program trading,
swaps, arbitrage and derivatives. Hedge funds are
exempt from many of the rules and regulations
governing mutual funds, which allow them to
accomplish aggressive investing goals. Legal
requirements in many countries allow only certain
sophisticated investors to participate in hedge funds.

Impairment—When an asset’s market value is less
than its carrying value.

Interest rate options, including caps and floors—
Contracts to modify interest rate risk in exchange for
the payment of a premium when the contract is
initiated. As a writer of interest rate options, we
receive a premium in exchange for bearing the risk of
unfavorable changes in interest rates. Conversely, as a
purchaser of an option, we pay a premium for the
right, but not the obligation, to buy or sell a financial
instrument or currency at predetermined terms in the
future.

Interest rate sensitivity—The exposure of net
interest income to interest rate movements.

Interest rate swaps—Contracts in which a series of
interest rate flows in a single currency is exchanged
over a prescribed period. Interest rate swaps are the
most common type of derivative contract that we use
in our asset/liability management activities. An
example of a situation in which we would utilize an
interest rate swap would be to convert our fixed-rate
debt to a variable rate. By entering into a swap, the
principal amount of a debt remains unchanged, but the
interest stream changes.

BNY Mellon

Glossary (continued)

Investment grade loans and commitments—Those
where the customer has a Moody’s long-term rating of
Baa3 or better; and/or a Standard & Poor’s long-term
rating of BBB- or better; or if unrated, an equivalent
rating using our internal risk ratings.

Joint venture—A company or entity owned and
operated by a group of companies for a specific
business purpose, no one of which has a majority
interest.

Lease-In-Lease-Out (“LILO”) transaction—A
transaction in which a person or entity leases property
from the owner for a specified time period and then
leases the property back to that owner for a shorter
time period. The obligations of the property owner as
sublessee are usually secured by deposits, letters of
credit, or marketable securities.

Leverage ratio—Tier 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.

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.

84 BNY Mellon

N/M—Not meaningful.

Net interest margin—The result of dividing net
interest revenue by average interest-earning assets.

Non-investment grade loans and commitments—
Those where the customer has a Moody’s long-term
rating below Baa3; and/or a Standard & Poor’s long
term rating below BBB-; or if unrated, an equivalent
rating using our internal risk ratings.

Operating leverage—The rate of increase in revenue
to the rate of increase in expenses.

Operational risk—The risk of loss resulting from
inadequate or failed processes or systems, human
factors or external events.

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.

Rating Agency—An independent agency that
assesses the credit quality and likelihood of default of
an issue or issuer and assigns a rating to that issue or
issuer.

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.

Glossary (continued)

Restructuring charges—Typically result from the
consolidation and/or relocation of operations.
Restructuring charges may be incurred in connection
with a business combination, a change in an
enterprise’s strategic plan or a managerial response to
declines in demand.

Return on assets—Income divided by average assets.

Return on common equity—Income divided by
average common shareholders’ equity.

Return on tangible common equity—Income,
excluding amortization of intangible assets, 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.

Subcustodian—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.

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, 2010, 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,
2010. 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 2010
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 87.

86 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, 2010, 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, 2010, 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, 2010 and 2009, 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, 2010, and our report dated February 28, 2011 expressed an unqualified opinion on
those consolidated financial statements.

New York, New York
February 28, 2011

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 revenue
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

Operations of consolidated asset management funds
Investment income
Interest of asset management fund note holders

Income of consolidated asset management funds

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
Software
Distribution and servicing
Furniture and equipment
Business development
Sub-custodian
Other

Subtotal

Amortization of intangible assets
Restructuring charges
Merger and integration expenses

Total noninterest expense

Income
Income (loss) from continuing operations before income taxes
Provision (benefit) for income taxes

Net income (loss) from continuing operations

Discontinued operations:

Income (loss) from discontinued operations
Provision (benefit) for income taxes

Net income (loss) from discontinued operations

Extraordinary (loss) on consolidation of commercial paper conduit, net of tax

Net income (loss)

Net (income) attributable to noncontrolling interests ($(59) for year ended Dec. 31, 2010 related to

asset management funds)

Redemption charge and preferred dividends

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

Corporation

88 BNY Mellon

Year ended Dec. 31,

2010

2009

2008

$ 3,089
1,460
1,005
5,554
2,868
886
517
210
195
308
159
10,697
(43)
(70)
27
10,724

$ 2,573
1,463
962
4,998
2,677
1,036
519
326
215
226
111
10,108
(5,552)
(183)
(5,369)
4,739

$ 3,370
1,685
1,065
6,120
3,218
1,462
514
421
186
207
214
12,342
(1,628)

(1,628)
10,714

663
437
226

3,533
608
2,925
11
2,914

5,215
1,099
588
410
377
315
271
247
1,060
9,582
421
28
139
10,170

3,694
1,047
2,647

(110)
(44)
(66)
-
2,581

(63)
-

-
-
-

3,507
592
2,915
332
2,583

4,700
1,017
564
367
393
309
214
203
954
8,721
426
150
233
9,530

(2,208)
(1,395)
(813)

(421)
(151)
(270)
-

(1,083)

(1)
(283)

-
-
-

5,524
2,665
2,859
104
2,755

5,189
1,021
570
331
517
323
278
255
1,902
10,386
473
181
483
11,523

1,946
491
1,455

28
14
14
(26)
1,443

(24)
(33)

$ 2,518

$ (1,367)

$ 1,386

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 (a)

(in dollars)

Basic:

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

Net income (loss) applicable to common stock

Diluted:

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

Net income (loss) applicable to common stock

Average common shares and equivalents outstanding
of The Bank of New York Mellon Corporation

(in thousands)

Basic
Common stock equivalents
Participating securities

Diluted

Anti-dilutive securities (d)

Reconciliation of net income (loss) from continuing operations applicable to the

common shareholders of The Bank of New York Mellon Corporation

(in millions)

Net income (loss) from continuing operations
Net (income) loss attributable to noncontrolling interests
Redemption charge and preferred dividends

Net income (loss) from continuing operations applicable to common

shareholders of The Bank of New York Mellon Corporation

Net income (loss) from discontinued operations
Extraordinary (loss), net of tax

Net income (loss) applicable to the common shareholders

of The Bank of New York Mellon Corporation

Year ended Dec. 31,

2010

2009

2008

2.11
(0.05)

2.06

2.11
(0.05)

(0.93)
(0.23)

1.21
0.01
(0.02)

(1.16)

1.20

(0.93)
(0.23)

1.21
0.01
(0.02)

2.05 (b) $

(1.16)

1.20

Year ended Dec. 31,

2010

2009

2008

1,212,630
9,508
(5,924)

1,178,907
-
-

1,142,239
10,383
(4,264)

1,216,214

1,178,907 (c) 1,148,358

87,058

98,112

83,763

Year ended Dec. 31,

2010

2,647
(63)
-

2,584
(66)
-

2009

(813)
(1)
(283)

(1,097)
(270)
-

2008

1,455
(24)
(33)

1,398
14
(26)

2,518

(1,367)

1,386

(a) Basic and diluted earnings per share under the two-class method were calculated after deducting earnings allocated to participating

securities of $23 million in 2010, $- million in 2009 and $10 million in 2008.

(b) Does not foot due to rounding.
(c) 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.

(d) Represents stock options, restricted stock, restricted stock units, participating securities and warrants outstanding but not included in

the computation of diluted average common shares because their effect would be anti-dilutive.

See accompanying Notes to Consolidated Financial Statements.

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

Interest-bearing deposits with banks
Federal funds sold and securities purchased under resale agreements
Securities:

Held-to-maturity (fair value of $3,657 and $4,240)
Available-for-sale (Dec. 31, 2010 includes $483 previously securitized)

Total securities

Trading assets
Loans
Allowance for loan losses

Net loans

Premises and equipment
Accrued interest receivable
Goodwill
Intangible assets
Other assets (includes $1,075 and $863, at fair value)
Assets of discontinued operations
Subtotal assets of operations

Assets of consolidated asset management funds, at fair value:

Trading assets
Other assets

Subtotal assets of consolidated asset management funds, at fair value

Total assets

Liabilities
Deposits:

Noninterest-bearing (principally domestic offices)
Interest-bearing deposits in domestic offices
Interest-bearing deposits in foreign offices

Total deposits

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 $73 and $125,

also includes $590 and $610, at fair value)

Long-term debt (Dec. 31, 2010 includes $269 at fair value)
Liabilities of discontinued operations
Subtotal liabilities of operations

Liabilities of consolidated asset management funds, at fair value:

Trading liabilities
Other liabilities

Subtotal liabilities of consolidated asset management funds, at fair value

Total liabilities

Temporary equity:
Redeemable noncontrolling interests
Permanent equity:
Common stock – par value $0.01 per common share; authorized 3,500,000,000 common shares;

issued 1,244,608,989 and 1,208,861,641 common shares

Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss, net of tax
Less: Treasury stock of 3,078,794 and 1,026,927 common shares, at cost

Total The Bank of New York Mellon Corporation shareholders’ equity

Non-redeemable noncontrolling interests
Non-redeemable noncontrolling interests of consolidated asset management funds

Total permanent equity
Total liabilities, temporary equity and permanent equity

See accompanying Notes to Consolidated Financial Statements.

90 BNY Mellon

Dec. 31,

2010

2009

$ 3,675
18,549
50,200
5,169

$ 3,732
7,362
56,302
3,535

3,655
62,652
66,307
6,276
37,808
(498)
37,310
1,693
508
18,042
5,696
18,790
278
232,493

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

14,121
645
14,766
$247,259

-
-
-
$212,224

$ 38,703
37,937
68,699
145,339
5,602
6,911
9,962
10
2,858
6,164

7,176
16,517
-
200,539

13,561
2
13,563
214,102

$ 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

-
-
-
183,221

12
22,885
10,898
(1,355)
(86)
32,354
12
699
33,065
$247,259

12
21,917
8,912
(1,835)
(29)
28,977
26
-
29,003
$212,224

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 income (loss) from discontinued operations
Extraordinary (loss), net of taxes
Net 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 income tax (benefit) expense
Net securities (gains) 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
Net principal received from 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 (used for) provided by 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 (repurchased) issued
Common stock warrant (repurchased) issued
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

See accompanying Notes to Consolidated Financial Statements.

Year ended Dec. 31,

2010

2009

2008

$ 2,581
(63)
(66)
-
2,584

$ (1,083)
(1)
(270)
-
(814)

$ 1,443
(24)
14
(26)
1,431

11
629
1,199
(57)
(155)
(46)
(115)
-
4,050

7,073
(11,187)
(2,153)
(19)
255
316
(23,585)
5,981
7,944
2,666
2,463
511
(1,634)
(160)
(230)
(2,793)
133
14
(591)
59
(14,937)

8,527
2,058
(762)
1,988
(2)
1,347
(2,614)
31
697
1
(41)
(440)
-
-
-
-
10,790
40

332
711
(1,970)
5,387
(636)
(394)
1,192
(27)
3,781

(9,635)
45,908
(680)
(114)
643
280
(28,665)
3,975
6,361
2,001
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)

(57)
3,732
$ 3,675

(1,157)
4,889
$ 3,732

(1,746)
6,635
$ 4,889

591
699
197

682
2,392
664

$ 2,682
2,455
65

BNY Mellon

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

Consolidated Statement of Changes in Equity

The Bank of New York Mellon Corporation
shareholders

Additional

Common
stock
$12

paid-in Retained
capital earnings
$21,917 $ 8,912

Accumulated
other
comprehensive
income (loss), Treasury
stock
$(29)

net of tax
$(1,835)

-
12

-
21,917

(73)
8,891

(1,811)

-
(29)

(in millions, except per share amounts)
Balance at Dec. 31, 2009
Adjustments for the cumulative
effect of applying ASC 810
Adjustments for the cumulative
effect of applying ASC 825
Adjusted balance at Jan. 1, 2010
Shares issued to shareholders of

noncontrolling interests

Redemption of subsidiary shares
from noncontrolling interests

Distributions paid to

noncontrolling interests

Other net changes in

noncontrolling interests

Consolidation of asset
management funds
Deconsolidation of asset
management funds
Comprehensive income:

Net income
Other comprehensive
income, net of tax
Reclassification

adjustment (b)
Total comprehensive income

Dividends on common stock at

$0.36 per share

Repurchase of common stock
Common stock issued under:
Stock forward contract
Employee benefit plans
Direct stock purchase and

dividend reinvestment plan

Stock awards and options

exercised

-
-

(18)

-
-

676
34

(55)

2,518

(14)
2,504

(441)
-

-
-

Non-
redeemable
non-
controlling
interest of
redeemable consolidated
asset

Non-

non-
controlling

Total
manage- permanent
equity
$29,003 (a)

interest ment funds
-

$ 26

Redeemable
non-
controlling
interests/
temporary
equity
$

-
26

(4)

(10)

-
-

(73)
29,006

(18)

(4)

(89)

(139)

785

(12)

2,577

(44)

417

-
15

(19)
2,975 (c)

-
-

(441)
(41)

676
35

227

(6)

-
-

-
(41)

-
1

461

(5)
456

-
-

Balance at Dec. 31, 2010
(a) Includes total The Bank of New York Mellon common shareholders’ equity of $28,977 million at Dec. 31, 2009, and $32,354 million at

$699 $33,065 (a)

$(1,355)

-
$12

245

(1)
$22,885 $10,898

(17)
$(86)

-
$ 12

$92

Dec. 31, 2010.

(b) Includes $(15) million (after tax) related to OTTI, and a $14 million reclassification to retained earnings from other comprehensive

income.

(c) Comprehensive income attributable to The Bank of New York Mellon Corporation shareholders totaled $2,960 million for the year

ended Dec. 31, 2010.

See accompanying Notes to Consolidated Financial Statements.

92 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

(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 interests

Distributions paid to noncontrolling interests
Comprehensive income:

Net income
Other comprehensive income, net of tax

Reclassification adjustment

Total comprehensive income

Dividends:

Common stock at $0.51 per share
Preferred stock at $24.58 per share

Repurchase of:

Common stock
Series B preferred stock
Common stock warrant

Common stock issued:
In public offering
In connection with acquisitions and

investments

Under employee benefit plans
Under direct stock purchase and
dividend reinvestment plan

Amortization of preferred stock discount and

redemption charge

Additional

Preferred Common
stock
$11

stock
$ 2,786

paid-in Retained
earnings
capital
$20,432 $10,225

Accumulated
other
comprehensive
Total
income (loss), Treasury noncontrolling permanent
equity
$28,089 (a)

net of tax
$(5,401)

Non-
redeemable

interests
$ 39

stock
$ (3)

-
2,786

-
11

-
20,432

676
10,901

(676)
(6,077)

-
(3)

-
-

-
-
-
-

-
-

(3,000)

-
-

-
-
-
-

-
-

-
-
-

(74)
-

-
-

-
-
-
-

-
-

(1,084)

-
-

(1,084)

(599)
(69)

-
-
(136)

1,346

-
-

85
49

-
-
-

-
-

-
926
3,316
4,242

-
-

-
-
-

-
-

-
-
-
-

-
-

(28)
-
-

-
2

-
39

(11)
(7)

28,089

(85)
(7)

1
4
-
5

-
-

-
-
-

-
-

(1,083)
930
3,316 (b)
3,163 (c)

(599)
(69)

(28)
(3,000)
(136)

1,347

85
51

Stock awards and options exercised
Other
Balance at Dec. 31, 2009
(a) Includes total common shareholders’ equity of $25,264 million at Dec. 31, 2008, and $28,977 million at Dec. 31, 2009.
(b) Includes $3,348 million (after tax) related to OTTI that was reclassified to net securities gains (losses) on the income statement.
(c) Comprehensive income attributable to The Bank of New York Mellon Corporation shareholders totaled $3,158 million for the year

$(1,835)

-
-
-
$12

-
197
(1)

(214)
-
(23)
$21,917 $ 8,912

-
-
-
$(29)

214
-
-
-

-
-
-
$ 26

197
(24)
$29,003 (a)

-
-
-

ended Dec. 31, 2009.

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

(in millions, except per share amounts)
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

noncontrolling interests

Distributions paid to noncontrolling interest
Comprehensive income:

Net income
Other comprehensive income, net of tax

Reclassification adjustment

Total comprehensive income

Dividends:

Common stock at $0.96 per share
Preferred stock at $8.75 per share

Repurchase of common stock
Common stock issued under:
Employee benefit plans
Direct stock purchase and dividend

Preferred Common
stock
$11

stock
-

Additional

paid-in Retained
earnings
capital
$19,990 $ 9,990

Accumulated
other
comprehensive
Total
income (loss), Treasury noncontrolling permanent
equity
$29,585 (a)

net of tax
$ (549)

Non-
redeemable

interests
$ 182

stock
$ (39)

-
-

-
-
-
-

-
-
-

-
11

-
19,990

(57)
9,933

-
(549)

-
(39)

-
-

-
-
-
-

-
-
-

-
-

-
-
-
-

-
-
-

-
-

1,419
-
-
1,419

(1,107)
(26)
-

(3)

-
-

(5,824)
972
(4,852)

-
-

-
-
-
-

-
-
-

-
-
(308)

-
182

(57)
29,528

(148)
(7)

24
(12)
-
12

1,443
(5,836)
972
(3,421)(b)

-
-
-

(1,107)
(26)
(308)

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
(a) Includes total common shareholders’ equity of $29,403 million at Dec. 31, 2007 and $25,264 million at Dec. 31, 2008.
(b) Comprehensive loss attributable to The Bank of New York Mellon Corporation shareholders totaled $3,433 million for the year ended

(1)
-
(7)
-
-
17
$20,432 $10,225

-
2,779
7
-
-
-
$2,786

-
-
-
-
-
-
$ 39

31
-
-
249
-
6
(3)

-
-
-
-
-
-
$11

-
-
-
200
221
9

30
2,779

449
221
32
$28,089 (a)

$(5,401)

-
-
-
-
-
-

Dec. 31, 2008.

94 BNY Mellon

Notes to Consolidated Financial Statements

Note 1—Summary of significant accounting
and reporting policies

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. Amounts subject to 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.
Actual results could differ from these estimates.

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 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:

Equity method investments at Dec. 31, 2010
(dollars in millions)

Percent Ownership

Book Value

CIBC Mellon
Wing Hang
Siguler Guff
ConvergEx
West LB Joint Venture

50.0%
20.3%
20.0%
33.2%
50.0%

$588
$347
$257
$152
$122

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 21 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.

Variable interest entities

We consider the underlying facts and circumstances
of individual transactions when assessing whether or
not an entity is a potential variable interest entity
(“VIE”). VIEs are entities in which equity investors
do not have the characteristics of a controlling
financial interest. BNY Mellon applies ASC 810 to its
mutual funds, hedge funds, private equity funds,
collective investment funds and real estate investment
trusts, which were determined to be VIEs. Generally,
the company is deemed to be the primary beneficiary
and thus required to consolidate a VIE, if BNY
Mellon has a variable interest (or combination of
variable interests) that, based on a quantitative
analysis, 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.

BNY Mellon’s other VIEs are evaluated under the
guidance included in ASU 2009-17. These other
VIEs, include securitization trusts, which are no
longer considered QSPEs, and CLOs, in which BNY
Mellon serves as the investment manager. In addition,
we provide trust and custody services for a fee to
entities sponsored by other corporations in which we
have no other interest. The company must determine
whether or not its variable interests in these VIEs
based on qualitative analysis provide BNY Mellon
with a controlling financial interest in the VIE. The

BNY Mellon

Notes to Consolidated Financial Statements (continued)

analysis includes an assessment of the characteristics
of the VIE. The Company is considered to have a
controlling financial interest in the VIE, which would
require consolidation of the VIE, if it has the
following characteristics: (1) the power to direct the
activities that most significantly impact the VIE’s
economic performance; and (2) the obligation to
absorb losses or the right to receive benefits from the
VIE that could potentially be significant to the VIE.

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
businesses (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:

Š
investment management;
Š
trust and custody;
Š
foreign exchange;
Š
securities lending;
Š depositary receipts;
Š corporate trust;
Š
Š global payment/cash management; and
Š banking services.

shareowner 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.

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

96 BNY Mellon

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 (“OCI”), 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 and disclosure for
OTTI. 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 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.
In order not to be required to recognize the non-credit
component of an OTTI in earnings, management is

Notes to Consolidated Financial Statements (continued)

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.

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. See Note 5 of the Notes to
Consolidated Financial Statements for these
disclosures.

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.

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.

When a first lien residential mortgage loan reaches 90
days delinquent, it is subject to an impairment test and
may be placed on nonaccrual status. At 180 days
delinquent, the loan is subject to further impairment
testing. The loan will remain on accrual status if the
realizable value of the collateral exceeds the unpaid
principal balance plus accrued interest. If the loan is
impaired, a charge-off is taken and the loan is placed
on nonaccrual status. At 270 days delinquent, all first
lien mortgages are placed on nonaccrual status.
Second lien mortgages are automatically placed on
nonaccrual status when they reach 90 days delinquent.
When a loan is placed on nonaccrual status,
previously accrued and uncollected interest is reversed

BNY Mellon

Notes to Consolidated Financial Statements (continued)

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 collectability
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 loan 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.

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

98 BNY Mellon

estimate of the probability of drawdown. In 2010, we
expanded the description of the elements of the
allowance for loan losses and lending related
commitments from three to four. This change did not
impact the methodology used to calculate the
allowance or provision for credit losses.

The four elements of the allowance for loan losses and
the allowance for lending related commitments are:

Š an allowance for impaired credits (nonaccrual

loans over $1 million);

Š an allowance for higher risk-rated credits and

pass-rated credits;

Š an allowance for residential mortgage loans
(previously included in element 2); and
Š an unallocated allowance based on general
economic conditions and risk factors in our
individual markets.

Our lending is primarily to institutional customers. As
a result, our loans are generally larger than $1 million.
Therefore, the first element, impaired credits, is based
on individual analysis of all nonperforming loans over
$1 million. The allowance is measured by the
difference between the recorded value of impaired
loans and their impaired value. Impaired value is
either the present value of the expected future cash
flows from the borrower, the market value of the loan,
or the fair value of the collateral.

The second element, higher risk-rated credits and
pass-rated credits, is based on our expected loss
model. All 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 lease financing and wealth management
portfolios.

The third element, the allowance for residential
mortgage loans is determined by segregating six
mortgage pools into delinquency periods ranging from
current through foreclosure. Each of these
delinquency periods is assigned a probability of
default. A specific loss given default based on a

Notes to Consolidated Financial Statements (continued)

combination of external loss data from third party
databases and internal loss history is assigned for each
mortgage pool. For each pool, the expected loss is
calculated using the above factors. The resulting
expected loss factor is applied against the loan balance
to determine the reserve held for each pool.

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

Š Economic conditions including duration of the

current cycle;
Š 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.

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,
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. See Note 7 of the Notes to Consolidated
Financial Statements for additional disclosures related
to goodwill and intangible assets.

Noncontrolling Interests

Noncontrolling interests included in permanent equity
are adjusted for the income or (loss) attributable to the
noncontrolling interest holders and any distributions
to those shareholders. Redeemable noncontrolling
interests are reported as temporary equity. In
accordance with ASC 480, Distinguishing Liabilities
from Equity, BNY Mellon recognizes changes in the
redemption value of the redeemable noncontrolling
interests as they occur and adjusts the carrying value
to be equal to the redemption value.

Fee revenue

We record security servicing fees, asset and wealth
management fees, foreign exchange and other trading
revenue, 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

BNY Mellon

Notes to Consolidated Financial Statements (continued)

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. When a portfolio underperforms
its benchmark or fails to generate positive
performance, 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.

100 BNY Mellon

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.

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.

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’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.
See Note 20 of the Notes to Consolidated Financial
Statements for additional disclosures related to
pensions.

Severance

BNY Mellon provides separation benefits for U.S.
based employees through The Bank of New York
Mellon Corporation Supplemental Unemployment
Benefit Plan, which replaced The Bank of New York
Mellon Corporation Separation Plan, The Bank of
New York Company, Inc. Separation Plan and the
Mellon Financial Corporation Displacement Program
for separations on or after May 24, 2010. These
benefits are provided to eligible employees separated
from their jobs for business reasons not related to
individual performance. Basic separation benefits are

Notes to Consolidated Financial Statements (continued)

generally based on the employee’s years of
continuous benefited service. Severance for
employees based outside of the U.S. is determined in
accordance with local agreements and legal
requirements. 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.

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.

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
revenue in fee and other revenue. Unrealized gains
and losses are reported on a gross basis in trading
account assets and trading liabilities, after taking into
consideration master netting agreements.

We enter into various derivative financial instruments
for non-trading purposes primarily as part of our asset/
liability management (“ALM”) process. These
derivatives are designated as fair value and cash flow
hedges of certain assets and liabilities when we enter
into the derivative contracts. Gains and losses
associated with fair value hedges are recorded in
income as well as any change in the value of the
related hedged item. Gains and losses on cash flow
hedges are recorded in other comprehensive income.
Foreign currency transaction gains and losses related
to a hedged net investment in a foreign operation, net

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 revenue. For fair value hedges, the
accumulated gain or loss on the hedged item is
amortized on a yield basis over the remaining life of
the hedged item. Accumulated gains and losses, net of
tax effect, from cash flow hedges are reclassified from
other comprehensive income and recognized in
current earnings in other revenue upon receipt of the
hedged cash flow.

The accounting policy for the determination of the fair
value of derivative financial instruments has been
identified as a “critical accounting estimate” as it
requires us to make numerous assumptions based on
the available market data. See Note 26 of the Notes to
Consolidated Financial Statements for additional
disclosures related to derivative financial instruments
disclosures.

BNY Mellon

101

Notes to Consolidated Financial Statements (continued)

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

Compensation expense is recognized in the income
statement, on a straight-line basis, over the applicable
vesting period, for all share-based payments.

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.

Note 2—Accounting changes and new
accounting guidance

ASU 2009-16—Accounting for Transfers of Financial
Assets

In December 2009, the FASB issued ASU 2009-16
“Accounting for Transfers of Financial Assets.” This
formally codified SFAS No. 166, “Accounting for
Transfers of Financial Assets, an Amendment to
FASB Statement No. 140.” This ASU 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 Interpretation No. (“FIN”) 46 (R) (ASC 810—
Consolidation) to QSPEs. This ASU revised the
de-recognition 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
ASU also required additional disclosure about
transfers of financial assets and a transferor’s
continuing involvement with such transferred
financial assets. This ASU was effective Jan. 1, 2010,
at which time any QSPEs were evaluated for
consolidation in accordance with ASC 810.

ASU 2009-17—Improvements to Financial Reporting
by Enterprises Involved with Variable Interest Entities

In December 2009, the FASB issued ASU 2009-17
“Improvements to Financial Reporting by Entities
Involved with Variable Interest Entities.” This ASU
amended ASC 810 to require ongoing assessments to

102 BNY Mellon

determine whether an entity is a variable interest
entity (“VIE”) and whether an enterprise is the
primary beneficiary of a VIE. This ASU also amended
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 ASU was effective Jan.
1, 2010, and primarily impacted our asset
management businesses.

This ASU does not change the economic risk related
to these businesses and therefore, BNY Mellon’s
computation of economic capital required by our
businesses did not change.

This statement also required additional disclosures
about an enterprise’s involvement in a VIE, including
the requirement for sponsors of a VIE to disclose
information even if they do not hold a significant
variable interest in the VIE. At Dec. 31, 2010, our
consolidated balance sheet included $15,249 million
of assets of VIEs that would not have been included in
our consolidated balance sheet prior to effectiveness
of the statement. Those assets included seed capital
investments in mutual funds sponsored by our
affiliates and securitizations. Adoption of this new
statement accounted for an increase in consolidated
total assets on our balance sheet at Dec. 31, 2010 of
$14.6 billion, or approximately 7% from year end.

In February 2010, the FASB issued ASU 2010-10,
“Amendments for Certain Investment Funds” which
deferred the requirements of ASU 2009-17 for asset
managers’ interests in entities that apply the
specialized accounting guidance for investment
companies or that have the attributes of investment
companies and asset managers’ interests in money
market funds. This amendment was effective Jan. 1,
2010.

As a result of adopting the accounting for VIEs, we
recorded a cumulative effect adjustment of
$76 million to retained earnings and OCI in the first
quarter of 2010. Also, we marked the assets and
liabilities to market, and as a result, recorded a
$73 million charge to retained earnings in the first
quarter of 2010.

Notes to Consolidated Financial Statements (continued)

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 ASC 810. The final rule allows for a phase-in of
50% of the effect on risk-weighted assets and
allowance for loan losses includable in Tier 2 capital
that results from implementation of this standard for
the quarters ending Sept. 30, 2010, and Dec. 31, 2010,
with full phase-in for the quarter ending March 31,
2011. BNY Mellon elected to defer the full
implementation of ASC 810 for capital purposes
pursuant to this rule. At Dec. 31, 2010, had we fully
phased-in the implementation of ASC 810, our Tier 1
capital ratio would have been negatively impacted by
approximately 2 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 amended ASC 820 to clarify
existing requirements regarding disclosures of inputs
and valuation techniques and levels of disaggregation.
This ASU also required 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 was
effective March 31, 2010. See Note 23 of the Notes to
Consolidated Financial Statements for these
disclosures. Additional disclosures about Level 3
purchases, sales, issuances and settlements in the
rollforward activity for fair value measurements will
be effective March 31, 2011.

ASU 2010-11—Scope Exception Related to Embedded
Credit Derivatives

In March 2010, the Financial Accounting Standards
Board (“FASB”) issued ASU 2010-11, “Scope
Exception Related to Embedded Credit Derivatives.”
This ASU amended Subtopic 815-15 to clarify the
scope of the exception for embedded credit derivative
features related to the transfer of credit risk in the
form of subordination of one financial instrument to
another. It addressed how to determine which
embedded credit derivative features, including those
in collateralized debt obligations and synthetic
collateralized debt obligations, are considered to be

embedded derivatives that should not be analyzed for
potential bifurcation and separate accounting. This
ASU was effective July 1, 2010. The impact of this
ASU was immaterial to our results of operations.

ASU 2010-18—Effect of a Loan Modification When
the Loan is Part of a Pool that is Accounted for as a
Single Asset

In April 2010, the FASB issued ASU 2010-18, “Effect
of a Loan Modification when the Loan is Part of a
Pool that is Accounted for as a Single Asset.” This
ASU provided guidance that would maintain the
integrity of the pool as a single unit of account and
exempt these loans from troubled debt restructuring
reporting. Modified purchased credit impaired loans
accounted for in a pool would remain in the pool
subject to ASC 310-30 regardless of whether the
modification is a troubled debt restructuring. An entity
continues to be required to consider whether the pool
of assets in which the loan is included is impaired if
expected cash flows for the pool change. This ASU
does not contain any additional disclosure
requirements. This ASU was effective July 1, 2010.
The impact of this ASU was immaterial to our results
of operations.

ASU 2010-20—Disclosures about the Credit Quality
of Financing Receivables and the Allowance for
Credit Losses

In July 2010, the FASB issued ASU 2010-20,
“Disclosures about the Credit Quality of Financing
Receivables and the Allowance for Credit Losses.”
This ASU required additional disclosures about the
allowance for credit losses and the credit quality of
financing receivables. This ASU defined two levels of
disaggregation—portfolio segment and class of
financing receivable. Existing disclosures were
amended to require: rollforward schedule of
allowance for credit losses, with the ending balance
further disaggregated on the basis of impairment
method; related recorded investment in each ending
balance noted above; nonaccrual status by class of
financing receivable; and impaired financing
receivables by class of financing receivables. This
ASU required the following additional disclosures:
credit quality indicators by class of financing
receivable; aging of past due financing receivables by
class; nature and extent of troubled debt restructuring
by class of financing receivable and their effect on
allowance for credit losses; nature and extent of
financing receivables modified as troubled debt
restructurings by class and their effect on the
allowance for credit losses; and significant purchases

BNY Mellon

103

Notes to Consolidated Financial Statements (continued)

and sales by portfolio segment. These disclosures are
presented in Note 6 to the Consolidated Financial
Statements.

Adopted in 2009

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
adopted this new guidance effective Jan 1, 2009. As a
result of adopting this guidance, BNY Mellon recorded a
cumulative-effect adjustment of $676 million (after-tax)

104 BNY Mellon

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).

Note 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 $92 million in 2010.

At Dec. 31, 2010, 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
$12 million to $42 million over the next three years.

None of the potential contingent additional
consideration was recorded as goodwill at Dec. 31,
2010.

Acquisitions in 2010

On July 1, 2010, we acquired GIS for cash of
$2.3 billion. GIS provides a comprehensive suite of
products which includes subaccounting, fund
accounting/administration, custody, managed account
services and alternative investment services. Assets
acquired totaled approximately $590 million.
Liabilities assumed totaled approximately
$250 million. Goodwill related to this acquisition is
included in our asset servicing and clearing services
businesses and totaled $1,505 million, of which
$1,256 million is tax deductible and $249 million is
non-tax deductible. Customer contract intangible
assets related to this acquisition are included in our
asset servicing and clearing services businesses, with
lives ranging from 10 years to 20 years by business,
and totaled $477 million.

On Aug. 2, 2010, we acquired BAS for cash of
EUR281 million (US$370 million). This transaction
included the purchase of Frankfurter Service
Kapitalanlage—Gesellschaft mbH (“FSKAG”), a

Notes to Consolidated Financial Statements (continued)

wholly owned fund administration affiliate. The
combined business offers a full range of tailored
solutions for investment companies, financial
institutions and institutional investors in Germany.
Assets acquired totaled approximately EUR
2.7 billion (US $3.6 billion) and primarily consisted of
securities of approximately EUR1.9 billion (US
$2.6 billion). Liabilities assumed totaled
approximately EUR2.6 billion (US $3.4 billion) and
primarily consisted of deposits of approximately EUR
1.7 billion (US $2.3 billion). Goodwill related to this
acquisition of $272 million is tax deductible and is
included in our asset servicing business. Customer
contract intangible assets related to this acquisition are
included in our asset servicing business, with a life of
10 years, and totaled $40 million.

On Sept. 1, 2010, we completed the acquisition of I3
Advisors of Toronto, an independent wealth advisory
company with more than C$3.8 billion in assets under
advisement at acquisition, for cash of C$22.2 million
(US $21.1 million). Goodwill related to this
acquisition is included in our wealth management
business and totaled $8 million and is non-tax
deductible. Customer relationship intangible assets
related to this acquisition are included in our wealth
management business, with a life of 33 years, and
totaled $10 million.

In the second quarter of 2010, we acquired a Canadian
trust company for C$29 million.

Divestitures in 2010

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 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. 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.

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.

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.

On Dec. 31, 2008, we acquired the Australian
(Ankura Capital) and UK (Blackfriars Asset
Management) businesses from our Asset Management
joint venture with WestLB.

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.

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.

Note 4—Discontinued operations

On Jan. 15, 2010, BNY Mellon sold MUNB, our
national bank subsidiary located in Florida. We have
applied discontinued operations accounting to this
business. The income statements for all periods in this
Annual Report are presented on a continuing
operations basis. In 2010, we recorded an after-tax
loss on discontinued operations of $66 million,
primarily reflecting lower of cost or market write-
downs on the retained MUNB loans held for sale.

BNY Mellon

105

Notes to Consolidated Financial Statements (continued)

Summarized financial information for discontinued
operations is as follows:

Note 5—Securities

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 occupancy
Other
Goodwill impairment

Total noninterest expense

Income (loss) from operations
Loss on assets held for sale
Loss on sale of MUNB
Provision (benefit) for income taxes

Net income (loss) from

discontinued operations

2010

2009

2008

-
9
-

4
1
3
-

(3)
(106)
(1)
(44)

7
59
191

$24
93
27

(132)

4
5
16
50

112

(237)
(184)
-
(151)

10
5

$ (66)

$(270)

$14

Discontinued operations assets and liabilities

(in millions)

Cash and due from banks
Securities
Loans, net of allowance for loan losses
Premises and equipment
Deferred taxes
Other assets

Dec. 31,

2010

2009

-
-
183
-
90
5

$ 446
488
1,225
12

Assets of discontinued operations

$278

$2,242

Deposits:

Noninterest-bearing
Interest-bearing

Total deposits

Other liabilities

Liabilities of discontinued operations

-
-

$ 539
958

1,497
111

$1,608

All information in these Financial Statements and
Notes reflects continuing operations, unless otherwise
noted.

The following tables present the amortized cost, the
gross unrealized gains and losses and the fair value of
securities at Dec. 31, 2010 and 2009.

Securities at
Dec. 31, 2010
(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

Foreign covered bonds
Other debt securities
Equity securities
Money market funds
Alt-A RMBS (b)
Prime RMBS (b)
Subprime RMBS (b)

Total securities

Amortized

Gross
unrealized

cost Gains Losses

Fair
value

$12,650 $

97 $ 138 $12,609

1,007

1,005

559
19,383
475
1,305
696
1,665
2,650
263

532
2,884
11,800
36
2,538
2,164
1,626
128

4
387
34
8
-
1
89
-

9
-
148
11
-
364
205
30

55
43
39
86
188
335
100
14

2
16
57
-
-
15
6
-

508
19,727
470
1,227
508
1,331
2,639
249

539
2,868
11,891 (a)
47
2,538
2,513
1,825
158

available-for-sale

62,361

1,389

1,098

62,652

Held-to-maturity:
State and political
subdivisions
Agency RMBS
Alt-A RMBS
Prime RMBS
Subprime RMBS
Other RMBS
Commercial MBS
Other securities

Total securities

held-to-maturity

119
397
215
149
28
2,709
34
4

2
33
5
2
-
69
-
-

-
-
19
5
3
81
1
-

121
430
201
146
25
2,697
33
4

3,655

111

109

3,657

Total securities

$66,016 $1,500 $1,207 $66,309

(a) Includes $11.0 billion, at fair value, of government-

sponsored and guaranteed entities, and sovereign debt.
(b) Previously included in the Grantor Trust. The Grantor Trust

is in the process of being dissolved.

106 BNY Mellon

Notes to Consolidated Financial Statements (continued)

Securities at
Dec. 31, 2009
(in millions)

Gross
unrealized

Amortized

cost Gains Losses

Fair
value

The amortized cost and fair value of securities at Dec.
31, 2010, by contractual maturity, are as follows:

$ 6,358 $ 30 $

1,235

10 $ 6,378
1,260

(in millions)

Available-for-sale Held-to-maturity
Fair
Amortized
cost value
cost

Fair Amortized

value

Securities by contractual maturity at Dec. 31, 2010

538
18,247
588
1,743
758
2,199
2,762
424
869
11,419
1,314

6
303
12
3
-
1
31
15
5
86
8

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

24
520
95 18,455
537
63
1,512
234
447
311
1,770
430
2,590
203
389
50
38
836
48 11,457 (a) Equity
1

1,321

Asset-backed securities

Total securities

$ 9,362 $ 9,448

- $

14,872 14,928

3,887
779

3,796
709

20
97

21
98

30,092 30,398
788
2,585

795
2,574

3,532 3,532

-
4

$62,361 $62,652

$3,655 $3,657

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
Grantor Trust Class B
certificates (b)

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 securities

Total securities

held-to-maturity

Total securities

4,049

111

4,160

52,503

636 1,507 51,632

150
531
304
189
30
3,195
11
7

3
30
-
-
-
39
-
-

-
-
62
17
7
162
1
-

153
561
242
172
23
3,072
10
7

4,417

249

4,240

$56,920 $708 $1,756 $55,872

(a) Includes $10.8 billion, at fair value, of government-

sponsored and guaranteed entities, and sovereign debt.
(b) The Grantor Trust contains Alt-A, prime and subprime

RMBS.

Net securities gains (losses)
(in millions)

Realized gross gains
Realized gross losses
Recognized gross impairments

2010

2009

2008

$ 48 $ 130 $

(5)
(16)

(1,648)
(3,851)

10
(531)
(1,107)

Total net securities gains (losses)

$ 27 $(5,369) $(1,628)

Temporarily impaired securities

At Dec. 31, 2010, substantially all of the unrealized
losses on the investment securities portfolio were
attributable to credit spreads widening since purchase,
and interest rate movements. 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.

BNY Mellon

107

Notes to Consolidated Financial Statements (continued)

Temporarily impaired securities at Dec. 31, 2010

Less than 12 months

12 months or more

Total

Fair Unrealized
losses

value

Fair Unrealized
losses

value

Fair Unrealized
losses

value

(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
Foreign covered bonds
Other debt securities
Grantor Trust Alt-A RMBS
Grantor Trust Prime RMBS

Total securities available-for-sale

Held-to-maturity:
Alt-A RMBS
Prime RMBS
Subprime RMBS
Other RMBS
Commercial MBS

Total securities held-to-maturity

Total temporarily impaired securities

Temporarily impaired securities at Dec. 31, 2009

(in millions)

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
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

$ 6,519
489
210
5,079
55
315
3
49
28
-
1
2,553
1,068
196
139

$16,704

18
-
-
315
-

333

$17,037

$138
4
39
42
3
13
-
17
1
-
-
16
37
15
6

$331

-
-
-
5
-

$ 5

$336

-
-
122
206
104
739
484
1,275
536
249
32
-
61
-
-

-
-
16
1
36
73
188
318
99
14
2
-
20
-
-

$ 6,519
489
332
5,285
159
1,054
487
1,324
564
249
33
2,553
1,129
196
139

$3,808

$767

$20,512

$ 108
73
25
614
33

$ 853

$4,661

$ 19
5
3
76
1

$104

$871

126
73
25
929
33

$ 138
4
55
43
39
86
188
335
100
14
2
16
57
15
6

$1,098

19
5
3
81
1

$ 1,186

$21,698

$ 109

$1,207 (a)

Less than 12 months
Fair Unrealized
losses

value

12 months or more

Total

Fair Unrealized
losses

value

Fair Unrealized
losses

value

$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

1
11
19
63
233
309
430
203
44
38
48
1

$ 1,402
221
9,358
311
1,485
447
1,764
1,290
292
706
8,837
19

10
24
95
63
234
311
430
203
50
38
48
1

$17,486

$1,400

$26,132

$1,507

221
172
23
3,072
10

61
17
7
162
1

223
172
23
3,072
10

62
17
7
162
1

$ 1

$108

$ 3,498

$20,984

$ 248

$ 3,500

$ 249

$1,648

$29,632

$1,756 (a)

(a) Includes other-than-temporarily impaired securities in which portions of the other-than-temporary impairment loss remains in OCI.

Total temporarily impaired securities

$8,648

(a) Includes other-than-temporarily impaired securities in which portions of the other-than-temporary impairment loss remains in OCI.

108 BNY Mellon

Notes to Consolidated Financial Statements (continued)

Other-than-temporary impairment

For certain debt securities that 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
affecting collateral.

The table below shows the projected weighted-
average default rates and loss severities for the 2007,
2006 and late-2005 non-agency RMBS and Grantor
Trust portfolios at Dec. 31, 2010 and 2009.

Projected weighted-average default rates and severities
Dec. 31, 2010

Dec. 31, 2009

Alt-A
Subprime
Prime

Default Rate Severity Default Rate Severity
49%
65%
42%

42%
68%
20%

43%
74%
19%

50%
69%
44%

The following table provides pre-tax net securities
gains (losses) by type.

Net securities gains (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 securities gains

(losses)

2010
$(13)
-
(4)
(3)
-
-
-
-
-
47

2009
$(3,113)
(1,008)
(322)
(269)
(205)
(89)
(39)
(26)
(23)
(275)

2008
$(1,236)
(12)
(12)
-
(104)
-
-
-
(122)
(142)

$ 27

$(5,369)

$(1,628)

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 sell.

Debt securities credit loss roll forward
(in millions)
Beginning balance as of Dec. 31
Add: Initial OTTI credit losses

Subsequent OTTI credit losses
Less: Realized losses for securities sold /

consolidated

Securities intended or required to be sold

Ending balance as of Dec. 31

2010
$244
10
6

78
-
$182

2009
$ 525
644
208

1,116
17
$ 244

At Dec. 31, 2010, assets amounting to $60.6 billion
were pledged primarily for potential borrowing at the
Federal Reserve Discount Window. The significant
components of pledged assets were as follows:
$55.3 billion of securities, $1.6 billion of interest-
bearing deposits with banks and $3.7 billion of loans.
Also included in these pledged assets was securities

BNY Mellon

109

Notes to Consolidated Financial Statements (continued)

available-for-sale of $42 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,
securities borrowed and custody agreements on terms
which permit us to repledge or resell the securities to
others. As of Dec. 31, 2010, the market value of the
securities received that can be sold or repledged was
$6.7 billion. We routinely repledge or lend these
securities to third parties. As of Dec. 31, 2010, the
market value of collateral repledged and sold was
$1.3 billion.

Note 6—Loans and asset quality

Our loan portfolio is comprised of three portfolio
segments, commercial, lease financing and mortgages.
We manage our portfolio at the class level which is
comprised of six classes of financing receivables:
commercial, commercial real estate, financial
institutions, lease financings, wealth management
loans and mortgages, and other residential mortgages.
The following tables are presented for each class of
financing receivable, and provide additional
information about our credit risks and the adequacy of
our allowance for credit losses.

Loans

The table below provides the details of our loan
distribution and industry concentrations of credit risk
at Dec. 31, 2010 and 2009:

Loans
(in millions)
Domestic:

Financial institutions
Commercial
Wealth management loans and

mortgages

Commercial real estate
Lease financings (a)
Other residential mortgages
Overdrafts
Other
Margin loans

Total domestic

Foreign:

Financial institutions
Commercial
Lease financings (a)
Government and official institutions
Other (primarily overdrafts)

Total foreign
Total loans

Dec. 31,

2010

2009

$ 4,630
1,250

$ 5,509
2,324

6,506
1,592
1,605
2,079
4,524
771
6,810
29,767

4,626
345
1,545
-
1,525
8,041
$37,808

6,162
2,044
1,703
2,179
3,946
407
4,657
28,931

3,147
634
1,816
52
2,109
7,758
$36,689

(a) Includes unearned income on domestic and foreign lease
financings of $2,036 million at Dec. 31, 2010 and
$2,282 million at Dec. 31, 2009.

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 $3 million, $4 million and
$12 million at Dec. 31, 2010, 2009, and 2008
respectively. These loans are primarily extensions of
credit under revolving lines of credit established for
such entities.

110 BNY Mellon

Notes to Consolidated Financial Statements (continued)

Allowance for credit losses

Transactions in the allowance for credit losses are summarized as follows:

Allowance for credit losses activity for the year ended Dec. 31, 2010

Commercial Financial

Other
loans and residential
real estate institutions financing mortgages mortgages Other (a) Foreign (b) Unallocated

Lease

All

Wealth
management

(dollars in millions) Commercial
$ 149
Beginning balance
(5)
Charge-offs
15
Recoveries
10
(85)
74

Net charge-offs

Provision
Ending balance
Allowance for:
Loans losses
Unfunded

43
(8)
1
(7)
(4)
32

commitments
Individually evaluated
for impairment:
Loan balance
Allowance for loan

losses

Collectively evaluated
for impairment:
Loan balance
Allowance for loan

73
(25)
2
(23)
(41)
9

77
-
-
-
(5)
72

56
(4)
-
(4)
(19)
33

$ 157 $
(46)
2
(44)
74
$ 187 $

$ 187 $

- $

-
-
-
-
1
1

47
-
-
-
-
47

$ 26
-
-
-
90
$116

$101

Total
628
(88)
20
(68)
11
571

498

140

$37,668

$1,218

$1,548

$4,626

$1,605

$6,453

$2,079 $12,105

$8,034

losses

1
(a) Includes $4,524 million of domestic overdrafts and $6,810 million of margin loans at Dec. 31, 2010.
(b) Includes $1,525 million of other foreign loans (primarily overdrafts) at Dec. 31, 2010.

187

101

472

Allowance for credit losses activity for the year ended Dec. 31, 2009

Wealth
management

(dollars in millions) Commercial
Beginning balance
Charge-offs
Recoveries

$ 159
(90)
-
(90)
81

Commercial Financial

Other
loans and residential
real estate institutions financing mortgages mortgages Other (a) Foreign (b) Unallocated
$

Lease

All

52
(31)
-
(31)
39

50
(34)
-
(34)
57

79
-
1
1
(3)

28
(1)
1
-
28

78
(60)
-
(60)
140

2
-
-
-
(2)

19
-
-
-
28

Total
529
(216)
2
(214)
332

$ 62
-
-
-
(36)

Net charge-offs

Provision
Transferred to
discontinued
operations
Ending balance
Allowance for:
Loans losses
Unfunded

commitments
Individually evaluated
for impairment:
Loan balance
Allowance for loan

losses

Collectively evaluated
for impairment:
Loan balance
Allowance for loan

(1)
$ 149

(17)
43

-
73

-
77

-
56

(1)
$ 157

$ 157

$ 171

-
-

-
47

-
$ 26

(19)
628

$ 21

503

125

345

$2,261

$1,986

$5,338

$1,703

$6,109

$2,179

$9,010

$7,758

$36,344

losses

-
(a) Includes $3,946 million of domestic overdrafts and $4,657 million of margin loans at Dec. 31, 2009.
(b) Includes $2,109 million of other foreign loans (primarily overdrafts) at Dec. 31, 2009.

157

452

BNY Mellon

111

Notes to Consolidated Financial Statements (continued)

Allowance for credit losses activity for the year ended Dec. 31, 2008

(dollars in millions) Commercial
Beginning balance
Charge-offs
Recoveries

$ 162
(21)
2
(19)
16

Wealth
management

Commercial Financial

Other
loans and residential
real estate institutions financing mortgages mortgages Other (a) Foreign (b) Unallocated
$

Lease

All

35
(15)
-
(15)
28

30
(9)
-
(9)
29

73
-
3
3
3

15
(1)
1
-
13

25
(20)
-
(20)
73

1
-
-
-
1

37
(17)
4
(13)
(5)

2
(2)
$ 159

24
(20)
52

-
-
50

$ 125

-
-
79

-
-
28

1
(1)
78

-
-
19

Net charge-offs

Provision
Transferred to
discontinued
operations

Disposition
Ending balance
Allowance for:
Loans losses
Unfunded

commitments
Individually evaluated
for impairment:
Loan balance
Allowance for loan

losses

Collectively evaluated
for impairment:
Loan balance
Allowance for loan

losses

Total
494
(83)
10
(73)
104

27
(23)
529

415

114

$116
-
-
-
(54)

-
-
$ 62

$ 49

186

$43,208

$5,772

$2,956

$5,505

$1,809

$5,327

$2,505

$9,297

$10,037

364

(a) Includes $4,835 million of overdrafts and $3,977 million of margin loans at Dec. 31, 2008.
(b) Includes $2,121 million of other foreign loans (primarily overdrafts) at Dec. 31, 2008.

At Dec. 31, 2010, undrawn commitments to borrowers
whose loans were classified as nonaccrual or reduced
rate were not material.

Lost interest

Lost interest
(in millions)

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

Dec. 31,
2010 2009 2008

$ 2
-

$20
-

$19
-

$12

(a) Lost interest excludes discontinued operations for 2010 and
2009. Lost interest includes discontinued operations of
$5 million in 2008.

Nonperforming assets

The table below sets forth information about our
nonperforming assets.

Nonperforming assets
(in millions)

Nonperforming loans:
Domestic:

Commercial
Commercial real estate
Financial institutions
Wealth management
Other residential mortgages

Total domestic

Foreign loans

Total nonperforming loans

Other assets owned

Dec. 31,

2010

2009

$ 34
44
5
59
244

386
7

393
6

$ 65
61
172
58
190

546

546
4

Total nonperforming assets

$399(a) $550

(a) The adoption of ASC 810 resulted in BNY Mellon

consolidating loans of consolidated asset management funds
of $13.8 billion at Dec. 31, 2010, into trading assets. These
loans are not part of BNY Mellon’s loan portfolio. Included
in these loans are $218 million of nonperforming loans.
These loans are recorded at fair value and therefore do not
impact the provision for credit losses and allowance for loan
losses, and accordingly are excluded from the nonperforming
assets table above.

112 BNY Mellon

$ 30
49
171
53
-

303

33
9
-

$ 14
104
41
6
-

165

-
21
-

$345

$ 51

$186 (d)

$ 51

216

178

Notes to Consolidated Financial Statements (continued)

Impaired loans

The table below sets forth information about our impaired loans. We use the discounted cash flow method as the
primary method for valuing impaired loans.

Dec. 31, 2010
Unpaid
Recorded principal

investment

Related
balance allowance (a)

Year ended Dec. 31, 2010 Recorded investment

Average
recorded
investment

Interest
income
recognized

Dec. 31

2009

2008

Impaired loans

(in millions)

Impaired loans with an allowance:

Commercial (b)
Commercial real estate
Financial institutions
Wealth management loans and mortgages
Foreign

Total impaired loans with an allowance

Impaired loans without an allowance (a):

Commercial
Commercial real estate
Wealth management loans and mortgages

Total impaired loans without an

allowance (c)

$ 30
25
4
52
7

118

2
19
1

$ 30
39
10
52
7

138

6
19
2

$10
9
-
5
2

-
-
-

$ 30
34
35
53
2

154

6
11
3

$1
-
-
1
-

-
-
-

Total impaired loans (b)

$140

$165

$26

$174

Allowance for impaired loans (a)
Average balance of impaired loans during the

year

Interest income recognized on impaired loans

during the year

(a) The allowance for impaired loans is included in the allowance for loan losses.
(b) Excludes an aggregate of $3 million of impaired commercial loans in amounts individually less than $1 million at Dec. 31, 2010. The

allowance for loan loss associated with these loans totaled less than $1 million at Dec. 31, 2010.

(c) 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.
(d) Total impaired loans include discontinued operations of $93 million at Dec. 31, 2008.

Past due loans

The table below sets forth information about our past due loans.

Past due loans and still accruing at year-end

(in millions)

Domestic:

Commercial
Commercial real estate
Financial institutions
Wealth management loans and mortgages
Other residential mortgages

Total domestic

Foreign

Total past due loans

Dec. 31, 2010

Days past due

30-59

60-89

>90

Total
past due

Dec. 31, 2009

>90 days

$ 10
174 (a)
10
62 (a)
40

296
-

$296

$ 1
-
1
4
15

21
-

$21

$ 1
11
-
6
15

33
-

$33

$ 12
185
11
72
70

350
-

$350

$ 26

312

431

$431

(a) At Jan. 31, 2011, $136 million of commercial real estate loans and $26 million of wealth management loans and mortgages were no

longer past due.

BNY Mellon

113

Notes to Consolidated Financial Statements (continued)

Credit quality indicators

Our credit strategy is to focus on investment grade
names to support cross selling opportunities, avoid
single name/industry concentrations and exit high risk
portfolios. Each customer is assigned an internal
rating grade which is mapped to an external rating

agency grade equivalent based upon a number of
dimensions which are continually evaluated and may
change over time. The execution of our strategy, as
well as an adjustment in the credit ratings of our
existing portfolio, has resulted in a higher percentage
of the portfolio that is investment grade at Dec. 31,
2010, compared with Dec. 31 2009.

The following tables set forth information about credit quality indicators.

Commercial loan portfolio

Credit quality indicators—Commercial loan portfolio at year end
Credit risk profile by creditworthiness category

(in millions)

Investment grade
Noninvestment grade

Total

Commercial

2010

$ 964
631

$1,595

2009

$1,267
1,691

$2,958

Commercial real estate
2009

2010

Financial institutions
2009

2010

$1,072
520

$1,592

$1,038
1,006

$2,044

$7,894
1,362

$9,256

$6,571
2,085

$8,656

The commercial loan portfolio is divided into
investment grade and non-investment grade categories
based on rating criteria largely consistent with those
of the public rating agencies. Each customer in the
portfolio is assigned an internal rating grade. These
internal rating grades are generally consistent with the
ratings categories of the public rating agencies.
Customers with ratings consistent with BBB-/Baa3 or
better are considered to be investment grade. Those
clients with ratings lower than this threshold are
considered to be non-investment grade.

Wealth management loans and mortgages

Credit quality indicators – Wealth management loans and
mortgages at year end – Credit risk profile by internally
assigned grade
(in millions)

2010

2009

other types of assets, including business assets, fixed
assets, or a modest amount of commercial real estate.
For these latter loans, the credit quality of the obligor
is carefully analyzed, but we do not consider this
modest portfolio of loans to be of investment grade
quality.

Credit quality indicators for Wealth management
mortgages are not correlated to external ratings.
Wealth management mortgages are typically loans to
high-net-worth individuals, which are secured by
marketable securities and/or residential property.
These loans are primarily interest-only adjustable rate
mortgages with an average loan to value ratio of 61%
at origination. Approximately 1% of these mortgages
were past due at Dec. 31, 2010.

Wealth management loans:

Investment grade
Noninvestment grade

Wealth management mortgages

Total

$2,995
170
3,341

$2,883
148
3,131

$6,506

$6,162

Wealth management non-mortgage loans are not
typically correlated to external ratings. A majority of
the Wealth Management loans are secured by the
customers’ Investment Management Accounts or
custody accounts. Eligible assets pledged for these
loans are typically investment grade, fixed income
securities, equities and/or mutual funds. Internal
ratings for this portion of the Wealth Management
portfolio, therefore, would equate to investment-grade
external ratings. Wealth Management loans are
provided to select customers based on the pledge of

Other residential mortgages

The other residential mortgage portfolio primarily
consists of 1-4 family residential mortgage loans and
totaled $2.1 billion at Dec. 31, 2010. These loans are
not typically correlated to external ratings. Included in
this portfolio is approximately $745 million 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, 2010, the remaining prime and

114 BNY Mellon

Notes to Consolidated Financial Statements (continued)

Alt-A mortgage loans in this portfolio had a weighted-
average loan-to-value ratio of 75% at origination and
approximately 30% 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,
Maryland and the tri-state area (New York, New
Jersey and Connecticut).

Overdrafts

Overdrafts primarily relate to custody and securities
clearance clients and totaled $6,049 million at Dec.
31, 2010, and $6,055 million at Dec. 31, 2009.
Overdrafts occur on a daily basis in the custody and
securities clearance business and are generally repaid
within two business days.

Margin loans

We had $6,810 million of secured margin loans on our
balance sheet at Dec. 31, 2010, compared with
$4,657 million at Dec. 31, 2009. We have rarely
suffered a loss on these types of loans and do not
allocate any of our allowance for credit losses to them.

Other loans

Other loans primarily includes loans to consumers that
are fully collateralized with equities, mutual funds and
fixed income securities, as well as bankers
acceptances. We have rarely suffered a loss on these
types of loans and do not allocate any of our
allowance for credit losses to them.

Reverse repurchase agreements

Reverse repurchase agreements are transactions fully
collateralized with high quality liquid securities.
These transactions carry no credit risk and therefore
are not allocated an allowance for credit losses.

Note 7—Goodwill and intangible assets

Goodwill

BNY Mellon’s businesses 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 business with its
carrying amount, including goodwill. If the estimated
fair value of the business exceeds its carrying amount,
goodwill of the business is considered not impaired.

However, if the carrying amount of the business
exceeds its estimated fair value, a second step would
be performed that would compare the implied fair
value of the business’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.

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
businesses in continuing operations was tested in 2010
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, changes in our
competitors, and the earnings outlook for our
businesses. BNY Mellon’s market capitalization
exceeded its net book value at the end of each quarter
of 2010 and 2009.

The fair values of each of our six businesses were
estimated for the 2010 goodwill impairment test using
discounted cash flow analyses since there were few
comparable public company transactions in 2009
2010. The analyses incorporated our forecasts and
longer-term earnings growth estimates by business
and discount rates ranging from 12.0% to 15.5% that
incorporated measured stock price volatilities of the
businesses’ principal public company competitors and
a 6% average excess return over risk-free rates. The
estimated fair values of each of these six businesses
exceeded their respective carrying amounts by 10% or
greater and no goodwill impairment was indicated.

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

The level of goodwill increased in 2010 due to the
acquisitions of GIS, BAS and I3 partially offset by
foreign exchange translation on non-U.S. dollar
denominated goodwill.

BNY Mellon

115

Notes to Consolidated Financial Statements (continued)

The table below provides a breakdown of goodwill by business.

Goodwill by business
(in millions)

Asset

Wealth
Management Management

Asset
Servicing

Issuer
Services

Clearing
Services

Treasury
Services

Balance at Dec. 31, 2008
Acquisitions
Foreign exchange translation
Transferred to discontinued

operations

Other (b)

Balance at Dec. 31, 2009

Acquisitions
Foreign exchange translation
Other (b)

Balance at Dec. 31, 2010

$7,218
202
174

-
15

$7,609
-
(44)
86

$7,651

$1,694
-
-

-
9

$1,703
8
-
(3)

$1,708

$3,360
-
37

-
-

$3,397
1,389
(31)
(7)

$4,748

$2,463
-
14

-
11

$2,488
13
7
-

$2,508

$ 902
-
15

-
1

$ 918
388
(6)
-

$1,300

Other

$ 138
-
-

Total

$15,898
202
240

$123
-
-

-
4

(128) (a)
(3)

(128)
37

$127
-
-
-

$127

7
-
(1)
(6)

$16,249
1,798
(75)
70

$18,042

(a) Includes a $50 million goodwill impairment recorded in 2009. No goodwill impairment was recorded in 2010.
(b) Other changes in goodwill include purchase price adjustments and certain other reclassifications.

Intangible assets

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
($3.0 billion at Dec. 31, 2010) 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 that require
amortization.

The increase in intangible assets in 2010 compared
with 2009 resulted from the acquisitions of GIS, BAS
and I3, partially offset by amortization of intangible
assets.

Amortization of intangible assets was $421 million,
$426 million and $473 million in 2010, 2009 and
2008, respectively. No impairment losses were
recorded on intangible assets in 2010 or 2009.

The table below provides a breakdown of intangible assets by business.

Intangible assets – net carrying amount by business

Asset

Wealth
Management Management

Asset
Servicing

Issuer
Services

Clearing
Services

Treasury
Services Other

(in millions)

Balance at Dec. 31, 2008
Acquisitions
Amortization
Foreign exchange translation
Transferred to discontinued

operations

Other (a)

Balance at Dec. 31, 2009

Acquisitions
Amortization
Foreign exchange translation
Other (a)

Balance at Dec. 31, 2010

$2,595
111
(219)
44

-
(1)

$2,530
5
(201)
(9)
(2)

$2,323

$340
-
(45)
-

-
-

$295
10
(36)
-
-

$269

$302
-
(28)
1

-
6

$281
470
(47)
(2)
(5)

$697

$834
11
(81)
2

-
(13)

$753
13
(83)
3
-

$686

$699
-
(27)
2

-
-

$674
47
(29)
(1)
-

$691

$229
-
(25)
(1)

-
-

$203
-
(23)
-
-

$857
-
(1)
-

(4)
-

$852
-
(2)
-
-

Total

$5,856
122
(426)
48

(4)
(8)

$5,588
545
(421)
(9)
(7)

$180

$850

$5,696

(a) Other changes in intangible assets include purchase price adjustments and certain other reclassifications.

116 BNY Mellon

Notes to Consolidated Financial Statements (continued)

Intangible assets

Dec. 31, 2010

Dec. 31, 2009

(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 Accumulated
amortization
amount

Net
carrying
amount

Remaining
weighted
average
amortization
period

Gross

carrying Accumulated
amortization
amount

Net
carrying
amount

$2,102

$ (983)

$1,119

12 yrs.

$2,060

$ (724)

$1,336

2,566
49
85

4,802

1,375
1,314
10

(736)
(45)
(41)

(1,805)

N/A
N/A
N/A

1,830
4
44

2,997

1,375
1,314
10

2,699

$7,501

N/A

2,699

$(1,805)

$5,696

15 yrs.
3 yrs.
6 yrs.

14 yrs.

N/A
N/A
N/A

N/A

2,039
49
98

4,246

1,368
1,320
10

(561)
(41)
(30)

(1,356)

N/A
N/A
N/A

1,478
8
68

2,890

1,368
1,320
10

2,698

$6,944

N/A

2,698

$(1,356)

$5,588

(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:

Seed capital and private equity investments valued
using net asset value per share

For the year ended
Dec. 31,

Estimated amortization expense

(in millions)

2011
2012
2013
2014
2015

Note 8—Other assets

Other assets
(in millions)

Corporate/bank owned life insurance
Accounts receivable
Income taxes receivable
Equity in joint ventures and other

investments (a)

Fails to deliver
Software
Prepaid expenses
Prepaid pension assets
Fair value of hedging derivatives
Due from customers on acceptances
Other

$428
398
348
310
278

Dec. 31,

2010

2009

$ 4,071
3,506
2,826

$ 3,900
3,528
1,867

2,818
1,428
896
834
732
709
424
546

2,816
911
595
1,089
714
408
502
407

Total other assets

$18,790

$16,737

(a) Includes Federal Reserve Bank stock of $400 million and

$397 million, respectively, at cost.

In our Asset Management business, 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.

BNY Mellon

117

Notes to Consolidated Financial Statements (continued)

Seed capital and private equity investments valued using NAV – Dec. 31, 2010
(dollar amounts in millions)
Fair value Unfunded commitments

Hedge funds (a)
Private equity funds (b)
Other funds (c)

Total

$ 23
143
74

$240

$ -
27
-

$27

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 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.

Note 9—Deposits

Note 11—Other noninterest expense

The following table provides a breakdown of other
noninterest expense presented on the consolidated
income statement.

Other noninterest expense
(in millions)

Clearing
Communications
Support agreement charges
Other (a)

Total other

2010

2009

2008

$ 127
140
(7)
800

$117
115
(15)
737

80
127
894
801

$1,060

$954

$1,902

(a) Includes a $164 million special litigation reserve recorded in

2010 and $61 million of FDIC special assessment recorded
in 2009.

In 2010 and 2009, we recorded credits to support
agreement charges of $7 million and $15 million,
respectively. These credits reflect a reduction in the
support agreement reserve, primarily due to improved
pricing of Lehman securities. At Dec. 31, 2010, the
value of Lehman securities increased to approximately
23.0% from 19.5% at Dec. 31, 2009.

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, as
well as clients invested in funds within our securities
lending business. These support agreements were
designed to enable these funds to continue to operate
at a stable net asset value.

The aggregate amount of time deposits in
denominations of $100,000 or greater was
approximately $35.3 billion at Dec. 31, 2010, and
$34.0 billion at Dec. 31, 2009. At Dec. 31, 2010, the
scheduled maturities of all time deposits for the years
2011 through 2015 and 2016 and thereafter are as
follows: $35.4 billion; $15 million; $2 million;
$19 million; $3 million; and $4 million, respectively.

Note 10—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

Total interest revenue

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

Trading liabilities
Other borrowed funds
Customer payables
Long-term debt

Total interest expense
Net interest revenue

118 BNY Mellon

2010

2009

2008

$ 738
88

$ 874
69

$1,027
183

1,944

1,718

2,210

25
1,969

30
1,748

35
2,245

-
554

9
683

71
1,753

64
71
3,533

31
50
3,507

46
148

54
117

149
69
5,524

328
1,437

43
21
44
6
300
608
$2,925

-46

11
31
6
366
592
$2,915

4
86
69
642
2,665
$2,859

Notes to Consolidated Financial Statements (continued)

Note 12—Restructuring charges

Global location strategy

Severance payments related to these positions are
primarily paid over the salary continuance period in
accordance with the separation plan.

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 approximately 3,000
positions. In 2009, we recorded a pre-tax restructuring
charge of $139 million related to this strategy. 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. In 2010,
we recorded additional charges of $35 million
associated with the global location strategy. The
charge recorded in 2010 was comprised of $29 million
for severance costs and $6 million primarily for asset
write-offs and expense related to the closing of
offices.

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 an estimated 1,800 positions, and as
a result, recorded a pre-tax restructuring charge of
$181 million. In 2010, we recorded a recovery of
$7 million associated with this workforce reduction
program.

We completed this program in 2010. Severance
payments related to positions covered by this program
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, 2010.

Global location strategy 2009 – restructuring charge reserve activity
(in millions)

Asset
Severance write-offs/other

Original restructuring charge
Utilization

Balance at Dec. 31, 2009

Additional charges
Utilization

Balance at Dec. 31, 2010

$102
-

102

29
(50)

$ 81

$37
(23)

6
(1)

$19

Workforce reduction program 2008 – restructuring charge
reserve activity
(in millions)

Stock-based
incentive
acceleration

Other
compensation
costs

Other
non-personnel
expenses

Severance

Original restructuring charge
Additional charges/(recovery)
Utilization

Balance at Dec. 31, 2009

Additional (recovery)
Utilization

Balance at Dec. 31, 2010

$166
4
(105)

$ 65

(7)
(42)

$ 16

$9
(2)
(7)

$ -

-
-

$ -

$5
(1)
(4)

$ -

-
-

Total

$139
(23)

116

35
(51)

$100

Total

$181
11
(127)

$ 65

(7)
(42)

$1
10
(11)

$ -

-
-

$ -

$ 16

BNY Mellon

119

Notes to Consolidated Financial Statements (continued)

The components of income (loss) before taxes are as
follows:

Components of income (loss)

before taxes
(in millions)

Domestic
Foreign

Year ended Dec. 31,

2010

$2,363
1,331

2009

2008

$(3,022)
814

$ 217

1,729

Income (loss) before taxes

$3,694

$(2,208)

$1,946

The components of our net deferred tax liability are as
follows:

Net deferred tax liability
(in millions)

Depreciation and amortization
Lease financings
Pension obligation
Securities valuation
Reserves not deducted for tax
Credit losses on loans
Net operating loss carryover
Other assets
Other liabilities
Tax credit carryforward

Dec. 31,

2010

2009

$2,366
1,093
190
(102)
(523)
(409)
(112)
(202)
341
(45)

$2,725

1,197

277

(2,112)

(736)

(368)

(163)

(838)

738

Net deferred tax liability

$2,597

$ 720

As of Dec. 31, 2010, we have net operating loss
carryfowards for state and local income tax purposes
of $1.8 billion which will expire in 2029. In addition,
we have alternative minimum tax credit carryforwards
of $45 million with an indefinite life. We have not
recorded a valuation allowance because we expect to
realize our deferred tax assets including these
carryovers.

As of Dec. 31, 2010, we had approximately
$2.7 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 restructuring charges were recorded in the Other
business as these restructurings were corporate
initiatives and not directly related to the operating
performance of these businesses. The tables below
present the restructuring charges if they had been
allocated by business.

Global location strategy 2009 – restructuring
charge by business
(in millions)

2010

2009

Asset management
Asset servicing
Issuer services
Wealth management
Treasury services
Clearing services
Other (including Business

Partners)

$13
14
-
2
12
-

$ 32
34
18
8
8
8

(6)

Total restructuring charge

$35

$139

Total
charges since
inception

$ 45
48
18
10
20
8

$174

Workforce reduction program 2008 –
restructuring charge by business

(in millions)

2010

2009

Asset management
Asset servicing
Issuer services
Wealth management
Treasury services
Clearing services
Other (including

$(5)
-
(2)
-
-
-

$ 9
(4)
(2)
-
4
-

Total
charges
since
inception

$ 68
30
11
13
10
6

2008

$ 64
34
15
13
6
6

Business Partners)

Total restructuring

charge

$(7)

$11

$181

$185

Note 13—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

2010

2008

$ (670)
408
110

(152)

$ 289
185
101

$ 840
488
420

575

1,748

1,278
(75)
(4)

(1,676)

-
(294)

(860)
(1)
(396)

Total deferred tax expense

(benefit)

1,199

(1,970)

(1,257)

Provision (benefit) for

income taxes

$1,047

$(1,395)

$ 491

120 BNY Mellon

Notes to Consolidated Financial Statements (continued)

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
Other – net

Effective rate

Year ended Dec. 31,
2010
2008
2009

35.0% 35.0% 35.0%

2.4

4.5

4.0

(1.8)
(2.3)
(5.2)
-
-
0.2

2.6
2.9
3.5
4.0
10.8
(0.1)

(2.7)
(3.4)
(13.0)
6.8

(1.5)

28.3% 63.2% 25.2%

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

2010

$335
-

2009

$189
-

2008

$977
(2)

97
(60)
41
(119)
(5)

225
(30)
10
(58)
(1)

832
(155)
75
(1,538)

Ending balance at Dec. 31, – gross

$289

$335

$189

Our total tax reserves as of Dec. 31, 2010, were
$289 million compared with $335 million at Dec. 31,
2009. If these tax reserves were unnecessary,
$232 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, 2010, is accrued interest, where applicable,
of $52 million. The additional tax expense related to
interest for the year ended Dec. 31, 2010, was $9
million compared with $89 million for the year ended
Dec. 31, 2009.

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 2008. Our United Kingdom
income tax returns are closed through 2007.

Note 14—Extraordinary (loss) – consolidation
of commercial paper conduit

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

BNY Mellon

121

Notes to Consolidated Financial Statements (continued)

Note 15—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, 2010

Rate Maturity Amount

Dec. 31, 2009
Rate Amount

2.50-6.92% 2011-2020
0.10-0.57% 2012-2038
4.40-7.50% 2011-2033
5.95-7.78% 2026-2043

$ 9,354
1,475
4,037
1,651

$16,517

3.10-6.92% $ 7,949
2,869
0.05-0.69%
4,795
4.40-7.40%
1,621
5.95-7.78%

$17,234

The aggregate amounts of notes and debentures that
mature during the next five years for BNY Mellon are
as follows: 2011 – $1.30 billion , 2012 – $3.45 billion,
2013 – $1.61 billion, 2014 – $2.27 billion and 2015 –
$1.43 billion. At Dec. 31, 2010, subordinated debt
aggregating $845 million will be redeemable at our
option as follows: 2011 – $592 million, 2012 –
$144 million, and after 2012 – $109 million.

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 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.

The following table sets forth a summary of the Trust Preferred Securities issued by the Trusts as of Dec. 31, 2010:

Trust Preferred Securities at Dec. 31, 2010
(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
311
500

$1,661

Interest
rate

Assets
Due
of trust (a) date

7.78% $ 309
206
6.88
361
5.95
300
6.37
500
6.24

$1,676

2026
2028
2033
2036
-

Call
date

2006
2004
2008
2016
2012

Call
price

102.33% (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. $1.55 to £1, the rate of exchange on Dec. 31, 2010.

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.

Note 16—Securitizations and variable interest
entities

Variable Interest Entities

Accounting guidance on the consolidation of Variable
Interest Entities (“VIEs”), is included in ASC 810,

Consolidation, and ASU 2009-17, “Improvements to
Financial Reporting by Enterprises Involved with
Variable Interest Entities.”

Effective Jan. 1, 2010, the FASB approved ASU
2010-10 “Amendments for Certain Investment
Funds,” which defers the requirements of ASU
2009-17 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.

122 BNY Mellon

Notes to Consolidated Financial Statements (continued)

Accounting guidance on the consolidation of VIEs
applies to certain entities in which the equity
investors:

Š do not have sufficient equity at risk for the entity

to finance its activities without additional
financial support, and
lack one or more of the following characteristics
of a controlling financial interest:
Š The power through voting rights or similar

rights, to direct the activities of an entity that
most significantly impact the entity’s
economic performance (ASU 2009-17
model).

Š The direct or indirect ability to make

decisions about the entity’s activities through
voting rights or similar rights (ASC 810
model).

Š The obligation to absorb the expected losses

of the entity.

Š The right to receive the expected residual

returns of the entity.

BNY Mellon’s VIEs generally include retail,
institutional and alternative investment funds offered
to its retail and institutional customers in which it acts
as the fund’s investment manager. BNY Mellon earns
management fees on these funds as well as
performance fees in certain funds. It may also provide
start-up capital in its new funds. These VIEs are
included in the scope of ASU 2010-10 and are
reviewed for consolidation based on the guidance in
ASC 810.

BNY Mellon applies ASC 810 to its mutual funds,
hedge funds, private equity funds, collective
investment funds and real estate investment trusts. If
these entities are determined to be VIEs, primary
beneficiary calculations are prepared in accordance
with ASC 810 to determine whether or not BNY
Mellon is the primary beneficiary and required to
consolidate the VIE. The primary beneficiary of a VIE
is the party that absorbs a majority of the variable
interests’ expected losses, receives a majority of its
expected residual returns or both.

The primary beneficiary calculations include
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 has other VIEs, including securitization
trusts, which are no longer considered QSPEs, and
CLOs, in which BNY Mellon serves as the investment
manager. In addition, we provide trust and custody
services for a fee to entities sponsored by other
corporations in which we have no other interest.
These VIEs are evaluated under the guidance included
in ASU 2009-17. BNY Mellon has two securitizations
and several CLOs, which are assessed for
consolidation in accordance with ASU 2009-17.

The primary beneficiary of these VIEs is the entity
whose variable interests provide it with a controlling
financial interest, which includes the power to direct
the activities that most significantly impact the VIE’s
economic performance and the obligation to absorb
losses of the VIE or the right to receive benefits of the
VIE that could potentially be significant to the VIE.

In order to determine if it has a controlling financial
interest in these VIEs, BNY Mellon assesses the
VIE’s purpose and design along with the risks it was
designed to create and pass through to its variable
interest holders. We also assess our involvement in
the VIE and the involvement of any other variable
interest holders in the VIE.

Generally, as the sponsor and the manager of its VIEs,
BNY Mellon has the power to control the activities
that significantly impact the VIE’s economic
performance. Both a qualitative and quantitative
analysis of BNY Mellon’s variable interests are
performed to determine if BNY Mellon has the
obligation to absorb losses of the VIE or the right to
receive benefits of the VIE that could potentially be
significant to the VIE. The analyses included
assessments related to the expected performance of
the VIEs and its related impact on BNY Mellon’s seed
capital, management fees or residual interests in the
VIEs. We also assess any potential impact the VIE’s
expected performance has on our performance fees.

The following table presents the incremental assets
and liabilities included in BNY Mellon’s consolidated
financial statements, after applying intercompany
eliminations, as of Dec. 31, 2010, based on the
assessments performed in accordance with ASC 810
and ASU 2009-17. The net assets of any consolidated
VIE are solely available to settle the liabilities of the
VIE and to settle any investors’ ownership liquidation
requests, including any seed capital invested in the
VIE by BNY Mellon.

BNY Mellon

123

Notes to Consolidated Financial Statements (continued)

Investments consolidated under ASC 810 at Dec. 31, 2010
Asset
Management

(in millions)

funds Securitizations

Total
consolidated
investments

Available for sale
Trading assets
Other assets

Total assets

Trading liabilities
Other liabilities

$
-
14,121
645

$14,766

13,561
2

Total liabilities

$13,563

$483
-
-

$483

-
386

$386

$
483
14,121
645

$15,249

13,561
388

$13,949

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.

The table below shows the financial statement items
related to non-consolidated VIEs to which we have
provided credit support agreements at Dec. 31, 2010,
and Dec. 31, 2009.

Noncontrolling
interests

699

Credit supported VIEs at Dec. 31, 2010

BNY Mellon voluntarily provided capital support
agreements to certain VIEs (see below). With the
exception of these agreements, we are not
contractually required to provide financial or any
other support to any of our VIEs. Additionally,
creditors of any consolidated VIEs do not have any
recourse to the general credit of BNY Mellon.

Non-consolidated VIEs

As of Dec. 31, 2010, the following assets related to
the VIEs, where BNY Mellon is not the primary
beneficiary, are included in its consolidated financial
statements.

Non-consolidated VIEs at Dec. 31, 2010

(in millions)

Assets

Liabilities

Trading
Other

Total

$24
34

$58

$
-

Maximum
loss
exposure

$24
34

$58

The maximum loss exposure indicated in the above
table relates solely to BNY Mellon’s seed capital or
residual interests invested in the VIEs.

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.

124 BNY Mellon

(in millions)

Other

Assets

Liabilities

$13

Credit supported VIEs at Dec. 31, 2009

(in millions)

Other

Assets

Liabilities

$14

$40

Maximum
loss
exposure

Consolidated credit supported VIEs

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, 2010, and
Dec. 31, 2009.

Consolidated credit supported VIEs at Dec. 31, 2010

(in millions)

Available-for-sale
Other

Total

Assets

Liabilities

$53
-

$53

$
-
126

$126

(in millions)

Available-for-sale
Other

Total

Assets

Liabilities

$47
-

$47

-
190

$190

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, 2010, BNY Mellon recorded $126 million in
liabilities related to its VIEs for which credit support
agreements were provided.

Maximum
loss
exposure

$ 53
51

$104

Maximum
loss
exposure

$47
46

$93

Credit supported VIEs

Consolidated credit supported VIEs at Dec. 31, 2009

Notes to Consolidated Financial Statements (continued)

Note 17—Shareholders’ equity

Capital adequacy

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. At Dec. 31, 2010,
1,241,530,195 shares of common stock were
outstanding. There were no shares of preferred stock
outstanding at Dec. 31, 2010.

In June 2010, BNY Mellon priced 25.9 million
common shares in an underwritten public offering, at
$27.00 per common share. In connection with this
offering, BNY Mellon entered into a forward sale
agreement with a forward purchaser, who borrowed
and sold to the public through the underwriters shares
of the Company’s common stock. BNY Mellon settled
the forward sale agreement in September 2010 and
received net proceeds of $677 million from this
transaction.

Troubled Asset Relief Program

In 2008, BNY Mellon issued and sold to the U.S.
Treasury $3 billion of preferred stock and a warrant to
purchase shares of common stock in accordance with
the terms of the Troubled Asset Relief Program
Capital Purchase Program.

In 2009, BNY Mellon repurchased the 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.

Also in 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 2010. At Dec. 31, 2010, 33.8 million
shares were available for repurchase under the
December 2007 program. There is no expiration date
on this repurchase program.

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.

The following tables present 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, 2010 and 2009.

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

(in millions)

Tier 1 capital:

Common shareholders’ equity
Trust preferred securities
Adjustments for:

Dec. 31,

2010

2009

$ 32,354
1,676

$ 28,977
1,686

Goodwill and other intangibles (b)
Pensions/cash flow hedges
Securities valuation allowance
Merchant banking investment

(21,297)
1,053
(170)
(19)

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

Total Tier 1 capital

13,597

12,883

Tier 2 capital:

Qualifying unrealized gains on

equity securities

Qualifying subordinated debt
Qualifying allowance for credit

losses

Total Tier 2 capital

5
2,381

571

2,957

3
3,429

665

4,097

Total risk-based capital

$ 16,554

$ 16,980

Total risk-weighted assets

$101,407

$106,328

(a) On a regulatory basis as determined under Basel 1
guidelines and including discontinued operations.

(b) Reduced by deferred tax liabilities associated with non-tax

deductible identifiable intangible assets of $1,625 million at
Dec. 31, 2010, and $1,680 million at Dec. 31, 2009, and
deferred tax liabilities associated with tax deductible
goodwill of $816 million at Dec. 31, 2010, and $720 million
at Dec. 31, 2009.

BNY Mellon

125

Notes to Consolidated Financial Statements (continued)

Consolidated and largest bank
subsidiary capital ratios (a)

Consolidated capital ratios:

Tier 1
Total capital
Leverage

Largest bank capital ratios:

Tier 1
Total capital
Leverage

Dec. 31,

2010

2009

13.4% 12.1%
16.3
5.8

16.0
6.5

11.4% 11.2%
15.3
5.3

15.0
6.3

(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.

At Dec. 31, 2010, we had $1,676 million of trust
preferred securities outstanding, net of issuance costs,
all of which qualified as Tier 1 capital.

If a bank holding company or bank fails to qualify as
“adequately capitalized,” regulatory sanctions and
limitations are imposed. At Dec. 31, 2010, 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, 2010
(in millions)

Consolidated

The Bank of
New York Mellon

Tier 1 capital
Total capital
Leverage

$7,512
6,413
1,802

$4,667
4,519
592

Note 18—Comprehensive results

2008 beginning balance, net of tax (expense)

benefit

Change in 2008, net of tax (expense) benefit of
$(113), $566, $(6), $3,359, $(1), $3,805

Reclassification adjustment, net of tax

(expense) benefit of $ -, $ -, $ -, $(645), $1,
$(644)
2008 total unrealized gain (loss)
2008 ending balance, net of tax (expense)

ASC 820 Adjustments

Foreign
currency
translation

Other post-
retirement
benefits

Pensions

Unrealized
gain (loss)
on assets
available
for sale

Unrealized
gain (loss)
on cash flow
hedges (a)

Total
accumulated
unrealized
gain (loss)

$ 11

$ (148)

$(73)

$ (342)

(374)

(808)

-
(374)

-
(808)

-
7

(4,694)

983
(3,711)

$ 3

(11)
34

$ (549)

(5,824)

972
(4,852)

benefit

$(363)

$ (956)

$(66)

$(4,053)

$ 37

$(5,401)

Adjustments for the cumulative effect of

applying ASC 320, net of taxes of $-, $-, $-,
$470, $-, $470

Adjusted balance at Jan. 1, 2009
Change in 2009, net of tax (expense) benefit of

$(82), $14, $(34), $(489), $(1), $(592)

Reclassification adjustment, net of tax

(expense) benefit $-, $-, $-, $(2,022), $-,
$(2,022)
2009 total unrealized gain (loss)
2009 ending balance, net of tax (expense)

-
(363)

227

-
227

-
(956)

(46)

-
(46)

-
(66)

(1)

-
(1)

(676)
(4,729)

762

3,348
4,110

-
37

(16)

(32)
(48)

(676)
(6,077)

926

3,316
4,242

benefit

$(136)

$(1,002)

$(67)

$ (619)

$(11)

$(1,835)

Adjustments for the cumulative effect of

applying ASC 810

Adjusted balance at Jan. 1, 2010
Change in 2010, net of tax (expense) benefit

of $(68), $15, $(3), $(469), $-, $(525)

Reclassification/other adjustment, net of tax
(expense) benefit $ -, $ -, $ -, $12, $2, $14
2010 total unrealized gain (loss)
2010 ending balance, net of tax (expense)

-
(136)

(319)

(18) (b)
(337)

(1,002)

--
9

-
(67)

24
(595)

747

18 (b)
765

-
(11)

(5)
7

24
(1,811)

461

(5)
456

benefit

$(473)

$ (993)

$(55)

$ 170

$ (4)

$(1,355)

(a) Includes unrealized gain (loss) on foreign currency cash flow hedges of $- million, $(1) million and $7 million at Dec. 31, 2010, Dec.

31, 2009 and Dec. 31, 2008, respectively.

(b) Includes a net reclassification adjustment of $14 million to retained earnings from other comprehensive income.

126 BNY Mellon

Notes to Consolidated Financial Statements (continued)

Note 19—Stock–based compensation

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, 2010, under
the Long-Term Incentive Plan approved in April
2008, we may issue 33,594,759 new options. Of this
amount, 18,986,212 shares may be issued as restricted
stock or RSUs. Stock-based compensation expense
related to retirement eligibility vesting totaled
$25 million in 2010 and $16 million in 2009,
respectively.

Stock options

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 $87 million, $86 million and $108 million
for 2010, 2009 and 2008, respectively. The total
income tax benefit recognized in the income statement
was $35 million, $35 million and $44 million for
2010, 2009 and 2008, respectively.

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)

2010

2009

2008

2.2%
32
2.94
6.6

3.1%
34
2.22
5.9

2.2%
27
2.91
5.5

For 2010 and 2009, 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, 2010, and changes during the year, is presented below:

Stock option activity

Balance at Dec. 31, 2009
Granted
Exercised
Canceled

Balance at Dec. 31, 2010

Vested and expected to vest at Dec. 31, 2010

Exercisable at Dec. 31, 2010

Shares subject Weighted-average
exercise price

to option

Weighted-
average remaining
contractual term
(in years)

95,087,155
13,745,030
(1,459,030)
(14,832,684)

92,540,471

91,733,097

62,801,038

36.36
30.25
21.58
39.31

$35.21

35.28

37.93

5.2

3.7

BNY Mellon

127

Notes to Consolidated Financial Statements (continued)

Stock options outstanding at Dec. 31, 2010

Options outstanding

Options exercisable (a)

Range of
exercise
prices

$ 18 to 31
31 to 41
41 to 51
51 to 60

$ 18 to 60

Outstanding at
Dec. 31, 2010

37,578,663
26,633,896
23,189,116
5,138,796

92,540,471

Weighted-
average
remaining
contractual
life
(in years)

6.84
4.38
4.56
0.12

5.19

Weighted-
average
exercise
price

$25.13
$37.11
$44.51
$57.24

$35.21

Exercisable
at Dec. 31,
2010

15,031,644
24,744,764
17,885,834
5,138,796

62,801,038

Weighted-
average
exercise
price

$25.18
$36.91
$44.52
$57.24

$37.93

(a) At Dec. 31, 2009 and 2008, 65,703,148 and 66,280,895 options were exercisable at an average price per common share of $38.96 and

$38.71, respectively.

Aggregate intrinsic value of options
(in millions)

Outstanding at Dec. 31,
Exercisable at Dec. 31,

2010

$193
$ 77

2009

$167
$ 26

2008

$31
$31

The weighted-average fair value of options at grant
date was $8.38 in 2010, $4.59 in 2009 and $10.33 in
2008.

The total intrinsic value of options exercised during
the years ended Dec. 31, 2010, 2009 and 2008 was
$12 million, $3 million and $53 million, respectively.

As of Dec. 31, 2010, there was $146 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, 2010, 2009 and 2008, was $31 million,
$16 million and $182 million, respectively. The actual
tax benefit realized for the tax deductions from
options exercised totaled $1 million, $4 million and
$14 million for the years ended Dec. 31, 2010, 2009
and 2008, respectively.

Restricted stock, restricted stock units (“RSU”) and
Total Shareholder Return awards

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.

In March 2008, BNY Mellon granted Total
Shareholder Return (“TSR”) awards. Under the terms
of the TSR Performance share awards, a target award
comprised of restricted stock was granted to an
employee at the beginning of the three-year
performance period beginning on Jan. 1, 2008 through
Dec. 31, 2010. BNY Mellon’s actual TSR for the
performance period is compared to the results of a
peer group (weighted two-thirds) and an S&P 500
Financial Services Index (weighted one-third). Any
dividends earned during the vesting period are held in
escrow and are paid out at the end of the performance
period along with the actual shares earned based on
BNY Mellon’s performance relative to the two peer
groups. There were 241,084 total TSR awards
outstanding as of Dec. 31, 2010.

The fair value of restricted stock, RSUs and TSRs 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,
RSUs and TSRs was $119 million, $124 million and
$134 million recognized in 2010, 2009 and 2008,
respectively.

128 BNY Mellon

Notes to Consolidated Financial Statements (continued)

The following table summarizes our nonvested

restricted stock, RSU and TSR activity for 2010.

Nonvested restricted stock,
RSUs and TSRs activity
Nonvested restricted stock, RSUs
and TSRs at Dec. 31, 2009

Granted
Vested
Forfeited
Nonvested restricted stock, RSUs

Number of
shares

10,538,540
4,959,756
(3,427,013)
(751,507)

Weighted-
average
fair value

$33.48
29.49
40.02
30.31

and TSRs at Dec. 31, 2010

11,319,776

$29.96

As of Dec. 31, 2010, $119 million of total
unrecognized compensation costs related to nonvested
restricted stock, RSUs and TSRs is expected to be
recognized over a weighted-average period of
approximately two years.

Subsidiary Long-Term Incentive plans

BNY Mellon also has several subsidiary Long-Term
Incentive Plans which have issued restricted
subsidiary shares to certain employees. These share
awards are subject to forfeiture until certain
restrictions have lapsed, including continued

employment for a specified period of time. The shares
are non-voting and non-dividend paying. Once the
restrictions lapse, which are generally 3-5 years, the
shares can only be sold, at the option of the employee,
to BNY Mellon at a price based generally on the fair
value of the subsidiary at the time of repurchase. In
certain instances BNY Mellon has an election to call
the shares.

Note 20—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.

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.

BNY Mellon

129

Notes to Consolidated Financial Statements (continued)

(dollar amounts in millions)
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
(Acquisitions) divestitures
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)

Pension Benefits

Healthcare Benefits

Domestic

Foreign

Domestic

Foreign

2010

2009

2010

2009

2010

2009

2010

2009

5.71%
3.50

6.21%
3.50

5.29%
4.47

5.74%
4.64

5.71%
3.50

6.21%
3.50

$(2,835)
(90)
(171)
-
26
(224)
-
155
N/A
(3,139)

3,331
427
25
-
-
(155)
N/A
3,628
$ 489

$(2,559)
(96)
(160)
-
-
(185)
-
165
N/A
(2,835)

2,673
479
344
-
-
(165)
N/A
3,331
$ 496

$(555)
(28)
(30)
(1)
(3)
(28)
(11)
10
20
(626)

540
70
21
1
10
(10)
(21)
611
$ (15)

$(365)
(20)
(24)
(1)
-
(121)
-
10
(34)
(555)

387
74
50
1
-
(10)
38
540
$ (15)

$(242)
(2)
(14)
-
-
5
-
21
N/A
(232)

66
5
21
-
-
(21)
N/A
71
$(161)

$(269)
(2)
(16)
-
-
21
-
24
N/A
(242)

56
10
24
-
-
(24)
N/A
66
$(176)

$ 1,582
(94)
-
$ 1,488

$ 1,552
(82)
-
$ 1,470

$ 177
3
-
$ 180

$ 200
-
-
$ 200

$ 56
(4)
8
$ 60

$ 65
(4)
12
$ 73

5.40% 5.85%

(3)
-
-
-
-
-
-
-
-
(3)

-
-
-
-
-
-
-
-
(3)

(4)
-
-
(4)

(2)

(1)
(3)

(3)

(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

(dollar amounts in millions)
Weighted-average assumptions

as of Jan. 1:

Domestic
2009

2010

2008

2010

Foreign
2009

2008

2010

Domestic
2009

Foreign

2008

2010

2009 2008

Market-related value of plan assets $3,861 $3,651
Discount rate
Expected rate of return on plan

6.21% 6.38%

$3,706 $ 529 $ 459 $ 542 $ 76 $ 77 $ 77 N/A N/A N/A

6.38% 5.74% 6.18% 5.75% 6.21% 6.38% 6.38% 5.85% 6.25% 5.80%

8.00
3.50

6.69
4.64

6.40
4.11

8.00 N/A N/A N/A
7.28
4.43 N/A N/A N/A N/A N/A N/A

8.00

90 $
171
(303)

96
160
(295)

84 $ 28 $ 20 $ 27 $
142
(290)

30
(37)

24
(32)

26
(37)

2 $
14
(6)

2
16
(6)

3 $
17
(6)

-
-
-

-
(14)
71
-
-

-
(14)
26
5
(10)
(32)(a) $

-
-
11
-
-

-
-
-
(10)
3
11
-
10
14
-
(39) $ 32 $ 15 $ 19 $ 19 $ 21 $ 23 $

4
-
5
-
-

-
-
3
-
-

4
-
5
-
-

-
-
(1)
-
-
(1) $

-
-
(1)
-
-
(1)

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

Net periodic benefit cost (credit) $
(a) Includes discontinued operations.

15 $

130 BNY Mellon

Notes to Consolidated Financial Statements (continued)

Changes in other comprehensive (income) loss in 2010
(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 2011 (before tax effects)
(in millions)

(Gain) loss recognition
Prior service cost recognition
Net initial obligation (asset) recognition

(in millions)

Pension benefits:
Prepaid benefit cost
Accrued benefit cost

Domestic

Foreign

2010

2009

2010

2009

$ 680
(191)

$ 681
(185)

$ 52
(67)

$ 33
(48)

Total pension benefits

$ 489

$ 496

$(15)

Healthcare benefits:
Accrued benefit cost

$(161)

$(176)

$ (3)

Total healthcare benefits

$(161)

$(176)

$ (3)

The accumulated benefit obligation for all defined
benefit plans was $3.6 billion at Dec. 31, 2010, and
$3.2 billion at Dec. 31, 2009.

Plans with obligations in
excess of plan assets
(in millions)

Projected benefit obligation
Accumulated benefit

obligation

Fair value of plan assets

Domestic

Foreign

2010

$212

2009

$205

2010

2009

$32

$41

211
21

205
20

26
2

38
14

For information on pension assumptions see the
“Critical accounting estimates” section.

Assumed healthcare cost trend—Domestic
post-retirement healthcare benefits

The assumed healthcare cost trend rate used in
determining benefit expense for 2011 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

Pension Benefits

Foreign Domestic

Healthcare Benefits
Foreign

$(10)
(11)
3
-
-
(2)

$(20)

$ (4)
(5)
-
-
(4)
N/A

$(13)

$
1

Pension Benefits

Foreign Domestic

Healthcare Benefits
Foreign

$14
-
-

$4
-
4

Domestic

$101
(71)
(26)
14
-
N/A

$ 18

Domestic

$109
(16)
-

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
accumulated post-retirement benefit obligation by
$14.9 million, or 6%, and the sum of the service and
interest costs by $0.9 million, or 6%. Conversely, a
decrease in this rate of one percentage point for each
year would decrease the benefit obligation by
$13.4 million, or 6%, and the sum of the service and
interest costs by $0.8 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
accumulated 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.

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

BNY Mellon

131

Notes to Consolidated Financial Statements (continued)

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 assets were invested as follows at
Dec. 31, 2010 and 2009:

Asset allocations

Domestic

Foreign

Equities
Fixed income
Private equities
Alternative investment
Real estate
Cash

2010

2009

2010

2009

57%
33
3
6
-
1

55%
33
3
8
-
1

55%
28
-
9
3
5

54%
29
-
10
4
3

Total pension benefits

100% 100%

We held no BNY Mellon Corporation stock in our
pension plans at Dec. 31, 2009 and 2010. Assets of

132 BNY Mellon

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 2011 of
$26 million for the domestic plans and $57 million for
the foreign plans.

BNY Mellon expects to make cash contributions to
fund its post-retirement healthcare plans in 2011 of
$21 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:

(in millions)

Pension benefits:
Year 2011
2012
2013
2014
2015
2016-2020

Total pension benefits

Healthcare benefits:
Year 2011
2012
2013
2014
2015
2016-2020

Domestic

Foreign

$ 172
174
183
194
204
1,173

$2,100

21
21
21
22
22
104

$ 10
9
12
11
13
90

$145

-
-
-
-
-
1

Total healthcare benefits

$ 211

$ 1

Fair value measurement of plan assets

In accordance with ASC 715, BNY Mellon has
established a three-level hierarchy for fair value
measurements of its pension plan 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 23 to the Consolidated Financial Statements.

The following is a description of the valuation
methodologies used for assets measured at fair value,
as well as the general classification of such assets
pursuant to the valuation hierarchy.

Notes to Consolidated Financial Statements (continued)

Cash and currency

Fund of funds

This category consists primarily of foreign currency
balances. Foreign currency is translated monthly
based on current exchange rates.

Common and preferred stock and exchange traded
funds

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 partnership interests

There are no readily available market quotations for
these funds. The fair value of the investments is based
on the Plan’s ownership percentage of the fair value
of 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 partnership interests 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 fair value of the fund is based on the
securities in the portfolio, which typically is the
amount that the fund might reasonably expect to
receive for the securities upon a sale. These funds are
either valued on a daily or monthly basis.

Corporate debt and government obligations

Certain corporate debt and government obligations are
valued at the closing price reported in the active
market in which the bonds are traded. Other corporate
debt 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
bonds are 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

Treasury securities are valued at the closing price
reported in the active market in which the individual
security is traded.

There are no readily available market quotations for
these funds. The fair value of the fund 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 that
the fund might reasonably expect to receive upon
selling those hard to value or illiquid securities within
the portfolios. 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.

The following tables present the fair value of each
major category of plan assets as of Dec. 31, 2010, by
captions and by ASC 820 valuation hierarchy (as
described above).

Plan assets measured at fair value on a recurring basis—
domestic plans at Dec. 31, 2010

(in millions)

Level 1 Level 2 Level 3

Collective trust funds
Common and preferred

stock

Corporate debt
obligations

U.S. and sovereign
government
obligations
Fund of funds
Venture capital and

partnership interests
Exchange traded funds

Total domestic

plan assets, at
fair value

$1,181

778

777

272
-

-
3

209
159

-
-

-
134

115
-

Total
fair value

$1,181

778

777

481
293

115
3

$1,053

$2,326

$249

$3,628

Plan assets measured at fair value on a recurring basis—
foreign plans at Dec. 31, 2010

(in millions)

Level 1 Level 2 Level 3

Total
fair value

Common stock
Sovereign government

obligations
Corporate debt
obligations
Cash and currency
Venture capital and

partnership interests
Collective trust funds

Total foreign plan

$234

$ 97

$ -

$331

-81

-
-29

-
-

41
-

103

81
26

41
29

assets, at fair value

$317

$253

$41

$611

BNY Mellon

133

Notes to Consolidated Financial Statements (continued)

Plan assets measured at fair value on a recurring basis—
domestic plans at Dec. 31, 2009

Plan assets measured at fair value on a recurring basis—
foreign plans at Dec. 31, 2009

(in millions)

Level 1 Level 2 Level 3

(in millions)

Level 1 Level 2 Level 3

Collective trust funds
Corporate debt
obligations

Common and preferred

$ 972

795

718

stock

U.S. and sovereign
government
obligations
Fund of funds
Venture capital and

partnership interests
Exchange traded funds

Total domestic plan

374
-

-
3

96
142

-
-

-
121

110
-

470
263

110
3

assets, at fair value

$1,095

$2,005

$231

$3,331

Total
fair value

$ 972

795

Collective trust funds
Common stock
Sovereign government

obligations

718

Venture capital and

partnership interests

Cash and currency
Corporate debt
obligations

Total foreign plan

-
176

$266
-

$ -
-

-
14

-
-

36
-

Total
fair value

$266
176

36
14

assets, at fair value

$229

$275

$36

$540

At Dec. 31, 2010, BNY Mellon had $351 million of
pension and post retirement plan assets in alternative
investment funds valued using net asset value. These
investments are redeemable at net asset value under
agreements with the underlying funds. These
investments include $125 million that contain a
redemption provision which requires notice of 90 days.

Our alternative investment funds consist primarily of
venture capital and partnership interests and hedge
fund of funds. As of Dec. 31, 2010, there were
$41 million of unfunded commitments relating to our
venture capital and partnership interests.

Changes in Level 3 fair value measurements

The table below includes a rollforward of the plan assets for the years ended Dec. 31, 2010 and 2009 (including
the change in fair value), for financial instruments classified in Level 3 of the valuation hierarchy.

Fair value measurements using significant unobservable inputs—domestic plans—for the year ended Dec. 31, 2010

(in millions)

Total realized/
Fair value at unrealized gains
(losses)

Dec. 31, 2009

Purchases, Transfers

issuances and
settlements, net

in/out-of Fair value at
Level 3 Dec. 31, 2010

Changes in
unrealized gains
and (losses)
related to plan
assets held at
Dec. 31, 2010

Venture capital and partnership interests
Fund of funds

Total plan assets at fair value

$110
121

$231

$ 8
5

$13

$(3)
8

$ 5

$
-

$115
134

$249

$2
2

Fair value measurements using significant unobservable inputs—foreign plans for the year ended Dec. 31, 2010

(in millions)

Fair value at
Dec. 31, 2009

Total realized/
unrealized gains
(losses)

Purchases,
issuances and
settlements, net

Transfers
in/out-of
Level 3

Fair value at
Dec. 31, 2010

Change in
unrealized gains
and (losses)
related to plan
assets held at
Dec. 31, 2010

Venture capital and partnership interests

Total plan assets at fair value

$ 36

$ 5

$ -

$ 41

134 BNY Mellon

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
Fund of funds

Total plan assets at fair value

Fair
value
at
Dec.
31,
2008

$108
81

$189

Total
realized/
unrealized
gains
(losses)

Purchases,
issuances
and
settlements,
net

Transfers
in/out-of
Level 3

Fair value at
Dec. 31, 2009

Changes in
unrealized gains
and (losses)
related to plan
assets held at
Dec. 31, 2009

$(3)
8

$ 5

$ 5
32

$37

$
-

$110
121

$231

$(13)
1

$(12)

Fair value measurements using significant unobservable inputs—foreign plans for the year ended Dec. 31, 2009

(in millions)

Venture capital and partnership interests

Total plan assets at fair value

Fair
value
at
Dec.
31,
2008

$ 33

Total
realized/
unrealized
gains
(losses)

Purchases,
issuances
and
settlements,
net

Transfers
in/out-of
Level 3

Fair value at
Dec. 31, 2009

Change in
unrealized gains
and (losses)
related to plan
assets held at
Dec. 31, 2009

$ 3

$ -

$ 36

$ 3

Defined contribution plans

Note 21—Company financial information

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, 2010, and Dec. 31, 2009, the ESOP owned
7.4 million and 8.1 million shares of our stock,
respectively. The fair value of total ESOP assets was
$228 million and $246 million at Dec. 31, 2010, and
Dec. 31, 2009. There were no contributions in 2010,
2009 or 2008. There was no ESOP related expense in
2010, 2009 and 2008.

We have defined contribution plans, excluding the
ESOP, for which we recognized a cost of $106 million
in 2010, $98 million in 2009 and $107 million in 2008.

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.

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 recorded
in 2009 related to the restructuring of the investment
securities portfolio, The Bank of New York Mellon
and BNY Mellon, N.A. are required to obtain 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 dividends at
the current rate as well as any increase to the dividend
approved as part of our capital plan which was
submitted to the Federal Reserve in 2011.

The payment of dividends also is limited by minimum
capital requirements imposed on banks. As of
Dec. 31, 2010, BNY Mellon’s bank subsidiaries
exceeded these minimum requirements.

The bank subsidiaries declared dividends of
$239 million in 2010, $659 million in 2009 and
$575 million in 2008. The Federal Reserve Board and
the OCC have issued additional guidelines that require

BNY Mellon

135

Notes to Consolidated Financial Statements (continued)

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. Any
increase in BNY Mellon’s ongoing quarterly
dividends would require consultation with the Federal
Reserve. The Federal Reserve’s current guidance
provides that, for large bank holding companies like
us, dividend payout ratios exceeding 30% of after-tax
net income will receive particularly close scrutiny.

On Nov. 17, 2010, the Federal Reserve issued Revised
Temporary Addendum to SR letter 09-4. The letter
described the process the Federal Reserve will follow
to assess comprehensive capital plans of the
19 Supervisory Capital Assessment Program bank
holding companies including any request to take
capital actions such as increased dividends or stock
buybacks. The comprehensive capital plans, which
were prepared using Basel I capital guidelines,
included bank developed baseline and stress
projections as well as a supervisory stress projection
using adverse macroeconomic assumptions provided
by the Federal Reserve.

The Company also provided the Federal Reserve with
projections covering the time period it will take us to
fully comply with Basel III capital guidelines,
including the 7% Tier 1 common, 8.5% Tier 1, and
3% leverage ratios. Certain templates were submitted
to the Federal Reserve on Dec. 22, 2010 and the
capital plan was filed by Jan. 7, 2011. The Federal
Reserve is expected to provide a response to first
quarter capital actions, such as a dividend increase
and share repurchases, no later than March 21, 2011
and feedback on the comprehensive capital plan by
April 30, 2011.

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 $2.2 billion and $2.0 billion for the
years 2010 and 2009, 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.

136 BNY Mellon

Notes to Consolidated Financial Statements (continued)

The Parent’s condensed financial statements are as
follows:

Condensed Balance Sheet—The Bank of New
York Mellon Corporation (Parent Corporation)

(in millions)
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

Total assets

Liabilities:
Deferred compensation
Commercial paper
Affiliate borrowings
Other liabilities
Long-term debt

Total liabilities

Shareholders’ equity

Dec. 31,

2010

2009

$ 3,452
219
52

$ 4,649
233
113

26,349
20,578
46,927
650
3,014
$54,314

497
10
3,344
2,682
15,427
21,960
32,354

23,671
19,420
43,091
1,058
2,757
$51,901

500
12
3,355
2,649
16,408
22,924
28,977

Total liabilities and shareholders’

equity

$54,314

$51,901

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 $14 in 2010,

$23 in 2009 and $79 in 2008 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)
Redemption charge and preferred

dividends

Net income (loss) applicable to

common shareholders’ of The
Bank of New York Mellon

2010
$ 200

2009
$ 611

2008
$ 495

211

131

5
73
694

285
221
506

176

228

146

237

214

234

(2)
81
1,240

(72)
54
1,162

366
338
704

710
737
1,447

188

536

(285)

(465)

(357)

(433)

1,630
235
2,518

(2,271)
294
(1,084)

875
396
1,419

(283)

(33)

$2,518

$(1,367) $1,386

(a) Includes results of discontinued operations and the

extraordinary loss in 2008.

BNY Mellon

137

Notes to Consolidated Financial Statements (continued)

Condensed Statement of Cash Flows—The
Bank of New York Mellon Corporation (Parent
Corporation)

Year ended Dec. 31
(in millions)
Operating activities:
Net income (loss)
Adjustments to reconcile net

income to net cash provided by/

(used in) 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 (a)
Other, net

Net cash provided by/(used
in) operating activities

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 (used in)/provided
by financing activities
Change in cash and due from

banks

Cash and due from banks at

beginning of year

Cash and due from banks at end of

2010

2009

2008

$ 2,518 $(1,084) $ 1,419

(1,865)

1,977

(1,271)

(41)

2
(321)
179

(1)
(482)
(455)

2
(84)
880

529

(73)

1,021

(5)
43
61

(9)
129
110

(198)

346

(1,002)
208

(566)
-

(1,131)
9

(695)

(336)

(963)

(2)

(4)

(49)

1,347
(2,614)

3,350
(1,277)

2,647
(3,814)

(10)
728
(41)
(440)

59
1,387
(28)
(673)

321
222
(308)
(1,129)

-
-

(3,000)
(136)

2,779
221

(1,031)

(318)

904

(1,197)

(727)

962

4,649

5,376

4,414

year

$ 3,452 $ 4,649 $ 5,376

Supplemental disclosures
Interest paid
Income taxes paid (b)
Income taxes refunded (b)
(a) Includes payments received from subsidiaries for taxes of

$ 284 $ 367 $ 708
$ 442 $ 1,013 $ 891
37

178

609

$900 million in 2010, $967 million in 2009 and
$1,025 million in 2008.

(b) Includes discontinued operations.

138 BNY Mellon

Note 22—Fair value of financial instruments

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 0.12% to 6.46% at Dec. 31,
2010, and 0.05% to 6.27% at Dec. 31, 2009. The fair
value information supplements the basic financial
statements and other traditional financial data
presented throughout this report.

Note 23, “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 24, “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.

Notes to Consolidated Financial Statements (continued)

Loans and commitments

Summary of financial instruments

Dec. 31, 2010

Dec. 31, 2009

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.

Carrying Estimated Carrying Estimated
amount fair value

amount fair value

(in millions)
Assets:
Interest-bearing

deposits with banks $ 50,200 $ 50,253 $ 56,302 $ 56,374
60,544
6,001

72,440
6,276

71,944
6,276

60,461
6,001

Securities
Trading assets
Loans and

commitments
Derivatives used for

ALM

Other financial assets
Total financial

assets

Assets of

discontinued
operations

Assets of

consolidated asset
management funds
– primarily trading
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
Liabilities of

consolidated asset
management funds
– primarily trading

Non-financial
liabilities
Total liabilities

34,163

34,241

32,673

32,712

834
31,167

422
18,793

195,080

194,715 174,652 174,846

278

2,242

14,766
37,135
$247,259

14,766

-
35,330
$212,224

$ 38,703 $ 38,703 $ 33,477 $ 33,477

106,636

107,417 101,573 101,570

9,962
8,599
16,517
6,911

9,962
8,599
17,120
6,911

10,721
3,922
17,234
6,396

10,721
3,922
17,110
6,396

187,372

188,756 173,394 173,267

1,608

13,563

13,167
$214,102

8,219
$183,221

BNY Mellon

139

Notes to Consolidated Financial Statements (continued)

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)
At Dec. 31, 2010:

Securities held-for-sale
Deposits
Long-term debt

At Dec. 31, 2009:
Loans
Securities held-for-sale
Deposits
Long-term debt

Carrying Notional

Unrealized

amount amount Gain (Loss)

$ 2,170 $ 2,168 $ 51 $ (3)
25

3
12,540 11,774 780

(41)

1 $

- $
-
-
12,378 11,599 422

216
26

211
25

(12)
(4)
(55)

Note 23—Fair value measurement

The guidance related to “Fair Value Measurement”,
included in 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.

The 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.

140 BNY Mellon

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 a 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, as 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

Notes to Consolidated Financial Statements (continued)

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 estimate 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
recent 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.

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

Level 2: Observable inputs other than Level 1 prices,
for example, quoted prices for similar assets and
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

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
long and short positions. Level 1 securities include
highly liquid government bonds 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

BNY Mellon

141

Notes to Consolidated Financial Statements (continued)

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
marketplace 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 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.

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
primarily include other retained interests in
securitizations, securities of state and political
subdivisions and other debt securities.

At Dec. 31, 2010, approximately 99% of our
securities were valued by pricing sources with
reasonable levels of price transparency. Less than 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.

142 BNY Mellon

Consolidated collateralized loan obligations

BNY Mellon values assets in consolidated CLOs
using observable market prices observed from the
secondary loan market. The returns to the note holders
are solely dependent on the assets and accordingly
equal the value of those assets. Based on the structure
of the CLOs, the valuation of the assets is attributable
to the senior note holders. Changes in the values of
assets and liabilities are reflected in the income
statement as investment income and interest of asset
management fund note holders, respectively.

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 our
derivative financial instruments. Additional
disclosures of derivative instruments are provided in
Note 26 to the Consolidated Financial Statements.

Seed capital

In our Asset Management business 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

Notes to Consolidated Financial Statements (continued)

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
that 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
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.

Private equity investments

Our other business includes holdings of nonpublic
private equity investment through funds managed by
third party investment managers. 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. Nonpublic
private equity investments are included in Level 3 of
the valuation hierarchy.

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. Publicly held investments are
primarily classified in Level 2 of the valuation
hierarchy.

The following tables present the financial instruments
carried at fair value at Dec. 31, 2010 and 2009, by
caption on the consolidated balance sheet and by ASC
820 valuation hierarchy (as described above). We
have included credit ratings information in certain of
the tables because the information indicates the degree
of credit risk to which we are exposed, and significant
changes in ratings classifications could result in
increased risk for us. There were no transfers between
Level 1 and Level 2 during 2010.

BNY Mellon

143

Notes to Consolidated Financial Statements (continued)

Assets and liabilities measured at fair value on a recurring basis at
Dec. 31, 2010
(dollar amounts in millions)
Available-for-sale securities:

U.S. Treasury
U.S. Government agencies
Sovereign debt
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)
Money markets funds
Other debt securities (b)
Foreign covered bonds
Alt-A RMBS (c)
Prime RMBS (c)
Subprime RMBS (c)

Total securities available-for-sale

Trading assets:

Debt and equity instruments (d)
Derivative assets:
Interest rate
Foreign exchange
Equity
Other

Total derivative assets
Total trading assets

Loans
Other assets (e)

Subtotal assets of operations at fair value
Percent of assets prior to netting

Assets of consolidated asset management funds:

Trading assets
Other assets

Total assets of consolidated asset management funds
Total assets
Percent of assets prior to netting

Trading liabilities:

Debt and equity instruments
Derivative liabilities:
Interest rate
Foreign exchange
Equity
Other

Total derivative liabilities
Total trading liabilities

Long-term debt
Other liabilities (f)

Subtotal liabilities at fair value
Percent of liabilities prior to netting

Liabilities of consolidated asset management funds:

Trading liabilities
Other liabilities

Total liabilities of consolidated asset management funds
Total liabilities
Percent of liabilities prior to netting

Level 1

Level 2

Level 3

Netting (a)

Total carrying
value

$12,609
-
27
-
-
-
-
-
-
-
-
-
18
2,538
91
2,260
-
-
-
17,543

-
1,005
8,522
498
19,727
470
1,227
508
1,331
2,639
249
539
29
-
3,193
608
2,513
1,825
158
45,041

1,598

710

272
3,561
79
1
3,913
5,511
-
52
$23,106

15,260
100
370
1
15,731
16,441
-
910
$62,392

-
-
-
10
-
-
-
-
-
-
-
-
-
-
58
-
-
-
-
68

-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-

119
-
-
-
119
151
6
113
$338

N/A
N/A
N/A
N/A
(15,827) (g)
(15,827)

-
-

$(15,827)

26.9%

72.7%

0.4%

279
499
778
$23,884

13,842
144
13,986
$76,378

-
2
2
$340

23.8%

75.9%

0.3%

-
-
-

$(15,827)

$12,609
1,005
8,549
508
19,727
470
1,227
508
1,331
2,639
249
539
47
2,538
3,342
2,868
2,513
1,825
158
62,652

2,340

3,936
6,276
6

1,075

$70,009

14,121
645
14,766
$84,775

$ 1,277

443

$ 6

$ 1,726

-
3,648
54
-
3,702
4,979
-
115
$ 5,094

16,126
59
304
4
16,493
16,936
269
473
$17,678

149
-
22
-
171
177
-
2
$179

N/A
N/A
N/A
N/A
(15,181) (g)
(15,181)

-
-

$(15,181)

22.2%

77.0%

0.8%

-
2
2
$ 5,096

13,561
-
13,561
$31,239

-
-
-
$179

14.0%

85.5%

0.5%

-
-
-

$(15,181)

5,185
6,911
269
590
$ 7,770

13,561
2
13,563
$21,333

(a) ASC 815 permits the netting of derivative receivables and derivative payables under legally enforceable master netting agreements and permits the

netting of cash collateral.

(b) Includes seed capital and certain interests in securitizations.
(c) Previously included in the Grantor Trust.
(d) Includes loans classified as trading assets and certain interests in securitizations.
(e) Includes private equity investments, seed capital and derivatives in designated hedging relationships.
(f)

Includes the fair value adjustment for certain unfunded lending-related commitments and derivatives in designated hedging relationships and support
agreements.

(g) Netting cannot be disaggregated by product.

144 BNY Mellon

Notes to Consolidated Financial Statements (continued)

Details of certain items measured at fair value on a recurring basis
at Dec. 31, 2010
(dollar amounts in millions)
Alt-A RMBS, originated in:

2007
2006
2005
2004 and earlier

Total Alt-A RMBS

Prime RMBS, originated in:

2007
2006
2005
2004 and earlier

Total prime RMBS

Subprime RMBS, originated in:

2007
2005
2004 and earlier

Total subprime RMBS

Commercial MBS—Domestic, originated in:

2007
2006
2005
2004 and earlier

Total commercial MBS—Domestic

Foreign covered bonds:

Germany
Canada

Total foreign covered bonds

European Floating Rate Notes:

United Kingdom
Netherlands
Other

Total European Floating Rate Notes

Sovereign debt:

United Kingdom
Germany
France
Netherlands
Other

Total sovereign debt

Alt-A RMBS (b), originated in:

2007
2006
2005
2004 and earlier

Total Alt-A RMBS (b)

Prime RMBS (b), originated in:

2007
2006
2005
2004 and earlier

Total Prime RMBS (b)

Subprime RMBS (b), originated in:

2007
2006
2005
2004 and earlier

Total Subprime RMBS (b)

Total

Ratings

carrying AAA/ A+/ BBB+/
BBB-

value (a) AA-

A-

1
186
209
74

$ 470

$ 254
166
310
497

$1,227

5
97
406

$ 508

$ 685
582
489
528

$2,284

-%
-
-
70

11%

50%
-
39
79

52%

25
74

64%

83%
90
100
100

92%

$2,260 (a)
608

$2,868

99%
100

100%

$ 848
150
909

$1,907

$3,214
3,065
1,845
396
29

$8,549

$ 792
660
820
241

$2,513

$ 679
431
672
43

$1,825

15
89
13
41

$ 158

99%
78
73

85%

100%
100
100
100
93

100%

-%
-
2
22

-%
-
2
49

-%
-
-
53

14%

-%
-
-
25

28%
39
-
12

16%

8%
12
13

13%

8%
10
-
-

1%
-

22
27

15%

-%
-
-
-
6

-%
-
-
46

-%
-
5
47

-%
-
-
-

-%
-
-
5

7%
-
14
6

92%
12
5

9%
-
-
-

-%
-

-%
-
-

-%
-
-
-
-

-%
-
4
19

-%
-
1
-

-%
-
-
-

BB+ and
lower

100%
100
100

84%

15%
61
47
3

24%

51
8

16%

100%
100
94
13

90%

100%
100
92
4

95%

100%
100
100
47

86%

(a) At Dec. 31, 2010, the German foreign covered bonds were considered Level 1 in the valuation hierarchy. All other assets in the table above are

considered Level 2 assets in the valuation hierarchy.

(b) Previously included in the Grantor Trust.

BNY Mellon

145

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)

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 securities

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

Level 1

Level 2

Level 3

Netting (a)

Total carrying
value

$ 6,378
-
-
-
-
-
-
-
-
-
-
461
76
-

-
1,260
520
18,455
537
1,512
447
1,770
2,590
383
836
860
11,331
4,160

6,915

44,661

524
2,779

3,303

2
14

745
14,317

15,062

12
685

-
-
-
-
-
-
-
-
-
6
-
-
50
-

170
146

316

25
164

-
-
-
-
-
-
-
-
-
-
-
-
-
-

(12,680)

-
-

$ 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

$10,234

$60,420

$561

$(12,680)

$58,535

14.4%

84.8%

0.8%

442
2,850

3,292
2

752
$
14,671

15,423
605

-
92

92
3

$
(12,411)

(12,411)

$ 1,194
5,202

6,396
610

$ 3,294

$16,028

$ 95

$(12,411)

$ 7,006

Percent of liabilities prior to netting

17.0%

82.5%

0.5%

(a) ASC 815 permits the netting of derivative receivables and derivative payables under legally enforceable master netting agreements

and permits the netting of cash collateral.

(b) Includes seed capital and certain interests in securitizations.
(c) Includes loans classified as trading assets and certain interests in securitizations.
(d) Includes private equity investments, seed capital and derivatives in designated hedging relationships.
(e) Includes 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, 2010 and
2009 (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
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

146 BNY Mellon

Notes to Consolidated Financial Statements (continued)

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, 2010

(in millions)

Available-for-sale securities:

Asset-backed CLOs
State and political subdivisions
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:

Debt and equity instruments
Derivative liabilities

Other liabilities

Total liabilities

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 realized/
unrealized gains/
(losses) recorded in

Fair value
Dec. 31,

2009 Income

Comprehensive
income

Purchases,

issuances and Transfers Fair value
in/(out) Dec. 31,
2010

net of Level 3

settlements,

-
1
2

$ -
-
-

3 (a)

- (a)

$ 6
-
50

170
146

316

25
164

(1)
(44)

(45) (b)

2
13 (c)

$561

$(27)

-
(92)
(3)

$
-
(57) (b)
1 (c)

$ (95)

$(56)

-
-

$ -

$ -
-
-

$ -

-
-
8

3
2

(18)
(4)

(6)
9
(2)

(140)
15

(125)

(3)
(60)

-
10
58

32
119

151

6
113

$ (9)

$(187)

$ 338

$ (6)
(24)
-

$(30)

-
2
-

$
(6)
(171)
(2)

$(179)

Purchases,

issuances and Transfers Fair value
in/(out) of Dec. 31,
2009

settlements,
net

Level 3

Total realized/
unrealized gains/
(losses) recorded in

Fair value
Dec. 31,

2008 Income

Comprehensive
income

$ 22
17
13
357

$ (76)

-
-
(99)

$60
1
2
(7)

Change in
unrealized gains and
(losses) related to
instruments held at
Dec. 31, 2010

1
2

$ 31

(122)

$(122)

Change in
unrealized gains and
(losses) related to
instruments held at
Dec. 31, 2009

Total available-for-sale

409

(175) (a)

56 (a)

Trading assets:

Debt and equity instruments
Derivative assets

Total trading assets

Loans
Other assets

Total assets

Trading liabilities:

Derivative liabilities

Other liabilities

Total liabilities

20
83

103

-
200

21
51

72 (b)

(1)
(40) (c)

$ 712

$(144)

$(149) $ 56 (b)
(6) (c)

$(149) $ 50

(2)
(4)

(6)

-
-

$50

$ (3)
-

$ (3)

-
-
1
(19)

(18)

(20)
(1)

(21)

(5)
11

-
(18)
(16)
(182)

(216)

151
17

168

31
(7)

$ 6
-
-
50

170
146

316

25
164

$(33)

$ (24)

$561

-
-

4
3

$ (92)
(3)

$ (95)

3
(16)

(13)

(1)

$(14)

$(21)
(2)

$(23)

(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 revenue.
(c) Reported in foreign exchange and other trading revenue, except for derivatives in designated hedging relationships which are

recorded in interest revenue and interest expense.

BNY Mellon

147

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,
2010 and 2009, for which a nonrecurring change in
fair value has been recorded during the years ended
Dec. 31, 2010 and 2009.

Assets measured at fair value on a nonrecurring basis at Dec. 31, 2010
(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, 2009
(in millions)

Loans (a)
Other assets (b)

Total assets at fair value on a nonrecurring basis

Level 1

Level 2

Level 3

$-
-

$188
6

$194

$53
-

$53

Level 1

Level 2

Level 3

$-
-

$298
4

$302

$91
-

$91

Total carrying
value

$241

$247

Total carrying
value

$389

$393

(a) During the years ended Dec. 31, 2010 and 2009, the fair value of these loans was reduced $15 million and $18 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 by $1 million in 2010 and less than $1 million

in 2009, based on the fair value of the underlying collateral with an offset in other revenue.

Note 24—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.

On Jan. 1, 2010, we adopted SFAS No. 167,
“Amendments to FASB interpretation No. 46(R)”
(Topic 810), issued by the Financial Accounting
Standards Board (“FASB”). In accordance with the
guidance included in ASC 810, we consolidated assets
of consolidated asset management funds. The
following table presents the assets and liabilities, by
type, of consolidated asset management funds. We
recorded these assets and liabilities at fair value and
they are classified as trading assets and liabilities.

Assets and liabilities of consolidated asset
management funds, at fair value
(in millions)

Dec. 31,

2010

2009

Assets of consolidated asset

management funds:
Trading assets
Other assets

Total assets of consolidated asset

management funds

Liabilities of consolidated asset

management funds:
Trading liabilities
Other liabilities

Total liabilities of consolidated asset

management funds

Noncontrolling interests of consolidated

asset management funds

$14,121
645

$14,766

$13,561
2

$13,563

699

$
-

BNY Mellon values assets in consolidated CLOs
using observable market prices observed from the
secondary loan market. The returns to the note holders
are solely dependent on the assets and accordingly
equal the value of those assets. Accordingly,
mark-to-market best reflects the limited interest BNY
Mellon has in the economic performance of the
consolidated CLOs. Changes in the values of assets
and liabilities are reflected in the income statement as
investment income of consolidated asset management
funds.

148 BNY Mellon

Notes to Consolidated Financial Statements (continued)

We have elected the fair value option on $240 million
of long-term debt in connection with ASC 810. At
Dec. 31, 2010, the fair value of this long-term debt
was $269 million. We have also elected the fair value
option on approximately $118 million of unfunded
lending related commitments. The following table
presents the changes in fair value of these unfunded
lending related commitments and long-term debt
included in foreign exchange and other trading
revenue in the consolidated income statement for the
years ended Dec. 31, 2010 and 2009.

Foreign exchange and other trading revenue

(in millions)

Loans
Long-term debt (a)

Year ended Dec. 31,
2009

2010

$-
(29)

(a) The change in fair value of the long-term debt is

approximately offset by an economic hedge included in
trading.

The long-term debt is valued using observable market
inputs and is included in Level 2 of the ASC 820
hierarchy. Unfunded loan commitments are valued
using quotes from dealers in the loan markets, and are
included in Level 3 of the ASC 820 hierarchy. 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, 2010 and Dec. 31, 2009 and is included in
other liabilities.

Note 25—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, securities lending
indemnifications and support agreements. We assume
these risks to reduce interest rate and foreign currency
risks, to provide 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, 2010, are disclosed in the Financial
institutions portfolio exposure table and the
Commercial portfolio exposure table below.

Financial institutions
portfolio exposure
(in billions)

Securities industry
Banks
Insurance
Asset managers
Government
Other

Total

Commercial portfolio
exposure
(in billions)

Services and other
Manufacturing
Energy and utilities
Media and telecom

Total

Dec. 31, 2010
Unfunded
commitments

Total
exposure

$ 2.3
2.2
5.0
2.4
2.1
1.8

$15.8

$ 6.2
6.4
5.1
3.2
2.3
1.9

$25.1

Dec. 31, 2010
Unfunded
commitments

Total
exposure

$ 5.9
5.9
5.4
1.6

$18.8

$ 6.6
6.3
5.7
1.8

$20.4

Loans

$3.9
4.2
0.1
0.8
0.2
0.1

$9.3

Loans

$0.7
0.4
0.3
0.2

$1.6

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, 2010 and 2009 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,

2010

2009

$ 29,100
8,483
512
278,069
116

$ 32,454
11,359
789
247,560
86

(a) Net of participations totaling $423 million at Dec. 31, 2010

and $541 million at Dec. 31, 2009.

(b) Net of participations totaling $1.7 billion at Dec. 31, 2010

and $2.2 billion at Dec. 31, 2009.

Included in lending commitments are facilities that
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.

BNY Mellon

149

Notes to Consolidated Financial Statements (continued)

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 is as follows: $10.5 billion less than one
year; $18.3 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 was $8.5 billion at Dec. 31, 2010,
and $11.4 billion at Dec. 31, 2009, and includes
$628 million and $1.0 billion that were collateralized
with cash and securities at Dec. 31, 2010 and 2009,
respectively. At Dec. 31, 2010, approximately
$6.1 billion of the SBLCs will expire within one year
and the remaining $2.4 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 unfunded commitments was $73 million at
Dec. 31, 2010, and $125 million at Dec. 31, 2009.

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
payment/performance risk. The table below shows
SBLCs by investment grade:

Standby letters of credit

Investment grade
Noninvestment grade

Dec. 31,

2010

2009

89%
11%

83%
17%

150 BNY Mellon

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 $512 million at Dec. 31, 2010, compared with
$789 million at Dec. 31, 2009.

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 typically lend securities with indemnification
against broker default. We generally require the
borrower to provide 102% cash collateral, which is
monitored on a daily basis, 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 $285 billion at Dec. 31,
2010, and $254 billion at Dec. 31, 2009. We recorded
$150 million of fee revenue from securities lending
transactions in 2010 compared with $259 million in
2009.

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 $116 million at Dec. 31, 2010,
compared with $86 million at Dec. 31, 2009. 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.

Notes to Consolidated Financial Statements (continued)

Trust and transfer agent activities

BNY Mellon maintains several escrow accounts in
which deposits are received from clients in connection
with corporate trust and dividend and interest payment
services. Since BNY Mellon acts only as a transfer
and trust agent for these funds, neither the assets nor
the corresponding liability are included in these
financial statements. In connection with the
performance of these services, BNY Mellon invests
such funds in interest-earning investments solely in an
agency capacity. The interest earned is recognized in
the financial statements as interest income. Customer
balances maintained in an agency capacity and not
reflected on BNY Mellon’s balance sheets totaled
approximately $275 million at Dec. 31, 2010, and
$1.4 billion at Dec. 31, 2009. In addition, as a result of
the GIS acquisition, our clients maintain
approximately $6.8 billion of custody cash on deposit
with other institutions. Revenue generated from these
balances is included in other revenue on the income
statement. These deposits are expected to transition to
BNY Mellon by the end of 2011.

Operating leases

Net rent expense for premises and equipment was
$314 million in 2010, $327 million in 2009 and
$362 million in 2008.

At Dec. 31, 2010, 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:
2011—$311 million; 2012—$284 million; 2013—
$266 million; 2014—$225 million; and 2015—
$202 million; and 2016 through 2030—$937 million.

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.

Legal proceedings

In the ordinary course of business, BNY Mellon and
its subsidiaries are routinely named as defendants in
or made parties to pending and potential legal actions
and regulatory matters. Claims for significant
monetary damages are often asserted in many of these
legal actions, while claims for disgorgement, penalties
and/or other remedial sanctions may be sought in
regulatory matters. It is inherently difficult to predict
the eventual outcomes of such matters given their
complexity and the particular facts and circumstances
at issue in each of these matters. However, on the
basis of our current knowledge and understanding, we
do not believe that judgments or settlements, if any,
arising from these 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 in a given period.

In view of the inherent unpredictability of outcomes in
litigation and regulatory matters, particularly where
(i) the damages sought are substantial or
indeterminate, (ii) the proceedings are in the early
stages, or (iii) the matters involve novel legal theories
or a large number of parties, as a matter of course
there is considerable uncertainty surrounding the
timing or ultimate resolution of litigation and
regulatory matters, including a possible eventual loss,
fine, penalty or business impact, if any, associated
with each such matter. In accordance with applicable
accounting guidance, BNY Mellon establishes
reserves for litigation and regulatory matters when
those matters proceed to a stage where they present
loss contingencies that are both probable and
reasonably estimable. In such cases, there may be a
possible exposure to loss in excess of any amounts
accrued. BNY Mellon will continue to monitor such
matters for developments that could affect the amount
of the reserve, and will adjust the reserve amount as
appropriate. If the loss contingency in question is not
both probable and reasonably estimable, BNY Mellon
does not establish a reserve and the matter will
continue to be monitored for any developments that
would make the loss contingency both probable and

BNY Mellon

151

Notes to Consolidated Financial Statements (continued)

reasonably estimable. BNY Mellon believes that its
accruals for legal proceedings are appropriate and, in
the aggregate, are not material to the consolidated
financial position of BNY Mellon, although future
accruals could have a material effect on net income in
a given period.

For certain of those matters described herein for
which a loss contingency may, in the future, be
reasonably possible (whether in excess of a related
accrued liability or where there is no accrued
liability), BNY Mellon is currently unable to estimate
a range of reasonably possible loss. For those matters
where BNY Mellon is able to estimate a reasonably
possible loss, exclusive of those matters described
herein that are subject to the accounting and reporting
requirements of ASC 740 (FASB Interpretation
48)(FIN48), the aggregate range of such reasonably
possible loss is between $200 million to $500 million
in excess of the accrued liability (if any) related to
those matters.

The following describes certain judicial, regulatory
and arbitration proceedings involving BNY Mellon:

Sentinel Matters
As previously disclosed, on Jan. 18, 2008, The Bank
of New York Mellon filed a proof of claim in the
Chapter 11 bankruptcy proceeding of Sentinel
Management Group, Inc. (“Sentinel”) pending in
federal court in the Northern District of Illinois,
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. 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 for allegedly aiding and abetting Sentinel
insiders in misappropriating customer assets and
improperly using those assets as collateral for the
loan. In a decision dated Nov. 3, 2010, the court found
for The Bank of New York Mellon and against the
Trustee, holding that The Bank of New York Mellon’s
loan to Sentinel is valid, fully secured, and not subject
to equitable subordination. The bankruptcy Trustee
appealed this decision on Dec. 1, 2010.

As previously disclosed, in November 2009, the
Division of Enforcement of the U.S. Commodities
Futures Trading Commission (“CFTC”) indicated that
it is considering a recommendation to the CFTC that it
file a civil enforcement action against The Bank of
New York Mellon for possible violations of the

152 BNY Mellon

Commodity Exchange Act and CFTC regulations in
connection with its relationship to Sentinel. The Bank
of New York Mellon responded in writing to the
CFTC on Jan. 29, 2010 and provided an explanation
as to why an enforcement action is unwarranted.

Auction Rate Securities Matters
As previously disclosed, in April 2008, BNY Mellon
notified the SEC that Mellon Financial Markets LLC
(“MFM”) placed orders on behalf of certain issuers to
purchase their own Auction Rate Securities (“ARS”).
The Texas State Securities Board, Florida Office of
Financial Regulation and the New York State
Attorney General began investigating this matter in
approximately October 2008 and are focused on
whether and to what extent the issuers’ orders had the
effect of reducing the clearing rate and preventing
failed auctions. These investigations, with which
MFM is fully cooperating, are ongoing.

As previously disclosed, in February and April 2009,
two institutional customers filed lawsuits in Texas
state District Court for Dallas County, and California
state Superior Court for Orange County. A third
institutional customer filed an arbitration proceeding
in December 2008, alleging misrepresentations and
omissions in the sale of ARS. Together, these three
customers seek rescission of approximately
$68 million of ARS, damages of approximately
$20 million, and interest and attorneys’ fees.

Agency Cross Trading Matter
As previously disclosed, on July 22, 2008, BNY
Mellon notified FINRA and the SEC that employees
of BNY Mellon Securities LLC, a broker-dealer
subsidiary of the Company, which executed 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. On Jan. 14,
2011, the SEC announced the settlement of its
subsequent action against BNY Mellon Securities
LLC, finding that it had failed to supervise traders on
its equity desk, censuring BNY Mellon Securities
LLC and imposing monetary sanctions totaling
$24 million.

Securities Lending Matters
As previously disclosed, BNY Mellon or its affiliates
have been named as defendants in a number of
lawsuits initiated by participants in BNY Mellon’s
securities lending program, which is a part of BNY
Mellon’s Asset Servicing business. The lawsuits were
filed on various dates from December 2008 to 2011,

Notes to Consolidated Financial Statements (continued)

and are currently pending in courts in Oklahoma, New
York, Washington, California and South Carolina and
in commercial court in London. The complaints assert
contractual, statutory, and common law claims,
including claims for negligence and breach of
fiduciary duty. The plaintiffs allege losses in
connection with the investment of securities lending
collateral, including losses related to investments in
Sigma Finance Inc., Lehman Brothers Holdings, Inc.
and certain asset-backed securities, and seek damages
as to those losses. Two of the pending cases seek to
proceed as class actions.

Matters Relating To Bernard L. Madoff
As previously disclosed, on May 11, 2010, the New
York State Attorney General commenced a civil
lawsuit against Ivy Asset Management LLC (“Ivy”), a
subsidiary of BNY Mellon that manages primarily
funds-of-hedge-funds, and two of its former officers
in New York state court. The lawsuit alleges that Ivy,
in connection with its role as sub-advisor to
investment managers whose clients invested with
Madoff, did not disclose certain material facts about
Madoff. The complaint seeks an accounting of
compensation received from January 1997 to the
present by the Ivy defendants in connection with the
Madoff investments, and unspecified damages,
including restitution, disgorgement, costs and
attorneys’ fees.

As previously disclosed, on Oct. 21, 2010, the U.S.
Department of Labor commenced a civil lawsuit
against Ivy, two of its former officers, and others in
federal court in the Southern District of New York.
The lawsuit alleges that Ivy violated the Employee
Retirement Income Security Act (“ERISA”) by failing
to disclose certain material facts about Madoff to
investment managers subadvised by Ivy whose clients
included employee benefit plan investors. The
complaint seeks disgorgement and damages. On
Dec. 8, 2010, the Trustee overseeing the Madoff
liquidation sued many of the same defendants in
bankruptcy court in New York, seeking to avoid
withdrawals from Madoff investments made by
various funds-of-funds (including six funds-of-funds
managed by Ivy).

As previously disclosed, Ivy or its affiliates have been
named in a number of civil lawsuits filed beginning
Jan. 27, 2009 relating to certain investment funds that
allege losses due to the Madoff investments. Ivy acted
as a sub-advisor to the investment managers of some
of those funds. Plaintiffs assert various causes of
action 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. Most of the cases have been consolidated in
two actions in federal court in the Southern District of
New York, with certain cases filed in New York state
Supreme Court for New York and Nassau counties.

Medical Capital Litigations
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. The actions, filed in late
2009 and currently pending in federal court in the
Central District of California, 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.

Foreign Exchange Matters
As previously disclosed, beginning in December
2009, certain governmental authorities have requested
information or served subpoenas on BNY Mellon
seeking information relating to foreign exchange
transactions in connection with custody services BNY
Mellon provides to certain clients, including certain
governmental entities and public pension plans. BNY
Mellon is cooperating with these inquiries. In January
2011, the Virginia Attorney General filed a Notice of
Intervention in a lawsuit filed in Virginia Circuit
Court, Fairfax County by a private party under the
Virginia Fraud Against Taxpayers Act. The plaintiff
in that action alleges that BNY Mellon improperly
charged and reported prices for foreign exchange
transactions in connection with custody services BNY
Mellon provides to certain Virginia pension funds. In
February 2011, the Florida Attorney General filed a
Notice of Intervention in a lawsuit filed in Florida
Circuit Court, Leon County by a private party under
the Florida False Claims Act. The plaintiff in that
action alleges that BNY Mellon improperly charged
and reported prices for foreign exchange transactions
in connection with custody services BNY Mellon
provides to a Florida pension fund.

German Broker-Dealer Litigation
As previously disclosed, on various dates from 2004
to 2011, BNY Mellon subsidiary Pershing LLC
(“Pershing”) was named as a defendant in more than
100 lawsuits filed in Germany by plaintiffs who are
investors with accounts at German broker-dealers.
The plaintiffs allege that Pershing, which had a
contractual relationship with the broker-dealers
through which the broker-dealers executed options

BNY Mellon

153

Notes to Consolidated Financial Statements (continued)

transactions on behalf of the broker-dealers’ clients,
should be held liable for the tortious acts of the
broker-dealers. Plaintiffs seek to recover their
investment losses, interest, and statutory attorney’s
fees and costs. On March 9, 2010, the German Federal
Supreme Court ruled in the plaintiff’s favor in one of
these cases, and held Pershing liable for a German
broker-dealer’s tortious acts. On July 19, 2010,
Pershing appealed that decision to the German
Constitutional Court. In another similar case, in
December 2010, the Federal Supreme Court denied
Pershing’s appeals, and ruled in favor of 12 plaintiffs,
in conformance with its March 2010 decision. On
Jan. 25, 2011, the Federal Supreme Court ruled in the
plaintiffs’ favor in four other similar cases, and
remanded an additional four cases to the appellate
court for further findings.

Lyondell Litigation
As previously disclosed, in an action filed in New
York state Supreme Court for New York County, on
Sept. 14, 2010, plaintiffs as holders of debt issued by
Basell AF in 2005 allege that The Bank of New York
Mellon, as indenture trustee, breached its contractual
and fiduciary obligations by executing an intercreditor
agreement in 2007 in connection with Basell’s
acquisition of Lyondell Chemical Company. Plaintiffs
are seeking damages for their alleged losses resulting
from the execution of the 2007 intercreditor
agreement that allowed the company to increase the
amount of its senior debt.

Withholding Tax Matters
As previously disclosed, in 2007, in connection with
its obligation to file information and withholding tax
returns with the IRS for its various businesses, BNY
Mellon became aware of certain inconsistencies in
supporting documentation and records for certain of
BNY Mellon’s businesses, and initiated an extensive
company-wide review. We notified the IRS of the
inconsistencies and continue to cooperate with the
IRS in its review of this matter.

Tax Litigation
As previously disclosed, in Aug. 17, 2009, BNY
Mellon received a Statutory Notice of Deficiency
disallowing tax benefits for the 2001 and 2002 tax
years in connection with a 2001 transaction that
involved the payment of U.K. corporate income taxes
that were credited against BNY Mellon’s U.S.
corporate income tax liability. On Nov. 10, 2009,
BNY Mellon filed a petition with the U.S. Tax Court
contesting the disallowance of the benefits. A trial is
currently scheduled for Dec. 5, 2011. The aggregate

154 BNY Mellon

tax benefit for all six years in question is
approximately $900 million, including interest. In the
event BNY Mellon is unsuccessful in defending its
position, the IRS has agreed not to assess
underpayment penalties.

Note 26—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 2010 and 2009, counterparty default
losses on both trading and hedging derivatives were
$39 million and $4 million, respectively. Reserves for
losses incurred in 2010 were established in prior
years. As a result, these counterparty default losses
did not impact income in 2010.

Hedging derivatives

We utilize interest rate swap agreements to manage
our exposure to interest rate fluctuations. For hedges
of investment securities held for sale, 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 securities hedged consist of sovereign debt, U.S.
Treasury bonds and asset-backed securities, and
generally had weighted average lives of 10 years or
less at initial purchase. The asset-backed securities are
callable six months prior to maturity. The swaps on

Notes to Consolidated Financial Statements (continued)

the asset-backed securities are callable six months
prior to maturity. The swaps on the sovereign debt and
U.S. Treasury bonds are not callable. All of these
securities are hedged with “pay fixed rate, receive
variable rate” swaps of the same maturity, repricing
and fixed rate coupon. At Dec. 31, 2010, $2.2 billion
of securities were hedged with interest rate swaps that
had notional values of $2.2 billion.

maturities and notional values match those of the
deposits with banks. As of Dec. 31, 2010, the hedged
placements and their designated forward foreign
exchange contract hedges were $6.8 billion (notional),
with less than $1 million of pre-tax gain recorded in
other comprehensive income. This gain will be
reclassified to net interest revenue and other income
over the next ten months.

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, 2010, $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,
2010, $11.8 billion of debt was hedged with interest
rate swaps that had notional values of $11.8 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 foreign currency forecasted revenue
transactions in entities that have the U.S. dollar as
their functional currency. As of Dec. 31, 2010, the
hedged forecasted foreign currency transactions and
designated forward foreign exchange contract hedges
were $270 million (notional), with less than
$1 million of pre-tax losses recorded in other
comprehensive income. These losses will be
reclassified to income or expense over the next twelve
months.

We use forward foreign exchange contracts with
remaining maturities of ten months or less as hedges
against our exposure to Euro, Australian Dollar,
Norwegian Krona, and Hong Kong Dollar foreign
exchange exposure with respect to interest-bearing
deposits with banks and their associated forecasted
interest revenue. These hedges are designated as cash
flow hedges. These hedges are effected such that their

Forward foreign exchange contracts are also used to
hedge the value of our net investments in foreign
subsidiaries. These forward foreign exchange
contracts usually have maturities of less than two
years. The derivatives employed are designated as
hedges of changes in value of our foreign investments
due to exchange rates. Changes in the value of the
forward foreign 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 forward foreign exchange contracts is
deferred and reported within accumulated translation
adjustments in shareholders’ equity, net of tax. At
Dec. 31, 2010, forward foreign exchange contracts
with notional amounts totaling $4.8 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, 2010,
had a combined U.S. dollar equivalent value of
$853 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 (a)

Total

Year ended Dec. 31,
2009

2010

2008

$ 0.1
(4.2)

$(0.1)
0.1

$ 0.2
(0.1)

7.7
0.1
(0.2)

2.2
-
0.1

28.4
(0.1)
0.1

$ 3.5

$ 2.3

$28.5

(a) Includes ineffectiveness recorded on foreign exchange

hedges.

BNY Mellon

155

Notes to Consolidated Financial Statements (continued)

The following table summarizes the notional amount and credit exposure of our total derivative portfolio at
Dec. 31, 2010 and 2009.

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
Foreign exchange contracts

Total derivatives not designated as hedging instruments

Total derivatives fair value (d)
Effect of master netting agreements

Notional value

Asset derivatives
fair value (a)

Liability
derivatives
fair value (a)

Dec. 31,
2010

Dec. 31,
2009

Dec. 31,
2010

Dec. 31,
2009

Dec. 31,
2010

Dec. 31,
2009

13,967 $
11,816

11,836 $
3,645

707 $
2

408 $
-

33 $
116

709 $

408 $

149 $

106
97

203

$1,090,718 $1,030,847 $ 15,651 $ 13,620 $ 16,275 $ 14,084
449
570
2
6
3,661
2,953

6,905
681
315,050

7,710
806
259,402

380
4
3,707

483
3
3,136

$ 19,763 $ 17,242 $ 20,366 $ 17,613

$ 20,472 $ 17,650 $ 20,515 $ 17,816
(15,827)
(12,411)

(15,181)

(12,680)

Fair value after effect of master netting agreements

$ 4,645 $ 4,970 $ 5,334 $ 5,405

(a) Derivative financial instruments are reported net of cash collateral received and paid of $889 million and $243 million, respectively at

Dec. 31, 2010 and $429 million and $160 million, respectively at Dec. 31, 2009.

(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.

At Dec. 31, 2010 approximately $ 399 billion
(notional) of interest rate contracts will mature within
one year, $ 442 billion between one and five years,
and $ 264 billon after five years. At Dec. 31, 2010,

approximately $ 313 billion (notional) of foreign
exchange contracts will mature within one year, $
7 billion between one and five years, and $ 7 billion
after five years.

Impact of derivative instruments on the income statement
(in millions)

Amount of gain
(loss) recognized
in income on
derivatives
Year ended Dec. 31,
2009

2010

Location of gain (loss)
recognized in income on
hedged item

Amount of
gain (loss)
recognized in
hedged item
Year ended
Dec. 31,

2010

2009

Location of gain (loss)
recognized in income on
derivatives

Net interest revenue

$370

$(406) Net interest revenue

$(366)

$408

Amount of

gain or (loss)

recognized in OCI

on derivative

(effective portion)

Year ended Dec. 31,

2009

2010

Location of gain or
(loss) reclassified
from accumulated
OCI into income
(effective portion)

Amount of gain or
(loss) reclassified
from accumulated
OCI into income
(effective portion)
Year ended Dec. 31,
2009

2010

Location of gain or
(loss) recognized in
income on derivatives
(ineffective portion and
amount excluded from
effectiveness testing)

-
(7)
(134)
(1)

$(142)

$ - Net interest revenue
- Net interest revenue

(1) Other revenue
- Salary expense

$(1)

-
(6)
(135)
(1)

$(142)

$26 Net interest revenue
Net interest revenue

-
6 Other revenue
Salary expense
-

$32

Amount of gain or (loss)

recognized in income on

derivatives (ineffectiveness

portion and amount

excluded from

effectiveness testing)

Year ended Dec. 31,

2010

2009

$
-
-
-

Derivatives in fair value hedging
relationships

Interest rate contracts

Derivatives in cash flow
hedging relationships

Interest rate contracts
FX contracts
FX contracts
FX contracts

Total

156 BNY Mellon

Notes to Consolidated Financial Statements (continued)

Amount of

gain (loss)

recognized in OCI

on derivatives

(effective portion)

Year ended Dec. 31,

2009

2010

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,
2009

2010

Location of gain

(loss) recognized in

income on derivative

(ineffective portion and

amount excluded from

effectiveness testing)

$(52)

$(298) 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,

2010

$(0.2)

2009

$0.1

Derivatives in net
investment hedging
relationships

FX contracts

Trading activities (including trading derivatives)

We manage trading risk through a system of position
limits, a 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 is
allocated to lines of business for computing risk-
adjusted performance.

As the VAR methodology does not evaluate risk
attributable to extraordinary financial, economic or
other occurrences, the risk assessment process
includes a number of stress scenarios based upon the
risk factors in the portfolio and management’s
assessment of market conditions. Additional stress
scenarios based upon historic market events are also
performed. Stress tests, by their design, incorporate
the impact of reduced liquidity and the breakdown of
observed correlations. The results of these stress tests
are reviewed weekly with senior management.

Revenue from foreign exchange and other trading
revenue included the following:

Foreign exchange and other trading revenue
(in millions)

Foreign exchange
Fixed income
Credit derivatives (a)
Other

Total

2010 2009 2008

$787 $ 850 $1,197
147
242
(84)
30
88
28

80
(7)
26

$886 $1,036 $1,462

(a) Used as economic hedges of loans.

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 or pledged in
the form of cash or highly liquid government
securities. Collateral requirements are monitored and
adjusted daily.

Additional disclosures concerning derivative financial
instruments are provided in Note 23 of the Notes to
Consolidated Financial Statements.

BNY Mellon

157

Notes to Consolidated Financial Statements (continued)

Disclosure of contingent features in over-the-counter
(“OTC”) derivative instruments

Note 27—Review of businesses

Certain of the BNY Mellon’s OTC derivative
contracts and/or collateral agreements contain
provisions that may require us to take certain actions
if its public debt rating fell to a certain level. Early
termination provisions, or “close-out” agreements in
those contracts could trigger immediate payment of
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, 2010 for three key
ratings triggers:

If BNY Mellon’s rating
was changed to:

Potential close-out
exposures (fair value) (a)

A3/A-
Baa2/BBB
Bal/BB+

$ 442 million
$ 915 million
$1,548 million

(a) The change between rating categories is incremental, not

cumulative.

Additionally, if BNY Mellon’s debt rating had fallen
below investment grade on Dec. 31, 2010, existing
collateral arrangements would have required us to
have posted an additional $971 million of collateral.

We have an internal information system that produces
performance data for our seven businesses along
product and service lines. The following discussion of
our businesses satisfies the disclosure requirements
for ASC 280, Segment Reporting.

Business accounting principles

Our business 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
businesses will track their economic performance.

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

The accounting policies of the businesses are the same
as those described in Note 1 of the Notes to
Consolidated Financial Statements.

The operations of acquired businesses are integrated
with the existing businesses soon after they are
completed. As a result of the integration of staff
support functions, management of 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.

Information on our businesses 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.

158 BNY Mellon

Notes to Consolidated Financial Statements (continued)

We provide data for seven businesses, with certain businesses combined into groups as shown below:

Group of businesses/Business

Asset and Wealth Management Group

Asset Management business

Primary types of revenue

Š Asset and wealth management fees from:

Wealth Management business

Institutional Services Group

Asset Servicing business

Issuer Services business

Clearing Services business

Treasury Services business

Other Businesses

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

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

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

Š Net interest revenue is allocated to businesses
based on the yields on the assets and liabilities

Mutual funds
Institutional clients
Private clients
Performance fees

Š Distribution and servicing fees
Š Wealth management fees from high-net-worth individuals
and 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

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

Š Support and other indirect expenses are

allocated to businesses based on internally-
developed methodologies.

Š Recurring FDIC expense is allocated to the

businesses based on average deposits generated
within each business.

Š Special litigation reserves is a corporate level
item and is therefore recorded in the Other
businesses.

BNY Mellon

159

Notes to Consolidated Financial Statements (continued)

Š Management of the investment securities

portfolio is a shared service contained in the
Other businesses. As a result, gains and losses
associated with the valuation of the securities
portfolio are included in the Other businesses.

Š Balance sheet assets and liabilities and their
related income or expense are specifically
assigned to each business. Businesses with a net
liability position have been allocated assets.
Š Goodwill and intangible assets are reflected

Š Client deposits serve as the primary funding

within individual businesses.

source for our investment securities portfolio.
We typically allocate all interest revenue to the
businesses generating the deposits. Accordingly,
the higher yield related to the restructured
investment securities portfolio has been included
in the results of the businesses.

Š Support agreement charges are recorded in the

business in which the charges occurred.
Š The restructuring charges recorded in 2010,
2009 and 2008 resulted from corporate
initiatives and therefore were recorded in the
Other businesses.

Š M&I expenses are corporate level items and are
therefore recorded in the Other businesses.

Total revenue includes approximately $2.1 billion in
2010, $1.6 billion in 2009 and $2.0 billion in 2008, of
international operations domiciled in the U.K. which
is 15%, 21% and 14% of total revenue, respectively.

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

For the year ended Dec. 31, 2010

(dollar amounts
in millions)

Fee and other revenue
Net interest revenue

Total revenue

Provision for credit

losses

Noninterest expense

Asset

Wealth Management Asset

Management Management

Group

Issuer Clearing Treasury
Servicing Services Services Services

Total Asset
and Wealth

Total
Institutional
Services
Group

Total
Continuing
Other Operations

$ 2,644 (a)

(1)

2,643

-
2,082

590
227

817

2
611

$ 3,234
226

$ 3,809 $ 1,576 $ 1,152
368

864

903

841
632

$ 7,378
2,767

3,460

4,673

2,479

1,520

1,473

10,145

2
2,693

-
3,399

-
1,354

-
1,138

-
769

-
6,660

279
(68)

211

9
817

$ 10,891 (a)
2,925

13,816

11
10,170

Income before taxes

561 (a)

204

765

$ 1,274 $ 1,125 $

382

704

$ 3,485

(615)

$ 3,635 (a)

Pre-tax operating
margin (b)
Average assets

21%

25%

22%

27%

45%

25%

48%

34%

$26,307

$10,618

$36,925

$66,678 $51,623 $21,361

$26,519

$166,181

N/M
$34,330

26%
$237,436 (c)

(a) Total fee and other revenue and income before taxes for 2010 includes income from consolidated asset management funds of

$226 million net of income attributable to noncontrolling interests of $59 million. The net of these income statement line items of
$167 million is included above in fee and other revenue.

(b) Income before taxes divided by total revenue.
(c) Including average assets of discontinued operations of $404 million for 2010, consolidated average assets were $237,840 million.

For the year ended Dec. 31, 2009

Total Asset
and Wealth

(dollar amounts in millions)

Fee and other revenue
Net interest revenue

Total revenue

Provision for credit losses
Noninterest expense

Management Management

Group

$ 2,247
32

2,279

-
1,915

$ 578
194

772

1
583

$ 2,825
226

3,051

1
2,498

Asset

Wealth Management Asset

Issuer Clearing Treasury
Servicing Services Services Services

Total
Institutional
Services
Group

Total
Continuing
Other Operations

$ 3,406 $ 1,617 $ 1,190 $
768

340

894

835
613

$ 7,048
2,615

$ (5,134) $ 4,739

2,915

4,300

-
2,956

2,385

-
1,305

1,530

-
1,021

1,448

-
772

9,663

-
6,054

(5,060)

331
978

7,654

332
9,530

Income before taxes

364

$ 188

552

$ 1,344 $ 1,080 $

509 $

676

$ 3,609

$ (6,369) $ (2,208)

Pre-tax operating margin (a)
Average assets

16%

24%

18%

$12,564

$9,276

$21,840

31%

45%
$60,842 $50,752 $18,455 $25,971

33%

47%

37%

$156,020

N/M
$32,079

N/M
$209,939 (b)

(a) Income before taxes divided by total revenue.
(b) Including average assets of discontinued operations of $2,188 million in 2009, consolidated average assets were $212,127 million.

160 BNY Mellon

Notes to Consolidated Financial Statements (continued)

For the year ended Dec. 31, 2008

Total Asset
and Wealth

(dollar amounts in millions)

Fee and other revenue
Net interest revenue

Total revenue

Provision for credit losses
Noninterest expense

Management Management

Group

$ 2,794
75

2,869

-
2,641

624
200

824

-
639

$ 3,418
275

3,693

-
3,280

Asset

Wealth Management Asset

Issuer Clearing Treasury
Servicing Services Services Services

Total
Institutional
Services
Group

Total
Continuing
Other Operations

$ 4,429 $ 1,859 $ 1,292 $
710

1,086

321

956
730

$ 8,536
2,847

$ (1,240) $ 10,714
2,859

(263)

5,515

-
3,784

2,569

-
1,416

1,613

-
1,130

1,686

11,383

(1,503)

-
831

-
7,161

104
1,082

13,573

104
11,523

Income before taxes

228

185

413

$ 1,731 $ 1,153 $

483 $

855

$ 4,222

$ (2,689) $ 1,946

Pre-tax operating margin (a)
Average assets

23%

11%

$13,267

$10,044

$23,311

31%

45%
$59,150 $35,169 $18,358 $25,603

30%

51%

37%

$138,280

N/M
$45,925

14%

$207,516 (b)

(a) Income before taxes divided by total revenue.
(b) Including average assets of discontinued operations of $2,441 million in 2008, consolidated average assets were $209,957 million in 2008.

Note 28—International operations

International 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 international
activity is resident at an international entity. Due to
the nature of our international and domestic activities,
it is not possible to precisely distinguish between
internationally and domestically domiciled customers.
As a result, it is necessary to make certain subjective
assumptions such as:

Income from continuing operations from
international operations is determined after
internal allocations for interest revenue, taxes,
expenses, and provision and allowance for credit
losses.

Š Expense charges to international operations
include those directly incurred in connection
with such activities, as well as an allocable share
of general support and overhead charges.

BNY Mellon

161

Notes to Consolidated Financial Statements (continued)

Total revenue, income before income taxes, income from continuing operations and total assets of our
international operations are shown in the table below.

International operations

(in millions)

2010 (a):

Total assets (b)
Total revenue
Income before taxes
Income from continuing operations

2009 (a):

Total assets (b)
Total revenue
Income before taxes
Income from continuing operations

2008:

Total assets (b)
Total revenue
Income before taxes
Income from continuing operations

EMEA

International
APAC

Other

Total
International

Total
Domestic

Total

$72,629 (c)
3,497 (c)
1,222
916

$58,011 (c)

2,825 (c)(d)
863 (d)
667 (d)

$49,037 (c)
3,604 (c)
1,176
859

$8,806
745
394
295

$5,588
669
287
222

$3,527
796
338
247

$3,124
735
348
261

$1,375
578
257
199

$1,383
607
292
213

$84,559
4,977
1,964
1,472

$64,974
4,072
1,407
1,088

$53,947
5,007
1,806
1,319

$162,422
8,898
1,730
1,175

$246,981
13,875
3,694
2,647

$145,008
3,582
(3,615)
(1,901) (e)

$209,982
7,654
(2,208)
(813)

$183,565
8,566
140
136 (e)

$237,512
13,573
1,946
1,455

(a) Presented on a continuing operations basis.
(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) Includes revenue of approximately $2.1 billion, $1.6 billion and $2.0 billion, and assets of approximately $44.7 billion, $43.0 billion

and $27.1 billion, in 2010, 2009 and 2008, respectively, of international operations domiciled in the UK, which is 15%, 21% and 14%
of total revenue and 18%, 20% and 11% of total assets, respectively.

(d) In 2009, excludes the $269 million of investment securities losses on the European floating rate notes.
(e) Domestic income from continuing operations in 2009 and 2008 was reduced by investment securities losses. Domestic income from

continuing operations in 2008 was also reduced by the SILO/LILO charge and support agreement charges.

Note 29—Supplemental information to the
Consolidated Statement of Cash Flows

Noncash investing and financing transactions that,
appropriately, are not reflected in the Consolidated
Statement of Cash Flows are listed below.

Noncash investing and

financing transactions

(in millions)

Transfers from loans to other assets

for OREO

Assets of consolidated VIEs
Liabilities of consolidated VIEs
Non-controlling interests of

consolidated VIEs

Issuance of common stock for

acquisitions

Year ended Dec. 31,

2010

2009

2008

$
11
15,249
13,949

$11
-
-

$12
-
-

699

162 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 accompanying consolidated balance sheets of The Bank of New York Mellon Corporation
and subsidiaries (“BNY Mellon”) as of December 31, 2010 and 2009, 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, 2010.
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, 2010 and 2009, and the results of their operations and their
cash flows for each of the years in the three-year period ended December 31, 2010, in conformity with
U.S. generally accepted accounting principles.

As discussed in Note 2 to the consolidated financial statements, in 2010, BNY Mellon changed their methods of
accounting related to the consolidation of variable interest entities and, in 2009, changed their methods of
accounting for other-than-temporary impairments.

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, 2010, 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 28, 2011 expressed an unqualified opinion on
the effectiveness of BNY Mellon’s internal control over financial reporting.

New York, New York
February 28, 2011

BNY Mellon

163

Directors, Senior Management and Executive Officers

Mark A. Nordenberg
Chancellor and Chief Executive Officer
University of Pittsburgh
Major public research university

Executive Officers

Curtis Y. Arledge
Chief Executive Officer,

BNY Mellon Asset Management

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
Retired Chairman and Co-Trustee of
The W. K. Kellogg Foundation Trust
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

Richard F. Brueckner
Chairman,
Pershing LLC

Arthur Certosimo
Chief Executive Officer,
Alternative, Broker-Dealer Services
and Treasury Services

Thomas P. (Todd) Gibbons
Chief Financial Officer

Timothy F. Keaney
Chief Executive Officer,

BNY Mellon Asset Servicing;

Chairman of EMEA

James P. Palermo
Chief Executive Officer,
Global Client Management

John P. Surma
Chairman and Chief Executive Officer
United States Steel Corporation
Steel manufacturing

John A. Park
Controller

Wesley W. von Schack
Retired Chairman, President and Chief
Executive Officer
Energy East Corporation
Energy services company

Senior Management

Karen B. Peetz
Chief Executive Officer,
Financial Markets and Treasury
Services

Lisa B. Peters
Chief Human Resources Officer

Robert P. Kelly
Chairman and Chief Executive Officer

Brian G. Rogan
Chief Risk Officer

Gerald L. Hassell
President

Brian T. Shea
Chief Executive Officer,
Pershing LLC

Jane C. Sherburne
General Counsel

Kurt D. Woetzel
Head of Global Operations and
Technology and Chief Administrative
Officer

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 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

164 BNY Mellon

Performance Graph

$200

$150

$100

$50

2005

Cumulative Total Shareholder Return (5 Years)

2006

2007

2008

2009

2010

The Bank of New York Mellon Corporation
S&P 500 Financial Index
S&P 500
Peer Group

2005

2006

2007

2008

2009

2010

$100.0
100.0
100.0
100.0

$126.9
119.2
115.8
121.1

$151.4
97.1
122.2
101.0

$90.3
43.5
77.0
55.4

$91.0
50.9
97.3
62.5

$ 99.6
57.1
112.0
67.6

This graph shows The Bank of New York Mellon Corporation’s cumulative total shareholder returns over the
five-year period from Dec. 31, 2005 to Dec. 31, 2010. The graph reflects total shareholder returns for The Bank of
New York Company, Inc. from Dec. 31, 2005 to June 29, 2007, and for The Bank of New York Mellon
Corporation from July 2, 2007 to Dec. 31, 2010. 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, 2005 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.

BNY Mellon

165

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 36 countries and serving more
than 100 markets. The company is a leading provider of finan-
cial 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, 2010, the company had $25.0 trillion in assets
under custody and administration and $1.17 trillion in assets
under management, serviced $12.0 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 12, 2011.

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), BNY Capital
V 5.95% Preferred Trust Securities Series F (symbol BKPrF),
and Mellon Capital IV 6.244% Fixed-to-Floating Rate Normal
Preferred Capital Securities fully and unconditionally guaran-
teed by The Bank of New York Mellon Corporation (symbol
BK/P) 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.

BNY Mellon’s Corporate Social Responsibility (CSR) Report is
available online at www.bnymellon.com/csr-report. To obtain a
free printed copy of our CSR 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,
including the financial statements and the financial statement
schedules, or quarterly reports on Form 10-q as filed with
the Securities and Exchange Commission, send a 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 2010 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/equityaccess 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. Nonsharehold-
ers may purchase their first shares of BNY Mellon’s common
stock through the Plan, and shareholders 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/equityaccess 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 electronically to their
checking or savings accounts, free of charge. To have your
dividends deposited electronically, go to www.bnymellon.com/
shareowner/equityaccess to set up your account(s) for direct
deposit. If you prefer, you may also send a 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
www.bnymellon.com/shareowner/equityaccess

Shareholders can register to receive shareholder information
electronically. To enroll, visit www.bnymellon.com/
shareowner/equityaccess 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

www.bnymellon.com

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