The Bank of New York Mellon Annual Report 2012

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FY2012 Annual Report · The Bank of New York Mellon

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2012 ANNUAL REPORT

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
net (income) attributable to noncontrolling interests

net income applicable to shareholders of

the Bank of new York Mellon corporation

Preferred stock dividends

net income applicable to common shareholders of
the Bank of new York Mellon corporation

2012

2011

2,523
(78)

2,569
(53)

2,445
(18)

2,516
—

2,427

2,516

earnings per common share – diluted (a)

$ 2.03

2.03

KeY Data

total revenue
total expenses
Fee revenue as a percentage of total revenue excluding net securities gains
Percentage of non-u.s. total revenue (b)
assets under management at year end (in billions)
assets under custody and/or administration at year end (in trillions) (c)

Balance sheet at DeceMBeR 31

total assets
total deposits
total the Bank of new York Mellon corporation common shareholders’ equity

$
$

14,555
11,333

14,730
11,112

78%
37%

1,386
26.2

$
$

1,260
25.1

358,990
246,095
35,363

325,266
219,094
33,417

caPital Ratios at DeceMBeR 31
estimated Basel iii tier 1 common equity ratio – non-GaaP (d)(e)
BnY Mellon common shareholders’ equity to total assets ratio (e)
BnY Mellon tangible common shareholders’ equity to tangible assets

of operations ratio – non-GaaP (e)

Determined under Basel I guidelines:
tier 1 common equity to risk-weighted assets ratio – non-GaaP (e)
tier 1 capital ratio
total (tier 1 plus tier 2) capital ratio
leverage capital ratio

9.8%
9.9%

6.4%

13.5%
15.0%
16.3%
5.3%

n/a
10.3%

6.4%

13.4%
15.0%
17.0%
5.2%

(a) Diluted earnings per share are determined on the net income applicable to common shareholders of the Bank of new York Mellon corporation

reported on the income statement less earnings allocated to participating securities, and the change in the excess of redeemable value over
the fair value of noncontrolling interests.

(b) includes fee revenue, net interest revenue and income of consolidated investment management funds, net of noncontrolling interests.
(c) as discussed in “General-Reporting of assets under custody and/or administration,” all periods included in the table have been revised.
(d) the estimated Basel iii tier 1 common equity ratio at December 31, 2012, is based on the notices of Proposed Rulemaking (nPRs) and final

market risk rule. the estimated Basel iii tier 1 common equity ratio of 7.1% at December 31, 2011, is based on prior Basel iii guidance and the
proposed market risk rule.

(e) see “supplemental information – explanation of non-GaaP financial measures” beginning on page 106 for a calculation of these ratios.

DEAR FELLOW SHAREHOLDERS

I am pleased to report that our performance in 2012 yielded positive returns to our shareholders against a
challenging and uncertain economic backdrop. Persistent low interest rates, low volatility and tepid capital
markets continued to weigh on the global markets, the financial industry and our company. In spite of the
environment, we were able to make significant progress transforming our company both operationally and
culturally, and are now more nimble, client-focused and results-oriented. We are equipped to contribute to
the smooth and orderly functioning of the global markets, a significant responsibility that we embrace.

Let me highlight some important measures we use to gauge our performance:

• SHAREHOLDER RETURN: In 2012, our total shareholder return was 32 percent, positioning us at

the 75th percentile relative to both the S&P 500 Financials Index and our peer group. This is a vast
improvement over our prior-year results. This improvement needs to continue in order to deliver
a more consistent return, as we still lag our peers and the Index over a three-year and five-year
horizon.

• BOOK VALUE: The growth in the intrinsic value of our firm is not always immediately reflected in

our share price. One of the best measures of whether we are increasing the long-term value of our
company is to examine the growth in our book value. As of year-end our book value per share was
$30.39 compared to $27.62, a 10 percent improvement over 2011.

• RETURN ON TANGIBLE COMMON EQUITY: This reflects the earnings we achieved on the equity in
the business. While we achieved a very healthy return of 19.3 percenti in 2012, it was down from
22.6 percenti in 2011, as earnings were essentially flat and our equity base grew.

• EARNINGS PER SHARE: We earned the same as in 2011, $2.03 per share, which was 89 percent of
budget. Much of the shortfall to budget was attributable to weak markets and the settlement of a
number of significant litigation items.

We also continued to receive top rankings for client satisfaction and industry recognition for investment
performance, measures that help differentiate our brand and drive organic growth.

Among the notable accomplishments in 2012, we:

• Completed $1.1 billion in stock buybacks, up from $835 million in 2011, and paid more than

$600 million in common stock dividends.

•

Increased year-over-year assets under management by 10 percent, with net inflows of $36 billion.

• Reduced risk in our securities and loan portfolios, reflected in part by a $2.4 billion unrealized

pre-tax gain and a credit to our provision for credit losses of $80 million.

• Achieved above-target net savings of $309 million under our Operational Excellence initiatives.

• Exceeded many of our bank peers in attaining a Basel I Tier 1 capital ratio of 15 percent and

common equity ratio of 13.5 percent. At year end, our estimated Basel III Tier 1 common equity
ratio was 9.8 percent.i,ii

A DISTINCTIVE, ATTRACTIVE BUSINESS MODEL
To understand why we are a good investment, one needs to understand what makes our business model
distinctive and attractive.

We are the investments company for the world. We are completely focused on the investment process –
managing and servicing global financial assets. No other company can match our singular focus on invest
ments in every dimension. Among other things, we are paid recurring fees to manage assets for institutions
and individuals through our Investment Management boutiques and Wealth Management offerings, as well
as administer, monitor and report on those client assets through our Investment Services capabilities –
all while taking very little credit risk. It is a role that has enabled us to take on some of the world’s most
complex issues coming out of the financial crisis, and help solve them.

Our businesses generate deposits and earn a return on them, though less than in the past in this low-rate
environment. We are relied upon to be a trusted manager and/or advisor and holder of financial assets, a
role that is enhanced by our capital strength, stability and narrow risk appetite.

What makes our business model attractive? I can give a number of reasons:

• We have a comprehensive, end-to-end view of the investment process and provide sophisticated
solutions to many of the most advanced and complex financial companies and investors globally.

• We have scale and market leadership in our major businesses, a reflection of the talent

throughout our company.

• We benefit from the organic growth in financial assets – which, over time, has outpaced per

capita GDP growth. The globalization of the financial markets and cross-border flows favor us
as well. Those assets all need to be managed and/or serviced.

• A large percentage of our revenue – more than the median revenue of our peers – comes from

recurring fees, underscoring our relative consistency of earnings.

• We have been able to continue to return a large portion of our earnings to our shareholders
through dividends and share buybacks, as growing our business does not require growth in
risk-weighted assets and the capital to support them.

• And we have substantial upside in a more normalized environment. We will benefit greatly
from improvements in interest rates, capital markets activity, volatility and debt issuance.
We don’t need all of these to occur; any one of them will have a positive impact on us.

REVIEWING OUR PERFORMANCE
Our core businesses remain strong. Let me review a few highlights:

INVESTMENT SERVICES – Assets under custody and/or administration totaled $26.2 trillion at the end of
2012. Many of the key drivers of our Investment Services businesses showed significant improvement over
2011. Average long-term mutual fund assets grew 9 percent, average collateral management balances
were up 8 percent and average total Investment Services deposits were up 11 percent. However, partially
offsetting this growth was lower activity in Depositary Receipts and ongoing weakness in the structured
debt market impacting Corporate Trust.

We launched a new Global Collateral Services business to help broker-dealers and institutional investors
manage the collateral they are now required to post against various trading positions and counterparties.
This is an important development that demonstrates the power of our investments model. We are both
one of the largest managers of collateral and one of the largest administrators. By combining our collat
eral management, derivatives, liquidity services and securities financing capabilities, we are distinctively
positioned to create an end-to-end solution for clients’ growing collateral needs.

In asset servicing, we implemented a new client service model designed to align our services against
specific client needs or attributes. This will help ensure that we’re providing the appropriate solutions
to meet those needs and start us on the path to improving the core profitability of this business.

INVESTMENT MANAGEMENT – Our Investment Management business remained committed to delivering
strong investment performance and outstanding wealth management capabilities for our clients. Our
assets under management (AUM) were up 10 percent year over year to a record level of $1.4 trillion,
reflecting 13 consecutive quarters of positive net long-term flows. Wealth Management average loans
and deposits for 2012 grew 14 percent and 16 percent, respectively.

We continued to invest in building our investment and distribution capabilities, with a particular focus
on the Asia Pacific region. Our distinctive investment capabilities, such as our liability-driven investment
strategies, were in strong demand with our clients. Wealth Management also had another extremely
successful year, attaining record levels across multiple dimensions, including assets under management,
revenues, deposits and client satisfaction scores.

OUR STRATEGIC PRIORITIES
We are focused on a clear set of strategic priorities that support our goals of powering global investments
to help our clients succeed and delivering consistent earnings-per-share growth. They include:

creating organic growth;
sharpening client focus and strengthening brand loyalty;

•
•
• driving excellence throughout our organization; and
• deploying capital and managing risk wisely.

Let me highlight our progress in these areas.

Creating Organic Growth
We are not standing still waiting for the markets to improve. We have a relentless focus on creating
organic growth, reflecting our history of leadership in anticipating and adapting to change, capitalizing on
the good ideas generated by our global staff in support of our clients. We have continuously expanded and
innovated to address future market needs – whether by pioneering the first tri-party repo trade in collabo
ration with a large client, introducing the first worldwide U.S. dollar money market fund or launching the
first mobile investment services applications.

EXPANDING OUR CAPABILITIES – Key areas of focus include accelerating our Asset Management growth
strategies, particularly in Asia and for retail distribution; capturing opportunities through our Global
Collateral Services business; leveraging our Pershing platform and distribution capabilities; and building
out our Global Markets business to capture more order flow.

Our clients’ needs are complex and single-product solutions are insufficient. Our focus, therefore, is on
tapping into our broad range of products to deliver innovative, value-added client solutions. We have
formed a Strategic Growth Initiatives team to identify future growth opportunities, and we’ve taken steps
to embed in our company a culture of collaboration and innovation.

Together, these efforts will help drive our long-term growth, so they are wise investments in our future.

BUILDING A GLOBAL PRESENCE – We are making progress in expanding globally. Our purchase of the
remaining 50 percent of our WestLB Mellon Asset Management joint venture in 2012 – which we renamed
Meriten Investment Management – has increased our exposure to Germany, where we have also become
the No. 1 custody provider, evidencing our success in this important market. We recently received approval
to launch a new issuer central securities depository based in Belgium, which will enhance our offering for
Investment Services and Collateral Management for clients in Europe. We were awarded a banking license
in Brazil, allowing us to expand our local investment services capabilities. We also opened a new global
delivery center in Wroclaw, Poland, to support our fund accounting practice in Europe.

INVESTED IN OUR CLIENTS – SHARPENING CLIENT FOCUS AND STRENGTHENING BRAND LOYALTY
The enhanced client management model we introduced over the past two years, which better aligns our
resources with client needs, is already achieving success. After one year of experience, we were able to
offer more solution sets, helping us achieve a measurable increase in business with some of our largest
clients. We continue to expand the model to include additional complex global clients and to realign our
front end to create full-service teams focused on specific clients, market segments and regions. Our cli
ents appreciate and value this approach, and it will yield increasingly positive results for us in the future.

Client loyalty is fundamental to any successful business, and even more so for us, as loyal clients tend
to award us new and higher-value mandates and serve as terrific references. This year, we are focused
on expanding our programs to measure and strengthen client loyalty, adopting consistent measurement
practices across the company that will help us identify opportunities for continuously improving the
client experience.

III

Driving Excellence Throughout Our Organization
Excellence is essential to building client loyalty and shareholder value. In last year’s letter, I outlined for
you the operational excellence initiatives we were undertaking to deliver the highest service quality,
reduce operational risk, increase margins and allow us to move new capabilities to market more quickly.
We are making excellent progress, and are on track to realize roughly $650 million to $700 million in ex
pense savings by 2015 while we improve risk management, productivity and quality across the company.

Within Investment Services, we are simplifying our operating/service delivery platforms. Our asset servic
ing business is a prime area of opportunity. More than a year ago we launched a program to transform this
business to improve our margins and profitability while strengthening the client experience. We are in the
process of reengineering our organizational structure and processes to gain productivity and increase
service levels. We also have made progress in more fully leveraging our global delivery centers in locations
with improved cost dynamics and access to a deep talent pool. In 2012 we once again received top rank
ings in the key global custody surveys, testament to our success in maintaining our focus on quality
of service throughout the transformation.

Deploying Capital and Managing Risk Wisely
Our fee-based business model allows us to generate a significant level of capital rapidly. During 2012
we generated $2.7 billion in tangible capital. The combination of our rapid capital generation and quality
balance sheet has enabled us to strengthen our key capital ratios and return capital to our shareholders.
Acquisitions remain a low priority, as we see better opportunities for organic growth. We expect to use
our capital to invest in our businesses, strengthen our balance sheet and, subject to regulatory approval,
return capital to our shareholders.

Risk is part of every aspect of our business. We are committed to supporting a culture in which each
employee feels a strong sense of personal responsibility for managing risk. Each is expected to know the
risk appetite for their business, anticipate risk and escalate issues quickly. This is fundamental to our
reputation and performance.

INVESTED IN THE FINANCIAL MARKETS
The work we do matters. We play a vital role in the global financial markets, enabling the market to
efficiently allocate capital by providing an infrastructure that facilitates the movement of cash and
securities through the markets. Our purpose is to power global investments to help our clients succeed.

As a global systemically important financial institution, we understand the critical function we perform
for the marketplace, and embrace our leadership responsibility in terms of capital strength, liquidity, risk
management and integrity.

Our work with regulators and clients to reduce significantly the risks associated with the secured
intraday credit we provide in the tri-party market is a powerful example of our role in setting standards
for the industry in reforming critical elements of the capital markets infrastructure.

We also must be incredibly reliable and resilient, no matter the circumstances. Superstorm Sandy tested
our resilience, impacting a number of key operations centers and thousands of employees, yet we
provided continuity of service throughout. Many clients told us, “Thank you. You were really there for us.”
We invested in business continuity planning, and it was money well spent.

INVESTED IN OUR WORLD
We take great pride in what we do, but also acknowledge the great responsibility we bear. We are respon
sible for delivering for our clients, who entrust us with their business and most valuable assets. We are
responsible for empowering our employees, who deliver for our clients every day in ways that are truly
amazing. We are accountable for creating a work environment that allows our employees to make
contributions to our success and to build fulfilling careers. We are also obliged to honor our heritage,
those before us who founded and built our firm and recognized our company’s responsibility to support
our communities. It is a tradition we uphold to this day as an employer, taxpayer and supporter of
agencies, programs, our communities and people less fortunate than ourselves.

During 2012, we saw the benefits of our investments in building and supporting a strong culture, as
employment engagement scores increased and more employees created development plans to advance
their skills and prepare them for the next stages of their careers and to deliver greater value to our clients.
We recognize that more diverse and inclusive organizations are better at innovating, driving revenue
growth and performing for shareholders. We are pleased to report that more than half our most senior
appointments at the company this past year involved women and candidates with diverse backgrounds
and characteristics.

We continued our tradition of investing in our community, making $34 million in company and employee
contributions, while sharpening our focus on areas where we have the greatest impact. Following Super-
storm Sandy our company and our employees invested in direct disaster relief, and many of our people
participated in volunteer efforts in the long weeks that followed. Our emphasis on vulnerable youth, such
as youth aging out of foster care in the U.S. and older girls in orphanages in India, is producing significant
improvements in the lives of these individuals.

LOOKING FORWARD
We are a stronger company than we were a year ago. We have continued to grow core investment
management and many of our investment services fees, reflecting the strength of our business model.
We are investing in our future and have funded numerous initiatives that should yield positive results
for our businesses.

We also implemented a series of organizational and leadership changes effective January 1, 2013, to
drive the execution of our priorities and increase the depth of our leadership team. Karen Peetz became
President and is focusing on the first pillar of our company, our clients and employees. She is oversee
ing client management, the regions, innovation, employee training and development and some of our key
growth initiatives. The second pillar is Investment Services, and Tim Keaney and Brian Shea are now CEO
and President, respectively, of all these businesses, bringing together all our capabilities under one lead
ership team to improve collaboration and enhance our ability to offer integrated solutions. Brian is also
head of Client Service Delivery and Client Technology Solutions, areas that greatly influence our success.
The third pillar of our firm is Investment Management, which Curtis Arledge continues to lead as CEO.
It, too, is an area with great upside as our investment performance and capabilities are increasingly
recognized throughout the world.

These leadership changes already have energized the company in ways that will accelerate growth
opportunities and drive higher levels of productivity, quality and performance.

Early this year we launched our new BNY Mellon brand, centered on powering global investments to help
our clients succeed. By focusing on creating a consistent client experience and a better understanding in
the marketplace of the scope of our capabilities, we can be more successful. Stronger brands tend to gen
erate stronger shareholder returns. You will hear more about our efforts in this area over the coming year.

We have nearly 50,000 employees in markets throughout the world who put investors at the center of
everything we do. They are an outstanding team, and I thank them and my Executive Committee partners
for their extraordinary level of energy and commitment.

I also would like to thank our board of directors for their support and wise counsel. They appropriately
challenge us every day to be a better company, and I am deeply appreciative of their contributions. They
share my conviction that we have a powerful business model, the right strategy and an exceptional team
to help our clients succeed and deliver consistent earnings per share growth and attractive returns to you,
our shareholders.

Gerald L. Hassell
Chairman and Chief Executive Officer

i For a reconciliation and explanation of these non-GAAP measures, see pages 106-110 of our 2012 Annual Report.

ii The estimated Basel III Tier 1 common equity ratio is based on the Notices of Proposed Rulemaking (NPRs) and
final market risk rule initially released on June 7, 2012, and published in the Federal Register on Aug. 30, 2012.

FINANCIAL SECTION

THE BANK OF NEW YORK MELLON CORPORATION

2012 Annual Report

Table of Contents

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

Financial Statements:

Page

Management’s Discussion and Analysis of

Financial Condition and Results of
Operations:

Results of Operations:

General . . . . . . . . . . . . . . . . . . . . . . . . . .
Overview . . . . . . . . . . . . . . . . . . . . . . . . .
Key 2012 and subsequent events . . . . . .
Summary of financial results . . . . . . . . .
Fee and other revenue . . . . . . . . . . . . . . .
Net interest revenue . . . . . . . . . . . . . . . . .
Noninterest expense . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trading activities and risk

management . . . . . . . . . . . . . . . . . . . .
Foreign exchange and other trading . . . .
Asset/liability management . . . . . . . . . . .
Risk Management . . . . . . . . . . . . . . . . . . . . . .
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . .
Supervision and Regulation . . . . . . . . . . . . . .
Recent Accounting Developments . . . . . . . . .
Business Continuity . . . . . . . . . . . . . . . . . . . . .
Supplemental Information (unaudited):

Explanation of Non-GAAP financial

measures (unaudited)

. . . . . . . . . . . . .
Rate/volume analysis (unaudited) . . . . . .
Selected Quarterly Data (unaudited) . . . . . . . .
Forward-looking Statements . . . . . . . . . . . . . .
Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

101

105

106

111

112

113

115

Report of Management on Internal Control

Over Financial Reporting . . . . . . . . . . . . . . . . .

119

Report of Independent Registered Public

Page

121

123

124

125

Consolidated Income Statement . . . . . . . . . . .
Consolidated Comprehensive Income

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

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

126

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

reporting policies . . . . . . . . . . . . . . . . . . . . . . . . .

128

Note 2—Accounting changes and new accounting

guidance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 3—Acquisitions and dispositions . . . . . . . . . .
Note 4—Discontinued operations . . . . . . . . . . . . . .
Note 5—Securities . . . . . . . . . . . . . . . . . . . . . . . . .
Note 6—Loans and asset quality . . . . . . . . . . . . . . .
Note 7—Goodwill and intangible assets . . . . . . . . .
Note 8—Other assets . . . . . . . . . . . . . . . . . . . . . . . .
Note 9—Deposits . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 10—Net interest revenue . . . . . . . . . . . . . . . .
Note 11—Noninterest expense . . . . . . . . . . . . . . . .
Note 12—Restructuring charges . . . . . . . . . . . . . . .
Note 13—Income taxes . . . . . . . . . . . . . . . . . . . . . .
Note 14—Long-term debt . . . . . . . . . . . . . . . . . . . .
Note 15—Securitizations and variable interest

entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 16—Shareholders’ equity . . . . . . . . . . . . . . . .
Note 17—Other comprehensive income (loss) . . . .
Note 18—Stock-based compensation . . . . . . . . . . .
Note 19—Employee benefit plans . . . . . . . . . . . . .
Note 20—Company financial information . . . . . . .
Note 21—Fair value measurement . . . . . . . . . . . . .
Note 22—Fair value option . . . . . . . . . . . . . . . . . . .
Note 23—Commitments and contingent

liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 24—Derivative instruments . . . . . . . . . . . . . .
Note 25—Lines of businesses . . . . . . . . . . . . . . . . .
Note 26—International operations . . . . . . . . . . . . .
Note 27—Supplemental information to the

136

138

142

148

150

151

152

154

155

156

159

160

162

169

172

185

191

195

198

Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . .

120

Consolidated Statement of Cash Flows . . . . . . . .

198

Report of Independent Registered Public

Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . .

199

Directors, Executive Committee and Other

Executive Officers . . . . . . . . . . . . . . . . . . . . . . .

200

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

201

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
Net securities gains (losses)
Income from consolidated investment management funds
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

conduit, net of tax

Net income (loss)

Net (income) attributable to noncontrolling interests

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

New York Mellon Corporation

Preferred stock dividends

Net income (loss) applicable to common shareholders of The

2012

2011

2010

2009

2008

$ 11,231
162
189
2,973

14,555
(80)
11,333

3,302
779

2,523
-

2,523
(78)

2,445
(18)

$ 11,498
48
200
2,984

14,730
1
11,112

3,617
1,048

2,569
-

2,569
(53)

2,516
-

$ 10,697
27
226
2,925

13,875
11
10,170

3,694
1,047

2,647
(66)

2,581
(63)

2,518
-

$ 10,108
(5,369)

$ 12,342
(1,628)

-
2,915

7,654
332
9,530

(2,208)
(1,395)

(813)
(270)

(1,083)
(1)

-
2,859

13,573
104
11,523

1,946
491

1,455
14

(26)

1,443
(24)

(1,084)

(283) (a)

1,419
(33)

Bank of New York Mellon Corporation

$ 2,427

$ 2,516

$ 2,518

$ (1,367)

$ 1,386

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

Net income (loss) applicable to common stock

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

2.03
-
-

2.03

$292,887
347,509
358,990
246,095
18,530
1,068

2.03
-
-

2.03

$259,231
313,919
325,266
219,094
19,933
-

2.11
(0.05)

(0.93)
(0.23)

1.21
0.01
(0.02)

2.05 (b) $

(1.16) (c) $

1.20

$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

shareholders’ equity

35,363

33,417

32,354

28,977

25,264

At Dec. 31
Assets under management (in billions)
Assets under custody and/or administration (in trillions) (d)
Market value of securities on loan (in billions) (e)

$ 1,386
26.2
246

$ 1,260
25.1
269

$ 1,172
24.1
278

$ 1,115
N/A
247

928
N/A
326

(a) Includes an after-tax redemption charge of $196.5 million related to the Series B preferred stock.
(b) Does not foot due to rounding.
(c) Diluted earnings per common share for 2009 was calculated using average basic shares. Adding back the dilutive shares would have

been anti-dilutive.

(d) As discussed in “General – Reporting of assets under custody and/or administration,” all periods included in the table have been

revised.

(e) Represents the securities on loan managed by the Investment Services business.
N/A – Not available.

BNY Mellon

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

Financial Summary (continued)

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

Net income basis:

Return on common equity (a)
Return on tangible common equity (a)
Return on average assets (a)

Continuing operations basis:

Return on common equity (a)(b)
Non-GAAP adjusted (a)(b)

Return on tangible common equity – Non-GAAP (a)(b)

Non-GAAP adjusted (a)(b)

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

Fee revenue as a percentage of total revenue excluding net

securities gains (losses)

Fee revenue per employee (based on average

headcount) (in thousands)

Percentage of non-U.S. revenue (c)
Net interest margin (on a fully taxable equivalent basis)

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

Capital ratios at Dec. 31 (e)(f)
Estimated Basel III Tier 1 common equity ratio –

Non-GAAP (b)(g)

Basel I Tier 1 common equity to risk-weighted assets

ratio–Non-GAAP (b)
Basel I Tier 1 capital ratio
Basel I Total (Tier 1 plus Tier 2) capital ratio
Basel I leverage capital ratio
BNY Mellon shareholders’ equity to total assets ratio (b)
BNY Mellon common shareholders’ equity to total assets

ratio (b)

BNY Mellon tangible common shareholders’ equity to tangible

assets of operations ratio – Non-GAAP (b)

2012

2011

2010

2009

2008

7.1%
19.3
0.77

7.1%
8.8
19.3
21.8
23
29

7.5%
22.6
0.86

7.5%
9.0
22.6
24.6
25
30

8.1%
25.6
1.06

8.3%
9.9
26.3
28.3
27
32

N/M
N/M
N/M

N/M
9.3
N/M
31.9
N/M
31

232

237

241

37%

1.21

0.52

26%
2.0%

37%

1.36

0.48

24%
2.4%

36%

1.70

0.36

18%
1.2%

32%

1.82

0.51
N/M

1.8%

5.0%

20.7

0.67

5.0%

14.2
20.5
48.8
14
39

290
33 % (d)

1.89 (d)

25.70
29.9
30.39
12.82
49,500
1,163,490

19.91
24.1
27.62
10.57
48,700
1,209,675

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

0.96

80%
3.4%

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

11.0%

11.5%

13.1%

13.4%

13.7%

9.8%

13.5
15.0
16.3
5.3
10.1

9.9

6.4

N/A

13.4
15.0
17.0
5.2
10.3

10.3

6.4

N/A

11.8
13.4
16.3
5.8
13.1

13.1

5.8

N/A

10.5
12.1
16.0
6.5
13.7

13.7

5.2

N/A

9.4
13.2
16.9
6.9
11.8

10.6

3.8

(a) Calculated before the extraordinary loss in 2008.
(b) See “Supplemental information – Explanation of Non-GAAP financial measures” beginning on page 106 for a calculation of these

ratios.

(c) Includes fee revenue, net interest revenue and income from consolidated investment management funds, net of net income attributable

to noncontrolling interests.

(d) Excluding the SILO/LILO charge, the percentage of non-U.S. revenue was 32% and the net interest margin was 2.21%.
(e) Includes discontinued operations in 2010, 2009 and 2008.
(f) When in this Annual Report we refer to BNY Mellon’s or our bank subsidiary’s “Basel I” capital measures (e.g., Basel I Total capital
or Basel I Tier 1 capital), we mean Total or Tier 1 capital, as applicable, as calculated under the Board of Governors of the Federal
Reserve System’s risk-based capital guidelines that are based on the 1988 Basel Accord, which is often referred to as “Basel I.”
(g) The estimated Basel III Tier 1 common equity ratio at Dec. 31, 2012 is based on the Notices of Proposed Rulemaking (“NPRs”) and
final market risk rule and is calculated on an Advance Approaches basis, as amended by Basel III. The estimated Basel III Tier 1
common equity ratio of 7.1% at Dec. 31, 2011 is based on prior Basel III guidance and the proposed market risk rule.

BNY Mellon

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

Results of Operations

General

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

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
titled “Forward-looking Statements.”

How we reported results

All information for 2012 and 2011 in this Annual
Report is reported on a net income basis. All
information for 2010 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, measures, which are
noted as “Non-GAAP financial measures,” exclude
certain items. BNY Mellon believes that these
measures are useful to investors because they permit a
focus on period-to-period comparisons using
measures that relate to our ability to enhance revenues
and limit expenses in circumstances where such
matters are within our control. We also present the net
interest margin 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

BNY Mellon

practice. Certain immaterial reclassifications have
been made to prior periods to place them on a basis
comparable with the current period presentation. See
“Supplemental information – Explanation of Non-
GAAP financial measures” beginning on page 106 for
a reconciliation of financial measures presented in
accordance with U.S. generally accepted accounting
principles (“GAAP”) to adjusted Non-GAAP financial
measures.

Reporting of assets under custody and/or
administration

In connection with context we provide in
Management’s Discussion and Analysis of Financial
Condition and Results of Operations (“MD&A”) for
our Investment Servicing business, we disclose assets
under custody (“AUC”) combined with assets under
administration (“AUA”, and together, “AUC/A”). In
January 2013, during a review of our processes and
procedures for reporting AUC/A, we discovered that
the extraction and collection of these metrics had
certain flaws that resulted in the reporting of incorrect
amounts. The data extraction process that resulted in
these reporting errors is used exclusively for reporting
AUC/A and is unrelated to and, therefore, had no
impact on client accounts, assets and statements. Our
subsequent review (our “Review”) showed that data
was extracted in a manner that caused (i) a double-
counting of certain categories of primarily AUC,
(ii) an under-counting and certain misclassifications of
AUA, and (iii) the use of the original principal
balance rather than the amortized principal balance of
certain fixed income securities. AUC, AUA and
AUC/A typically are contained in certain bank
regulatory filings, SEC filings and other materials.

Our AUC/A for Dec. 31, 2012, as reported in this
Annual Report, and as a result of our Review, is $26.2
trillion, $0.5 trillion less than the $26.7 trillion that
was reported in our earnings release for the fourth
quarter of 2012 on a preliminary basis. The decrease
from the preliminary AUC/A reported in our earnings
release reflects the reduction of $0.5 trillion of
double-counted AUC/A (in addition to the $1.3
trillion doubled-counted AUC/A that was reflected
preliminarily in our earnings release disclosure), the
addition of $0.7 trillion of under-counted AUA, and
the reduction of $0.7 trillion due to principal
extraction errors described above. The adjustments to
AUC/A resulted in a year-over-year growth rate of 4%
versus a previously reported year-over-year
preliminary growth rate of 9% in our earnings release
for the fourth quarter of 2012. AUC/A included in this

Results of Operations (continued)

Annual Report has been revised for the years ended
2010, 2011 and 2012. See the “Financial Summary”
beginning on page 2. As a result of our Review, in the
Glossary of this Annual Report we have clarified our
definition of AUC/A.

As a result of these errors, we are seeking to
streamline and enhance the data collection processes
and systems relating to AUC/A. We also have
commenced a review of the process for reporting
other information in our public filings and have begun
and will continue to correct and enhance our
disclosure policies and procedures going forward.

The data extraction errors relating to AUC/A did not
impact our reported financial condition or results of
operations, including our revenues, earnings or capital
ratios and are unrelated to our internal control over
financial reporting.

Overview

BNY Mellon is the corporate brand of The Bank of
New York Mellon Corporation (NYSE symbol: BK).
BNY Mellon is a global investments company
dedicated to helping its clients manage and service
their financial assets throughout the investment
lifecycle. Whether providing financial services for
institutions, corporations or individual investors, BNY
Mellon delivers informed investment management
and investment services in 36 countries and more than
100 markets. As of Dec. 31, 2012, BNY Mellon had
$26.2 trillion in assets under custody and/or
administration, and $1.4 trillion in assets under
management. BNY Mellon can act as a single point of
contact for clients looking to create, trade, hold,
manage, service, distribute or restructure investments.

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
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.

increasing the percentage of revenue and income
derived from outside the United States;

Š maintaining a highly liquid balance sheet with

excellent credit quality;
improving efficiency and reducing operational
risk; and

Š disciplined capital deployment.

We have established Basel I Tier 1 capital as our
principal capital measure and have established a
targeted ratio of Basel I Tier 1 capital to risk-weighted
assets of 10%. We expect to update our capital targets
once new regulatory capital guidelines are finalized.

Key 2012 and subsequent events

Sale of private client business

On Feb. 27, 2013, Newton Management Limited,
together with Newton Investment Management
Limited, an investment boutique of BNY Mellon,
announced the sale of its private client business. The
transaction is subject to regulatory approval, and is
expected to close in the third quarter of 2013. The
agreement covers assets under management valued at
£3.6 billion. This transaction is not expected to have a
significant impact on our financial results.

U.S. Tax Court Ruling

On Feb. 11, 2013, the U.S. Tax Court issued a ruling
against BNY Mellon upholding the IRS’ disallowance
of certain foreign tax credits claimed for the 2001 and
2002 tax years. As a result of the ruling and in
accordance with the accounting for uncertain tax
positions under ASC 740, BNY Mellon expects to
record an after-tax charge of approximately
$850 million during the first quarter of 2013. After
taking the charge, we expect to continue to be well
capitalized. Additionally, we expect this charge will
decrease the Basel III Tier 1 common equity ratio by
approximately 55 basis points.

BNY Mellon will appeal the court’s decision. We
continue to believe the tax treatment of the transaction
was consistent with statutory and judicial authority
existing at the time.

Key components of our strategy include:

Central Securities Depository

Š
focusing on organic growth opportunities;
Š providing superior client service versus peers;
Š delivering strong investment performance

relative to benchmarks;

Š generating above-median revenue growth

relative to peer companies;

In January 2013, we received regulatory approval to
establish a new issuer central securities depository
based in Belgium. BNY Mellon CSD SA/NV will
help integrate and simplify settlement and safekeeping
services across Europe for the benefit of our
customers.

BNY Mellon

Results of Operations (continued)

Executive Management changes

In the fourth quarter of 2012, BNY Mellon announced
several executive management appointments designed
to accelerate the company’s success as the global
leader in investment management and investment
services. These appointments were effective Jan. 1,
2013.

Karen B. Peetz became President of BNY Mellon. As
President, Peetz will lead Global Client Management,
Regional Management, Treasury Services and Human
Resources.

Timothy F. Keaney was named Chief Executive
Officer of Investment Services as BNY Mellon
aligned its Asset Servicing, Corporate Trust,
Depositary Receipts, Global Markets, Global
Collateral Services, Broker Dealer Services, and
Pershing businesses under his leadership. Keaney is
also Vice Chairman of Asset Servicing.

Brian T. Shea was named President of Investment
Services and head of BNY Mellon’s Client Service
Delivery and Client Technology Solutions group. He
also continues in his role as head of Broker Dealer and
Advisor Services. As of Feb. 1, 2013, Shea was
named Chairman of BNY Mellon’s Pershing
subsidiary.

Vice Chairman Curtis Y. Arledge continues as Chief
Executive Officer of Investment Management, BNY
Mellon’s asset and wealth management businesses.

losses relating to both Sigma Finance Inc. (“Sigma”)
and Bernard L. Madoff, along with litigation arising
from The Bank of New York Mellon’s role as
indenture trustee for debt issued by affiliates of
Medical Capital Corp. Settlements relating to the
Bernard L. Madoff matter and Medical Capital Corp.
remain subject to court approval.

Proposed risk-based capital rules

On June 7, 2012, the U.S. regulatory agencies released
three Notices of Proposed Rulemaking (“NPRs”) and
final market risk rule which provide guidance on the
determination of regulatory capital ratios. The NPRs
were published in the Federal Register on Aug. 30,
2012. At Dec. 31, 2012, our estimated Basel III Tier 1
common equity ratio calculated under the new
guidelines was 9.8%. Our estimated Basel III Tier 1
common equity ratio, based on prior Basel III
guidance and the proposed market risk rule, was 7.1%
at Dec. 31, 2011. The increase compared with Dec.
31, 2011 was primarily due to a reduction in risk-
weighted assets related to the treatment of sub-
investment grade securities under the NPRs, earnings
retention and an increase in the value of the
investment portfolio, partially offset by balance sheet
growth in 2012.

See the “Regulatory Developments” section for a
discussion of the NPRs and final market risk rule and
the “Supplemental information – Explanation of Non-
GAAP financial measures” section for the calculation
of our estimated Basel III Tier 1 common equity ratio.

Acquisition of remaining 50% interest in WestLB
Mellon Asset Management joint venture

European Central Bank interest rate cut

On Oct. 1, 2012, BNY Mellon acquired the remaining
50% interest in the WestLB Mellon Asset
Management joint venture from Portigon (formerly
known as WestLB AG) and consolidated our German
Asset Management business. WestLB Mellon Asset
Management was formed in early 2006 as a 50:50
joint venture between BNY Mellon and Portigon. At
the date of the acquisition, the WestLB Mellon Asset
Management joint venture had over 170 employees
and more than $29 billion in assets under
management. In December 2012, WestLB Mellon
Asset Management was renamed Meriten Investment
Management (“Meriten”).

Litigation settlements

In 2012, BNY Mellon agreed to settle several
significant litigations, including litigation arising from

On July 5, 2012, the European Central Bank (“ECB”)
cut its main refinancing rate to 0.75% and reduced its
deposit rate, which acts as a floor for the money
markets, to zero. The combination of the lower ECB
deposit rate and the balances maintained at the ECB
negatively impacted our net interest revenue by
approximately $25 million in the second half of 2012.
The impact to fee revenue from the rate cut has been
immaterial.

Capital plan and share repurchase program

In March 2012, BNY Mellon received confirmation
that the Board of Governors of the Federal Reserve
System (the “Federal Reserve”) did not object to our
2012 comprehensive capital plan. Our 2012 capital
plan included the repurchase of up to $1.16 billion of
outstanding common stock and the continuation of the
13 cents per share quarterly cash dividend.

BNY Mellon

Results of Operations (continued)

In 2012, we repurchased 49.8 million common shares
in the open market, at an average price of $22.38 per
common share for a total of $1.12 billion. Our capital
plan for 2012 authorized the repurchase of up to $1.16
billion worth of common shares, or no more than $290
million per quarter, including both open market
purchases and employee benefit plan repurchases,
from the second quarter of 2012 through the first
quarter of 2013. Accordingly, in the first quarter of
2013, we continued to repurchase shares under the
2012 capital plan. Through Feb. 27, 2013, we
repurchased 7.8 million common shares in the open
market, at an average price of $27.21 per common
share for a total of $211 million.

We submitted our 2013 capital plan on Jan. 7, 2013.
The Federal Reserve has indicated it expects to
publish its objection or non-objection to the plan by
March 14, 2013. We anticipate announcing our 2013
capital plan shortly thereafter.

Summary of financial results

We reported net income applicable to common
shareholders of BNY Mellon of $2.4 billion, or
$2.03 per diluted common share in 2012 compared
with $2.5 billion, or $2.03 per diluted common share
in 2011 and $2.5 billion, or $2.05 per diluted common
share in 2010. In 2010, net income applicable to
common shareholders on a continuing operations
basis was $2.6 billion, or $2.11 per diluted common
share.

Highlights of 2012 results

Š AUC/A totaled $26.2 trillion at Dec. 31, 2012
compared with $25.1 trillion at Dec. 31, 2011.
The increase primarily reflects higher market
values and net new business. (See the
“Investment Services business” beginning on
page 24.)

Š Assets under management (“AUM”), excluding

securities lending assets, totaled a record
$1.4 trillion at Dec. 31, 2012 compared with
$1.3 trillion at Dec. 31, 2011. The increase was
primarily driven by higher market values and net
new business. (See the “Investment
Management business” beginning on page 21).
Investment services fees totaled $6.6 billion in
2012 compared with $6.8 billion in 2011.
Improved asset servicing revenue, driven by net
new business and higher market values, as well
as higher clearing and treasury services
revenues, were more than offset by the impact of

the sale of the Shareowner Services business in
the fourth quarter of 2011, lower Depositary
Receipts revenue and lower Corporate Trust fees
reflecting the continued net run-off of structured
debt securitizations. (See the “Investment
Services business” beginning on page 24).
Investment management and performance fees
totaled $3.2 billion in 2012 compared with
$3.0 billion in 2011. The increase was driven by
higher market values, net new business and
higher performance fees. (See the “Investment
Management business” beginning on page 21).

Š Foreign exchange and other trading revenue
totaled $692 million in 2012 compared with
$848 million in 2011. In 2012, foreign exchange
revenue totaled $520 million, a decrease of 32%
compared with 2011, driven by a sharp decline
in volatility and a modest decrease in volumes.
Other trading revenue was $172 million in 2012
compared with $87 million in 2011. The
increase was primarily driven by improved fixed
income trading. (See “Fee and other revenue”
beginning on page 9).
Investment income and other revenue totaled
$427 million in 2012 compared with
$455 million in 2011. The decrease primarily
resulted from the pre-tax gain on sale of the
Shareowner Services business recorded in 2011,
partially offset by higher seed capital gains in
2012 and the write-down of an equity
investment recorded in 2011. (See “Fee and
other revenue” beginning on page 9).

Š Net interest revenue totaled $3.0 billion in 2012,
a decrease of $11 million compared with 2011
as higher average assets driven by higher client
deposits, increased investment in higher quality
investment securities and higher loan levels
were more than offset by narrower spreads,
lower accretion, the elimination of interest on
European Central Bank deposits and lower
yields on the reinvestment of securities. The net
interest margin (FTE) was 1.21% in 2012
compared with 1.36% in 2011. The decrease
primarily reflects lower reinvestment yields,
lower accretion, the elimination of interest on
European Central Bank deposits and growth in
customer deposits which were invested in liquid,
lower-yielding assets (See “Net interest
revenue” beginning on page 13).

Š The provision for credit losses was a credit of

$80 million in 2012 compared with a provision
of $1 million in 2011. The credit in 2012 was
largely driven by a reduction in the allowance
for credit losses related to the residential
mortgage loan portfolio. (See “Asset quality and

BNY Mellon

Results of Operations (continued)

allowance for credit losses” beginning on
page 46).

Š Noninterest expense totaled $11.3 billion in

2012 compared with $11.1 billion in 2011. The
increase was primarily driven by higher
litigation expense, revenue mix and the cost of
generating certain tax credits, partially offset by
the impact of the sale of the Shareowner
Services business and our operational excellence
initiatives. (See “Noninterest expense”
beginning on page 16).

Š BNY Mellon recorded an income tax provision
of $779 million (23.6% effective tax rate) in
2012 compared with $1.0 billion (29.0%
effective tax rate) in 2011. The lower effective
tax rate primarily reflects the benefits associated
with increased tax credits and the reorganization
of certain foreign operations. (See “Income
taxes” on page 18).

Š The unrealized pre-tax gain on our total

investment securities portfolio was $2.4 billion
at Dec. 31, 2012 compared with $793 million at
Dec. 31, 2011. The increase primarily reflects a
decline in interest rates and improved credit
spreads. (See “Investment securities” beginning
on page 40).

Š At Dec. 31, 2012, our estimated Basel III Tier 1
common equity ratio was 9.8% based on the
NPRs and final market risk rule. The increase in
the ratio from 7.1% at Dec. 31, 2011, which was
calculated under prior Basel III guidance and the
proposed market risk rule, was primarily due to
a reduction in risk-weighted assets related to the
treatment of sub-investment grade securities
under the NPRs, earnings retention and an
increase in the value of the investment portfolio,
partially offset by balance sheet growth. (See
“Capital” beginning on page 57).

Š We generated $2.7 billion of gross Basel I Tier 1
common equity in 2012, primarily driven by
earnings. Our Basel I Tier 1 capital ratio was
15.0% at both Dec. 31, 2012 and Dec. 31, 2011.
(See “Capital” beginning on page 57).
In 2012, we repurchased 49.8 million common
shares in the open market, at an average price of
$22.38 per share, for a total of $1.12 billion.

Results for 2011

In 2011, we reported net income applicable to
common shareholders of BNY Mellon of $2.5 billion,
or $2.03 per diluted common share. These results
were primarily driven by:

Investment services fees totaled $6.8 billion
reflecting the full year impact of the acquisitions

BNY Mellon

of Global Investment Servicing (“GIS”) on
July 1, 2010 and BHF Asset Servicing GmbH
(“BAS”) on Aug. 2, 2010 (collectively, “the
Acquisitions”), and net new business.
Investment management and performance fees
totaled $3.0 billion reflecting net new business
and higher average equity markets.

Š Foreign exchange and other trading revenue
totaled $848 million driven by lower fixed
income trading revenue and lower foreign
exchange revenue.

Š Noninterest expense totaled $11.1 billion
reflecting the full-year impact of the
Acquisitions, higher staff expense, volume-
related expenses and software expense, as well
as higher professional, legal and other purchased
services.

Results for 2010

In 2010, we reported net income applicable to
common shareholders, including discontinued
operations, of $2.5 billion, or $2.05 per diluted
common share, or on a continuing operations basis,
net income of $2.6 billion, or $2.11 per diluted
common share. These results were primarily driven
by:

Investment services fee revenue totaled $6.1
billion in 2010 reflecting the Acquisitions,
higher market values and net new business.
Investment management and performance fees
totaled $2.9 billion in 2010 reflecting higher
market values globally, the full year impact of
the acquisition of Insight Investment
Management Limited (“Insight”) and new
business.

Š Foreign exchange and other trading revenue
totaled $886 million in 2010 driven by lower
fixed income and derivatives trading revenue
and lower foreign exchange revenue.

Š Net interest revenue totaled $2.9 billion in 2010
as a higher yield on the restructured investment
securities portfolio and higher interest-earning
assets were offset by lower spreads.

Š Noninterest expense totaled $10.2 billion in
2010 primarily driven by the impact of the
Acquisitions, the full-year impact of the Insight
acquisition and higher compensation expense.

Results of Operations (continued)

Fee and other revenue

Fee and other revenue (a)

(dollars in millions, unless otherwise noted)
Investment services fees:
Asset servicing (b)
Issuer services

Memo: Issuer services excluding Shareowner Services –

Non-GAAP

Clearing services
Treasury services

Total investment services fees

Investment management and performance fees
Foreign exchange and other trading revenue
Distribution and servicing
Financing-related fees
Investment and other income
Total fee revenue

Net securities gains

Total fee and other revenue – GAAP

Less: Fee and other revenue related to Shareowner Services

Total fee and other revenue excluding Shareowner Services –

2012

2011

2010

2012
vs.
2011

2011
vs.
2010

$ 3,780
1,052

$ 3,697
1,445

$ 3,076
1,460

(27)

20%
(1)

1,052
1,193
549
6,574
3,174
692
192
172
427
11,231
162
11,393
(3)

1,251
1,159
535
6,836
3,002
848
187
170
455
11,498
48
11,546
302

1,259
1,005
530
6,071
2,868
886
210
195
467
10,697
27
10,724
211

(16)
3
3
(4)
6
(18)
3
1
(6)
(2)
N/M
(1)

(1)
15
1
13
5
(4)
(11)
(13)
(3)
7
N/M
8

Non-GAAP

$11,396

$11,244

$10,513

Fee revenue as a percentage of total revenue excluding net securities

gains

AUM at period end (in billions)
AUC/A at period end (in trillions) (c)

78%

$ 1,386
$ 26.2

$ 1,260
$ 25.1

$ 1,172
$ 24.1

10%
4%

8%
4%

(a) See “Supplemental information – Explanation of Non-GAAP financial measures” beginning on page 106 for fee and other revenue

excluding Shareowner Services – Non-GAAP. The Shareowner Services business was sold on Dec. 31, 2011.

(b) Asset servicing fees include securities lending revenue of $198 million in 2012, $183 million in 2011 and $150 million in 2010.
(c) As discussed in “General – Reporting of assets under custody and/or administration,” all periods included in the table have been

revised. Previously this line item indicated that these numbers reflected the “market value” of AUC/A. However, AUC/A asset values
aggregate market values but also, where appropriate to the asset and related transaction, par values, notional values and client-
provided values.

Fee and other revenue

Fee and other revenue totaled $11.4 billion, a decrease
of 1%, in 2012 compared with $11.5 billion in 2011,
primarily reflecting the impact of the sale of the
Shareowner Services business. Excluding the impact
of the Shareowner Services business, fee and other
revenue increased 1% in 2012 primarily reflecting
higher investment management and performance fees,
net securities gains and asset servicing and clearing
services revenue, partially offset by lower issuer
services fees and foreign exchange and other trading
revenue.

Investment services fees

Investment services fees were impacted by the
following compared with 2011:

Š Asset servicing fees increased 2%, primarily

driven by net new business and higher market
values, higher securities lending revenue due to

wider spreads, and higher global collateral
management revenue.
Issuer services fees decreased 27%. Excluding
Shareowner Services, issuer services fees
decreased 16% primarily due to lower
Depositary Receipts revenue driven by lower
volumes, and lower Corporate Trust fees
reflecting the continued net run-off of structured
debt securitizations. We estimate this run-off
could reduce the Company’s total annual
revenue by approximately one-half to three-
quarters of 1% if the structured debt markets do
not recover.

Š Clearing services fees increased 3%, primarily

resulting from higher mutual fund fees driven by
increases in positions and assets and higher cash
management fees, partially offset by lower
clearance revenue reflecting a 6% decrease in
DARTS volume, and higher money market fee
waivers.

Š Treasury services fees increased 3% reflecting
higher volumes in cash management services.

BNY Mellon

Results of Operations (continued)

See the “Investment Services business” in “Review of
businesses” for additional details.

Investment management and performance fees

Investment management and performance fees totaled
$3.2 billion in 2012, an increase of 6% compared with
2011. The increase primarily reflects higher market
values, net new business, higher performance fees and
the Meriten acquisition. Performance fees were $136
million in 2012 and $93 million in 2011.

Total AUM for the Investment Management business
was a record $1.4 trillion at Dec. 31, 2012, compared
with $1.3 trillion at Dec. 31, 2011. The increase was
primarily due to higher market values and net new
business. Long-term inflows in 2012 were $56 billion
and primarily benefited from liability-driven
investments and fixed income funds.

See the “Investment Management business” in
“Review of businesses” for additional details
regarding the drivers of investment management and
performance fees.

Foreign exchange and other trading revenue

Foreign exchange and other trading revenue
(in millions)

2012

Foreign exchange
Other trading revenue:
Fixed income
Credit derivatives/other (a)

Total other trading

revenue

Total

$520

142
30

172

$692

2011

$761

2010

$787

65
22

80
19

$848

$886

(a) Credit derivatives are used as economic hedges of loans.

Foreign exchange and other trading revenue decreased
$156 million, or 18%, from $848 million in 2011. In
2012, foreign exchange revenue totaled $520 million,
a decrease of 32% compared with $761 million in
2011. The decrease was driven by a sharp decline in
volatility and a modest decrease in volumes. As an
indicator of the decline in volatility, the JPMorgan G7
Volatility Index, which is an estimate of external
market indicators, decreased 23% in 2012.
Additionally, foreign exchange revenue continues to
be impacted by increasingly competitive market
pressures. Other trading revenue totaled $172 million
in 2012, an increase of 98% compared with 2011,
largely due to improved fixed income trading revenue
primarily driven by higher interest rate derivatives
trading revenue. Foreign exchange revenue and fixed

10 BNY Mellon

income trading revenue is reported in the Investment
Services business and the Other segment. Credit
derivative/other trading revenue is primarily reported
in the Other segment.

The foreign exchange trading engaged in by the
Company generates revenues, which are influenced by
the volume of client transactions and the spread
realized on these transactions. The level of volume
and spreads is affected by market volatility, 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. These revenues
also depend on our ability to manage the risk
associated with the currency transactions we execute.
A substantial majority of our foreign exchange trades
is undertaken for our custody clients in transactions
where BNY Mellon acts as principal, and not as an
agent or broker. As a principal, we earn a profit, if
any, based on our ability to risk manage the aggregate
foreign currency positions that we buy and sell on a
daily basis. Generally speaking, custody clients enter
into foreign exchange transactions in one of three
ways: negotiated trading with BNY Mellon, BNY
Mellon’s standing instruction program, or
transactions with third-party foreign exchange
providers. Negotiated trading generally refers to
orders entered by the client or the client’s investment
manager, with all decisions related to the transaction,
usually on a transaction-specific basis, made by the
client or its investment manager. Such transactions
may be initiated by (i) contacting one of our sales
desks to negotiate the rate for specific transactions,
(ii) using electronic trading platforms, or (iii) electing
other methods such as those pursuant to a
benchmarking arrangement, in which pricing is
determined by an objective market rate plus a pre
negotiated spread. The preponderance of the notional
value of our trading volume with clients is in
negotiated trading. Our standing instruction program,
including a standing instruction program option called
the Defined Spread Offering, which the Company
introduced to clients in the first quarter of 2012,
provides custody clients and their investment
managers with an end-to-end solution that allows
them to shift to BNY Mellon the cost, management
and execution risk, often in small transactions not
otherwise eligible for a more favorable rate or
transactions in restricted and difficult to trade
currencies. We incur substantial costs in supporting
the global operational infrastructure required to
administer the standing instruction program; on a per-
transaction basis, the costs associated with the
standing instruction program exceed the costs

Results of Operations (continued)

associated with negotiated trading. In response to
competitive market pressures and client requests, we
are continuing to develop standing instruction
program products and services and making these new
products and services available to our clients. Our
custody clients choose to use third-party foreign
exchange providers other than BNY Mellon for a
substantial majority of their U.S. dollar-equivalent
volume foreign exchange transactions.

We typically price negotiated trades for our custody
clients at a spread over either our estimation of the
current market rate for a particular currency or an
agreed upon third-party benchmark. With respect to
our standing instruction program, we typically assign
a price derived from the daily pricing range for
marketable-size foreign exchange transactions
(generally more than $1 million) executed between
global financial institutions, known as the “interbank
range.” Using the interbank range for the given day,
we typically price purchases of currencies at or near
the low end of this range and sales of currencies at or
near the high end of this range. The standing
instruction program Defined Spread Offering prices
transactions in each pricing cycle (several times a day
in the case of developed market currencies) by adding
a predetermined spread to an objective market source
for developed and certain emerging market currencies
or to a reference rate computed by BNY Mellon for
other emerging market currencies. A shift by custody
clients from the standing instruction program to other
trading options combined with the increasing
competitive market pressures on the foreign exchange
business may negatively impact our foreign exchange
revenue. For the year ended Dec. 31, 2012, our total
revenue for all types of foreign exchange trading
transactions was $520 million, or approximately 4%
of our total revenue. Approximately 41% of our
foreign exchange revenue resulted from foreign
exchange transactions undertaken through our
standing instruction program.

Distribution and servicing fees

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

The $5 million increase in distribution and servicing
fee revenue in 2012 compared with 2011 primarily
reflects higher market values and lower money market
fee waivers. The impact of distribution and servicing
fees on income in any one period is partially offset by
distribution and servicing expense paid to other
financial intermediaries to cover their costs for
distribution and servicing of mutual funds.
Distribution and servicing expense is recorded as non-
interest expense on the income statement.

Financing-related fees

Financing-related fees, which are primarily reported
in the Other segment, include capital markets fees,
loan commitment fees and credit-related fees.
Financing-related fees increased $2 million from 2011
primarily as a result of higher capital market fees
primarily offset by lower credit related fees.

Investment and other income

Investment and other income
(in millions)

Corporate/bank-owned

life insurance
Seed capital gains
Lease residual gains
Expense reimbursements from

joint ventures
Asset-related gains
Transitional services agreements
Equity investment revenue
Private equity gains
Other income (loss)

Total investment and other

2012

2011

2010

$148
59
51

$154
-
42

38
34
24
16
8
49

38
177
2
44
18
(20)

$150
9
69

37
22
-
51
29
100

income

$427

$455

$467

Investment and other income, which is primarily
reported in the Other segment and Investment
Management business, includes income from
insurance contracts, gains or losses on seed capital
investments, lease residual gains, expense
reimbursements from joint ventures, equity
investment revenue, asset-related gains, transitional
services agreements, gains and losses on private
equity investments, and other income (loss). Expense
reimbursements from joint ventures relate to expenses
incurred by BNY Mellon on behalf of joint ventures.
Asset-related gains include loan, real estate and other
asset dispositions. Transitional services agreements
primarily relate to the Shareowner Services business.
Other income (loss) primarily includes foreign
currency remeasurement gain (loss), other investments
and various miscellaneous revenues. The decrease in
investment and other income compared with 2011

BNY Mellon

Results of Operations (continued)

primarily resulted from the pre-tax gain on the sale of
Shareowner Services business recorded in 2011, lower
gains on loans held for sale retained from a previously
divested bank subsidiary and lower equity investment
revenue, partially offset by higher seed capital gains
and an improvement in foreign currency
remeasurement in 2012 compared with 2011.

Net securities gains

Net securities gains totaled $162 million in 2012
compared with $48 million in 2011. The low interest
rate environment in 2012 created the opportunity for
us to realize gains as we rebalanced and managed the
duration risk of the investment securities portfolio.
Gains realized on the sales of securities should be
considered along with net interest revenue when
evaluating our overall results.

2011 compared with 2010

Fee revenue increased 7% in 2011 compared with
2010, primarily reflecting the full-year impact of the
Acquisitions, higher average market values and higher

net new business, partially offset by higher money
market fee waivers and lower trading revenues.

Fee and other revenue was also impacted by the
following:

Investment services fees increased 13%
compared with 2010 reflecting the impact of the
Acquisitions on assets servicing and clearing
services fees, higher market values, net new
business, higher Depositary Receipts revenue
and higher securities lending revenue. This
increase was partially offset by lower Corporate
Trust fee revenue and lower money market
related distribution fees and lower Shareowner
Services revenue.
Investment management and performance fees
increased 5% compared with 2010 reflecting
higher average market values and net new
business, partially offset by higher money
market fee waivers and lower performance fees.

Š Foreign exchange and other trading revenue
decreased 4% compared with 2010 driven by
lower volatility and spreads, and lower fixed
income trading revenue, partially offset by
higher volumes.

12 BNY Mellon

Results of Operations (continued)

Net interest revenue

(dollars in millions)

Net interest revenue (non-FTE)
Tax equivalent adjustment

Net interest revenue (FTE) – Non-GAAP

Average interest-earning assets
Net interest margin (FTE)

Net interest revenue of $3.0 billion in 2012 decreased
$11 million compared with 2011 as higher average
assets driven by higher client deposits, increased
investment in higher quality investment securities,
such as agency RMBS and state and political
subdivisions, and higher loan levels were more than
offset by narrower spreads, lower accretion, the
elimination of interest on European Central Bank
deposits and lower yields on the reinvestment of
securities.

The net interest margin (FTE) was 1.21% in 2012
compared with 1.36% in 2011. The decline was
primarily driven by lower reinvestment yields, the
elimination of interest on European Central Bank
deposits, lower accretion and increased client deposits
which were invested in lower-yielding assets.

Average interest-earning assets were $250 billion in
2012, compared with $222 billion in 2011. The
increase primarily reflects higher client deposits as a
function of the continued European debt crisis and
economic uncertainty in the global marketplace.
Average total securities increased to $99 billion in
2012, up from $74 billion in 2011, reflecting our
strategy to invest in high-quality investment
securities. Average interest-bearing deposits with the

2012

$ 2,973
55

3,028
$250,450

2011

$ 2,984
27

3,011
$222,226

2010

$ 2,925
19

2,944
$172,784

1.21%

1.36%

1.70%

2012
vs.
2011

2011
vs.
2010

N/M

1%
13%
(15)bps

2%
29%
(34)bps

Federal Reserve and other central banks increased to
$64 billion, up from $47 billion in 2011, reflecting
higher client deposits.

During 2012, the low interest rate environment
continued to negatively impact net interest revenue.
However, it has driven significant improvement in the
value of the investment securities portfolio while
creating the opportunity for us to realize gains as we
rebalance and manage the duration risk of this
portfolio. Gains realized on these sales should be
considered along with net interest revenue when
evaluating our overall results. In 2012, combined net
interest revenue and net securities gains totaled $3.1
billion compared with $3.0 billion in 2011.

2011 compared with 2010

Net interest revenue totaled $3.0 billion in 2011, a 2%
increase compared with 2010. The net interest margin
(FTE) was 1.36% in 2011 compared with 1.70% in
2010. The trends of net interest revenue and net
interest margin (FTE) primarily reflect growth in
client deposits, which were placed with central banks,
purchases of high quality securities and an increased
level of secured loans, partially offset by lower
spreads.

BNY Mellon

Results of Operations (continued)

Average balances and interest rates

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

Interest-bearing deposits with banks (primarily foreign banks)
Interest-bearing deposits held at the Federal Reserve and other central banks
Federal funds sold and securities purchased 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 – tax-exempt
Other securities:

Domestic offices
Foreign offices

Total other securities

Trading securities (primarily domestic)

Total securities
Total interest-earning assets

Allowance for loan losses
Cash and due from banks
Other assets
Assets of consolidated investment management funds

Total assets

Liabilities
Interest-bearing liabilities:

Interest-bearing deposits:

Domestic offices:

Money market rate accounts and demand deposit accounts
Savings
Time deposits

Total domestic offices

Foreign offices:

Banks
Government and official institutions
Other

Total foreign offices

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

Commercial paper
Payables to customers and broker-dealers
Long-term debt

Total interest-bearing liabilities

Total noninterest-bearing deposits
Other liabilities
Liabilities and obligations of consolidated investment management funds

Total liabilities

Temporary equity
Redeemable noncontrolling interests
Permanent equity
Total BNY Mellon shareholders’ equity
Noncontrolling interests

Total permanent equity
Total liabilities, temporary equity and permanent equity

Average balance

Interest

Average rates

2012

$ 388
152
35
168

197
299
175
671 (a)

267
817
134

541
293
834
96
2,148
$3,562 (b)

16
1
29
46

54
1
53
108
154
-
24

8
8
16
2
8
330
$ 534

1.00%
0.24
0.63
1.28

3.46
2.12
1.72
2.24

1.49
2.12
2.64

3.42
1.63
2.47
2.54
2.18
1.42%

0.20%
0.18
0.08
0.11

0.77
0.05
0.07
0.12
0.11

1.65

1.51
1.04
1.22
0.19
0.10
1.66
0.30%

$ 38,959
63,785
5,492
13,087

5,688
14,104
10,181
29,973

17,880
38,568
5,060

15,879
17,942
33,821
3,825
99,154
$250,450
(368)
4,311
49,709
11,279
$315,381

$ 7,811
724
34,777
43,312

6,930
2,928
81,089
90,947
134,259
10,022
1,439

538
854
1,392
819
8,033
19,852
$175,816
69,951
24,002
10,007
279,776

110

34,770
725
35,495
$315,381

Net interest margin (FTE)
Percentage of assets attributable to foreign offices (c)
Percentage of liabilities attributable to foreign offices
(a) Includes fees of $38 million in 2012. Non-accrual loans are included in the average loan balance; the associated income, recognized on the cash basis, is included

33%

1.21%

in interest.

(b) The tax equivalent adjustment was $55 million in 2012, and is based on the applicable tax rate (35%).
(c) Includes the Cayman Islands branch office.

14 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

2011

Interest

Average
rates

Average
balance

2010

Interest

Average
rates

$ 55,218
47,097
4,809
9,576

$ 543
148
28
129

0.99%
0.31
0.58
1.34

$ 56,679
14,245
4,660
5,900

$ 491
49
64
88

Domestic offices – Consumer
Domestic offices – Commercial
Foreign offices

Total non-margin loans

Securities:

U.S. Government obligations
U.S. Government agency obligations
State and political subdivisions – tax exempt
Other securities:

Domestic offices
Foreign offices

Total other securities

Trading securities (primarily domestic)

Total securities

Total interest-earning assets

Allowance for loan losses
Cash and due from banks
Other assets
Assets of discontinued operations
Assets of consolidated investment management funds

Total assets

Liabilities
Interest-bearing liabilities:

Interest-bearing deposits:

Domestic offices:

Money market rate accounts and demand deposit accounts
Savings
Time deposits

Total domestic offices

Foreign offices:

Banks
Government and official institutions
Other

Total foreign offices

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

Commercial paper
Payables to customers and broker-dealers
Long-term debt

Total interest-bearing liabilities

Total noninterest-bearing deposits
Other liabilities
Liabilities of discontinued operations
Liabilities and obligations of consolidated investment management funds

Total liabilities

Temporary equity
Redeemable noncontrolling interests
Permanent equity
Total BNY Mellon shareholders’ equity
Noncontrolling interests

Total permanent equity
Total liabilities, temporary equity and permanent equity

217
316
148
681 (a)

234
625
59

680
414
1,094
74
2,086
$3,615 (b)

3.83
1.99
1.51
2.17

1.56
2.88
4.25

4.32
2.37
3.30
2.59
2.82
1.63%

17
2
28
47

58
1
135
194
241
2
32

16
5
21
-
7
301
$ 604

0.35%
0.12
0.08
0.11

0.84
0.05
0.18
0.23
0.19
0.02
1.76

1.54
0.60
1.10
0.08
0.09
1.66
0.37%

5,666
15,915
9,762
31,343

15,003
21,684
1,394

15,756
17,457
33,213
2,889
74,183
$222,226
(444)
4,586
51,398
-
13,379
$291,145

$ 4,741
1,443
34,760
40,944

6,910
2,031
74,810
83,751
124,695
8,572
1,852

1,026
906
1,932
98
7,319
18,057
$162,525
57,984
24,244
-
12,073
256,826

33,519
736
34,255
$291,145

231
356
151
738 (a)

119
674
41

981
173
1,154
71
2,059
$3,489 (b)

21
4
24
49

18
1
63
82
131
43
41

21
3
24
-
6
300
$ 545

5,485
15,286
9,633
30,404

7,857
20,140
627

14,683
14,906
29,589
2,683
60,896
$172,784
(522)
3,840
47,979

404 (c)

13,355
$237,840

$ 4,539
1,320
27,017
32,876

5,401
1,423
64,529
71,353
104,229
5,356
1,630

1,368
677
2,045
18
6,439
16,673
$136,390
35,208
21,768

404 (c)

12,218
205,988

31,100
737
31,837
$237,840

0.87%
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
2.68
3.38
2.02%

0.46%
0.21
0.09
0.15

0.33
0.05
0.10
0.12
0.13
0.80
2.50

1.59
0.39
1.19
0.05
0.09
1.80
0.40%

Net interest margin (FTE)
Percentage of assets attributable to foreign offices (d)
Percentage of liabilities attributable to foreign offices
(a) Includes fees of $39 million in 2011 and $46 million in 2010. Non-accrual loans are included in the average loan balance; the associated income, recognized on

43%

36%
33

1.36%

1.70%

the cash basis, is included in interest.

(b) The tax equivalent adjustment was $27 million in 2011 and $19 million in 2010, and is based on the applicable tax rate (35%).
(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.

BNY Mellon

Results of Operations (continued)

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
Sub-custodian
Other
Amortization of intangible assets
M&I, litigation and restructuring charges

Total noninterest expense – GAAP

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

Noninterest expense excluding Shareowner Services –
Non-GAAP
(dollars in millions)

Staff:

Compensation
Incentives
Employee benefits

Total staff

2012

2011

2010

$ 3,531
1,280
950

$ 3,567
1,262
897

$ 3,237
1,193
785

5,761
1,222
593
524
421
331
275
269
994
384
559

5,726
1,217
624
485
416
330
261
298
937
428
390

5,215
1,099
588
410
377
315
271
247
843
421
384

$11,333

$11,112

$10,170

40%

49,500

39%

48,700

38%

48,000

2012

2011

2010

$ 3,531
1,280
950

$ 3,510
1,255
883

$ 3,179
1,188
771

5,761
1,222
593
524
421
331
275
269
994
384
559

5,648
1,171
613
473
416
327
259
298
913
415
390

5,138
1,052
576
401
377
312
269
247
805
407
384

2012
vs.
2011

(1)%
1
6

1
-
(5)
8
1
-
5
(10)
6
(10)
43

2012
vs.
2011

1%
2
8

2
4
(3)
11
1
1
6
(10)
9
(7)
43

2011
vs.
2010

10%
6
14

10
11
6
18
10
5
(4)
21
11
2
2

2011
vs.
2010

10%
6
15

10
11
6
18
10
5
(4)
21
13
2
2

Total noninterest expense – Non-GAAP

$11,333

$10,923

$ 9,968

10%

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

(a) Total revenue excludes Shareowner Services.

40%

49,500

39%

47,800

38%

47,100

Total noninterest expense increased $221 million, or
2%, compared with 2011 primarily reflecting higher
litigation expense and revenue mix. The lower interest
rate environment and tepid capital markets have
driven a decline in the revenue of our low variable
cost businesses, such as Depositary Receipts, foreign
exchange and other trading and net interest revenue.
These revenue declines were more than offset by
increases in investment management, asset servicing,
clearing and treasury services fees, all of which come

with higher variable costs. The increase in total
noninterest expense also reflects the cost of generating
certain tax credits in 2012, higher software
amortization, employee benefits expense and business
development expenses, the Meriten acquisition and
the benefit of state investment tax credits which were
recorded in 2011. Partially offsetting these increases
was the impact of the sale of the Shareowner Services
business. In addition, savings from our operational
excellence initiatives primarily offset the impact of

16 BNY Mellon

Results of Operations (continued)

headwinds related to compensation and other
operating expenses. Excluding amortization of
intangible assets, merger and integration (“M&I”),
litigation and restructuring charges and the direct
expenses related to Shareowner Services, noninterest
expense increased 3%, compared with 2011.

Staff expense

Given our mix of fee-based businesses, which are
staffed with high-quality professionals, staff expense
comprised 55% of total noninterest expense in 2012
and 56% in 2011, excluding amortization of intangible
assets and M&I, litigation and restructuring charges.

Staff expense is comprised of:

Š compensation expense, which includes:
– salary expense, primarily driven by

headcount;

– the cost of temporary services 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.

Staff expense was $5.8 billion in 2012, an increase of
1% compared with 2011. The increase in staff
expense compared with 2011 primarily reflects higher
pension expense, the annual employee merit increase
effective in the third quarter of 2012, the Meriten
acquisition and higher incentive expense driven by
improved results in our Investment Management
business, partially offset by the impact of the sale of
the Shareowner Services business.

Non-staff expense

Non-staff expense includes certain expenses that vary
with the levels of business activity and levels of
expensed business investments, fixed infrastructure

costs and expenses associated with corporate activities
related to technology, compliance, legal, productivity
initiatives and business development.

Non-staff expense, excluding amortization of
intangible assets and M&I, litigation and restructuring
charges, totaled $4.6 billion in both 2012 and 2011.
Higher non-staff expense in 2012 resulting from the
cost of generating certain tax credits, higher software
amortization, business development expenses and the
Meriten acquisition was primarily offset by the sale of
the Shareowner Services business and the impact of
our operational excellence initiatives.

In 2012, we incurred $559 million of M&I, litigation
and restructuring charges compared with $390 million
in 2011. The increase primarily relates to higher
litigation expense. A majority of the litigation expense
in 2012 related to the Sigma and Medical Capital
Corp. settlements.

The financial services industry has seen a continuing
increase in the level of litigation activity. As a result,
we anticipate our legal and litigation costs to continue
at elevated levels.

For additional information on our legal proceedings,
see Note 23 of the Notes to Consolidated Financial
Statements.

In 2012, we recorded a net recovery of $16 million in
restructuring charges. The net recovery in 2012
reflects a gain on the sale of a property, which was
primarily offset by additional severance charges and a
lease restructuring. For additional information on
restructuring charges, see Note 12 of the Notes to
Consolidated Financial Statements.

2011 compared with 2010

Total noninterest expense was $11.1 billion in 2011,
an increase of $942 million, or 9%, compared with
2010 primarily reflecting the full-year impact of the
Acquisitions, which impacted nearly all expense
categories and accounted for approximately 50% of
the increase year-over-year. The increase in
noninterest expense also reflects higher staff expense,
volume-related expenses and software expense, as
well as higher professional, legal and other purchased
services.

BNY Mellon

Results of Operations (continued)

Operational excellence initiatives update

Corporate Services

Expense initiatives (pre-tax)

(dollar amounts in millions)

Business operations
Technology
Corporate services

Gross savings (a)
Less: Incremental program

costs (b)

Net savings

Program
savings
2012

$238
82
77

397

$309

Targeted
savings by
the end of
2012
$225 – $240
$ 75 – $85
$ 60 – $65

$360 – $390

$120 – $130

$240 – $260

(a) Represents the estimated pre-tax run rate expense savings

since program inception in 2011. Total Company actual
operating expense may increase or decrease due to other
factors.

(b) Program costs include incremental costs to plan and execute
the programs including dedicated program managers,
consultants, severance and other costs.

Our operational excellence initiatives exceeded our
anticipated pre-tax savings of $240 – $260 million in
2012, on a pre-tax basis.

Through Dec. 31, 2012, we accomplished the
following operational excellence initiatives:

Business Operations

Š Consolidated Treasury Services functions (e.g.,
check processing and lockbox operations) in our
Pittsburgh Service Center.

Š Continued global footprint positions migration.
Lowered operating costs as we ramped up the
Eastern European Global Delivery Center.

Š Reengineered Dreyfus and Global Fund

Accounting operations to reduce headcount.

Š Realized synergies by integrating our custody

and clearing operations related to the GIS

acquisition.

Š Completed client conversions related to our BHF

Asset Servicing GmbH acquisition.

Technology

Š Migrated GIS systems to BNY Mellon platforms;
100% of the production applications have been
successfully migrated as of Dec. 31, 2012.
Insourced software engineers to Global Delivery
Centers.

Š Standardized infrastructure through server
elimination and software rationalization.

Š Consolidated storage platforms.

18 BNY Mellon

Š Consolidated offices and reduced real estate by
565,000 square feet, primarily in the New York
Metro region, EMEA region and Los Angeles.
Š Benefited from our enhanced global procurement
program and renegotiated key vendor contracts.

Income taxes

BNY Mellon recorded an income tax provision of
$779 million (23.6% effective tax rate) in 2012
compared with of $1.0 billion (29.0% effective tax
rate) in 2011 and, on a continuing operations basis,
$1.0 billion (28.3% effective tax rate) in 2010.

We expect the effective tax rate to be approximately
25% to 26% in 2013, excluding the impact of the U.S.
Tax Court ruling on Feb. 11, 2013.

Under U.S. tax law, income from certain non-U.S.
subsidiaries has not been subject to U.S. income tax as
result of a deferral provision applicable to income that
is derived in active conduct of a banking and
financing business. In January 2013, the active
financing deferral provision was extended
retroactively to Jan. 1, 2012 through Dec. 31, 2013
under the American Taxpayer Relief Act of 2012.

Review of businesses

We have an internal information system that produces
performance data along product and service lines for
our two principal businesses and the Other segment.

Organization of our business

On Dec. 31, 2011, BNY Mellon sold its Shareowner
Services business. In 2012, we reclassified the results
of the Shareowner Services business from the
Investment Services business to the Other segment.
The reclassification did not impact the consolidated
results of operations. All prior periods have been
restated.

For information on the accounting principles of our
businesses, the primary types of revenue by business
and how our businesses are presented and analyzed,
see Note 25 of the Notes to Consolidated Financial
Statements.

Information on our businesses is reported on a
continuing operations basis for 2010. See Note 4 to
the Notes to Consolidated Financial Statements for a
discussion of discontinued operations.

Results of Operations (continued)

The results of our businesses may be influenced by
client activities that vary by quarter. In the second
quarter, we typically experience an increase in
securities lending fees due to an increase in demand to
borrow securities outside of the United States. In the
third quarter, Depositary Receipts revenue is typically
higher due to an increased level of client dividend
payments paid in the quarter. Also in the third quarter,
volume-related fees may decline due to reduced client
activity. In our Investment Management business,
performance fees are typically higher in the fourth
quarter, as the fourth quarter represents the end of the
measurement period for many of the performance fee-
eligible relationships.

Services revenue. Clearing services revenue increased
despite a 19% decrease in NYSE and NASDAQ share
volumes.

Net securities gains (losses) are recorded in the Other
segment. M&I and restructuring charges are corporate
level items and are therefore recorded in the Other
segment.

Net interest revenue decreased as growth in client
deposits and increased investment in high quality
investment securities were more than offset by the
continued impact of the low interest rate environment
and lower accretion.

The results of our businesses in 2012 were driven by
the following factors. The Investment Management
business benefited from higher market values, net new
business and higher seed capital gains, as well as
higher performance fees. Results in the Investment
Services business were impacted by lower foreign
exchange revenue, Depository Receipts revenue and
Corporate Trust fees, partially offset by higher asset
servicing revenue resulting from net new business and
higher market values, as well as higher Clearing

Noninterest expense increased compared to 2011
primarily driven by higher litigation expense, revenue
mix and the cost of generating certain tax credits,
partially offset by the impact of the sale of the
Shareowner Services business and our operational
excellence initiatives.

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

Market indices

S&P 500 Index (a)
S&P 500 Index – daily average
FTSE 100 Index (a)
FTSE 100 Index – daily average
MSCI World Index (a)
MSCI World Index – daily average
Barclay’s Capital Aggregate Bondsm Index (a)
NYSE and NASDAQ share volume (in billions)
JPMorgan G7 Volatility Index – daily average (b)

2012

1,426
1,379
5,898
5,743
1,339
1,272
366
724
9.23

2011

1,258
1,268
5,572
5,682
1,183
1,259
347
893
11.96

2010

1,258
1,140
5,900
5,468
1,280
1,164
323
997
12.34

Increase/(Decrease)

2012 vs. 2011

2011 vs. 2010

13%
9
6
1
13
1
5
(19)
(23)

11
(6)
4
(8)
8
7
(10)
(3)

(a) Period end.
(b) The JPMorgan G7 Volatility Index is based on the implied volatility in 3-month currency options.

Fee revenue in Investment Management, and to a
lesser extent in Investment Services, is impacted by
the value of market indices. At Dec. 31, 2012, using
the Standard & Poor’s (“S&P”) 500 Index as a proxy
for the global equity markets, we estimate that a 100-
point change in the value of the S&P 500 Index spread

evenly throughout the year, would impact fee revenue
by less than 1% and diluted earnings per common
share by $0.03 to $0.05. 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.

BNY Mellon

Results of Operations (continued)

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

For the year ended Dec. 31, 2012
(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 (loss) before taxes
Pre-tax operating margin (b)

Investment
Management

Investment
Services

Other

Consolidated

$ 3,518 (a) $ 7,375
2,442

214

3,732
-
2,809

9,817
(2)
7,568

613
317

930
(78)
956

$ 11,506 (a)
2,973

14,479
(80)
11,333

923 (a) $ 2,251

$ 3,226 (a)

25%

$36,493

23% N/M
$56,136

$222,752

22%

$315,381

$ 2,617

1,115 (a)
30%

$ 7,376
2,443

956
52
25% N/M

$ 10,949

3,610 (a)
25%

(a) Total fee and other revenue includes income from consolidated investment management funds of $189 million, net of noncontrolling
interests of $76 million, for a net impact of $113 million. Income before taxes includes noncontrolling interests of $76 million.

(b) Income before taxes divided by total revenue.

For the year ended Dec. 31, 2011
(dollar amounts in millions)

Fee and other revenue
Net interest revenue

Total revenue
Provision for credit losses
Noninterest expense

Income (loss) before taxes

Pre-tax operating margin (b)
Average assets

Excluding amortization of intangible assets:

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

Investment
Management

Investment
Services

Other

Consolidated

$ 3,254 (a) $ 7,665
2,565

206

3,460
1
2,736

10,230
-
7,233

777
213

990
-
1,143

$ 11,696 (a)
2,984

14,680
1
11,112

723 (a) $ 2,997

(153)

$ 3,567 (a)

21%

29%

$37,041

$204,569

N/M
$49,535

24%

$291,145

$ 2,522

937 (a)
27%

$ 7,034
3,196

31%

$ 1,128
(138)
N/M

$ 10,684

3,995 (a)
27%

(a) Total fee and other revenue includes income from consolidated investment management funds of $200 million, net of noncontrolling
interests of $50 million, for a net impact of $150 million. Income before taxes includes noncontrolling interests of $50 million.

(b) Income before taxes divided by total revenue.

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 (loss) before taxes

Pre-tax operating margin (b)
Average assets

Excluding amortization of intangible assets:

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

Investment
Management

Investment
Services

Other

Total
continuing
operations

$ 3,187 (a) $ 6,972
2,362

203

732
360

$ 10,891 (a)
2,925

3,390
3
2,658

9,334
-
6,260

1,092
8
1,252

13,816
11
10,170

729 (a) $ 3,074

(168) $ 3,635 (a)

22%

33%

$35,407

$158,676

N/M
$43,353

26%

$237,436 (c)

$ 2,421

966 (a)
29%

$ 6,091
3,243

35%

$ 1,237
(153)
N/M

$ 9,749

4,056 (a)
29%

(a) Total fee and other revenue includes income from consolidated investment management funds of $226 million, net of noncontrolling
interests of $59 million, for a net impact of $167 million. Income before taxes includes noncontrolling interests of $59 million.

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

20 BNY Mellon

Results of Operations (continued)

Investment Management business

(dollar amounts in millions,
unless otherwise noted)
Revenue:

Investment management fees:

Mutual funds
Institutional clients
Wealth management
Investment management fees

Performance fees
Distribution and servicing
Other (a)

Total fee and other revenue (a)

Net interest revenue

Total revenue

Provision for credit losses
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 and net of distribution

and servicing expense) (b)

Wealth management:

Average loans
Average deposits

2012

2011

2010

2012
vs.
2011

2011
vs.
2010

$ 1,106
1,326
632
3,064
137
187
130
3,518
214
3,732
-
2,617
1,115
192
923

$ 1,073
1,248
638
2,959
93
181
21
3,254
206
3,460
1
2,522
937
214
723

3%
$1,066
6
1,141
(1)
622
4
2,829
47
122
3
201
35 N/M
8
4
8
3 N/M
4
19
(10)
28%

2,421
966
237
$ 729

3,187
203
3,390

1%
9
3
5
(24)
(10)
N/M
2
1
2
N/M
4
(3)
(10)

(1)%

25%

34%

21%

22%

31%

32%

$ 7,950
$11,684

$ 6,970
$10,113

$6,461
$8,240

14%
16%

8%
23%

(a) Total fee and other revenue includes the impact of the consolidated investment management funds. See “Supplemental information –
Explanation of Non-GAAP financial measures” beginning on page 106. Additionally, other revenue includes asset servicing and
treasury services revenue.

(b) Distribution and servicing expense is netted with the distribution and servicing revenue for the purpose of this calculation of pre-tax
operating margin. Distribution and servicing expense totaled $415 million, $412 million and $376 million for 2012, 2011 and 2010,
respectively.

AUM trends (a)
(in billions)
AUM at period end, by product type:
Equity securities
Fixed income securities
Money market
Alternative investments and overlay

Total AUM

AUM at period end, by client type:
Institutional
Mutual funds
Private client

Total AUM

Changes in AUM:
Beginning balance of AUM
Net inflows (outflows):

Long-term
Money market

Total net inflows (outflows)

Net market/currency impact
Acquisitions/divestitures
Ending balance of AUM

(a) Excludes securities lending cash management assets.

2012

2011

2010

2009

2008

$ 451
532
302
101
$1,386

$ 894
411
81
$1,386

$ 390
437
328
105
$1,260

$ 757
427
76
$1,260

$ 379
342
332
119
$1,172

$ 639
454
79
$1,172

$ 337
302
357
119
$1,115

$ 611
416
88
$1,115

$ 270
168
402
88
$ 928

$ 445
400
83
$ 928

$1,260

$1,172

$1,115

$ 928

$1,121

56
(20)
36
90
-
$1,386

83
(14)
69
19
-
$1,260

48
(18)
30
27
-
$1,172

(6)
(49)
(55)
95
147
$1,115

(43)
92
49
(235)
(7)
$ 928

BNY Mellon

Results of Operations (continued)

Business description

Our Investment Management business is comprised of
our affiliated investment management boutiques,
wealth management business and global distribution
companies.

Our Investment Management business is responsible,
through various subsidiaries, for U.S. and non-U.S.
retail, intermediary and institutional investment
management, distribution 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,
this business includes BNY Mellon Asset
Management International, which is responsible for
the investment management and distribution of non-
U.S. products, and the Dreyfus Corporation and its
affiliates, which are responsible for U.S. investment
management and distribution of retail mutual funds,
separate accounts and annuities. We are one of the
world’s largest asset managers with a top-10 position
in the U.S., Europe and globally.

Through BNY Mellon Wealth Management, 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 through
an extensive network of offices in the U.S., Canada,
UK and Asia. Clients include high-net-worth
individuals and families, charitable gift programs,
endowments and foundations and related entities.
BNY Mellon Wealth Management is ranked as the
nation’s seventh largest wealth manager and third
largest U.S. private bank.

The results of the Investment Management business
are driven by the period-end, average level and mix of
assets managed and the level of activity in client
accounts. The overall level of AUM for a given period
is determined by:

Š
Š

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

The mix of AUM is determined principally by client
asset allocation decisions among equities, fixed
income, money market and alternative investments
and overlay products.

22 BNY Mellon

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

Management fees are typically subject to fee
schedules based on the overall level of assets managed
for a single client or by individual asset class and
style. This is most prevalent for institutional assets
where amounts we manage for individual clients are
typically large.

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

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

Results for this business are also impacted by sales of
fee-based products. Net interest revenue is determined
by loan and deposit volumes and the interest rate
spread between customer rates and internal funds
transfer rates on loans and deposits. Expenses in this
business are mainly driven by staffing costs,
incentives and distribution and servicing expense.

Review of financial results

Investment management and performance fees are
dependent on the overall level and mix of AUM and
the management fees expressed in basis points (one
hundredth of one percent) charged for managing those
assets. Assets under management were a record $1.4
trillion at Dec. 31, 2012 compared with $1.3 trillion at
Dec. 31, 2011, an increase of 10%. The increase
primarily reflects higher market values and net new
business. Net long-term inflows were $56 billion in
2012 and benefited from strength in liability-driven
investments and fixed income funds. Net short-term
outflows were $20 billion in 2012. Revenue generated
in the Investment Management business includes 45%
from non-U.S. sources in 2012 compared with 42% in
2011.

In 2012, Investment Management had pre-tax income
of $923 million compared with $723 million in 2011.
Excluding amortization of intangible assets, pre-tax
income was $1.1 billion in 2012 compared with
$937 million in 2011. Investment Management results

Results of Operations (continued)

for 2012 reflect higher market values, net new
business in both the investment management
boutiques and the wealth management business,
higher seed capital gains and higher performance fees.

Investment management fees in the Investment
Management business were $3.1 billion in 2012
compared with $3.0 billion in 2011. The increase was
driven by higher market values, net new business and
the Meriten acquisition.

Performance fees were $137 million in 2012
compared with $93 million in 2011. The increase
reflects investment strategies that exceeded their
benchmarks including a higher level of fees generated
on liability-driven investments.

In 2012, 36% of investment management fees in the
Investment Management business were generated
from managed mutual fund fees. These fees are based
on the daily average net assets of each fund and the
management fee paid by that fund. Managed mutual
fund fee revenue increased 3% in 2012 compared with
2011. The increase in managed mutual fund fees in
the Investment Management business was due to
higher market values and net new business.

Distribution and servicing fees were $187 million in
2012 compared with $181 million in 2011. The
increase primarily reflects higher market values and
lower money market fee waivers.

Other fee revenue was $130 million in 2012 compared
with $21 million in 2011. The increase primarily
resulted from higher seed capital gains in 2012 and
the write-down of an equity investment recorded in
2011.

Net interest revenue was $214 million in 2012,
compared with $206 million in 2011. The increase
primarily resulted from higher average loans and
deposits, partially offset by narrower spreads and
lower accretion. Average loans increased 14% in 2012
compared with 2011 while average deposits increased
16% in 2012 compared with 2011.

Noninterest expense excluding amortization of
intangible assets was $2.6 billion in 2012 and
$2.5 billion in 2011. The increase was primarily
driven by higher staff expense due to higher
incentives expense resulting from an increase in
performance fees and the annual employee merit
increase effective in the third quarter of 2012, the
Meriten acquisition and higher business development
expenses.

2011 compared with 2010

Income before taxes was $723 million in 2011,
compared with $729 million in 2010. Income before
taxes excluding amortization of intangible assets and
support agreement charges was $937 million in 2011
compared with $966 million in 2010. Fee and other
revenue increased $67 million, primarily reflecting net
new business and higher average equity markets,
which were largely offset by higher money market fee
waivers, lower non-U.S. markets and performance
fees, a $30 million write-down of an equity
investment, mark-to-market seed capital losses and
lower securities gains. Noninterest expense (excluding
amortization of intangible assets) increased $101
million in 2011 compared with 2010 as a result of
higher distribution and servicing and staff expenses,
primarily resulting from net new business.

BNY Mellon

Results of Operations (continued)

Investment Services business

(dollar amounts in millions,
unless otherwise noted)
Revenue:

Investment services fees:
Asset servicing
Issuer services
Clearing services
Treasury services

Total investment services fees

Foreign exchange and other trading revenue
Other (a)

Total fee and other revenue (a)

Net interest revenue

Total revenue

Provision for credit losses
Noninterest expense (ex. amortization of intangible assets)

Income before taxes (ex. amortization of intangible assets)

Amortization of intangible assets

Income before taxes

2012

2011

2010

$ 3,663
1,049
1,193
543
6,448
641
286
7,375
2,442
9,817
(2)
7,376
2,443
192
$ 2,251

$ 3,585
1,252
1,159
532
6,528
844
293
7,665
2,565
10,230
-
7,034
3,196
199
$ 2,997

$ 2,981
1,259
1,005
526
5,771
855
346
6,972
2,362
9,334
-
6,091
3,243
169
$ 3,074

2012
vs.
2011

2011
vs.
2010

(16)
3
2
(1)
(24)
(2)
(4)
(5)
(4)
N/M
5
(24)
(4)
(25)%

20%
(1)
15
1
13
(1)
(15)
10
9
10
N/M
15
(1)
18
(3)%

Pre-tax operating margin
Pre-tax operating margin (ex. amortization of intangible assets)
Investment services fees as a percentage of noninterest expense (b)

23%
25%
94%

29%
31%
95%

33%

35%

95%

Securities lending revenue

155

146

107

36%

Metrics:

Average loans
Average deposits

AUC/A at period end (in trillions) (c)(d)
Market value of securities on loan at period end (in billions) (e)

Asset servicing:

New business wins (AUC/A) (in billions)

Corporate Trust:

Total debt serviced (in trillions)
Number of securities administered

Depositary Receipts:

Number of sponsored programs

Clearing services:

DARTS volume (in thousands)
Average active clearing accounts U.S. (in thousands)
Average long-term mutual fund assets (U.S. platform)
Average margin loans

Broker-Dealer:

Average collateral management balances (in billions)

$ 24,911
184,927

$
$

26.2
246

$ 23,298
166,076

$ 17,096
124,969

7%
11

36%

$
$

25.1
269

$
$

24.1
278

4%
(9)%

(3)%

$ 1,479

$ 1,219

$ 1,450

11.4
127,967

11.8
133,850

12.0
138,067

(3)%
(4)%

(2)%

(3)%

1,379

1,389

1,359

(1)%

186.1
5,446
$317,839
$ 8,010

197.5
5,427
$292,252
$ 7,347

183.3
4,901
$240,396
$ 5,891

(6)%
-
9%
9%

11%

22%

25%

$ 2,012

$ 1,865

$ 1,647

13%

(a) Total fee and other revenue includes investment management fees and distribution and servicing revenue.
(b) For purposes of this calculation, noninterest expense excludes amortization of intangible assets, support agreement charges and

litigation expense.

(c) Includes the assets under custody and/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, 2012, Dec. 31, 2011 and Dec. 31, 2010, $905 billion at Dec. 31,
2009 and $697 billion at Dec. 31, 2008.

(d) As discussed in “General – Reporting of assets under custody and/or administration,” all periods included in the table have been

(e) Represents the total amount of securities on loan managed by the Investment Services business.

24 BNY Mellon

Results of Operations (continued)

Business description

Our Investment Services business provides global
custody and related services, broker-dealer services,
collateral services, alternative investment services,
corporate trust and depositary receipt services, as well
as clearing services and global payment/working
capital solutions to institutional clients.

Our comprehensive suite of financial solutions
includes: global custody, global fund services,
securities lending, investment manager outsourcing,
performance and risk analytics, alternative investment
services, securities clearance, collateral management,
corporate trust, American and global depositary
receipt programs, cash management solutions,
payment services, liquidity services and other linked
revenues, principally foreign exchange, global
clearing and execution, managed account services and
global prime brokerage solutions. Our clients include
corporations, public funds and government agencies,
foundations and endowments; global financial
institutions including banks, broker-dealers, asset
managers, insurance companies and central banks;
financial intermediaries and independent registered
investment advisors and hedge fund managers. We
help our clients service their financial assets through a
network of offices and operations centers in 36
countries across six continents.

The results of this 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 back-
office outsourcing; the number of accounts; and the
market value of assets under custody and/or
administration. Market interest rates impact both
securities lending revenue and the earnings on client
deposit balances. 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, clearance and
custody of securities.

We are one of the leading global securities servicing
providers with $26.2 trillion of assets under custody
and/or administration at Dec. 31, 2012. We are the
largest custodian for U.S. corporate and public
pension plans and we service 46% of the top 50
endowments. We are a leading custodian in the UK
and service 20% of UK pensions that require a
custodian. European asset servicing continues to grow
across all products, reflecting significant cross-border

investment and capital flows. The changing regulatory
environment is also driving demand for new products
among clients.

We are one of the largest providers of fund services in
the world, the third largest fund administrator in the
alternative investment services industry and service
41% of the funds in the U.S. exchange-traded funds
marketplace.

BNY Mellon is a leader in both global securities and
U.S. Government securities clearance. We clear and
settle equity and fixed income transactions in over 100
markets and handle most of the transactions cleared
through the Federal Reserve Bank of New York for 17
of the 21 primary dealers. We are an industry leader in
collateral management, servicing on average $2.0
trillion in global collateral, including tri-party repo
collateral worldwide. We currently service
approximately $1.4 trillion of the $1.8 trillion tri-party
repo market in the U.S.

BNY Mellon offers tri-party agent services to dealers
and cash investors active in the tri-party repurchase,
or tri-party repo, market. We currently have an
approximately 80% market share of the U.S. tri-party
repo market. As a tri-party repo agent, we facilitate
settlement between dealers (cash borrowers) and
investors (cash lenders). Our involvement in a
transaction commences after a dealer and a cash
investor agree to a tri-party repo trade and send
instructions to us. We maintain custody of the
collateral (the subject securities of the repo) and
execute the payment and delivery instructions agreed
to and provided by the principals.

BNY Mellon is working to significantly reduce the
risk associated with the secured intraday credit we
provide with respect to the tri-party repo market. BNY
Mellon has implemented several measures in that
regard, including reducing the amount of time we
extend intraday credit, implementing three-way trade
confirmations, and automating the way dealers can
substitute collateral in their tri-party repo trades.
Additionally, in 2013, we have limited the eligibility
for intraday credit associated with tri-party repo
transactions to certain more liquid asset classes that
will result in a reduction of exposures secured by less
liquid forms of collateral by dealers. These efforts are
consistent with the recommendations of the Tri-Party
Repo Infrastructure Reform Task Force that was
sponsored by the Payments Risk Committee of the
Federal Reserve Bank of New York and included
representatives from a diverse group of market
participants, including BNY Mellon. We anticipate

BNY Mellon

Results of Operations (continued)

that the combination of these measures will have
reduced risks substantially in our tri-party repo
activity in the near term and, together with technology
enhancements currently in development, will achieve
the practical elimination of intraday credit in this
activity by the end of 2014.

In 2012, we formed Global Collateral Services which
serves broker-dealers and institutional investors facing
expanding collateral management needs as a result of
current and emerging regulatory and market
requirements. Global Collateral Services brings
together BNY Mellon’s global capabilities in
segregating, optimizing, financing and transforming
collateral on behalf of clients, including its market
leading broker-dealer collateral management,
securities lending, collateral financing, liquidity and
derivatives services teams.

In securities lending, we are one of the largest lenders
of U.S. Treasury securities and depositary receipts and
service a lending pool of approximately $3 trillion in
29 markets.

BNY Mellon provides the infrastructure, technology
and processing services clients need to expertly
navigate the ever-changing debt capital markets. We
service $11.4 trillion in outstanding debt from 61
locations in 20 countries.

We serve as depositary for 1,379 sponsored American
and global depositary receipt programs at Dec. 31,
2012, acting in partnership with leading companies
from 68 countries – a 60% global market share.

Pershing LLC (“Pershing”), our clearing service, takes
a consultative approach, working with more than
1,500 financial organizations and 100,000 investment
professionals who collectively represent
approximately 5.5 million active accounts by
delivering dependable operational support; robust
trading services; flexible technology; an expansive
array of investment solutions, including managed
accounts, mutual funds and cash management;
practice management support; and service excellence.

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 hold the

26 BNY Mellon

mortgage, note, and related documents provided to us
by the loan originator or seller and provide periodic
reporting to these parties. BNY Mellon, either as
document custodian or trustee, does not receive
mortgage underwriting files (the files that contain
information related to the creditworthiness 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 our
limited duties as described above and in the trust
documents. BNY Mellon is indemnified by the
servicers or directly from trust assets under the
governing agreements. BNY Mellon may appear as
the named plaintiff in legal actions brought by
servicers in foreclosure and other related proceedings
because the trustee is the nominee owner of the
mortgage loans within the trusts.

Review of financial results

AUC/A at Dec. 31, 2012 were 26.2 trillion, an
increase of 4% from 25.1 trillion at Dec. 31, 2011.
The increase was driven by higher market values and
net new business. AUC/A were comprised of 33%
equity securities and 67% fixed income securities at
Dec. 31, 2012 compared with 32% equity securities
and 68% fixed income securities at Dec. 31, 2011.

Income before taxes was $2.3 billion in 2012
compared with $3.0 billion in 2011. Income before
taxes, excluding amortization of intangible assets, was
$2.4 billion in 2012 compared with $3.2 billion in
2011. Investment Services results in 2012 compared
with 2011 primarily reflect lower foreign exchange
revenue, Depositary Receipts revenue, Corporate
Trust fees and net interest revenue, as well as, higher
litigation expense, partially offset by higher Asset
Servicing revenue and Clearing Services revenue.

Revenue generated in the Investment Services
business includes 36% from non-U.S. sources in 2012
compared with 38% in 2011.

Investment services fees decreased $80 million, or
1%, in 2012 compared with 2011.

Š Asset servicing revenue (global custody, broker-
dealer services and alternative investment
services) was $3.7 billion in 2012 compared

Results of Operations (continued)

with $3.6 billion in 2011. The increase primarily
reflects net new business and higher market
values as well as higher securities lending
revenue and higher collateral management
revenue.
Issuer services revenue (Corporate Trust and
Depositary Receipts) was $1.0 billion in 2012,
down $203 million compared with 2011. The
decrease primarily resulted from lower
Depositary Receipts revenue driven by lower
volumes, and lower Corporate Trust fees
reflecting the continued net run-off of structured
debt securitizations. We estimate this run-off
could reduce the Company’s total annual
revenue by approximately one-half to three-
quarters of 1% if the structured debt markets do
not recover.

Š Clearing services revenue (Pershing) was

$1.2 billion in 2012, an increase of $34 million
compared with 2011. Higher mutual fund fees
driven by increases in positions and assets and
higher cash management balances, were
primarily offset by lower clearance revenue,
higher money market fee waivers and a 6%
decrease in DARTS volume.

Š Treasury services revenue was $543 million in

2012, compared with $532 million in 2011. The
increase reflects higher volumes in cash
management services.

Foreign exchange and other trading revenue decreased
$203 million compared with 2011, driven by a sharp
decline in volatility and a modest decrease in
volumes.

Net interest revenue decreased $123 million compared
with 2011, primarily driven by lower accretion and
narrower spreads, partially offset by higher average
customer deposits.

Noninterest expense, excluding amortization of
intangible assets, increased $342 million compared
with 2011. The increase in expenses primarily resulted
from higher litigation expense and higher software
amortization expense, partially offset by lower
volume-driven expenses and the impact of the
operational excellence initiatives.

2011 compared with 2010

Income before taxes was $3.0 billion in 2011,
compared with $3.1 billion in 2010. Income before
taxes, excluding amortization of intangible assets, was
$3.2 billion in both 2011 and 2010. Fee and other
revenue increased $693 million compared with 2010,

primarily due to the full-year impact of the
Acquisitions and net new business, partially offset by
higher money market fee waivers and lower volumes.
Net interest revenue increased $203 million compared
with 2010, primarily driven by higher average
customer deposits and loan levels, offset in part by
narrower spreads. Noninterest expense, excluding
amortization of intangible assets, increased
$943 million compared with 2010. The increase in
expenses primarily resulted from the full-year impact
of the Acquisitions, higher litigation and volume-
driven expenses and increased expenses in support of
business growth.

Other segment

(dollars in millions)

2012

2011

2010

Revenue:

Fee and other revenue
Net interest revenue

613
317

930
(78)

777
213

990
-

732
360

1,092
8

885

948

1,070

Total revenue

Provision for credit losses
Noninterest expense (ex.

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

Income before taxes (ex.

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

Amortization of intangible

assets

M&I and restructuring

charges

Income (loss) before

taxes

123

180

167

(153)

(168)

Average loans and leases

$10,199

$10,651

$12,748

Business description

The Other segment primarily includes:

Š credit-related services;

Š
the leasing portfolio;

Š corporate treasury activities, including our

investment securities portfolio;

Š our equity investment in Wing Hang Bank

Limited (“Wing Hang”);

Š a 33.2% equity interest in ConvergEx;

Š business exits, including the results of the

Shareowner Services business; and

Š corporate overhead.

Revenue primarily reflects:

Š net interest revenue from the credit services and

lease financing portfolios;

BNY Mellon

Results of Operations (continued)

interest revenue remaining after transfer pricing
allocations;
fee and other revenue from corporate and bank-
owned life insurance, credit-related financing
revenue and the Shareowner Services business;
and

Š gains (losses) associated with the valuation of

investment securities and other assets.

Expenses include:

Š M&I and restructuring charges;
Š direct expenses supporting credit-related
services, leasing, investing and funding
activities, and the Shareowner Services business;
and

Š certain corporate overhead not directly

attributable to the operations of other businesses.

Review of financial results

On Dec. 31, 2011, BNY Mellon sold its Shareowner
Services business. In 2012, we reclassified the results
of the Shareowner Services business to the Other
segment from the Investment Services business. All
prior periods have been restated.

Income before taxes was $52 million in 2012
compared with a pre-tax loss of $153 million in 2011.
The improvement primarily related to lower M&I and
restructuring charges and a credit in the provision for
credit losses in 2012 of $78 million. The credit was
largely driven by a reduction in the allowance for
credit losses related to the residential mortgage loan
portfolio.

Total revenue decreased $60 million in 2012
compared with 2011 primarily reflecting the impact of
the sale of the Shareowner Services business in 2011
and lower gains on loans held-for-sale retained from a
previously divested bank subsidiary, partially offset
by higher net interest revenue, higher net securities
gains and higher fixed income trading revenue.

Noninterest expense (excluding amortization of
intangible assets and M&I and restructuring charges)
decreased $63 million in 2012 compared with 2011.
The decrease was driven by the impact of the sale of
the Shareowner Services business, partially offset by
the costs of certain tax credits in 2012 and the benefit
of state investment tax credits received in 2011.

2011 compared with 2010

Income before taxes was a loss of $153 million in
2011 compared with a loss of $168 million in 2010.

28 BNY Mellon

Total revenue decreased $102 million, primarily due
to lower net interest revenue, lower leasing gains,
financing related fees and private equity investment
gains, partially offset by gains on loans held-for-sale
retained from a previously divested bank subsidiary
and the gain on the sale of the Shareowner Services
business. Noninterest expense, excluding amortization
of intangible assets and M&I and restructuring
charges decreased $122 million in 2011 compared
with 2010. The decrease was driven by lower
litigation expense and the benefit of state investment
tax credits in 2011.

International operations

Our primary international activities consist of
securities services and global payment services in our
investment services business, and asset management
in our investment management business.

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.

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

At Dec. 31, 2012, we had approximately 9,300
employees in Europe, the Middle East and Africa
(“EMEA”), approximately 9,900 employees in the
Asia-Pacific region (“APAC”) and approximately 800
employees in other global locations, primarily Brazil.

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.

Results of Operations (continued)

We are one of the largest global asset managers,
ranking 7th in the institutional marketplace and are the
7th largest asset manager in Europe. We are also a
market leader in the field of liability-driven
investments.

At Dec. 31, 2012, our international operations
managed 41% of BNY Mellon’s AUM compared with
38% at Dec. 31, 2011. The increase primarily resulted
from higher market values and net new business.

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 (by total net assets) for fund
administration services across domiciled and non-
domiciled funds. We offer a full range of tailored
solutions for investment companies, financial
institutions and institutional investors in Germany.
We clear and settle equity and fixed income
transactions in over 100 markets. We are an industry
leader in collateral management, servicing more than
$2.0 trillion in global collateral, including tri-party
repo collateral worldwide.

We serve as the depositary for 1,379 sponsored
American and global depositary receipt programs,
acting in partnership with leading companies from 68
countries. BNY Mellon provides the infrastructure
technology and processing services clients need to
expertly navigate the ever-changing debt capital
markets. We service $11.4 trillion in outstanding debt
from 61 locations in 20 countries.

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, investment services.

We are also a full-service global provider of foreign
exchange services, actively trading in over 80 of the
world’s currencies. We serve clients from ten trading
rooms in Europe, Asia and North America.

Revenue generated in the Investment Services
business includes 36% from non-U.S. sources in 2012
compared with 38% in 2011.

Our financial results, as well as our level of AUM and
AUC/A, are impacted by the translation of financial
results denominated in foreign currencies to the
U.S. dollar. We are primarily impacted by activities
denominated in the British pound and 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 AUM and
AUC/A. Conversely, if the U.S. dollar appreciates, the
translated levels of fee revenue, net interest revenue,
noninterest expense and AUM and AUC/A 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

2012

2011

2010

$1.6168
1.3184

$1.5448
1.2934

$1.5545
1.3373

$1.5849
1.2858

$1.6038
1.3921

$1.5457
1.3270

International clients accounted for 37% of revenue in
2012 compared with 37% in 2011 and 36% in 2010.
Net income from international operations was
$1.4 billion in 2012 compared with net income of
$1.5 billion in 2011 and net income from continuing
operations of $1.5 billion in 2010.

In 2012, revenues from EMEA were $3.7 billion,
compared with $3.8 billion in 2011 and $3.5 billion in
2010. Revenues from EMEA were down 3% for 2012
compared to 2011. The decrease in 2012 primarily
reflects lower Corporate Trust and Depositary
Receipts revenue, partially offset by higher
investment management revenue and performance
fees. Investment Services generated 65% and
Investment Management generated 34% of EMEA
revenues. Net income from EMEA was $761 million
in 2012 compared with net income of $867 million in
2011 and net income from continuing operations of
$916 million in 2010.

Revenues from APAC were $902 million in 2012
compared with $842 million in 2011 and $745 million
in 2010. Revenues from APAC were up 7% for 2012
compared to 2011. The increase in 2012 primarily
resulted from net new business offset by lower
Depositary Receipts revenue and lower Corporate
Trust fees. Revenue from APAC in 2012 was
generated by Investment Services 69% and
Investment Management 27%. Net income from
APAC was $349 million in 2012 compared with net
income of $325 million in 2011 and net income from
continuing operations of $295 million in 2010.

BNY Mellon

Results of Operations (continued)

For additional information regarding our International
operations, see Note 26 of the Notes to Consolidated
Financial Statements.

Exposure in Ireland, Italy, Spain, Portugal and
Greece

The following tables present our on- and off-balance
sheet exposure in Ireland, Italy, Spain and Portugal at
Dec. 31, 2012 and Dec. 31, 2011. We have provided
expanded disclosure on these countries as they have
experienced particular market focus on credit quality
and are countries experiencing economic concerns.
Where appropriate, we are offsetting the risk
associated with the gross exposure in these countries
with collateral that has been pledged, which primarily
consists of cash or marketable securities, or by
transferring the risk to a third-party guarantor in
another country.

management funds, and therefore they are excluded
from this presentation. The liabilities of consolidated
investment management funds represent the interest of
the noteholders of the funds and are solely dependent
on the value of the assets. Any loss in the value of
assets of consolidated investment management funds
would be incurred by the fund’s noteholders.

At Dec. 31, 2012, BNY Mellon had exposure of less
than $1 million to Portugal. At Dec. 31, 2012 and
Dec. 31, 2011, BNY Mellon had no exposure to
Greece. Additionally, BNY Mellon had no sovereign
exposure to the countries disclosed below at either
Dec. 31, 2012 or Dec. 31, 2011.

Our exposure to Ireland is principally related to Irish
domiciled investment funds. Servicing provided to
these funds and fund families may result in overdraft
exposure.

BNY Mellon has a limited economic interest in the
performance of assets of consolidated investment

See “Risk management” for additional information on
how our exposures are managed.

30 BNY Mellon

Results of Operations (continued)

Exposure in the tables below reflect the country of operations and risk of the immediate counterparty.

On- and off-balance sheet exposure at Dec. 31, 2012
(in millions)

On-balance sheet exposure
Gross:

Interest-bearing deposits with banks (a)
Investment securities (primarily European Floating Rate Notes) (b)
Loans and leases (c)
Trading assets (d)

Total gross on-balance sheet exposure

Less:

Collateral
Guarantees

Total collateral and guarantees

Total net on-balance sheet exposure

Off-balance sheet exposure
Gross:

Lending-related commitments (e)
Letters of credit (f)

Total gross off-balance sheet exposure

Less:

Collateral

Total net off-balance sheet exposure

Total exposure:
Total gross on- and off-balance sheet exposure
Less: Total collateral and guarantees

Total net on- and off-balance sheet exposure

Ireland

Italy

Spain

Total

$101
164
166
48

479

74
-

$125
130
7
39

301

38
2

$ -
-
3
15

6
1

$226
294
176
102

798

118
3

121

$405

$261

$11

$677

$101
74

175

-
4

$ -
14

$ 84

$ -

$654
165

$489

$305
40

$265

$32
21

$11

$101
92

193

105

$ 88

$991
226

$765

(a) Interest-bearing deposits with banks represent a $101 million placement with an Irish subsidiary of a UK holding company and $125

million of nostro accounts related to our custody business.

(b) Represents $266 million, fair value, of residential mortgage-backed securities located in Ireland and Italy, of which 49% were

investment grade, $25 million, fair value, of investment grade asset-backed CLOs located in Ireland, and $3 million, fair value, of
money market fund investments located in Ireland.

(c) Loans and leases include $97 million of overdrafts primarily to Irish-domiciled investment funds resulting from our custody business,
a $67 million commercial lease to an Irish company, which was fully collateralized by U.S. Treasuries, a $2 million loan to a security
company located in Ireland, a $5 million overdraft to a financial institution located in Italy, a $2 million custody overdraft to financial
institutions located in Spain and $3 million of leases to airline manufacturing companies located in Italy and Spain, which are under
joint and several guarantee arrangements with guarantors outside of the Eurozone. There is no impairment associated with these
loans and leases. Overdrafts occur on a daily basis in our Investment Services businesses and are generally repaid within two business
days. The overdrafts in Italy and Spain have been repaid.

(d) Trading assets represent over-the-counter mark-to-market on foreign exchange and interest rate receivables, net of master netting

agreements. Trading assets include $48 million of receivables primarily due from Irish-domiciled investment funds and $54 million of
receivables due from financial institutions in Italy and Spain. Cash collateral on the trading assets totaled $7 million in Ireland, $38
million in Italy and $6 million in Spain.

(e) Lending-related commitments include $100 million to an insurance company, collateralized by $25 million of marketable securities,

and $1 million to an oil and gas company, fully collateralized by receivables.

(f) Represents $72 million of letters of credit extended to an insurance company in Ireland, collateralized by $65 million of marketable
securities, a $2 million letter of credit to an oil and gas company in Ireland, a $4 million letter of credit extended to a financial
institution in Italy and a $14 million letter of credit extended to an insurance company in Spain, fully collateralized by marketable
securities.

BNY Mellon

Results of Operations (continued)

On- and off-balance sheet exposure at Dec. 31, 2011
(in millions)

On-balance sheet exposure
Gross:

Interest-bearing deposits with banks (a)
Investment securities (primarily European Floating Rate Notes) (b)
Loans and leases (c)
Trading assets (d)

Total gross on-balance sheet exposure

Less:

Collateral
Guarantees

Total collateral and guarantees

Total net on-balance sheet exposure

Off-balance sheet exposure
Gross:

Lending-related commitments (e)
Letters of credit (f)

Total gross off-balance sheet exposure

Less:

Collateral

Total net off-balance sheet exposure

Total exposure:
Total gross on- and off-balance sheet exposure
Less: Total collateral and guarantees

Total net on- and off-balance sheet exposure

Ireland

Italy

Spain

Portugal

Total

97
208
411
117

833

102
-

102

$ 24
155
3
53

235

39
3

$ 4
27
4
16

7
1

$ 731

$193

$43

$ 273
-

273

190

-
2

$ -
14

$1,106
292

$ 814

$237
42

$195

$65
22

$43

$ -
-
-
3

3
-

$ -

$ -
-

$3
3

$ -

$ 125
390
418
189

1,122

151
4

155

$ 967

$ 273
16

289

204

$1,411
359

$1,052

(a) Interest-bearing deposits with banks represent a $96 million placement with an Irish subsidiary of a UK holding company and $29

million of nostro accounts related to our custody business.

(b) Represents $364 million, fair value, of residential mortgage-backed securities, of which 97% were investment grade, $23 million, fair
value, of investment grade asset-backed CLOs, and $3 million, fair value, of money market fund investments located in Ireland.
(c) Loans and leases include $335 million of overdrafts primarily to Irish domiciled investment funds resulting from our custody business,

a $65 million commercial lease fully-collateralized by U.S. Treasuries, $15 million of financial institution loans, which were
collateralized by marketable securities and $4 million of leases to airline manufacturing companies which are under joint and several
guarantee arrangements, with guarantors outside of the Eurozone. There is no impairment associated with these loans and leases.
(d) Trading assets represent over-the-counter mark-to-market on foreign exchange receivables, net of master netting agreements. Trading
assets include $117 million of foreign exchange trading receivables due from Irish domiciled investment funds and $72 million due
from financial institutions in Italy, Spain and Portugal. Cash collateral on the trading assets totaled $22 million in Ireland, $39
million in Italy, $7 million in Spain and $3 million in Portugal.

(e) Lending-related commitments represent $100 million to an asset manager fully-collateralized by marketable securities, and $173

million to an insurance company, collateralized by $90 million of marketable securities.

(f) Represents a $14 million letter of credit extended to an insurance company in Spain fully-collateralized by marketable securities.

Exposure in Italy represents a $2 million letter of credit extended to a financial institution.

Cross-border risk

Foreign assets are subject to the general risks
attendant on 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.

32 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 exceeds 0.75% but less than or equal to 1.00% of total assets (denoted
with “**”).

Cross-border outstandings (a)

(in millions)

2012:

United Kingdom*
Netherlands*
Japan*
Australia*
Germany*
France*
China**

2011:

France*
Germany*
Netherlands*
Japan*
Australia*
United Kingdom*

2010:

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

Banks and
other
financial

Public
institutions (b) sector

Commercial,
industrial
and other

Total
cross-border
outstandings (c)

$6,089
2,490
5,104
4,508
2,756
3,266
3,412

$
46
2,054
-
-
1,378
897
-

3,341
3,383
1,733
4,703
4,418
3,344

5,724
6,109
4,338
2,663
2,839
2,411
2,261
508
1,908

2,790
2,050
2,230
15
-
71

3,065
1,845
396
-
-
-
-
26
-

$1,152
1,337 (d)
7
259
198
34
4

116
415
814 (d)
16
239
663

254
124
1,170 (d)
271
30
179
7
1,411
18

$7,287
5,881
5,111
4,767
4,332
4,197
3,416

6,247
5,848
4,777
4,734
4,657
4,078

9,043
8,078
5,904
2,934
2,869
2,590
2,268
1,945
1,926

(a) Revised to correct the exclusion in 2010 and 2011 of previous amounts, primarily sovereign debt obligations. See Note 21 of our Notes

to Consolidated Financial Statements for further information regarding our sovereign debt exposure.

(b) Primarily short-term interest-bearing deposits with banks.
(c) Excludes assets of consolidated investment management funds.
(d) Primarily European floating rate notes.

Emerging markets exposure

We determine our emerging markets exposures using
the MSCI Emerging Markets (EM) IMI Index. Our
emerging markets exposures totaled $11 billion at
Dec. 31, 2012 compared with $8 billion at Dec. 31,
2011. The increase in emerging markets exposure was
primarily driven by higher interest-bearing deposits
with banks located in China.

Critical accounting estimates

Our significant accounting policies are described in
Note 1 of the Notes to Consolidated Financial
Statements under “Summary of significant accounting
and reporting policies”. Our 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.
Additionally, further information can be found in the
Notes to Consolidated Financial Statements related to
the following: the valuation of derivatives and
securities where quoted market prices are not available
can be found under “Fair value measurement” in Note
21; information on other-than-temporary impairment
can be found in “Securities” in Note 5; policies related
to goodwill and intangible assets can be found in
“Goodwill and intangible assets” in Note 7; and
information on pensions can be found in “Employee
benefit plans” in Note 19.

BNY Mellon

Results of Operations (continued)

Allowance for loan losses and allowance for lending-
related commitments

The allowance for loan losses and allowance for
lending-related commitments represent management’s
estimate of probable losses inherent in our credit
portfolio. This evaluation process is subject to
numerous estimates and judgments.

We utilize a quantitative methodology and qualitative
framework for determining the allowance for loan
losses and the allowance for lending-related
commitments. Within this qualitative framework,
management applies judgment when assessing
internal risk factors and environmental factors to
compute an additional allowance for each component
of the loan portfolio.

The three elements of the allowance for loan losses
and the allowance for lending-related commitments
include the qualitative allowance framework. The
three elements are:

Š an allowance for impaired credits of $1 million

or greater;

Š an allowance for higher risk-rated credits and

pass-rated credits; and

Š an allowance for residential mortgage loans.

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 impaired loans of $1
million or greater. 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 probable loss
model. All borrowers are assigned to pools based on
their credit ratings. The probable loss inherent in 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. All loans over $1
million are individually analyzed before being
assigned a credit rating.

34 BNY Mellon

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 is assigned for
each mortgage pool. In 2012, BNY Mellon began
assigning all residential mortgage pools, except home
equity lines of credit, a probability of default and loss
given default based on five years of default and loss
data derived from our residential mortgage portfolio.
Prior to 2012, estimates of probability of default and
loss given default factors were based on a
combination of external data from third-party
databases and internal data. The decision to change
was triggered when five years of historical data
became available in 2012. The use of internal
historical data provides a better estimate of the
allowance, given that it is based on actual default and
loss experience on our residential mortgage portfolio.
The use of internal historical default and loss data
resulted in a credit to the allowance for credit losses of
$51 million in 2012. For each pool, the inherent loss is
calculated using the above factors. The resulting
probable loss factor (the probability of default
multiplied by the loss given default) is applied against
the loan balance to determine the allowance held for
each pool. For home equity lines of credit, probability
of default and loss given default are based on external
data from third party databases due to the small size of
the portfolio and insufficient internal data.

The qualitative framework is used to determine an
additional allowance for each portfolio based on the
factors below:

Internal risk factors:

Š Nonperforming loans to total non-margin loans;
Š Criticized assets to total loans and lending-

related commitments;

Š Ratings volatility;
Š Borrower concentration; and
Š Significant concentration in high risk industries.

Environmental risk factors:

Š U.S. non-investment grade default rate;
Š Unemployment rate; and
Š Change in real GDP.

Results of Operations (continued)

the qualitative allowance each period based on
judgment informed by consideration of internal and
external risk factors. Once determined in the
aggregate, our qualitative allowance is then allocated
to each of our loan classes based on the respective
classes’ quantitative allowance balances with the
allocations adjusted, when necessary, for class
specific risk factors.

For each risk factor, we calculate the minimum and
maximum values, and percentiles in-between, to
evaluate the distribution of our historical experience.
The distribution of historical experience is compared
to the risk factor’s current quarter observed
experience to assess the current risk inherent in the
portfolio and overall direction/trend of a risk factor
relative to our historical experience.

Based on this analysis, we assign a risk level- no
impact, low, moderate, high and elevated – to each
risk factor for the current quarter. Management
assesses the impact of each risk factor to determine an
aggregate risk level. We do not quantify the impact of
any particular risk factor. Management’s assessment
of the risk factors, as well as the trend in the
quantitative allowance, supports management’s
judgment for the overall required qualitative
allowance. A smaller qualitative allowance may be
required when our quantitative allowance has
reflected incurred losses associated with the aggregate
risk level. A greater qualitative allowance may be
required if our quantitative allowance does not yet
reflect the incurred losses associated with the
aggregate risk level.

Our consideration of these factors has remained
consistent for the year ended Dec. 31, 2012. In
general, we have not seen significant trends in any of
our risk factors resulting in a corresponding change in
our qualitative allowance. As a result, the qualitative
allowance balance as a percentage of the total
allowance has remained stable from Dec. 31, 2011 to
Dec. 31, 2012.

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 a
significant variable in determining the allowance. If
each credit were rated one grade better, the allowance
would have decreased by $52 million, while if each
credit were rated one grade worse, the allowance
would have increased by $83 million. Similarly, if the
loss given default were one rating worse, the
allowance would have increased by $51 million, while

if the loss given default were one rating better, the
allowance would have decreased by $39 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.

Fair value of financial instruments

The guidance related to Fair Value Measurement
included in Accounting Standards Codification
(“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.

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 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.

BNY Mellon

Results of Operations (continued)

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, 2012.

We obtain prices for our Level 1 and Level 2
securities from multiple pricing sources. We have
designed controls to develop an understanding of the
pricing sources’ securities pricing methodology and
have implemented specific internal controls over the
valuation of securities.

As appropriate, we review the quality control
procedures and pricing methodologies used by the
pricing sources, including the process for obtaining
prices provided by the pricing sources, their valuation
methodology and controls for each class of security.

Prices received from pricing sources are subject to
validation checks that help determine the completeness
and accuracy of the prices. These validation checks are
reviewed by management and, based on the results,
may be subject to additional review and investigation.
We also review securities with no price changes (stale
prices) and securities with zero values.

We have a surveillance process in place to monitor the
accuracy of prices provided by the pricing sources.
We utilize a hierarchy that compares security prices
obtained from multiple pricing sources against
established thresholds. Discrepancies that fall outside
of these thresholds are challenged with the pricing
services and adjusted if necessary.

If further research is required, we review and validate
these prices with the pricing sources. We also validate
prices from pricing sources by comparing prices
received to actual observed prices from actions such
as purchases and sales, when possible.

Level 3 – Securities – Where we have used our own
cash flow models, which included a significant input
into the model that was deemed unobservable, to
estimate the value of 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 economic models
and non-binding dealer quotes, and are included in
Level 3 of the fair value hierarchy.

Fair value – Derivative financial instruments

Level 1 – Derivative financial instruments – Includes
derivative financial instruments that are actively
traded on exchanges, principally foreign exchange
futures, listed options and foreign exchange 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, foreign exchange
rates, option volatilities and other factors. The
valuation process takes into consideration factors such
as counterparty credit quality, liquidity and
concentration concerns.

Level 3 – Derivative financial instruments – Certain
derivatives that are highly structured require
significant judgment and analysis to adjust the value
determined by standard pricing models. These
derivatives are included in Level 3 of the ASC 820
hierarchy and comprise less than 1% of our derivative
financial instruments at fair value.

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

To confirm that our valuation policies are consistent
with exit prices as prescribed by ASC 820, we review
our derivative valuations using recent transactions in
the marketplace, pricing services and the results of
similar types of transactions. In determining fair value
for these instruments, observable inputs are utilized
where available as required by ASC 820.

For details of our derivative financial instruments by
ASC 820 hierarchy level, see Note 21 of the Notes to
Consolidated Financial Statements.

Fair value option

See Note 21 of the Notes to Consolidated Financial
Statements for details of our securities by ASC 820
hierarchy level.

ASC 825 provides the option to elect fair value as an
alternative measurement basis for selected financial
assets, financial liabilities, unrecognized firm

36 BNY Mellon

Results of Operations (continued)

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 22 of 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

The guidance included in ASC 320 defines 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 accumulated
other comprehensive income.

The determination of whether a credit loss exists is
based on best estimates of the present value of cash
flows to be collected from the debt security.
Generally, cash flows are discounted at the effective
interest rate implicit in the debt security at the time of
acquisition. For debt securities that are beneficial
interests in securitized financial assets and are not
high credit quality, ASC 325 provides that cash flows
be discounted at the current yield used to accrete the
beneficial interest.

For each security in the investment securities 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. For example, to determine if an
unrealized loss on 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 will be
subject to a write-down or loss, we record the
expected credit loss as a charge to earnings.

In 2012, improving home prices helped to stabilize the
credit performance of non-agency RMBS transactions.
This in turn enabled us to maintain generally stable
assumptions for these transactions throughout the year
with regard to estimated defaults and 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 at Dec. 31, 2012 and 2011 for the
2007, 2006 and late-2005 non-agency RMBS and the
securities previously held in the Grantor Trust we
established in connection with the restructuring of our
investment securities portfolio in 2009. If actual
delinquencies, default rates and loss severity
assumptions worsen, we would expect additional
impairment losses to be recorded in future periods.

Net securities gains in 2012 were $162 million
compared with $48 million in 2011. The low interest
rate environment in 2012 created the opportunity for
us to realize gains as we rebalanced and managed the
duration risk of the investment securities portfolio.

If we were to increase or decrease each of our
projected loss severity and 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 $1 million (pre-tax) or decreased by less
than $1 million (pre-tax) at Dec. 31, 2012.

Goodwill and other intangibles

We initially record all assets and liabilities acquired in
purchase acquisitions, including goodwill, indefinite-
lived intangibles and other intangibles, in accordance
with ASC 805 Business Combinations. Goodwill,
indefinite-lived intangibles and other intangibles are
subsequently accounted for in accordance with ASC 350
Intangibles – Goodwill and Other. The initial
measurement of goodwill and intangibles requires
judgment concerning estimates of the fair value of the

BNY Mellon

Results of Operations (continued)

acquired assets and liabilities. Goodwill ($18.1 billion at
Dec. 31, 2012) and indefinite-lived intangible assets
($2.7 billion at Dec. 31, 2012) are not amortized but
subject to tests for impairment annually or more often if
events or circumstances indicate it is more likely than
not they may be impaired. Other intangible assets are
amortized over their estimated useful lives and are
subject to impairment if events or circumstances indicate
a possible inability to realize the carrying amount.

BNY Mellon’s three business segments include seven
reporting units for which annual goodwill impairment
testing is done in accordance with ASC 350. The
Investment Management segment is comprised of two
reporting units; the Investment Services segment is
comprised of four reporting units; and one reporting
unit is included in the Other segment.

The goodwill impairment test is performed in two
steps. The first step compares the estimated fair value
of the reporting unit with its carrying amount, including
goodwill. If the estimated fair value of the reporting
unit exceeds its carrying amount, goodwill of the
reporting unit is considered not impaired. However, if
the carrying amount of the reporting unit were to
exceed its estimated fair value, a second step would be
performed that would compare the implied fair value of
the reporting unit’s goodwill with the carrying amount
of that goodwill. An impairment loss would be
recorded to the extent that the carrying amount of
goodwill exceeds its implied fair value. A substantial
goodwill impairment charge would not have a
significant impact on our financial condition, but could
have an adverse impact on our results of operations. In
addition, due to regulatory restrictions, the Company’s
subsidiary banks could be restricted from distributing
available cash to the Parent resulting in the Parent
needing to issue additional long-term debt.

GAAP also requires that an interim test be done
whenever events or circumstances occur that may
indicate that it is more likely than not that the fair
value of any reporting unit might be less than its
carrying value. The broad decline of stock prices
throughout the U.S. stock market in the second half of
2011 also impacted the Company’s stock price, which
declined below the Company’s net book value per
share. As a result of this sustained decline in the
second half of 2011, the Company performed an
interim goodwill test on the Asset Management
business during the first quarter of 2012. We
concluded the Asset Management reporting unit,
which is one of the two reporting units in the
Investment Management segment, exceeded its
carrying value at that time.

38 BNY Mellon

In the second quarter of 2012, we performed our
annual goodwill test on all seven reporting units using
an income approach to estimate the fair values of each
reporting unit. Estimated cash flows used in the
income approach were based on management’s
projections as of April 1, 2012. The discount rate
applied to these cash flows ranged from 10% to
12.25% and incorporated a 7% market equity risk
premium. Estimated cash flows extend far into the
future, and, by their nature, are difficult to estimate
over such an extended time frame.

As of the date of the annual test, the fair values of six
of the Company’s reporting units were substantially in
excess of the respective reporting units’ carrying
value. The fair value of the Asset Management
reporting unit, which is one of the two reporting units
in the Investment Management segment, exceeded its
carrying value by approximately 15%. The Asset
Management reporting unit has $7.7 billion of
allocated goodwill. For the Asset Management
reporting unit, in the future, small changes in the
assumptions could produce a non-cash goodwill
impairment, which would have no effect on our
regulatory capital ratios. In addition, certain money
market fee waiver practices and changes in the level
of assets under management could have an effect on
Asset Management broadly, as well as the fair value
of this reporting unit.

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

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 amortizing intangible
assets ($2.1 billion at Dec. 31, 2012) 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.

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

Pension accounting

BNY Mellon has defined benefit pension plans
covering approximately 20,900 U.S. employees and
approximately 10,600 non-U.S. employees.

Results of Operations (continued)

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, 2012,
the U.S. plans accounted for 82% of the projected
benefit obligation. The pension expense for BNY
Mellon plans was $141 million in 2012 compared
with $93 million in 2011 and $47 million in 2010.

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
reduced pension expense by $40 million in 2011.

A net pension expense of $187 million is expected to
be recorded by BNY Mellon in 2013, assuming
currency exchange rates at Dec. 31, 2012. The
expected increase in pension expense in 2013 is
primarily driven by a decrease in the discount rate for
the U.S. and foreign plans. The discount rate is
discussed below.

BNY Mellon made a discretionary contribution of
$400 million to The Bank of New York Mellon
Corporation Pension Plan in December 2012. The
contribution did not impact pension expense in 2012.

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 Employee
Stock Ownership Plan (“ESOP”). Since 2010, 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/(expense)
Total net pension

credit/(expense)

2013

2012

2011

2010

7.25%
4.25%

7.38%
4.75%

7.50%
5.71%

8.00%
6.21%

$4,121

$3,763

$3,836

$3,861

$24.60

$22.96

$29.48

$27.97

N/A

$ (107)

(54)

(15)

N/A

(34)

(39)

(32)

N/A

$ (141)

(93)

(47)

(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 4.25% as of Dec. 31, 2012.

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.

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 $2.2 billion of unrecognized losses
which are being amortized.

The annual impacts of hypothetical changes in the key
assumptions 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) bps

(50) bps

50 bps

100 bps

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

$ 48

$ 24

$(24)

$ (48)

(50) bps

(25) bps

25 bps

50 bps

$ 43

$ 21

$(20)

$ (40)

(20)%

(10)%

10%

20%

$ 183
$ (10)

$ 93
$ (5)

$(94)
$ 5

$(188)
$ 10

$ 13

$ 6

$ (6)

$ (12)

BNY Mellon

Results of Operations (continued)

In addition to its pension plans, BNY Mellon has an
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.

Consolidated balance sheet review

At Dec. 31, 2012, total assets were $359 billion
compared with $325 billion at Dec. 31, 2011. Total
assets averaged $315 billion in 2012, compared with
$291 billion in 2011. The increase in period-end and
average total assets primarily resulted from an
increase in the level of client deposits. Deposits
totaled $246 billion at Dec. 31, 2012, and $219 billion
at Dec. 31, 2011. Total deposits averaged $204 billion
in 2012 and $183 billion in 2011. At Dec. 31, 2012,
total interest-bearing deposits were 52% of total
interest-earning assets compared with 48% at Dec. 31,
2011.

At Dec. 31, 2012, we had $50 billion of liquid funds
and $95 billion of cash (including $90 billion of
overnight deposits with the Federal Reserve and other
central banks) for a total of $145 billion of available
funds. This compares with available funds of $135
billion at Dec. 31, 2011. The increase in available
funds resulted from the higher level of customer
deposits. Our percentage of available funds to total
assets was 40% at Dec. 31, 2012 compared with 42%
at Dec. 31, 2011. The decrease in the percentage of
available funds to total assets was primarily due to
increased investments in high quality investment
securities and higher loan levels. Of the $50 billion in
liquid funds held at Dec. 31, 2012, $44 billion was
placed in interest-bearing deposits with large, highly-
rated global financial institutions with a weighted-
average life to maturity of approximately 50 days. Of
the $44 billion, $8 billion was placed with banks in
the Eurozone.

Investment securities were $101 billion or 28% of
total assets at Dec. 31, 2012, compared with
$82 billion or 25% of total assets at Dec. 31, 2011.
The increase primarily reflects larger investments in
agency RMBS and state and political subdivision
securities, as well as an improvement in the unrealized
gain of our investment securities portfolio.

Loans were $47 billion or 13% of total assets at Dec.
31, 2012, compared with $44 billion or 14% of total

40 BNY Mellon

assets at Dec. 31, 2011. The increase in loan levels
primarily reflects higher wealth management loans
and mortgages, margin loans and overdrafts.

Long-term debt decreased to $18.5 billion at Dec. 31,
2012 from $19.9 billion at Dec. 31, 2011, primarily
due to the maturity of $3.2 billion of senior debt and
$300 million of subordinated debt, as well as the
redemption of $1.1 billion of junior subordinated
debentures, partially offset by the issuance of $3.25
billion of senior debt in 2012.

Total shareholders’ equity applicable to BNY Mellon
was $36.4 billion at Dec. 31, 2012 and $33.4 billion at
Dec. 31, 2011. The increase in total shareholders’
equity primarily reflects earnings retention, the
issuance of noncumulative perpetual preferred stock
and an increase in the valuation of our investment
securities portfolio, partially offset by share
repurchases. In 2012, we issued $1,068 million, net of
issuance costs, of noncumulative perpetual preferred
stock which qualifies as Tier 1 capital under the NPRs
released in 2012.

BNY Mellon, through its involvement in the Fixed
Income Clearing Corporation, settles government
securities transactions on a net basis for payment and
delivery through the Fed wire system. As a result, at
Dec. 31, 2012, the assets and liabilities of BNY
Mellon were reduced by $137 million 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 the Financial Accounting Standards Board
(“FASB”) Interpretation No. 41 (ASC Topic 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.

Results of Operations (continued)

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

Investment securities portfolio

Dec. 31,

2012
change in
2011 unrealized Amortized
cost

Fair value gain/(loss)

Dec. 31, 2012

Fair value
as a % of

Ratings

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

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

value

(dollars in millions)

Agency RMBS
U.S. Treasury securities
Sovereign debt/sovereign

guaranteed (b)

Non-agency RMBS (c)
Non-agency RMBS
European floating rate

notes (d)

Commercial MBS
State and political
subdivisions

Foreign covered bonds (e)
Corporate bonds
CLO
U.S. Government agency debt
Consumer ABS
Other (f)

$27,493
17,999

$ 373
(32)

$39,234 $ 40,210
18,890
18,550

102%
102

$ 976
340

100%
100

-
-

11,881
3,179
1,780

3,025
3,003

2,806
2,425
1,859
1,233
958
524
3,573

(39)
413
320

226
75

66
107
65
27
4
6
(33)

9,186
2,520
1,727

4,258
2,695

6,106
3,596
1,525
1,204
1,044
2,114
4,573

9,304
3,110
1,697

4,137
2,838

6,191
3,718
1,585
1,206
1,074
2,124
4,619

101
75
90

96
105

101
103
104
100
103
100
101

118
590
(30)

-
100
1
-
4 19

(121)
143

73 21
9
89

85
122
60
2
30
10
46

84 14
-
100
19 72
-
100
100
-
90 10
48 48

-
-

-
2
13

1
2

1
-
8
-
-
-
-

-
-

-
97
64

5
-

-
-
1
-
-
-
-

Total investment securities

$81,738 (g) $1,578

$98,332 $100,703 (g) 102%

$2,371

89% 6%

(a) Amortized cost before impairments.
(b) Primarily comprised of exposure to UK, Netherlands, Germany and France.
(c) These RMBS were included in the former 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.

(d) Includes RMBS, commercial MBS and other securities. Primarily comprised of exposure to UK and Netherlands.
(e) Primarily comprised of exposure to Canada, Germany and UK.
(f) Includes commercial paper of $1.0 billion and $2.2 billion, fair value, and money market funds of $973 million and $2.2 billion, fair

value, at Dec. 31, 2011 and Dec. 31, 2012, respectively.

(g) Includes net unrealized losses on derivatives hedging securities available-for-sale of $269 million at Dec. 31, 2011 and $305 million at

Dec. 31, 2012.

The fair value of our investment securities portfolio
was $100.7 billion at Dec. 31, 2012 compared with
$81.7 billion at Dec. 31, 2011. The increase in the fair
value of the investment securities portfolio primarily
reflects larger investments in agency RMBS and state
and political subdivision securities, as well as an
improvement in the unrealized gain of our investment
securities. In 2012, we received $885 million of
paydowns and sold $98 million of sub-investment
grade securities.

At Dec. 31, 2012, the total investment securities
portfolio had an unrealized pre-tax net gain of $2.4
billion compared with $793 million at Dec. 31, 2011.
The improvement in the valuation of the investment
securities portfolio was primarily driven by a decline
in interest rates and improved credit spreads. The
unrealized net of tax gain on our investment securities
available-for-sale portfolio included in accumulated

other comprehensive income was $1.3 billion at
Dec. 31, 2012, compared with $417 million at
Dec. 31, 2011.

At Dec. 31, 2012 and Dec. 31, 2011, 89% of the
securities in our portfolio were rated AAA/AA-.

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

At Dec. 31, 2012, we had $871 million of accretable
discount related to the restructuring of the investment
securities portfolio. The discount related to these
transactions had a remaining average life of
approximately 5.3 years. The accretion of discount
related to these securities increased net interest
revenue and was recorded on a level yield basis. The
discount accretion totaled $281 million in 2012 and
$391 million in 2011.

BNY Mellon

Results of Operations (continued)

Also, at Dec. 31, 2012, we had $2.5 billion of net
amortizable purchase premium relating to investment
securities with a remaining average life of
approximately 4.2 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 $504 million in
2012 and $294 million in 2011.

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

Net securities gains (losses)
(in millions)

Sovereign debt
U.S. Treasury
Agency RMBS
Corporate bonds
FDIC-insured debt
Prime RMBS
Trust-preferred
Alt-A RMBS
Subprime RMBS
European floating rate notes
Other

2012

2011

2010

$ 96
83
43
29
10
(15)
(18)
(19)
(34)
(34)
21

$ 36
77
8
-
-
(1)
-
(36)
(21)
(39)
24

$ -
15
15
-
-
-
-
(13)
(4)
(3)
17

Total net securities gains

$162

$ 48

$ 27

At Dec. 31, 2012, the investment securities portfolio
included $35 million of assets not accruing interest.
These securities are held at market value.

The following table shows the fair value of the
European floating rate notes by geographical location
at Dec. 31, 2012. The unrealized loss on these
securities was $121 million at Dec. 31, 2012, an
improvement of 65% compared with $347 million at
Dec. 31, 2011.

European floating rate notes at Dec. 31, 2012 (a)

(in millions)

United Kingdom
Netherlands
Ireland
Italy
Australia
Germany

Total fair value

RMBS Other

$2,015
1,370
136
130
77
1

$3,729

$258
51
25
-
-
74

$408

Total
fair
value

$2,273
1,421
161
130
77
75

$4,137

(a) 73% of these securities are in the AAA to AA- ratings

category.

See Note 21 of the Notes to Consolidated Financial
Statements for the detail of securities by level in the
fair value hierarchy.

42 BNY Mellon

Equity investments

Our equity investments are primarily categorized as
other assets. Included in other assets are (parenthetical
amounts indicate carrying values at Dec. 31, 2012):
joint ventures and other equity investments ($1.5
billion), seed capital ($158 million), Federal Reserve
Bank stock ($436 million), private equity investments
($99 million), and tax advantaged low-income
housing investments ($489 million). For additional
information on the fair value of our private equity
investments and certain seed capital, see Note 8 of the
Notes to Consolidated Financial Statements.

Our equity investment in Wing Hang, which is located
in Hong Kong, had a fair value of $651 million (book
value of $449 million) based on its share price at
Dec. 31, 2012. An agreement with certain other
shareholders of Wing Hang prohibits the sale of this
interest without their permission. We received a stock
dividend from Wing Hang with a value of $14 million
(or 1.5 million shares) in 2012 and a stock dividend of
$12 million (or 1.1 million shares) in 2011. In 2010,
we received cash dividends from Wing Hang of $6
million.

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 $99
million at Dec. 31, 2012, down $23 million from $122
million at Dec. 31, 2011. At Dec. 31, 2012, private
equity investments consisted of investments in private
equity funds of $91 million, direct equity of less than
$1 million, and leveraged bond funds of $7 million.
Investment income was $8 million in 2012.

At Dec. 31, 2012, we had $13 million of unfunded
investment commitments to private equity funds. If
unused, the commitments expire between 2013 and
2017.

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.

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 financings
Other residential mortgages
Overdrafts
Other

Subtotal non-margin loans

Margin loans

Total

Dec. 31, 2012
Unfunded
commitments

Total
exposure

Loans

Dec. 31, 2011
Unfunded
commitments

Total
exposure

$15.7
18.3

$27.0
19.7

$11.1
1.3

$15.5
16.3

$26.6
17.6

34.0
1.7
1.9
-
-
-
0.2

37.8
0.9

46.7
10.6
3.6
2.4
1.6
5.3
0.8

71.0
14.3

12.4
7.3
1.5
2.6
1.9
4.8
0.7

31.2
12.8

31.8
1.5
1.5
-
-
-
-

34.8
0.7

44.2
8.8
3.0
2.6
1.9
4.8
0.7

66.0
13.5

Loans

$11.3
1.4

12.7
8.9
1.7
2.4
1.6
5.3
0.6

33.2
13.4

$46.6

$38.7

$85.3

$44.0

$35.5

$79.5

At Dec. 31, 2012, total exposures were $85.3 billion,
an increase of 7% from $79.5 billion at Dec. 31, 2011.
The increase in total exposure was generally broad-
based across most portfolios and reflects:

loan growth in Private Wealth, margin secured
lending to financial institutions and commercial
real estate; and

Š an increase in unfunded commitments resulting
from a renewed effort to grow our Public

Financial institutions

Finance portfolio as well as to continue to
support client relationships where revenue
growth opportunities exist.

Our financial institutions and commercial portfolios
comprise our largest concentrated risk. These
portfolios make up 55% of our total lending exposure.
Additionally, a substantial portion of our overdrafts
relate to financial institutions and commercial
customers.

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

Financial institutions
portfolio exposure
(dollar amounts in billions)

Banks
Securities industry
Asset managers
Insurance
Government
Other

Total

Dec. 31, 2012

Unfunded
commitments

Total % Inv % due
<1 yr
grade

exposure

Loans

Dec. 31, 2011
Unfunded
commitments

Total
exposure

$ 2.0
2.1
3.8
4.3
2.1
1.4

$15.7

$ 7.6
6.3
4.9
4.4
2.1
1.7

$27.0

82%
96
99
98
96
99

93%

88% $ 6.3
96
3.8
72
0.8
22
0.1
22
-
51
0.1

69% $11.1

$ 1.9
2.6
3.2
4.6
1.6
1.6

$15.5

$ 8.2
6.4
4.0
4.7
1.6
1.7

$26.6

Loans

$ 5.6
4.2
1.1
0.1
-
0.3

$11.3

The financial institutions portfolio exposure was
$27.0 billion at Dec. 31, 2012 compared with $26.6
billion at Dec. 31, 2011, primarily reflecting higher
exposure to asset managers and governments, partially
offset by lower exposure to banks and insurance
companies.

Financial institution exposures are high quality, with
93% of the exposures meeting the investment grade
equivalent criteria of our rating system at Dec. 31,
2012. These exposures are generally short-term. Of
these exposures, 69% expire within one year, and 33%
expire within 90 days. In addition, 42% of the
financial institutions exposure is secured. For
example, securities industry and asset managers often
borrow against marketable securities held in custody.

BNY Mellon

Results of Operations (continued)

For ratings of non-U.S. counterparties, as a
conservative measure, our internal credit rating
classification generally 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 bank exposure primarily relates to our global
trade finance and U.S. dollar-clearing businesses.

These exposures are predominately to investment
grade counterparties and are short term in nature.

The asset manager portfolio exposures are high-
quality, with 99% of the exposures meeting our
investment grade equivalent ratings criteria as of Dec.
31, 2012. 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, 2012

(dollar amounts in billions)

Loans

Unfunded
commitments

Total % Inv % due
<1 yr
grade

exposure

Loans

Services and other
Energy and utilities
Manufacturing
Media and telecom

Total

$0.5
0.5
0.3
0.1

$1.4

$ 5.6
5.5
5.6
1.6

$18.3

$ 6.1
6.0
5.9
1.7

$19.7

93%
97
90
90

93%

16%
7
10
1

10%

$0.5
0.3
0.3
0.2

$1.3

Dec. 31, 2011
Unfunded
commitments

Total
exposure

$ 4.5
4.8
5.7
1.3

$16.3

$ 5.0
5.1
6.0
1.5

$17.6

The commercial portfolio exposure increased 12% to
$19.7 billion at Dec. 31, 2012, from $17.6 billion at
Dec. 31, 2011, primarily reflecting an increase in
exposure in the services and other portfolios and
energy and utilities.

Our goal is to maintain a predominantly investment
grade portfolio. The table below summarizes the
percent of the financial institutions and commercial
exposures that are investment grade.

Percentage of the portfolios
that are investment grade

Financial institutions
Commercial

Dec. 31,
2011
93%
91%

2012
93%
93%

2010
91%

89%

Our credit strategy is to focus on investment grade
names to support cross-selling opportunities and avoid
single name/industry concentrations. Each customer is
assigned an internal rating grade, which is mapped to
an equivalent external rating agency grade based upon
a number of dimensions which are continually
evaluated and may change over time. The execution
of our strategy has resulted in 93% of both our
financial institutions and commercial portfolios rated
as investment grade at Dec. 31, 2012.

Wealth management loans and mortgages

Our Wealth management exposure was $10.6 billion
at Dec. 31, 2012 compared with $8.8 billion at Dec.
31, 2011. Wealth management loans and mortgages
are primarily comprised 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 63% at origination. In the wealth
management portfolio, 1% of the mortgages were past
due at Dec. 31, 2012.

At Dec. 31, 2012, the wealth management mortgage
portfolio was comprised of the following geographic
concentrations: New York – 22%; California – 19%;
Massachusetts – 17%; Florida – 8%; and other – 34%.

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
structured with moderate leverage, and in most
instances, involve some level of recourse to the
developer. Our commercial real estate exposure
totaled $3.6 billion at Dec. 31, 2012 compared with
$3.0 billion at Dec. 31, 2011.

At Dec. 31, 2012, 57% of our commercial real estate
portfolio is secured. The secured portfolio is diverse

44 BNY Mellon

Results of Operations (continued)

by project type, with 55% secured by residential
buildings, 18% secured by office buildings, 10%
secured by retail properties, and 17% secured by other
categories. Approximately 91% of the unsecured
portfolio is allocated to investment grade real estate
investment trusts (“REITs”) under revolving credit
agreements.

At Dec. 31, 2012, our commercial real estate portfolio
is comprised of the following concentrations: New
York metro – 46%; investment grade REITs – 41%;
and other – 13%.

Lease financings

The leasing portfolio exposure totaled $2.4 billion and
included $191 million of airline exposures at Dec. 31,
2012 compared with $2.6 billion of leasing exposures,
including $197 million of airline exposures, at Dec.
31, 2011. At Dec. 31, 2012, approximately 85% of the
leasing exposure was investment grade.

At Dec. 31, 2012, the $2.2 billion non-airline lease
financing portfolio consisted 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
Germany. Approximately 48% of the non-airline
portfolio is additionally secured by highly rated
securities and/or letters of credit from investment
grade issuers. Excluding airline lease financing,
counterparty rating equivalents at Dec. 31, 2012, were
as follows:

Š 1% of the counterparties are AA, or equivalent;
Š 56% were A;
Š 28% were BBB; and
Š 15% were non-investment grade.

At Dec. 31, 2012, our $191 million of exposure to the
airline industry consisted of $68 million to major U.S.
carriers, $107 million to foreign airlines and $16
million to U.S. regional airlines.

Despite the significant improvement in revenues and
yields that the U.S domestic airline industry achieved
in the past year, high fuel prices pose a significant
challenge for these carriers. Combined with their high
fixed cost operating models, extremely high debt
levels and sensitivity to economic cycles, 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 $1,632 million at Dec. 31, 2012, compared
with $1,923 million at Dec. 31, 2011. Included in this
portfolio at Dec. 31, 2012 are $497 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, 2012, the purchased loans in this
portfolio had a weighted-average loan-to-value ratio
of 75% at origination and 24% 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, 2012, we had $12 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 included loans to consumers
that are fully collateralized with equities, mutual funds
and fixed income securities, as well as bankers’
acceptances.

Margin loans

Margin loans are collateralized with marketable
securities and borrowers are required to maintain a
daily collateral margin in excess of 100% of the value
of the loan. Margin loans included $5.1 billion at
Dec. 31, 2012 and $5.0 billion at Dec. 31, 2011 of
loans related to a term loan program that offers fully
collateralized loans to broker-dealers.

BNY Mellon

Results of Operations (continued)

Loans by product

The following table shows trends in the loans outstanding at year-end 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 financings (b)
Other residential mortgages
Overdrafts
Other
Margin loans

Total domestic

Foreign:

Financial institutions
Commercial
Wealth management loans and mortgages
Commercial real estate
Lease financings (b)
Government and official institutions
Other (primarily overdrafts)

Total foreign
Total loans

2012

2011

2010 (a)

2009 (a)

2008

$ 5,455
1,306
8,796
1,677
1,329
1,632
2,228
639
13,397
36,459

5,833
111
68
63
1,025
-
3,070
10,170
$46,629

$ 4,606
752
7,342
1,449
1,558
1,923
2,958
623
12,760
33,971

6,538
528
-
-
1,051
-
1,891
10,008
$43,979

$ 4,630
1,250
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

$ 5,509
2,324
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

$ 5,546
5,786
5,333
3,081
1,809
2,505
4,835
485
3,977
33,357

3,755
573

2,154
1,434
2,121
10,037
$43,394

(a) Presented on a continuing operations basis.
(b) Net of unearned income on domestic and foreign lease financings of $1,135 million at Dec. 31, 2012, $1,343 million at Dec. 31, 2011,

$2,036 million at Dec. 31, 2010, $2,282 million at Dec. 31, 2009 and $2,836 million at Dec. 31, 2008.

Maturity of loan portfolio

The following table shows the maturity structure of
our loan portfolio at Dec. 31, 2012.

Maturity of loan portfolio at Dec. 31, 2012 (a)

Within
1 year

(in millions)
Domestic:
Financial institutions $ 4,891
83
Commercial
Commercial real

estate
Overdrafts
Other
Margin loans
Subtotal

Foreign

Total

197
2,228
639
13,397
21,435
8,426
$29,861

Between
1 and 5
years

After
5 years

Total

$ 564
1,223

-
-

$ 5,455
1,306

950
-
-
-
2,737
581

1,677
2,228
639
13,397
24,702
9,077
$3,318 (b) $600 (b) $33,779

530
-
-
-
530
70

(a) Excludes loans collateralized by residential properties, lease
financings and wealth management loans and mortgages.
(b) Variable rate loans due after one year totaled $3.5 billion

and fixed rate loans totaled $432 million.

46 BNY Mellon

International loans
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 $9.1 billion at Dec.
31, 2012 and $9.0 billion at Dec. 31, 2011. The
increase primarily resulted from higher overdrafts,
partially offset by a decrease 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.
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.

Results of Operations (continued)

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

Total

Charge-offs:

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

Total charge-offs

Recoveries:

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

Total recoveries

Net charge-offs

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

Balance, Dec. 31,
Domestic
Foreign

Total allowance, Dec. 31, (a)

Allowance for loan losses
Allowance for lending-related commitments

2012

2011

2010

2009

2008

$13,397
33,232

46,629
43,060

$12,760
31,219

43,979
40,919

$ 6,810
30,998

37,808
36,305

$ 4,657
32,032

36,689
36,424

$ 3,977
39,417

43,394
48,132

439
58

497

511
60

571

578
50

628

508
21

529

446
48

494

(2)
-
(13)
-
(1)
(22)
-
-

(38)

2
-
-
-
-
6
-
-

(30)
(80)
-
-

339
48

$ 387

266
121

(6)
(4)
(8)
-
(1)
(56)
(8)
-

(83)

3
-
2
-
-
3
-
-

(75)
1
-
-

439
58

497

394
103

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

(88)

15
1
2
-
-
2
-
-

(68)
11
-
-

511
60

571

498
73

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

(216)

-
-
-
1
1
-
-
-

(214)
332
(19)
-

578
50

628

503
125

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

(83)

2
-
-
3
1
-
4
-

(73)
104
27
(23)

508
21

529

415
114

Net charge-offs to average loans outstanding
Net charge-offs to total allowance for credit losses
Allowance for loan losses as a percentage of total loans
Allowance for loan losses as a percentage of non-margin loans
Total allowance for credit losses as a percentage of total loans
Total allowance for credit losses as a percentage of non-margin loans

0.07%
7.75
0.57
0.80
0.83
1.16

0.18%
15.09
0.90
1.26
1.13
1.59

0.19%
11.91
1.32
1.61
1.51
1.84

0.59%
34.08
1.37
1.57
1.71
1.96

0.15%
13.80
0.96
1.05
1.22
1.34

(a) 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.

BNY Mellon

Results of Operations (continued)

Net charge-offs were $30 million in 2012, $75 million
in 2011 and $68 million in 2010. Net charge-offs in
2012 included $16 million of other residential
mortgages primarily located in California, Florida and
New Jersey and $13 million of loans in the financial
institutions portfolio. Net charge-offs in 2011
included $53 million of other residential mortgages
primarily located in California, Florida, New York
and New Jersey, a $10 million loan in the media
portfolio and $6 million related to a broker-dealer
holding company that filed for bankruptcy. Net
charge-offs in 2010 included $44 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.

The provision for credit losses was a credit of
$80 million in 2012. The provision for credit losses
was $1 million in 2011 and $11 million in 2010. The
credit in 2012 primarily resulted from a reduction in
the allowance for credit losses related to the
residential mortgage loan portfolio. Our residential
mortgage loan portfolio has experienced better
performance compared with aggregate industry
historical losses. In 2012, we began using our actual
loan loss experience rather than industry data to
estimate the allowance for credit losses. We anticipate
the quarterly provision for credit losses to be
approximately $0 to $15 million in 2013.

The total allowance for credit losses was $387 million
at Dec. 31, 2012 and $497 million at Dec. 31, 2011.
The decrease in the allowance for credit losses was
primarily driven by the use of BNY Mellon’s actual
loan loss experience used to estimate future losses
related to the residential mortgage loan portfolio.

The ratio of the total allowance for credit losses to
year-end non-margin loans was 1.16% at Dec. 31,
2012 and 1.59% at Dec. 31, 2011. The ratio of the
allowance for loan losses to year-end non-margin

loans was 0.80% at Dec. 31, 2012 compared with
1.26% at Dec. 31, 2011. The lower ratios at Dec. 31,
2012 compared with Dec. 31, 2011 primarily reflect
the decrease in the allowance for credit losses related
to the residential mortgage loan portfolio.

We had $13.4 billion of secured margin loans on our
balance sheet at Dec. 31, 2012 compared with
$12.8 billion at Dec. 31, 2011. 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 allowance for credit
losses, as discussed in “Critical accounting estimates”
and Note 1 of Notes to Consolidated Financial
Statements, we have allocated our allowance for credit
losses as follows:

Allocation of allowance

Other residential
mortgages
Commercial
Financial institutions
Lease financing
Foreign
Commercial real estate
Wealth management (b)

2012 2011 2010 (a) 2009 (a) 2008 (a)

23% 31% 41%
27
18
9
13
13
13
12
12
8
7
8
6

16
2
16
11
7
7

26%
25
12
13
8
7
9

17%
34
11
17
4
11
6

Total

100% 100% 100%

100%

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

allowance for credit losses includes discontinued operations
in 2008.

(b) 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.

48 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
Commercial real estate
Foreign
Financial institutions

Total nonperforming loans

Other assets owned

Total nonperforming assets (a)

Nonperforming assets ratio
Nonperforming assets ratio, excluding margin loans
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

2012

2011

2010

2009

2008

$ 158
30
27
18
9
3

$ 203
32
21
40
10
23

$ 244
59
34
44
7
5

$ 190
58
65
61
-
172

245
4

546
4
$ 249 (b) $ 341 (b) $ 399 (b) $ 550

393
6

329
12

0.53%
0.7%
108.6%
106.8%
158.0%
155.4%

0.78%
1.1%
119.8%
115.5%
151.1%
145.7%

1.06%
1.3%
126.7%
124.8%
145.3%
143.1%

1.50%
1.7%
92.1%
91.5%
115.0%
114.2%

97
2
14
130
-
41

284
8

$ 292

0.67%
0.7%
146.1%
142.1%
186.3%
181.2%

(a) Nonperforming assets at Dec. 31, 2010 and Dec. 31, 2009 exclude discontinued operations. Nonperforming assets at Dec. 31, 2008

include discontinued operations of $96 million.

(b) Loans of consolidated investment management funds are not part of BNY Mellon’s loan portfolio. Included in these loans are

nonperforming loans of $174 million at Dec. 31, 2012, $101 million at Dec. 31, 2011 and $218 million at Dec. 31, 2010. 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 activity
(in millions)

Balance at beginning of year

Additions
Return to accrual status
Charge-offs
Paydowns/sales
Transferred to other real estate owned

Balance at end of year

2012

2011

$341
75
(39)
(27)
(86)
(15)

$399
180
(57)
(78)
(93)
(10)

$249

$341

Nonperforming assets were $249 million at Dec. 31,
2012, a decrease of $92 million compared with $341
million at Dec. 31, 2011. The decrease primarily
resulted from repayments of $44 million in the other
residential mortgage portfolio, $16 million in the
financial institutions portfolio, $13 million in the
commercial real estate portfolio, $9 million in the
commercial loan portfolio and $4 million in the
wealth management portfolio. Charge-offs in 2012
were $20 million in the other residential mortgage
portfolio and $5 million in the financial institutions
portfolio. Also in 2012, $29 million in the other
residential mortgage portfolio and $10 million in the
commercial real estate portfolio returned to accrual
status. Additions in 2012 included $55 million in the
other residential mortgage portfolio, $15 million in the
commercial loan portfolio and $5 million in the
wealth management portfolio.

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

Past due loans >90 days still accruing interest at year-end
(in millions)

2012 2011 2010 2009 2008

Domestic:

Consumer
Commercial

Total domestic
Foreign

$6
-

6
-

$13
-

13
-

$21
12

33
-

$ 93 $ 27
315
338

431
-

342

Total past due loans

$13

$33

$431 $342

Loans past due 90 days or more at Dec. 31, 2012 were
primarily comprised of other residential mortgage
loans. For additional information, see Note 6 of the
Notes to Consolidated Financial Statements.

Deposits

Total deposits were $246.1 billion at Dec. 31, 2012,
an increase of 12% compared with $219.1 billion at
Dec. 31, 2011. The increase in deposits reflects a
higher level of both foreign and domestic deposits
resulting from higher client deposits in our Investment
Services business.

BNY Mellon

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
Weighted-average rate at

period end

Quarter ended

Dec. 31,
2012

Sept. 30, Dec. 31,
2011

2012

$19,971
$10,158

$15,712
$10,092

$11,717
$ 8,008

0.07%

(0.06)%

(0.07)%

$ 7,427

$12,450

$ 6,267

(0.02)%

(0.05)%

Federal funds purchased and securities sold under
repurchase agreements were $7.4 billion at Dec. 31,
2012 compared with $12.5 billion at Sept. 30, 2012
and $6.3 billion at Dec. 31, 2011. The decrease in
federal funds purchased and securities sold under
repurchase agreements in the fourth quarter of 2012
was primarily due to a decrease in overnight rate
opportunities at year-end. The maximum daily
balance in fourth quarter of 2012 was $20.0 billion
compared with $15.7 billion in the third quarter of
2012. This increase resulted from attractive overnight
borrowing opportunities during the fourth quarter. At
Dec. 31, 2012, we earned revenue on securities sold
under repurchase agreements related to certain
securities for which we were able to charge a higher
rate for lending them.

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

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

2012

2011

2010

during the year

Average daily balance (a)
Weighted-average rate

during the year
Balance at Dec. 31
Weighted-average rate at

Dec. 31

$16,476
$13,466

$14,481
$11,853

$13,454
$11,270

0.10%

0.09%

$16,095

$12,671

$ 9,962

0.10%

0.09%

0.12%

(a) The weighted average rate is calculated based on, and is
applied to, the average interest-bearing payables to
customers and broker-dealers which were $8,033 million in
2012, $7,319 million in 2011 and $6,439 million in 2010.

Results of Operations (continued)

Noninterest-bearing deposits were $93.0 billion at
Dec. 31, 2012 compared with $95.3 billion at Dec. 31,
2011. Interest-bearing deposits were $153.1 billion at
Dec. 31, 2012 compared with $123.8 billion at Dec.
31, 2011.

The aggregate amount of deposits by foreign
customers in domestic offices was $6.7 billion and
$6.5 billion at Dec. 31, 2012 and 2011, respectively.

Deposits in foreign offices totaled $107.4 billion at
Dec. 31, 2012, and $85.1 billion at Dec. 31, 2011. 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, 2012.

Domestic time deposits > $100,000 at Dec. 31, 2012
Other
time
deposits

Certificates
of deposit

(in millions)

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

Total

$ 60
12
13
24

$109

Short-term borrowings

$44,430
-
-
-

Total

$44,490
12
13
24

$44,430

$44,539

We fund ourselves primarily through deposits and, to
a lesser extent, other borrowings, which are comprised
of federal funds purchased and securities sold under
repurchase agreements, 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.

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)

2012

2011

2010

Maximum daily balance

during the year
Average daily balance
Weighted-average rate

during the year
Balance at Dec. 31
Weighted-average rate at

Dec. 31

50 BNY Mellon

$21,818
$10,022

$21,690
$ 8,572

$16,006
$ 5,356

0.00%

0.02%

0.80%

$ 7,427

$ 6,267

$ 5,602

(0.02)%

(0.05)%

2.12%

Results of Operations (continued)

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
Weighted-average rate at

period end

Quarter ended

Dec. 31,
2012

Sept. 30, Dec. 31,
2011

2012

$16,476
$14,275

$14,639
$13,205

$14,481
$13,508

0.09%

0.10%

0.08%

$16,095

$13,675

$12,671

0.10%

0.09%

(a) The weighted average rate is calculated based on, and is
applied to, the average interest-bearing payables to
customers and broker-dealers, which were $8,532 million in
the fourth quarter of 2012, $8,141 million in the third quarter
of 2012 and $8,023 million in the fourth quarter of 2011.

Payables to customers and broker-dealers represent
funds awaiting re-investment and short sale proceeds
payable on demand. Payables to customers and
broker-dealers were $16.1 billion at Dec. 31, 2012,
$13.7 billion at Sept. 30, 2012 and $12.7 billion at
Dec. 31, 2011. Payables to customers and broker-
dealers are driven by customer trading activity levels
and market volatility.

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
Balance at Dec. 31
Weighted-average rate at Dec. 31

2012

2011

2010

$2,547
$ 819

$ 575
$ 98 $ 18

$ 128

$ 338

0.19% 0.08%

0.05%
$ 10 $ 10
0.03%

0.10% 0.03%

Commercial paper

Quarter ended

(dollar amounts in millions)

Dec. 31,
2012

Sept. 30, Dec. 31,
2011

2012

Maximum daily balance
during the quarter
Average daily balance
Weighted-average rate
during the quarter

Ending balance
Weighted-average rate at

period end

$2,358
$ 805

$2,331
$ 968

$ 46
$ 23

0.12%

$ 338

$1,278

0.03%
$ 10

2010. The increase in average commercial paper
outstanding and the maximum daily borrowing in
2012 compared with 2011 and 2010 was primarily
driven by attractive short-term borrowing
opportunities and Parent funding requirements. Our
commercial paper matures within 397 days from date
of issue and is not redeemable prior to maturity or
subject to voluntary prepayment.

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
Weighted-average rate

2012

2011

2010

$5,506
$1,392

$4,561
$1,932

$5,359
$2,045

during the year
Balance at Dec. 31
Weighted-average rate at Dec. 31

1.22%

1.10%

1.19%

$1,380

$2,174

$2,858

1.89%

1.15%

1.77%

Other borrowed funds

Quarter ended

(dollar amounts in millions)

Dec. 31,
2012

Sept. 30, Dec. 31,
2011

2012

Maximum daily balance
during the quarter
Average daily balance
Weighted-average rate
during the quarter

Ending balance
Weighted-average rate at

period end

$2,072
$1,064

$1,345
$ 887

$4,273
$2,109

1.45%

1.31%

0.95%

$1,380

$1,139

$2,174

1.89%

1.66%

1.15%

Other borrowed funds primarily include borrowings
under lines of credit by our Pershing subsidiaries and
overdrafts of sub-custodian account balances in our
Investment Services businesses. Overdrafts in these
accounts typically relate to timing differences for
settlements. Other borrowed funds were $1.4 billion at
Dec. 31, 2012 compared with $1.1 billion at Sept. 30,
2012 and $2.2 billion at Dec. 31, 2011. Other
borrowed funds averaged $1.4 billion in 2012,
$1.9 billion in 2011 and $2.0 billion in 2010. The
decreases compared with both the prior period end
and prior year average reflect a change in the source
of funding for our Pershing subsidiaries.

0.10%

0.11%

0.03%

Liquidity and dividends

Commercial paper outstanding was $338 million at
Dec. 31, 2012 compared with $1.3 billion at Sept. 30,
2012, and $10 million at Dec. 31, 2011. Average
commercial paper outstanding was $819 million in
2012, $98 million in 2011 and $18 million 2010. The
maximum daily balance in 2012 was $2.5 billion
compared with $0.6 billion in 2011 and $0.1 billion in

BNY Mellon defines liquidity as the ability of the
Parent 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 flows, without

BNY Mellon

Results of Operations (continued)

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, deposit run-off, or contingent liquidity
events.

For additional information on our liquidity policy, see
“Liquidity risk” in the “Risk Management” section.

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 lending-related commitments, thereby
reducing unanticipated funding requirements.

Available and liquid funds

(in millions)

Available funds:
Liquid funds:

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 interest-earning
assets, foreign deposits as a percentage of total
interest-earnings assets, purchased funds as a
percentage of total interest-earning assets, liquid
assets as a percentage of total interest-earning assets,
liquid assets as a percentage of purchased funds, and
discount window collateral and central bank deposits
as a percentage of total deposits. All of these ratios
exceeded our minimum guidelines at Dec. 31, 2012.

We also perform liquidity stress tests to ensure the
Company maintains sufficient liquidity resources
under multiple stress scenarios. Stress tests are based
on scenarios that measure liquidity risks under
unlikely but plausible events. The Company performs
these tests under various time horizons ranging from
one day to one year in a base case, as well as
supplemental tests to determine whether the
Company’s liquidity is sufficient for severe market
events and firm-specific events. Under our scenario
testing program, the results of the tests indicate that
the Company has sufficient liquidity.

We define available funds as liquid funds (which
include interest-bearing deposits with banks and
federal funds sold and securities purchased under
resale agreements), cash and due from banks, and
interest-bearing deposits with the Federal Reserve and
other central banks. The table below presents our total
available funds including liquid funds at period end
and on an average basis. The higher level of available
funds at Dec. 31, 2012 compared with Dec. 31, 2011
resulted from a higher level of client deposits,
partially offset by the redeployment of funds on our
balance sheet from interest-bearing deposits with the
Federal Reserve and other central banks as we
increased the level of our securities portfolio.

Dec. 31,
2012

Dec. 31,
2011

2012

2011

2010

Average

Interest-bearing deposits with banks
Federal funds sold and securities purchased under resale agreements

$ 43,910
6,593

$ 36,321
4,510

$ 38,959
5,492

$ 55,218
4,809

Total liquid funds
Cash and due from banks
Interest-bearing deposits with the Federal Reserve and other central

50,503
4,727

40,831
4,175

44,451
4,311

60,027
4,586

$56,679
4,660

61,339
3,840

banks

Total available funds

90,110

90,243

63,785

47,097

14,245

$145,340

$135,249

$112,547

$111,710

$79,424

Total available funds as a percentage of total assets

40%

42%

36%

38%

33%

52 BNY Mellon

Results of Operations (continued)

On an average basis for 2012 and 2011, 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 $21.5 billion and $17.2 billion,
respectively. The increase primarily reflects higher
levels of money market rate accounts, federal funds
purchased and commercial paper, partially offset by
lower levels of trading liabilities and other
borrowings. Average foreign deposits, primarily from
our European-based Investment Services business,
were $90.9 billion in 2012 compared with
$83.8 billion in 2011. The increase primarily reflects
growth in client deposits. Domestic savings and other
time deposits averaged $35.5 billion in 2012
compared with $36.2 billion in 2011. Deposit volumes
could be impacted by proposed money market fund
reform.

Average payables to customers and broker-dealers
were $8.0 billion in 2012 and $7.3 billion in 2011.
Payables to customers and broker-dealers are driven
by customer trading activity and market volatility.
Long-term debt averaged $19.9 billion in 2012 and
$18.1 billion in 2011. The increase in average long
term debt was driven by planned capital actions and
anticipated maturities. Average noninterest-bearing
deposits increased to $70.0 billion in 2012 from
$58.0 billion in 2011 reflecting growth in client
deposits. A significant reduction in our Investment
Services business would reduce our access to deposits.

The Parent has four major sources of liquidity:

Š cash on hand;
Š dividends from its subsidiaries;
Š access to the commercial paper market; and
Š access to the long-term debt and equity markets.

Subsequent to Dec. 31, 2012, our bank subsidiaries
could declare dividends to the Parent of
approximately $2.7 billion without the need for a
regulatory waiver. Including the impact of the
approximately $850 million charge related to the
Feb. 11, 2013 U.S. Tax Court ruling, dividend paying
capacity at our bank subsidiaries would decrease to
$1.9 billion. In addition, at Dec. 31, 2012, non-bank
subsidiaries of the Parent had liquid assets of
approximately $1.4 billion.

In 2012, BNY Mellon paid a quarterly cash dividend
of $0.13 per common share. 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. BNY Mellon’s common stock dividend
payout ratio was 26% in 2012.

Restrictions on our ability to obtain funds from our
subsidiaries are discussed in more detail in
“Supervision and Regulation – Capital Planning-
Payment of Dividends, Stock Repurchases and Other
Capital Distributions” and in Note 20 of the Notes to
Consolidated Financial Statements.

In 2012 and 2011, the Parent’s average commercial
paper borrowings were $819 million and $98 million,
respectively. The Parent had cash of $4.0 billion at
Dec. 31, 2012, compared with $4.6 billion at Dec. 31,
2011. In addition to issuing commercial paper for
funding purposes, 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 $338 million at Dec. 31, 2012 and $10 million at
Dec. 31, 2011. Net of commercial paper outstanding,
the Parent’s cash position at Dec. 31, 2012, decreased
by $902 million compared with Dec. 31, 2011,
primarily reflecting increased loans to subsidiaries,
which replaced external funding sources, and share
repurchases.

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

In 2012, we repurchased 49.8 million common shares
in the open market at an average price of $22.38 per
share for a total of $1.12 billion.

The Parent’s liquidity policy is to have sufficient cash
on hand to meet its obligations over the next 18 to
24 months without the need to receive dividends from
its bank subsidiaries or issue debt. As of Dec. 31,
2012, the Parent was in compliance with its liquidity
policy.

In addition to our other funding sources, we also have
the ability to access the capital markets. In June 2010,
we filed shelf registration statements on Form S-3
with the 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. These registration statements will expire in
June 2013, at which time we plan to file new shelf
registration statements.

BNY Mellon

Results of Operations (continued)

Our ability to access the capital markets on favorable
terms, or at all, is partially dependent on our credit
ratings, which, as of Dec. 31, 2012, were as follows:

Credit ratings at Dec. 31, 2012

Moody’s

S&P Fitch

DBRS

Parent:

Long-term senior debt
Subordinated debt
Trust-preferred securities
Short-term debt

Aa3
A1
A2
P1

A+ AA AA (low)
A+ A (high)
BBB BBB+ A (high)
R-1
A-1
(middle)
Stable

F1+

Outlook – Parent:

Negative Negative Stable

The Bank of New York Mellon:

Long-term senior debt
Long-term deposits
Short-term deposits

BNY Mellon, N.A.:

Long-term senior debt
Long-term deposits
Short-term deposits

Aa1
Aa1
P1

AA
AA AA
AA
AA
AA
F1+ R-1 (high)
A-1+

AA- AA-(a)
AA-
A-1+

AA
AA
AA
F1+ R-1 (high)

Outlook – Banks:

Stable Negative Stable

Stable

(a) Represents senior debt issuer default rating.

As a result of Moody’s and S&P’s government
support assumptions on U.S. financial institutions, the
Parent’s Moody’s and S&P ratings benefit from one
notch of “lift”. Similarly, The Bank of New York
Mellon’s and BNY Mellon, N.A.’s ratings benefit
from two notches of “lift” from Moody’s and one
notch of “lift” from S&P.

In March 2012, Moody’s downgraded BNY Mellon’s
long-term senior and subordinated debt and trust-
preferred securities ratings as well as the long-term
debt and deposit ratings of the bank subsidiaries. The
Parent’s long-term senior debt rating declined from
Aa2 to Aa3. The long-term senior debt ratings of both
The Bank of New York Mellon and BNY Mellon,
N.A. declined from Aaa to Aa1. All short-term ratings
for BNY Mellon were affirmed at Prime-1 and are
unaffected by this action.

In 2013, Moody’s, S&P, Fitch and DBRS reaffirmed
all of our credit ratings.

54 BNY Mellon

Debt issuances
(in millions)

Senior medium-term notes:

3-month LIBOR + 23 bps senior medium term notes

due 2015

1.2% senior medium-term notes due 2015
0.7% senior medium-term notes due 2015
1.969% senior medium-term notes due 2017
1.3% senior medium-term notes due 2018
3.55% senior medium-term notes due 2021

Total debt issuances

2012

$ 400
750
600
500
500
500

$3,250

The Parent has $1.6 billion of long-term debt that will
mature in 2013 and has the option to call $407 million
of subordinated debt in 2013, which it may call and
refinance if market conditions are favorable.

At Dec. 31, 2011, our trust preferred securities
included $500 million of Fixed-to-Floating Rate
Normal Preferred Capital Securities (“PCS”) issued
by Mellon Capital IV. As contractually obligated
under the terms of the PCS, a remarketing occurred in
May 2012. In this remarketing, junior subordinated
notes issued by BNY Mellon and held by Mellon
Capital IV were sold to third party investors and then
exchanged for BNY Mellon’s senior notes, which
were sold in a public offering. The proceeds of the
sale of the senior notes were used to fund the purchase
by Mellon Capital IV of $500 million of BNY
Mellon’s Series A non-cumulative perpetual preferred
stock (“Series A preferred stock”), which was issued
on June 20, 2012. As a result of the remarketing, the
PCS are expected to pay distributions at a rate per
annum equal to the greater of (i) three-month LIBOR
plus 0.565% for the related distribution period; or
(ii) 4.000%.

In 2012, BNY Mellon issued 23.3 million depositary
shares (the “Series C Depositary Shares”), each
representing a 1/4,000th interest in a share of BNY
Mellon’s Series C Noncumulative Perpetual Preferred
Stock (the “Series C preferred stock”). The proceeds
of the offering totaled $568 million, net of issuance
costs. BNY Mellon will pay dividends on the Series C
preferred stock, if declared by our board of directors,
at an annual rate of 5.2%.

At Dec. 31, 2012, we had $623 million of trust
preferred securities outstanding that qualify as Tier 1
capital, including $300 million that are currently
callable. On Nov. 26, 2012, BNY Mellon redeemed
all outstanding 6.875% Trust Preferred Securities,
Series E, issued by BNY Capital IV (liquidation
amount $25 per security and $200 million in the
aggregate) and all outstanding 5.95% Trust Preferred

Results of Operations (continued)

Securities, Series F, issued by BNY Capital V
(liquidation amount $25 per security and $350 million
in the aggregate). Any decision to take action with
respect to the remaining trust preferred securities will
be based on several considerations including interest
rates, the availability of cash and capital, as well as
the implementation of the Dodd-Frank Wall Street
Reform and Consumer Protection Act (the “Dodd-
Frank Act” or “Dodd-Frank”).

The double leverage ratio is the ratio of investment in
subsidiaries divided by our consolidated equity, which
included our noncumulative perpetual preferred stock
plus trust preferred securities. Our double leverage
ratio was 109.9 % at Dec. 31, 2012 and 107.3% at
Dec. 31, 2011. The increase in the ratio primarily
reflects greater retained capital at our bank
subsidiaries. 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 $750
million extended by 17 financial institutions matures
in March 2013. Average daily borrowings against
these lines was $51 million in 2012. Pershing LLC has
nine separate uncommitted lines of credit amounting
to $1.6 billion in aggregate. Average daily borrowing
under these lines was $237 million, in aggregate,
during 2012.

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

shareholders’ equity of $10 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 uncommitted lines of credit in place

for liquidity purposes, which are guaranteed by the
Parent. Pershing Limited has two separate
uncommitted lines of credit amounting to
$250 million in aggregate. Average daily borrowing
under these lines was $48 million, in aggregate,
during 2012.

Statement of cash flows

Cash provided by operating activities was $1.6 billion
in 2012 compared to $2.2 billion in 2011 and $4.1
billion in 2010. In 2012, cash flows from operations
were principally the result of earnings, partially offset
by changes in trading activities. In 2011 and 2010, the
cash flows from operations were principally the result
of earnings.

In 2012, cash used for investing activities was $29.4
billion compared to $80.2 billion in 2011 and $14.9
billion in 2010. In 2012, purchases of securities, and
increases in interest-bearing deposits with banks,
partially offset by sales, paydowns and maturities of
securities, were significant uses of funds. In 2011,
increases in interest-bearing deposits with the Federal
Reserve and other central banks, and the purchase of
securities, partially offset by a decrease in interest-
bearing deposits with banks and sales, paydowns and
maturities of securities, were significant uses of funds.
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,
partially offset by sales, paydowns and maturities of
securities, were a significant use of funds.

In 2012, cash provided by financing activities was
$28.3 billion compared with $78.8 billion in 2011 and
$10.8 billion in 2010. In 2012, changes in deposits
and payables to customers and broker dealers were
significant sources of funds. In 2011, changes in
deposits and payables to customers and broker-dealers
and proceeds from issuances of long-term debt were
significant sources of funds. In 2010, change in
deposits, federal funds purchased and securities sold
under repurchase agreements and other funds
borrowed were significant sources of funds.

BNY Mellon

Results of Operations (continued)

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, 2012

(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 (a)
Long-term debt (b)
Unfunded pension and post retirement benefits
Capital leases

Total contractual obligations

(a) Includes commercial paper.
(b) Includes interest.

Total

$ 42,855
110,220
7,427
16,095
1,718
20,804
365
80

Less than
1 year

$ 42,855
110,192
7,427
16,095
1,718
2,142
39
44

Payments due by period

1-3 years

3-5 years

-
25
-
-
-
8,784
72
34

-
-
-
-
-
3,582
87
2

Over
5 years

6,296
167

$199,564

$180,512

$8,915

$3,671

$6,466

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

Other commitments at Dec. 31, 2012

(in millions)

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

Total commitments

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

1-3 years

3-5 years

$245,717
8,952
4,121
286
461
10
219

$ —
7,710
2,268
469
333
—
—

$ —
14,496
777
391
83
4
—

$ —
107
1
744
40
235
—

Total

$245,717
31,265
7,167
1,890
917
249
219

$287,424

$259,766

$10,780

$15,751

$1,127

(a) Purchase obligations are defined as agreements to purchase goods or services that are enforceable and legally binding and specify all

significant terms.

(b) Includes private equity and Community Reinvestment Act commitments.

In addition to the amounts shown in the table above,
at Dec. 31, 2012, $340 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 $35 million. At this
point, it is not possible to determine when these
amounts will be settled or resolved.

See “Liquidity and dividends” and Note 23 of the
Notes to Consolidated Financial Statements for a
further discussion of the source of funds for our
commitments and obligations and known material
trends in our capital resources.

Off-balance sheet arrangements

Off-balance sheet arrangements discussed in this
section are limited to guarantees, retained or
contingent interests, support agreements, 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, and
securities lending indemnifications issued as part of
our servicing and fiduciary businesses. See Note 23 of
the Notes to Consolidated Financial Statements for a
further discussion of our off-balance sheet
arrangements.

56 BNY Mellon

Results of Operations (continued)

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
BNY Mellon common shareholders’ equity to total assets ratio
Tangible BNY Mellon shareholders’ equity to tangible assets of operations ratio – Non-GAAP (a)
Total BNY Mellon shareholders’ equity – GAAP
Total BNY Mellon common shareholders’ equity – GAAP
Tangible BNY Mellon shareholders’ equity – Non-GAAP (a)
Book value per common share – GAAP
Tangible book value per common share – Non-GAAP (a)
Closing common stock price per share
Market capitalization
Common shares outstanding

Full-year:

Average common equity to average assets
Cash dividends per common share
Common dividend payout ratio
Common dividend yield

2012

2011

10.1%
9.9%
6.4%

10.3%

6.4%

36,431
$
35,363
$
14,919
$
30.39
$
12.82
$
25.70
$
29,902
$
1,163,490

33,417

$
33,417

$
12,787

$
27.62

$
10.57

$
19.91

$
24,085

$
1,209,675

10.9%
0.52

26%
2.0%

11.5%

0.48

24%

2.4%

(a) See “Supplemental information – Explanation of Non-GAAP financial measures” beginning on page 106 for a reconciliation of GAAP

to non-GAAP.

Total The Bank of New York Mellon Corporation
shareholders’ equity increased compared with
Dec. 31, 2011. The increase primarily reflects
earnings retention, the issuance of $1.1 billion of
noncumulative perpetual preferred stock, net of
issuance costs and the increased value of our
investment securities portfolio, partially offset by
share repurchases.

During 2012, we repurchased 49.8 million common
shares in the open market, at an average price of
$22.38 per common share for a total of $1.12 billion.
Our capital plan for 2012 authorized the repurchase of
up to $1.16 billion worth of common shares, or no
more than $290 million per quarter, including both
open market purchases and employee benefit plan
repurchases, from the second quarter of 2012 through
the first quarter of 2013. Accordingly, in the first
quarter of 2013, we continued to repurchase common
shares under the 2012 capital plan. Through Feb. 27,
2013, we repurchased 7.8 million common shares in
the open market at an average price of $27.21 per
common share for a total of $211 million.

The unrealized net of tax gain on our available-for
sale investment securities portfolio recorded in
accumulated other comprehensive income was $1.3
billion at Dec. 31, 2012 compared with $417 million
at Dec. 31, 2011. The increase in the valuation of the
investment securities portfolio was driven by a decline
in interest rates and improved credit spreads.

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 and BNY Mellon must, among
other things, qualify as “well capitalized”.

As of Dec. 31, 2012 and 2011, BNY Mellon and our
bank subsidiaries were considered “well capitalized”
on the basis of the Basel I Total and Tier 1 capital to
risk-weighted assets ratios and the leverage ratio
(Basel I Tier 1 capital to quarterly average assets as
defined for regulatory purposes).

BNY Mellon

Results of Operations (continued)

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

Consolidated and largest bank subsidiary capital ratios

Dec. 31,

Consolidated capital ratios:

Estimated Basel III Tier 1 common equity ratio – Non-GAAP (a)(b)

Determined under Basel I-based guidelines (c):
Tier 1 common equity to risk-weighted assets ratio – Non-GAAP (b)
Tier 1 capital
Total capital
Leverage – guideline

The Bank of New York Mellon capital ratios (c):

Tier 1 capital
Total capital
Leverage

Well Adequately
capitalized

capitalized

2012

2011

N/A

6%
10%
5%

N/A

N/A
N/A
N/A
N/A

4%
8%
3%

9.8%

N/A

13.5%
15.0%
16.3%
5.3%

14.0%
14.6%
5.4%

13.4%
15.0%
17.0%
5.2%

14.3%
17.7%
5.3%

(a) The estimated Basel III Tier 1 common equity ratio at Dec. 31, 2012 was based on the NPRs and final market risk rule. The estimated
Basel III Tier1 common equity ratio of 7.1% at Dec. 31, 2011 was based on prior Basel III guidance and the proposed market risk
rule.

(b) See “Supplemental Information – Explanation of Non-GAAP financial measures” beginning on page 106 for a calculation of this

ratio.

(c) When in this Annual Report we refer to BNY Mellon’s or our bank subsidiary’s “Basel I” capital measures (e.g., Basel I Total capital
or Basel I Tier 1 capital), we mean Total or Tier 1 capital, as applicable, as calculated under the Federal Reserve’s risk-based capital
guidelines that are based on the 1988 Basel Accord, which is often referred to as “Basel I”.

N/A – Not applicable at the consolidated company level. Well capitalized and adequately capitalized have not been defined for Basel III.

Our estimated Basel III Tier 1 common equity ratio
was 9.8% at Dec. 31, 2012 based on the NPRs and final
market risk rule. The increase in the ratio from 7.1% at
Dec. 31, 2011, which was calculated under prior Basel
III guidance and the proposed market risk rule, was
primarily due to a reduction in risk-weighted assets
related to the treatment of sub-investment grade
securities under the NPRs, earnings retention and an
increase in the value of the investment portfolio,
partially offset by balance sheet growth in 2012. We
expect the charge related to the Feb. 11, 2013 U.S. Tax
Court ruling will decrease the Basel III Tier 1 common
equity ratio by approximately 55 basis points.

At Dec. 31, 2012, 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, 2012
(in millions)

Tier 1 capital
Total capital
Leverage

Consolidated

$10,023
7,023
930

The Bank of
New York
Mellon

$7,745
4,461
932

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

The Basel I 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 are
higher. In addition, when markets experience
significant volatility or stress, our balance sheet size
may increase considerably as client deposit levels
increase.

58 BNY Mellon

Results of Operations (continued)

In 2012, we generated $2.7 billion of gross Basel I
Tier 1 common equity, primarily driven by earnings
retention.

Basel I Tier 1 common equity generation
(in millions)

Net income applicable to common

shareholders of The Bank of New York
Mellon Corporation – GAAP

Add: Amortization of intangible assets, net

of tax

Gross Basel I Tier 1 common equity

generated

Less capital deployed:

Dividends
Common stock repurchases
Goodwill and intangible assets related to

acquisitions/dispositions

Total capital deployed

Add: Other

2012

2011

$2,427

$2,516

247

269

2,674

2,785

623
1,115

593
835

The following table shows the impact of a $1 billion
increase or decrease in risk-weighted assets/quarterly
average assets or a $100 million increase or decrease
in common equity on the consolidated capital ratios at
Dec. 31, 2012.

Potential impact to capital ratios as of Dec. 31, 2012

Increase or decrease of

$100 million in
common equity

$1 billion in risk-
weighted assets/
quarterly
average assets (a)

9 bps
9
3

14 bps
15
2

(basis points)

Basel I:

Tier 1 capital
Total capital
Leverage

Basel III:

(213)

Estimated Tier 1

1,831
431

1,215
241

common equity
ratio

7 bps

Net Basel I Tier 1 common equity generated

$1,274

$1,811

(a) Quarterly average assets determined under Basel I

regulatory guidelines.

Our Basel I Tier 1 capital ratio was 15.0% at both
Dec. 31, 2012 and Dec. 31, 2011. The Basel I Tier 1
capital ratio was unchanged as earnings retention and
the issuance of $1.1 billion of noncumulative
perpetual preferred stock, net of issuance costs were
offset by share repurchases, the repayment of trust
preferred securities and higher risk-weighted assets.

At Dec. 31, 2012, our Basel I risk-weighted assets
were $111 billion compared with $102 billion at Dec.
31, 2011. The increase in risk-weighted assets was
primarily driven by higher investment securities, loans
and interest-bearing deposits with banks.

Our Basel I Tier 1 leverage ratio was 5.3% at Dec. 31,
2012 compared with 5.2% at Dec. 31, 2011. The
leverage ratio of The Bank of New York Mellon was
5.4% at Dec. 31, 2012 compared with 5.3% at Dec.
31, 2011. The improvement in the leverage ratio of
BNY Mellon reflects the factors mentioned above.
The improvement in the leverage ratio of The Bank of
New York Mellon resulted from earnings retention.

Our tangible BNY Mellon shareholders’ equity to
tangible assets of operations ratio was 6.4% at both
Dec. 31, 2012 and Dec. 31, 2011. The impact of
earnings retention in 2012 was offset by the larger
balance sheet.

At Dec. 31, 2011, our trust preferred securities
included $500 million of PCS issued by Mellon
Capital IV. As contractually obligated under the terms
of the PCS, we remarketed these securities in 2012.
See “Liquidity and Dividends” for additional
information on the remarketing and issuance of Series
A as well as the issuance of our Series C preferred
stock. The Series A and Series C preferred stock
qualify as Tier 1 capital under the recently released
NPRs.

At Dec. 31, 2012, we had $623 million of trust
preferred securities outstanding that qualify as Tier 1
capital, including $300 million that are currently
callable. Any decision to take action with respect to
the remaining trust preferred securities will be based
on several considerations including interest rates, the
availability of cash and capital, as well as the
implementation of the Dodd-Frank Act.

BNY Mellon

Results of Operations (continued)

The following tables present the components of our Basel I Tier 1 and Total risk-based capital as well as the Basel
I risk-weighted assets at Dec. 31, 2012 and 2011.

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

Tier 1 capital:

Common shareholders’ equity
Preferred stock
Trust preferred securities
Adjustments for:

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

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,

2012

2011

$ 35,363
1,068
623

$ 33,417

1,659

(20,445)
1,454
(1,350)
(19)

(20,630)
1,426
(450)
(33)

16,694

15,389

2
1,058
386

1,446

2
1,545
497

2,044

$ 18,140

$ 17,433

(a) On a regulatory basis as determined under Basel I guidelines.
(b) Reduced by deferred tax liabilities associated with non-tax deductible identifiable intangible assets of $1,310 million at Dec. 31, 2012
and $1,459 million at Dec. 31, 2011 and deferred tax liabilities associated with tax deductible goodwill of $1,130 million at Dec. 31,
2012 and $967 million at Dec. 31, 2011.

Components of Basel I risk-weighted assets (a)

(in millions)
Assets:
Cash, due from banks and interest-bearing deposits in banks
Securities
Trading assets
Fed funds sold and securities purchased under resale agreements
Loans
Allowance for loan losses
Other assets

Total assets

Off-balance sheet exposure:
Commitments to extend credit
Securities lending
Standby letters of credit and other guarantees
Derivative instruments

Total off-balance sheet exposure

Market risk equivalent assets

Total risk-weighted assets

Average assets for leverage capital purposes

(a) On a regulatory basis as determined under Basel I guidelines.

Dec. 31,

2012

2011

Balance
sheet/

Risk-
notional weighted
assets
amount

Balance
sheet/
notional
amount

$ 130,739
81,988
7,861
4,510
43,979
(394)
56,583
$ 325,266

28,763
270,346
8,372
1,395,522
$1,703,003

$ 138,747
100,824
9,378
6,593
46,629
(266)
57,085
$ 358,990

31,286
247,692
8,398
1,203,392
$1,490,768

$ 9,756
23,227
-
275
27,664
-
24,342
$ 85,264

$ 11,713
106
7,640
3,852
$ 23,311
2,605
$111,180
$315,273

Risk-
weighted
assets

$ 8,144
18,084

152
26,028

24,294
$ 76,702

$ 10,733
176
7,715
4,473
$ 23,097
2,456
$102,255
$296,484

60 BNY Mellon

Results of Operations (continued)

Stock repurchase program

Share repurchases in the fourth quarter of 2012

(dollars in millions, except per share
information; common shares in
thousands)

Total shares Average price
per share
repurchased

Total shares
repurchased as part of a
publicly announced plan

October 2012
November 2012
December 2012

Fourth quarter 2012

3,761
3,245
12

7,018 (a)

$24.70
24.23
24.89

$24.48

3,750
3,200
-

6,950

Maximum approximate dollar
value of shares that may yet be
purchased under the Board
authorized plans or programs at
Dec. 31, 2012

$493
416
416

$416 (b)

(a) Includes 68,000 shares that were repurchased at a purchase price of $2 million from employees, primarily in connection with the

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

(b) Our capital plan for 2012 authorized share repurchases of no more than $290 million per quarter.

On Dec. 18, 2007, the Board of Directors of BNY
Mellon authorized the repurchase of up to 35 million
shares of common stock. On March 22, 2011, the
Board of Directors of BNY Mellon authorized the
repurchase of up to an additional 13 million shares of
common stock. On Feb. 14, 2012, in order to continue
with share repurchases under our 2011 capital plan,
the Board of Directors authorized the repurchase of an
additional 12 million shares of common stock, of
which 6.8 million shares of common stock remain
available for repurchase under the Feb. 2012 board
authorization. While there are no expiration dates on
the prior share repurchase authorizations, BNY
Mellon does not intend to use the prior authorizations
for any future share repurchases. On March 13, 2012,
in connection with the Federal Reserve’s non-
objection to our 2012 capital plan, the Board of
Directors authorized a new stock purchase program
providing for the repurchase of an aggregate of $1.16
billion of common stock. The new share repurchase
program may be executed through open market
purchases or privately negotiated transactions at such
prices, times and upon such other terms as may be
determined from time to time. There is no expiration
date on the share repurchase authorizations. In 2012,
we repurchased 49.8 million common shares in the
open market, at an average price of $22.38 per share
for a total of $1.12 billion.

Trading activities and risk management

Our trading activities are focused on acting as a
market maker for our customers and facilitating
customer trades. Positions managed for our own
account are immaterial to our foreign exchange and
other trading revenue and to our overall results of
operations. The risk from market-making activities for
customers 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 24 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, 2012 and 2011.

VaR (a)
(in millions)

2012
Average Minimum Maximum Dec. 31

Interest rate
Foreign exchange
Equity
Diversification

Overall portfolio

$10.6
1.7
1.9
(3.3)

$10.9

$ 5.0
0.2
0.9
N/M

$ 5.0

$16.5
4.8
3.4
N/M

$17.0

$10.7
0.7
1.8
(2.7)

$10.5

VaR (a)
(in millions)

2011
Average Minimum Maximum Dec. 31

Interest rate
Foreign exchange
Equity
Credit
Diversification

Overall portfolio

$ 7.9
2.8
3.2
0.1
(4.8)

$ 9.2

$ 3.0
0.4
1.8
-
N/M

$ 4.1

$15.7
5.9
6.1
0.3
N/M

$18.2

$12.1
1.9
3.1

(5.8)

$11.3

(a) VaR figures do not reflect the impact of CVA guidance in
ASC 820. This is consistent with the regulatory treatment.
VaR exposure does not include the impact of the Company’s
consolidated investment management funds and seed capital
investments.

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

The interest rate component of VaR represents
instruments whose values predominantly vary with the
level or volatility of interest rates. These instruments
include, but are not limited to: debt securities,
mortgage-backed securities, swaps, swaptions,
forward rate agreements, exchange traded futures and
options, and other interest rate derivative products.

BNY Mellon

Foreign exchange and other trading

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

As required by ASC 820 – Fair Value Measurements
and Disclosures, 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, 2012, our over-the-counter (“OTC”)
derivative assets of $5.1 billion included a CVA
deduction of $103 million, including $7 million
related to the credit quality of certain CDO
counterparties and Lehman Brothers Holdings, Inc.
(“Lehman”). Our OTC derivative liabilities of $7.0
billion included a debit valuation adjustment (“DVA”)
of $29 million related to our own credit spread. Net of
hedges, the CVA decreased $80 million and the DVA
decreased $16 million in 2012. The net impact of
these adjustments increased foreign exchange and
other trading revenue by $64 million in 2012.

At Dec. 31, 2011, our OTC derivative assets of $7.0
billion included a CVA deduction of $182 million,
including $8 million related to the credit quality of
certain CDO counterparties and Lehman. Our OTC
derivative liabilities of $7.4 billion included a DVA of
$46 million related to our own credit spread. Net of
hedges, the CVA increased $11 million and the DVA
was unchanged in 2011. The net impact of these
adjustments decreased foreign exchange and other
trading revenue by $11 million in 2011. In 2011, we
charged-off a $15 million realized loss against the
CVA reserves.

Results of Operations (continued)

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

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

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

During 2012, interest rate risk generated 74% of
average VaR, equity risk generated 14% of average
VaR and foreign exchange risk accounted for 12% of
average VaR. During 2012, our daily trading loss did
not exceed our calculated VaR amount of the overall
portfolio on any given day.

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

Distribution of trading revenues (losses) (a)

Quarter ended

(dollar amounts Dec. 31, March 31, June 30, Sept. 30, Dec. 31,
2012
in millions)

2012

2011

Revenue range:

Number of days

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

-
1
19
33
8

-
1
25
32
4

-
4
25
29
6

-
2
35
23
3

41
20

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

impact of the CVA and corresponding hedge.

62 BNY Mellon

Results of Operations (continued)

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.

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

Dec. 31, March 31,
2012

2011

Quarter ended
June 30,
2012

Sept. 30, Dec. 31,
2012

2012

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.

47%
27
22
4

45%
29
22
4

40%
31
22
7

43%
27
23
7

38%
35
22
5

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.

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

These scenarios do not reflect strategies that
management could employ to limit the impact as
interest rate expectations change. The table below 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
at Dec. 31, 2012
(dollar amounts in millions)

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

$607
435
128
(93)

(a) In the parallel rate shift, both short-term and long-term rates

move equally.

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

The 100 basis point ramp scenario assumes short-term
rates increase 25 basis points in each of the next four
quarters and the 200 basis point ramp scenario
assumes a 50 basis point per quarter increase.

Our net interest revenue sensitivity table above
incorporates assumptions about the impact of changes
in interest rates on depositor behavior based on
historical experience. Given the exceptionally low
interest rate environment, a rise in interest rates could
lead to higher depositor withdrawals than historically
experienced.

BNY Mellon

Results of Operations (continued)

Growth or contraction of deposits could also be
affected by the following factors:

Š Global economic uncertainty, particularly in

Europe;

Š Our ratings relative to other financial

institutions’ ratings; and

Š Money market mutual fund reform.

Any of these events could change our assumptions
about depositor behavior and have a significant
impact on our balance sheet and net interest revenue.

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, 2012

Rate change:

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

(0.2)%
0.3%

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

The asymmetrical accounting treatment of the impact
of a change in interest rates on our balance sheet may
create a situation in which an increase in interest rates
can adversely affect reported equity and regulatory
capital, even though economically there may be no
impact on our economic capital position. For example,
an increase in rates will result in a decline in the value
of our fixed income investment portfolio, which will

be reflected through a reduction in other
comprehensive income in our shareholders’ equity,
thereby affecting our tangible common equity
(“TCE”) ratios. Under current accounting rules, to the
extent 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, 2012, 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, 2012
(in basis points)

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

(121)
(57)

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, 2012, net investments in foreign
operations totaled approximately $10 billion and were
spread across 13 foreign currencies.

64 BNY Mellon

Risk management

Risk management overview

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 roles and responsibilities of the Risk Committee
are described in more detail in its charter, a copy of
which is available on our website,
www.bnymellon.com.

The Audit Committee is also comprised entirely of
independent directors, all of whom are financially
literate within the meaning of the NYSE listing
standards, and one of whom has been determined to
be an audit committee financial expert as set out in the
rules and regulations under the Securities Exchange
Act of 1934, as amended (the “Exchange Act”), with
accounting or related financial management expertise
within the meaning of the NYSE listing standards. All
members of the Audit Committee have been
determined to 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 our Company is the global leader in
providing services that enable the management and
servicing of financial assets in more than 100 markets
worldwide and has been designated by international
regulators as one of the 29 Global Systemically
Important Financial Institutions (“G-SIFIs”). This
designation recognizes our fundamental importance to
the health and operation of the global capital markets
and carries with it a responsibility to maintain the
highest standards of excellence. As a result, we are
committed to maintaining a strong balance sheet
throughout market cycles and to delivering operational
excellence 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 having
superior debt ratings among our peers. 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’s 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.”

BNY Mellon

Risk management (continued)

Primary risk types

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

Type of risk Description

Operational/
business

Market

Credit

Liquidity

The risk of loss resulting from inadequate or
failed internal processes, human factors and
systems, breaches of technology and
information systems, or from external events.
Also includes fiduciary risk, reputational risk,
and litigation risk.

The risk of loss due to adverse changes in the
financial markets. Our market risks are
primarily interest rate, foreign exchange, and
equity risk. Market risk particularly impacts our
exposures that are marked-to-market such as the
securities portfolio, trading book, and equity
investments.

The possible loss we would suffer if any of our
borrowers or other counterparties were to
default on their obligations to us. Credit risk is
resident in the majority of our assets, but
primarily concentrated in the loan and securities
books, as well as off-balance-sheet exposures
such as lending commitments, letters of credit,
and securities lending indemnifications.

The risk that BNY Mellon cannot meet its cash
and collateral obligations at a reasonable cost
for both expected and unexpected cash flows,
without adversely affecting daily operations or
financial conditions. Liquidity risk can arise
from cash flow mismatches, market constraints
from inability to convert assets to cash, inability
to raise cash in the markets, deposit run-off, or
contingent liquidity events. Thus, liquidity risk
can be inherent in the majority of our balance
sheet exposures.

66 BNY Mellon

The following table presents the primary type of risk
typically embedded in on- and off-balance-sheet
instruments.

Risks of our on- and off-balance-sheet instruments

Assets:
Interest-bearing deposits with

banks

credit

Federal funds sold and securities

purchased under resale
agreements

Securities
Trading assets
Loans
Goodwill
Intangible assets

Liabilities:
Deposits
Federal funds purchased and

securities sold under
repurchase agreements

Trading liabilities
Payables to customers and

broker-dealers
Commercial paper

Off-balance-sheet instruments:
Lending commitments
Standby letter of credit
Commercial letters of credit
Securities lending

market, credit
market, credit
market, credit
credit
operational/business, market
operational/business, market

liquidity

liquidity
market, liquidity

liquidity
liquidity

credit, liquidity
credit, liquidity
credit, liquidity

indemnifications

market, credit

Operational/business risk

Overview

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

To address these risks, we maintain comprehensive
policies and procedures and an internal control

Risk management (continued)

framework designed to provide a sound operational
environment. These controls have been designed to
manage operational/business 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 our internal controls and financial
reporting systems on an ongoing basis.

We have also established procedures that are designed
to ensure compliance with generally accepted
conduct, ethics and business practices which are
defined in our corporate policies. These include
training programs such as for our “Code of Conduct,”
and “Know Your Customer” programs, and
compliance training programs such as those regarding
information protection, suspicious activity reporting,
and operational risk.

Operational/business risk management

We have established operational/business risk
management as an independent risk discipline. The
Operational Risk Management (“ORM”) Group and
Information Risk Management (“IRM”) Group reports
to the Chief Risk Officer. The organizational
framework for operational/business 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/business risk management
strategy in addition to credit and market risk.
The Risk Committee meets regularly to review
and approve operational/business risk
management initiatives, discuss key risk issues,
and review the effectiveness of the risk
management systems.

IRM Group – The IRM Group is responsible for
developing policies and tools for identifying,
assessing, measuring and monitoring
information and technology risk for BNY
Mellon. The IRM Group partners with the
businesses to focus on three primary areas:
access, information protection, and technology
controls. The primary objectives of the IRM
Group are to help maintain and protect the
confidentiality, integrity, and availability of the
firm’s information and technology assets from
internal and external threats such as cyber
attacks.

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, Finance and
Sales and Trading attend the review.

Regarding the Treasury function, oversight is
provided by the Treasury Risk Committee, bi-weekly
Portfolio Management Group risk meetings, Business
Risk meetings, and numerous portfolio reviews.

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

Š Accountability of Businesses – Business

changes to existing limits;

managers are responsible for maintaining an

effective system of internal controls

commensurate with their risk profiles and in

accordance with BNY Mellon policies and

procedures.

Š ORM Group – The ORM Group is responsible
for developing risk management policies and
tools for assessing, measuring, monitoring and
managing operational risk for BNY Mellon. The
primary objectives of the ORM group are to
promote effective risk management, identify
emerging risks, create incentives for generating
continuous improvement in controls, and to
optimize capital.

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 Modeling Committee validates and
reviews back-testing results.

BNY Mellon

Risk management (continued)

Credit risk

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

We manage credit risk at both the individual exposure
level as well as at the portfolio level. Credit risk at the
individual exposure level is managed through our
credit approval system of 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”),
within the Risk Management and Compliance Sector.
The ERA is responsible for calculating two
fundamental credit measures. First, we project a
statistically probable credit loss, used to help
determine the appropriate loan loss reserve and to
measure customer profitability. Credit loss considers
three basic components: the estimated size of the
exposure whenever default might occur, the
probability of default before maturity and the severity
of the loss we would incur, commonly called “loss
given default.” For corporate banking, where most of
our credit risk is created, unfunded commitments are
assigned a usage given default percentage. Borrowers/
Counterparties are assigned ratings by 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

68 BNY Mellon

policy standards and limits by serving as an input to
both profitability analysis and concentration limits of
capital at risk with any one borrower, industry or
country.

The ERA is responsible for the calculation
methodologies and the estimates of the inputs used in
those methodologies for the determination of expected
loss and economic capital. These methodologies and
input estimates are regularly evaluated to ensure their
appropriateness and accuracy. As new techniques and
data become available, the ERA attempts to
incorporate, where appropriate, those techniques or
data.

Credit risk is intrinsic to much of the banking
business. 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.

Liquidity risk

The Board of Directors is ultimately responsible for
the liquidity risk of the Company and approves the
liquidity risk tolerances. The Asset Liability
Committee (“ALCO”) is the senior management
committee responsible for the oversight of liquidity
management. ALCO is responsible to ensure that
Board approved strategies, policies, and procedures
for managing liquidity are appropriately executed.
Senior management is also responsible for regularly
reporting the liquidity position of the Company to the
Board of Directors. The Treasury Risk Committee is
responsible for reviewing liquidity stress tests and
various liquidity metrics including contractual cash
flow gaps for liquidity, foreign exchange, liquidity
stress metrics and ratios, Liquidity Coverage Ratio,
Net Stable Funding Ratio and client deposit

Risk management (continued)

concentration. The Treasury Risk Committee
approves and validates stress test methodologies and
assumptions.

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, liquid
assets, unencumbered collateral, funding sources and
balance sheet liquidity ratios. We 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 interest-earning
assets, foreign deposits as a percentage of total
interest-earnings assets, purchased funds as a
percentage of total interest-earning assets, liquid
assets as a percentage of total interest-earning assets,
liquid assets as a percentage of purchased funds, and
discount window collateral and central bank deposits
as a percentage of total deposits. All of these ratios
exceeded our minimum guidelines at Dec. 31, 2012.

Stress Testing

It is the policy of the company to perform Enterprise-
wide Stress Testing at regular intervals as part of its
Internal Capital Adequacy Assessment Process
(“ICAAP”). Additionally, the Company performs an
analysis of capital adequacy in a stressed environment
in its Enterprise-wide Stress Test Framework, as
required by the enhanced prudential standards issued
pursuant to the Dodd-Frank Act.

Enterprise-Wide Stress Testing performs analysis
across the company’s Lines of Business, products,
geographic areas, and risk types incorporating the
results from the different underlying models and
projections given a certain stress-test scenario. It is an
important component of assessing the adequacy of
capital (as in the ICAAP) as well as identifying any
high risk touch points in business activities.
Furthermore, by integrating enterprise-wide stress
testing into the company’s capital planning process,
the results provide a forward-looking evaluation of the
ability to complete planned capital actions in a more
adverse-than-anticipated economic environment.

Economic capital required

BNY Mellon has implemented a methodology to
quantify economic capital. We define economic
capital as the capital required to protect against
unexpected economic losses over a one-year period at
a level consistent with the solvency of 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 requirements are directly related to our risk
profile. As such, it has become a part of our internal
capital adequacy 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

BNY Mellon

Risk management (continued)

techniques, we expect to continue to refine the
methodologies used to estimate our economic capital
requirements.

The following table presents our economic capital
required at Dec. 31, 2012, on a consolidated basis.

Economic capital required at Dec. 31, 2012
(in millions)

Credit
Market
Operational
Other

Economic capital required – consolidated
Basel I Tier 1 common equity
Capital cushion

Global compliance

$ 3,760
1,655
3,025
52

$ 8,492
$15,003
$ 6,511

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

Internal Audit is an independent, objective assurance
function that reports directly to the Audit Committee
of the Company’s Board of Directors. It assists the
Company in accomplishing its objectives by bringing
a systematic, disciplined, risk-based approach to
evaluate and improve the effectiveness of the
Company’s risk management, control, and governance
processes. The scope of Internal Audit’s work
includes the review and evaluation of the adequacy,
effectiveness, and sustainability of risk management
procedures, internal control systems, information
systems and governance processes.

70 BNY Mellon

Risk Factors

Making or continuing an investment in securities
issued by us, including our common stock, involves
certain risks that you should carefully consider. The
following discussion sets forth the most significant
risk factors that could affect our business, financial
condition or results of operations. However, other
factors, besides those discussed below, or in other of
our reports filed with or furnished to the SEC, also
could adversely affect our business, financial
condition or results of operations. We cannot assure
you that the risk factors described below or elsewhere
in our reports address all potential risks that we may
face. These risk factors also serve to describe factors
which may cause our results to differ materially from
those described in forward-looking statements
included herein or in other documents or statements
that make reference to this Annual Report. See
“Forward-looking Statements.”

Operational and Business Risk

We are subject to extensive government regulation
and supervision, including regulation and
supervision in non-U.S. jurisdictions, which may
limit our ability to pay dividends or make other
capital distributions and violations of which could
have a material adverse effect on our business,
financial condition and results of operations.

We operate in a highly regulated environment, and are
subject to a comprehensive statutory and regulatory
regime as well as oversight by governmental agencies.
In light of the current conditions in the global
financial markets and economy, the Obama
Administration, Congress and regulators have
increased their focus on the regulation of the financial
services industry. New or modified regulations and
related regulatory guidance, including under Basel III
(and the related NPRs) and the Dodd-Frank Act, may
have unforeseen or unintended adverse effects on the
financial services industry. We are also required to
submit to the Federal Reserve an annual capital plan
outlining our planned capital actions for the following
year. Our ability to take capital actions, including our
ability to make acquisitions, declare dividends or
repurchase our common stock, is subject to Federal
Reserve approval, which is dependent on our
successful demonstration that such actions would not
adversely affect our regulatory capital position in the
event of a stressed market environment. For example,
any increase in quarterly dividends not contemplated
in the annual capital plan will also require Federal
Reserve approval. The Federal Reserve’s current
guidance provides that, for large bank holding
companies (“BHCs”) like us, common stock dividend

payout ratios exceeding 30% of after-tax net income
will receive particularly close scrutiny. In addition,
the implementation of certain regulations with regard
to regulatory capital could disproportionately affect
our regulatory capital position relative to that of our
competitors, including those who may not be subject
to the same regulatory requirements, which could put
further pressure on the price of our common stock.
Finally, in October 2012, U.S. regulatory agencies
finalized regulations implementing stress testing
requirements required under the Dodd-Frank Act,
requiring us to undergo regulatory stress tests
conducted by the Federal Reserve annually, and to
conduct our own internal stress tests pursuant to
regulatory requirements twice annually.

Failure to comply with laws, regulations or policies
could result in sanctions by regulatory agencies, civil
money penalties and reputational damage, which
could have a material adverse effect on our business,
financial condition and results of operations. Although
we have policies and procedures designed to prevent
any such violations, there can be no assurance that
such violations will not occur. If violations do occur,
they could damage our reputation, increase our legal
and compliance costs, and ultimately adversely impact
our results of operations. Laws, regulations or policies
currently affecting us and our subsidiaries may change
at any time. Regulatory authorities may also change
their interpretation of these statutes and regulations.
Therefore, our business may also be adversely
affected by future changes in laws, regulations,
policies or interpretations or regulatory approaches to
compliance and enforcement. See “Supervision and
Regulation” in this Annual Report.

Recent legislative and regulatory actions may have
an adverse effect on our operations.

In July 2010, President Obama signed into law the
Dodd-Frank Act. This law broadly affects the financial
services industry, particularly those entities considered to
be “systemically important”, such as BHCs with assets
of over $50 billion, including BNY Mellon, by
establishing a framework for systemic risk oversight,
creating a liquidation authority, mandating higher capital
and liquidity requirements, requiring banks to pay
increased fees to regulatory agencies and numerous
other provisions aimed at strengthening the sound
operation of the financial services sector. Further, in
November 2012, the Basel Committee and the Financial
Stability Board indicated that we were provisionally
assigned to the 1.5% global systemically important
banks (“G-SIBs”) capital surcharge bucket, which
remains subject to interpretation and implementation by

BNY Mellon

Risk Factors (continued)

U.S. regulatory authorities. Additionally, in its proposed
rules regarding systemically important financial
institutions, the Federal Reserve indicated that it intends
to propose, in a separate rulemaking, a Tier 1 common
equity surcharge for G-SIBs based on the Basel
Committee’s proposal.

Among numerous other provisions of recent
legislative and regulatory changes that could have an
effect on BNY Mellon are:

the Basel Committee’s heightened capital and
liquidity requirements, including the related U.S.
notices of proposed rulemaking;
the potential requirement to register as a
“municipal advisor”. Depending upon the SEC’s
final interpretation of the statutory requirement,
BNY Mellon and a large number of employees
located throughout the country may be required
to register as a municipal adviser, which would
impose increased costs and burdens on, and
changes to, our business and may necessitate a
re-evaluation of the affected services;
requirements designed to provide for the orderly
resolution of certain large financial institutions,
including requirements to submit resolution
plans, which if found to be deficient could
subject BNY Mellon to more stringent capital,
leverage or liquidity requirements, restrictions on
growth, activities or operations, or divestiture of
assets or operations;

Š current proposals designed to enhance money
market fund regulation, including requiring
capital support or reserves, limitations on
redemptions, and requiring money market funds
to price their shares at net asset value;
the Task Force on Tri-Party Repo Infrastructure
Reform’s review of the risks in the tri-party repo
market, and associated recommendations;
the required registration of swap dealers and
associated compliance duties, reporting and
record-keeping with respect to swaps and
clearing and execution obligations, among other
duties; and

Š various features of the “Volcker Rule” element

of the Dodd-Frank Act, including:
– establishment of a costly heightened

compliance regime;

– the need to liquidate investments in certain
funds at an accelerated pace at unfavorable
pricing; and

– preclusion from launching new funds to meet

customer demand, and the competitive
disadvantage vis-à-vis other managers not
subject to the Volcker Rule.

72 BNY Mellon

U.S. regulatory agencies – banking, securities and
commodities – are steadily publishing notices of
proposed regulations required by the Dodd-Frank Act,
and new bodies created by Dodd-Frank (including the
FSOC and the CFPB) are commencing operations.
The related findings of various regulatory and
commission studies, the interpretations issued as part
of the rulemaking process and the final regulations
that are issued with respect to various elements of the
new law may cause changes that impact the
profitability of our business activities and require that
we change certain of our business practices and plans,
including those relating to cross-selling our products
and services. These changes could also expose us to
additional regulatory costs and require us to invest
significant management attention and resources to
make any necessary changes, all of which could
impact our profitability. See “Supervision and
Regulation” in this Annual Report for additional
information regarding the potential impact of the
Dodd-Frank Act on our business.

Adverse publicity, regulatory actions or litigation
with respect to us, other well-known companies and
the financial services industry generally could
materially adversely affect our results of operations
or harm our businesses or reputation.

We are subject to reputational, legal and regulatory
risk in the ordinary course of our business. The 2008
financial crisis and current political and public
sentiment regarding financial institutions have
resulted in a significant amount of adverse media
coverage of financial institutions. Harm to our
reputation can result from numerous sources,
including adverse publicity arising from events in the
financial markets, our perceived failure to comply
with legal and regulatory requirements, the purported
actions of our employees or alleged financial
reporting irregularities involving ourselves or other
large and well-known companies. Additionally, a
failure to deliver appropriate standards of service and
quality or a failure to appropriately describe our
products and services can result in customer
dissatisfaction, lost revenue, higher operating costs
and litigation. Actions by the financial services
industry generally or by other members of or
individuals in the financial services industry can also
negatively impact our reputation. For example, public
perception that some consumers may have been
treated unfairly by financial institutions has damaged
the reputation of the financial services industry as a
whole. Should any of these or other events or factors
that can undermine our reputation occur, there is no
assurance that the additional costs and expenses that

Risk Factors (continued)

we may need to incur to address the issues giving rise
to the reputational harm would not adversely affect
our earnings and results of operations.

We are also the subject of inquiries, investigations,
lawsuits and proceedings by counterparties, clients,
other third parties and regulatory and other
governmental agencies in the United States and
abroad, as well as the Department of Justice and state
attorneys general. See “Legal proceedings” in Note 23
of the Notes to the Consolidated Financial Statements
in this Annual Report for a discussion of material
legal and regulatory proceedings in which we are
involved. Responding to such inquiries,
investigations, lawsuits and proceedings, regardless of
the ultimate outcome of the matter, is time-consuming
and expensive and can divert the attention of our
senior management from our business. The outcome
of such proceedings may be difficult to predict or
estimate until late in the proceedings, which may last
several years.

Actions brought against us may result in lawsuits,
enforcement actions, injunctions, settlements,
damages, fines or penalties, which could have a
material adverse effect on our financial condition or
results of operations or require changes to our
business. Claims for significant monetary damages are
often asserted in many of these legal actions, while
claims for disgorgement, penalties and/or other
remedial sanctions may be sought in regulatory
matters. Although we establish accruals for our
litigation and regulatory matters in accordance with
applicable accounting guidance when those matters
proceed to a stage where they present loss
contingencies that are both probable and reasonably
estimable, nonetheless there may be a possible
exposure to loss in excess of any amounts accrued.
Any or all of these risks could result in increased
regulatory supervision and affect our ability to attract
and retain customers or maintain access to the capital
markets. Adverse publicity, governmental scrutiny
and legal proceedings can also adversely impact the
morale and performance of our employees.

Continued litigation and regulatory investigations
and proceedings involving our foreign exchange
standing instruction program and resulting adverse
publicity could affect our reputation and negatively
impact our foreign exchange business.

Beginning in 2009, our foreign exchange standing
instruction program became the subject of litigation
and regulatory investigations and proceedings. See
“Legal proceedings” in Note 23 of the Notes to the

Consolidated Financial Statements in this Annual
Report. These litigation and regulatory investigations
and proceedings have generated substantial scrutiny
of, and adverse publicity concerning, our foreign
exchange standing instruction program. Continued
litigation involving our foreign exchange standing
instruction program, and the resulting scrutiny and
adverse publicity, could affect our reputation and
discourage clients from doing business with us. For
example, these proceedings have resulted in the loss
of Ohio public fund custody clients, which has
attracted media attention and led to inquiries from
other clients, investors and employees. If we continue
to be subject to these proceedings and the resulting
adverse publicity relating to our foreign exchange
standing instruction program, our reputation could be
further affected, adversely impacting our business and
results of operations. For example, pressure on pricing
may cause our foreign exchange revenue to decline.
See “Foreign exchange and other trading revenue” in
the MD&A – Results of Operations section of this
Annual Report for more information regarding our
foreign exchange business, including business
practices, results of operations and trends.

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

Under regulatory capital adequacy guidelines and
other regulatory requirements, BNY Mellon and our
subsidiary banks and broker-dealers must meet
guidelines that include quantitative measures of
assets, liabilities and certain off-balance sheet items,
subject to qualitative judgments by regulators about
components, risk weightings and other factors. As
discussed under “Supervision and Regulation” in this
Annual Report, BNY Mellon is regulated as a BHC
and a financial holding company (“FHC”). Our ability
to maintain our status as an FHC is dependent upon a
number of factors, including our U.S. depository
institution subsidiaries qualifying on an ongoing basis
as “well capitalized” and “well managed” under the
banking agencies’ prompt corrective action
regulations and upon BNY Mellon qualifying on an
ongoing basis as “well capitalized” and “well
managed” under applicable Federal Reserve
regulations. Failure by BNY Mellon or one of our
U.S. bank subsidiaries to qualify as “well capitalized”
and “well managed”, if unremedied over a period of
time, would cause us to lose our status as an FHC and
could affect the confidence of clients in us,
compromising our competitive position. Additionally,

BNY Mellon

Risk Factors (continued)

an FHC that does not continue to meet all the
requirements for FHC status could lose the ability to
undertake new activities or make acquisitions that are
not generally permissible for BHCs without FHC
status or to continue such activities.

The Bank of New York Mellon is required to maintain
a leverage ratio of at least 5% in order to maintain its
“well capitalized” status, and BNY Mellon manages
its leverage ratio to a similar level. The leverage ratio
measures the ratio of Basel I Tier 1 capital to quarterly
average consolidated total assets, as defined under
Basel I regulatory guidelines. During periods of
market uncertainty, our balance sheet size may
increase considerably when custody customers choose
to hold cash balances in our bank subsidiaries in a
“flight to safety.” Such inflows of cash deposits
increase The Bank of New York Mellon’s quarterly
average consolidated total assets and, absent remedial
actions, could adversely impact its leverage ratio.

Our bank subsidiaries are also subject to capital
requirements, administered by the Federal Reserve in
the case of The Bank of New York Mellon and by the
OCC in the case of our national bank subsidiaries,
BNY Mellon, N.A. and The Bank of New York
Mellon Trust Company, National Association. Failure
by one of our bank subsidiaries to maintain its status
as “well capitalized” could lead to, among other
things, higher FDIC assessments. A further failure by
BNY Mellon or one of our U.S. bank subsidiaries to
maintain its status as “adequately capitalized” would
lead to regulatory sanctions and limitations and could
lead the federal banking agencies to take “prompt
corrective action.”

If our company, our subsidiary banks or broker-
dealers failed to meet these minimum capital
guidelines and other regulatory requirements, we may
not be able to deploy capital in the operation of our
business or distribute capital to stockholders, which
may adversely affect our business. The capital
requirements applicable to us as well as to our
subsidiary banks are in the process of being
substantially revised, in connection with Basel III and
the requirements of the Dodd-Frank Act and BNY
Mellon, and our subsidiary banks will be required to
satisfy additional, more stringent, capital adequacy
standards. We cannot fully predict the final form, or
the effects, of these regulations. See “Supervision and
Regulation” and the “Liquidity and dividends” and
“Capital – Capital adequacy” sections in the MD&A –
Results of Operations section in this Annual Report.

74 BNY Mellon

Our business may be materially adversely affected by
operational risk.

We are exposed to operational risk as a result of
conducting various fee-based services including
certain securities servicing, global payment services,
private banking and asset management services.
Examples of operational risk include: the risk of loss
resulting from errors related to transaction processing,
breaches of the internal control system and
compliance requirements, fraud by employees or
persons outside BNY Mellon, business interruption
due to system failures, natural disasters or other
events, or other risk of loss resulting from inadequate
or failed internal processes, people and systems or
from external events. Operational risk may also
include breaches of our technology and information
systems resulting from unauthorized access to
confidential information or from internal or external
threats, such as cyber attacks. Operational risk also
includes potential legal or regulatory actions that
could arise as a result of non-compliance with
applicable laws, regulatory requirements or contracts
which could have an adverse effect on our reputation.

An important aspect of managing our operational risk
is creating a risk culture in which all employees fully
understand that there is risk in every aspect of our
business and the importance of managing risk as it
relates to their job functions. We continue to enhance
our risk management program to support our risk
culture, ensuring that it is sustainable and appropriate
to our role as a major financial institution.
Nonetheless, if we fail to create the appropriate
environment that sensitizes all of our employees to
managing risk, our business could be adversely
impacted. We regularly assess and monitor
operational risk in our business and provide for
disaster and business recovery planning, including
geographical diversification of our facilities.
However, the occurrence of various events, including
unforeseeable and unpreventable events such as
systems failures or natural disasters, could damage our
physical facilities or our computer systems or
software, cause delay or disruptions to operational
functions, impair our clients, vendors and
counterparties and ultimately negatively impact our
results of operations due to potentially higher
expenses and lower revenues. For a discussion of
operational risk see “Risk management – Operational/
business risk” and “Business Continuity” in the
MD&A – Results of Operations section in this Annual
Report.

Risk Factors (continued)

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

Management regularly reviews and updates our
internal controls, disclosure controls and procedures,
and corporate governance policies and procedures.
Any system of controls, however well designed and
operated, is based in part on certain assumptions and
can provide only reasonable, not absolute, assurances
that the objectives of the system are met. Any failure
or circumvention of our controls and procedures or
failure to comply with regulations related to controls
and procedures could have a material adverse effect
on our business, results of operations and financial
condition. If we identify material weaknesses in our
internal control over financial reporting or are
otherwise required to restate our financial statements,
we could be required to implement expensive and
time-consuming remedial measures and could lose
investor confidence in the accuracy and completeness
of our financial reports.

If our information systems experience a disruption
or breach in security that results in a loss of
confidential client information or impacts our ability
to provide services to our clients, our business and
results of operations may be adversely affected.

We rely on communications and information systems
to conduct our business. Our businesses that rely
heavily on technology, such as our Investment
Services and clearing businesses, are particularly
vulnerable to security breaches and technology
disruptions. While our information systems have been
subjected to cyber threats, including hacker attacks,
viruses, denial of service efforts and unauthorized
access attempts, we deploy a broad range of
sophisticated defenses and we have avoided a material
breach. The security of our computer systems,
software and networks, and those functions that we
may outsource, may continue to be subjected to cyber
threats that could result in failures or disruptions in
our business. Despite our efforts to ensure the
integrity of our systems and information, it is possible
that we may not be able to anticipate or to implement
effective preventive measures against all cyber
threats, especially because the techniques used change
frequently or are not recognized until launched, and
because security attacks can originate from a wide
variety of sources, including outside third parties such
as persons who are involved with organized crime or
associated with external service providers or who may
be linked to terrorist organizations or hostile foreign

governments. Those parties may also attempt to
fraudulently induce employees, customers or other
users of our systems to disclose sensitive information
in order to gain access to our data or that of our
customers or clients.

Breaches of security may occur through intentional or
unintentional acts by those having authorized or
unauthorized access to our systems or our clients’ or
counterparties’ confidential information, including
employees and customers, as well as hackers. A
breach of security that results in the loss of
confidential client information may require us to
reconstruct lost data or reimburse clients for data and
credit monitoring efforts, may result in loss of
customer business, would be costly and time-
consuming, and may negatively impact our results of
operations and reputation. Additionally, security
breaches or disruptions of our information systems, or
those of our service providers, could impact our
ability to provide services to our clients, which could
expose us to liability for damages, result in the loss of
customer business, damage our reputation, subject us
to regulatory scrutiny or expose us to civil litigation,
any of which could have a material adverse effect on
our financial condition and results of operations. In
addition, the failure to upgrade or maintain our
computer systems, software and networks, as
necessary, could also make us susceptible to breaches
and unauthorized access and misuse. There can be no
assurance that any such failures, interruptions or
security breaches will not occur or, if they do occur,
that they will be adequately addressed. We may be
required to expend significant additional resources to
modify, investigate or remediate vulnerabilities or
other exposures arising from information systems
security risks. Furthermore, even if not directed at us
specifically, attacks on other large financial
institutions could disrupt the overall functioning of the
financial system to the detriment of other financial
institutions, including us.

As a result of the importance of communications and
information systems to our business, we could also be
adversely affected if attacks affecting the third party
providers of our communications services impair our
ability to process transactions and communicate with
customers and counterparties. For a discussion of
operational risk, see “Risk management –
Operational/business risk” and “Business Continuity”
in the MD&A – Results of Operations section in this
Annual Report.

BNY Mellon

Risk Factors (continued)

We depend on our technology; if we fail to update
our technology our business may be adversely
affected.

We are dependent on technology because many of our
products and services involve processing large
volumes of data. Our technology platforms must
therefore provide global capabilities and scale. Rapid
technological changes require significant and ongoing
investments in technology to develop competitive new
products and services or adopt new technologies.
Technological advances which result in lower
transaction costs may adversely impact our revenues.
In addition, unsuccessful implementation of
technological upgrades and new products may
adversely impact our ability to service and retain
customers.

Developments in the securities processing industry,
including shortened settlement cycles and straight
through-processing, will necessitate ongoing changes
to our business and operations and will likely require
additional investment in technology. Our financial
performance depends in part on our ability to develop
and market new and innovative services, to adopt or
develop new technologies that differentiate our
products or provide cost efficiencies and to deliver
these products and services to the market in a timely
manner at a competitive price.

Rapid technological change in the financial services
industry, together with competitive pressures, require
us to make significant and ongoing investments. We
cannot provide any assurance that our technology
spending will achieve gains in competitiveness or
profitability, and the costs we incur in product
development could be substantial. Accordingly, we
could incur substantial development costs without
achieving corresponding gains in profitability.

Furthermore, if a third party were to assert a claim of
infringement or misappropriation of its proprietary
rights, obtained through patents or otherwise, against us
with respect to one or more of our products, systems, or
methods of doing business or conducting our
operations, we could be required to spend significant
amounts to defend such claims, develop alternative
methods of operations, pay substantial money damages
or obtain a license from the third party.

Change or uncertainty in monetary, tax and other
governmental policies may impact our profitability
and ability to compete.

The monetary, tax and other policies of the
government and its agencies, including the Federal

76 BNY Mellon

Reserve, have a significant impact on interest rates
and overall financial market performance. The Federal
Reserve regulates the supply of money and credit in
the United States and its policies determine in large
part our cost of funds for lending, investing and
capital raising activities and the return we earn on
those loans and investments, both of which affect our
net interest margin. The actions of the Federal
Reserve also can materially affect the value of
financial instruments we hold, and its policies also can
affect our borrowers, potentially increasing the risk
that they may fail to repay their loans. The Federal
Reserve has been engaging in quantitative economic
easing since 2008. In late 2012, the Federal Reserve
announced “QE3” and “QE4” programs to buy
mortgaged backed securities and long-term U.S.
Treasury securities until such time as certain criteria
relating to unemployment and inflation are met. These
policies have resulted in some reduction in nominal
yield and accelerated run-off on certain interest-
earning assets. To the extent that we are not able to
manage our reinvestment risk relating to the impact of
these monetary policies, our net interest revenue could
be adversely affected.

Our business and earnings may also be adversely
affected by the monetary, tax and other governmental
policies that are adopted by various U.S. regulatory
authorities, non-U.S. governments and international
agencies. Changes in monetary, tax and other
governmental policies could impose additional
compliance, legal, review and response costs that may
impact our profitability and may allow additional
competition, facilitate consolidation of competitors, or
attract new competitors into our businesses. Changes
in monetary, tax and other governmental policies are
beyond our control and difficult to predict and we
cannot determine the ultimate effect that any such
changes would have upon our business, financial
condition or results of operations.

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

Many businesses in which we operate are intensely
competitive around the world. Competitors include
other banks, trading firms, broker dealers, investment
banks, asset managers, insurance companies and a
variety of other financial services and advisory
companies whose products and services span the
local, national and global markets in which we
conduct operations. In addition, technological
advances and the growth of internet-based commerce
have made it possible for other types of institutions,

Risk Factors (continued)

such as outsourcing companies and data processing
companies, to offer a variety of products and services
competitive with certain areas of our business.
Increased competition in any one or all of these areas
may require us to make additional capital investments
in our businesses in order to remain competitive.

decline in the pace at which existing and new clients
use additional services and assign additional assets to
us for management or custody could adversely affect
our future results of operations. A decline in the rate
at which our clients outsource functions could also
adversely affect our results of operations.

Furthermore, pricing pressures, as a result of the
ability of competitors to offer comparable or improved
products or services at a lower price and customer
pricing reviews, particularly in our asset servicing
businesses, may result in a reduction in the price we
can charge for our products and services, which could
negatively affect our ability to maintain or increase
our profitability.

Recently enacted and proposed legislation and
regulation may impact our ability to conduct certain of
our businesses in a cost-effective manner or at all,
including legislation relating to restrictions on the
types of activities in which financial institutions are
permitted to engage, such as seed capital investing.
See “Supervision and Regulation” in this Annual
Report. This legislation and other regulations may not
apply to all of our competitors, which could adversely
impact our ability to compete effectively. A decline in
our competitive position could adversely affect our
ability to maintain or increase our profitability.

New lines of business or new products and services
may subject us to additional risks, and the failure to
grow our existing businesses could affect our results
of operations.

From time to time, we may implement new lines of
business or offer new products and services within
existing lines of business. There are substantial risks
and uncertainties associated with these efforts. We
invest significant time and resources in developing
and marketing new lines of business, products and
services. Initial timetables for the introduction and
development of new lines of business and/or new
products or services may not be achieved and price
and profitability targets may not be met or prove
feasible. Our revenues and costs may fluctuate
because generally new businesses require start-up
expenses but take time for revenues to develop. As a
result of the uncertainties associated with the entry
into new businesses, our business may be adversely
impacted.

In addition, our internal strategies and forecasts may
assume a growing client base and increasing client
usage of our services across business lines. A decline
in the pace at which we attract new clients and a

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

Our success depends, in large part, on our ability to
attract new employees, retain and motivate our
existing employees, and continue to compensate our
employees competitively amid intense public and
regulatory scrutiny of the compensation practices of
large financial institutions. Competition for the best
employees in most activities in which we engage can
be intense, and there can be no assurance that we will
be successful in our efforts to recruit and retain key
personnel. Factors that affect our ability to attract and
retain key employees include our compensation and
benefits programs, our profitability and our reputation
for rewarding and promoting qualified employees.
Our ability to attract and retain key executives and
other employees may be hindered as a result of
regulations applicable to incentive compensation and
other aspects of our compensation programs
promulgated by the Federal Reserve and other
regulators in the United States and worldwide,
regulations on incentive compensation to be
promulgated by various U.S. regulators pursuant to
the Dodd-Frank Act and other existing and potential
regulations. These regulations, which include and are
expected to include mandatory deferral and clawback
requirements, do not and will not apply to some of our
competitors and to other institutions with which we
compete for talent. Our ability to recruit and retain
key talent may be adversely affected by these
regulations. In addition, aspects of our compensation
programs are performance-based. If we do not achieve
applicable performance thresholds for a relevant
period, employee compensation may be adversely
affected.

We are subject to political, economic, legal,
operational and other risks that are inherent in
operating globally and which may adversely affect
our business.

In conducting our business and maintaining and
supporting our global operations, we are subject to
risks of loss from the outbreak of hostilities and
various unfavorable political, economic, legal or other
developments, including social or political instability,
changes in governmental policies or policies of central

BNY Mellon

Risk Factors (continued)

banks, expropriation, nationalization, confiscation of
assets, price controls, capital controls, exchange
controls, and changes in laws and regulations. Our
international businesses are regulated in the
jurisdictions in which they are located or operate.
These regulations may apply heightened scrutiny to
non-domestic companies, which can reduce our
flexibility as to intercompany transactions,
investments and other aspects of business operations
and adversely affect our liquidity, profitability and
regulatory capital. The failure to properly mitigate
such risks, or of its operating infrastructure to support
such international activities could result in operational
failures and regulatory fines or sanctions, which could
cause our earnings or stock price to decline. Further,
our businesses and operations from time to time enter
into new regions throughout the world, including
emerging markets. Various emerging market countries
have experienced severe economic and financial
disruptions, including significant devaluations of their
currencies, defaults or threatened defaults on
sovereign debt, capital and currency exchange
controls, and low or negative growth rates in their
economies. Crime, corruption, war or military actions,
and a lack of an established legal and regulatory
framework are additional challenges in certain
emerging markets. Revenue from international
operations and trading in non-U.S. securities and other
obligations may be subject to negative fluctuations as
a result of the above considerations. The possible
effects of any of these conditions may adversely affect
our business and increase volatility in global financial
markets generally.

Acts of terrorism, natural disasters, pandemics and
global conflicts may have a negative impact on our
business and operations.

Acts of terrorism, natural disasters, pandemics, global
conflicts or other similar catastrophic events could
have a negative impact on our business and
operations. While we have in place business
continuity and disaster recovery plans, such events
could still damage our facilities, disrupt or delay the
normal operations of our business (including
communications and technology), result in harm or
cause travel limitations on our employees, and have a
similar impact on our clients, suppliers and
counterparties. These events could also negatively
impact the purchase of our products and services to
the extent that those acts or conflicts result in reduced
capital markets activity, lower asset price levels, or
disruptions in general economic activity in the United
States or abroad, or in financial market settlement
functions. For example, in October 2012 several of

78 BNY Mellon

our facilities in the northeastern U.S. were impacted
by Superstorm Sandy and the New York Stock
Exchange was closed for two trading days. While our
business continuity plans functioned well and we did
not experience a material financial impact from the
storm, nonetheless the recovery required significant
resources and we experienced some lost revenue
opportunities. War, terror attacks, political unrest,
global conflicts, the national and global efforts to
combat terrorism and other potential military activities
and outbreaks of hostilities may negatively impact
economic growth, which could have an adverse effect
on our business and operations, and may have other
adverse effects on us in ways that we are unable to
predict.

Our failure to successfully integrate strategic
acquisitions could have an adverse effect on our
business, results of operations and financial
condition.

From time to time, to achieve our strategic objectives,
we have acquired or invested in other companies or
businesses, and may do so in the future. Each
acquisition poses integration challenges, including
successfully retaining and assimilating clients and key
employees, capitalizing on certain revenue synergies,
integrating the acquired company’s accounting
management information, internal controls and other
administrative systems and technology. We may be
required to spend a significant amount of time and
resources to integrate these acquisitions and the
anticipated benefits may take longer to achieve than
projected. Additionally, for a period of time after an
acquisition we may be required to use the seller’s
technology systems until we are able to convert the
acquired business to our own technology systems. In
the event that such technology conversion takes
longer than anticipated, we may incur significant costs
for the continued usage of the seller’s technology.
Moreover, to the extent we enter into an agreement to
buy or sell an entity, there can be no guarantee that the
transaction will close when anticipated, or at all. In
particular, in certain instances we must seek
regulatory approvals before we can acquire another
organization, which can delay or disrupt such
acquisitions. If we fail to successfully integrate
strategic acquisitions on a timely basis or in a cost-
effective manner, we may not meet our expectations
regarding the profitability of such acquisitions, which
could have an adverse impact on our business,
financial condition and results of operations.

Risk Factors (continued)

Market Risk

The ongoing Eurozone crisis, the failure or
instability of any of our significant counterparties in
Europe, or a breakup of the European Monetary
Union could have a material adverse effect on our
business and results of operations.

The financial markets remain concerned about the
ability of certain European countries, particularly
Greece, Ireland and Portugal, but also others such as
Spain and Italy, to finance their deficits and service
growing debt burdens amidst difficult economic
conditions. This loss of confidence has led to rescue
measures for Greece, Ireland and Portugal by
Eurozone countries and the International Monetary
Fund as well as the newly established European
Stability Mechanism and the European Central Bank’s
Outright Monetary Transactions program to stabilize
Eurozone governments. Despite these efforts, yields
on government bonds of certain Eurozone countries,
including Greece, Ireland, Italy, Portugal and Spain,
have remained volatile. The actions required to be
taken by those countries as a condition to rescue
packages, and by other countries to mitigate similar
developments in their economies, have resulted in
increased political discord within and among
Eurozone countries. We are primarily exposed to
disruptions in European markets in three principal
areas – on our balance sheet, in certain interest
bearing deposits with banks, loans, trading assets and
investment securities, as well as our Investment
Management and Investment Services fee revenue.
Additionally, continued disruptions in Europe could
lead to increased client deposits and a larger balance
sheet, which could adversely impact our leverage
ratio. For additional information regarding our
exposure, please see “International Operations –
Exposure in Ireland, Italy, Spain, Portugal and
Greece” in the MD&A – Results of Operations section
in this Annual Report.

The partial or full break-up of the European Monetary
Union would be unprecedented and its impact highly
uncertain. The exit of one or more countries from the
European Monetary Union or the dissolution of the
European Monetary Union could lead to
redenomination of certain obligations of obligors in
exiting countries. Any such exit and redenomination
would cause significant uncertainty with respect to
outstanding obligations of counterparties and debtors
in any exiting country, whether sovereign or
otherwise, and lead to complex and lengthy disputes
and litigation. The resulting uncertainty and market
stress could also cause, among other things, severe

disruption to equity markets, significant increases in
bond yields generally, potential failure or default of
financial institutions, including those of systemic
importance, a significant decrease in global liquidity,
a freeze-up of global credit markets and a potential
worldwide recession.

The interdependencies among European economies
and financial institutions have contributed to concerns
regarding the stability of European financial markets
generally and certain institutions in particular.
Financial services institutions are interdependent as a
result of trading, clearing, counterparty or other
relationships. We routinely execute transactions with
European counterparties, including brokers and
dealers, commercial banks, investment banks, mutual
and hedge funds, and other institutional clients. As a
result, defaults or non-performance by, or even
rumors or questions about, one or more European
financial institutions, or the financial markets
generally, have in the past led to market-wide
liquidity problems and could lead to losses by us or by
other institutions in the future. Given the scope of our
European operations, clients and counterparties,
persistent disruptions in the European financial
markets, the attempt of a country to abandon the Euro,
the failure of a significant European financial
institution, even if not an immediate counterparty to
us, or persistent weakness in the Euro could have a
material adverse impact on our business or results of
operations.

Continuing uncertainty in financial markets and
weakness in the economy generally may materially
adversely affect our business and results of
operations.

Our results of operations may be materially affected
by conditions in the domestic and global financial
markets and the economy generally, both in the
United States and elsewhere around the world. A
variety of factors raise concern over the course and
strength of the economic recovery, including
depressed home prices and continuing foreclosures,
volatile equity market values, high unemployment,
governmental budget deficits (including, in the United
States, at the federal, state and municipal level),
contagion risk from possible default by other
countries on sovereign debt, declining business and
consumer confidence and the risk of increased
inflation. The resulting economic pressure on
consumers and lack of confidence in the financial
markets may adversely affect certain portions of our
business, financial condition and results of operations.
A worsening of these conditions would likely

BNY Mellon

Risk Factors (continued)

exacerbate the adverse effects of these difficult market
conditions on us and others in the financial services
industry. In particular, we face the following risks in
connection with these events, some of which are
discussed at greater length in separate risk factors:

Š The fees earned by our Investment Management
business – that is, Asset Management and Wealth
Management – are higher as assets under
management increase. Those fees are also
impacted by the composition of the assets under
management, with higher fees for some asset
categories as compared to others. Uncertain and
volatile capital markets could result in reductions
in assets under management because of
investors’ decisions to withdraw assets or from
simple declines in the value of assets under
management as markets decline. Uncertain and
volatile financial markets may also result in
changes in customer allocations of funds among
money market, equity, fixed income or other
investment alternatives. Those changes in
allocation may be from higher fee investments to
lower fee investments. For example, at Dec. 31,
2012, using the S&P 500 Index as a proxy for the
global equity markets, we estimate that a 100
point change in the value of the S&P 500 Index
spread evenly throughout the year, would impact
fee revenue by less than 1% and diluted earnings
per common share by $0.03 to $0.05.
Š Continuing run-off of structured debt

securitizations could reduce our total annual

revenue if the structured debt markets do not

recover.

Š Uncertain and volatile capital markets,

particularly declines, could reduce the value of
our investments in equity and debt securities,
including pension and other post-retirement plan
assets.

Š Our ability to continue to operate certain

commingled investment funds at a net asset value
of $1.00 per unit and to allow unrestricted cash
redemptions by investors in those commingled
funds (or by investors in other funds managed by
us which are invested in those commingled
investment funds) may be adversely affected by
depressed mark-to-market prices of the
underlying portfolio securities held by such
funds, or by material defaults on such securities
or by the level of liquidity that could be achieved
from the portfolio securities in such funds; and
we may be faced with claims from investors and
exposed to financial loss as a result of our
operation of such funds.

80 BNY Mellon

Š Low interest rates may result in the voluntarily

waiving of fees on certain money market mutual
funds and related distribution fees by us and
others in order to prevent clients’ yields on such
funds from becoming uneconomic, which could
have an adverse impact on our revenue and
results of operations.

Š The process we use to estimate our projected
credit losses and to ascertain the fair value of
securities held by us is subject to uncertainty in
that it requires use of statistical models and
difficult, subjective and complex judgments,
including forecasts of economic conditions and
how these conditions might impair the ability of
our borrowers and others to meet their
obligations. In uncertain and volatile capital
markets, our ability to estimate our projected
credit losses may be impaired, which could
adversely affect our overall profitability and
results of operations.

Low or volatile interest rates could have a material
adverse effect on our profitability.

Our net interest revenue and cash flows are sensitive
to interest rate changes and changes in valuations in
the debt or equity markets over which we have no
control. Our net interest revenue is the difference
between the interest income earned on our interest-
earning assets, such as the loans we make and the
securities we hold in our investment portfolio, and the
interest expense incurred on our interest-bearing
liabilities, such as deposits and borrowed money. We
also earn net interest revenue on interest-free funds we
hold.

The global market crisis has triggered a series of cuts
in interest rates. During the last three fiscal years, the
Federal Open Market Committee has kept the target
federal funds rate between 0% and 0.25%. In late
2012, the Federal Reserve announced “QE3” and
“QE4” programs to buy mortgaged backed securities
and long-term U.S. Treasury securities. The Federal
Reserve indicated that it would keep these measures in
place and that it anticipated keeping the target federal
funds rate between 0% and 0.25% until such time as
certain criteria relating to unemployment and inflation
are met. In July 2012, the Governing Council of the
European Central Bank lowered the deposit facility
rate to 0%. The low interest rate environment has
compressed our net interest spread and reduced our
spread-based revenues. It has also resulted in the
voluntary waiving of fees on certain money market
mutual funds and related distribution fees by us and
others in order to prevent the yields on such funds

Risk Factors (continued)

from becoming uneconomic, which has an adverse
impact on our revenue and results of operations.

Changes in interest rates could affect the interest
earned on assets differently than interest paid on
liabilities. A rising interest rate environment may
result in our earning a larger net interest spread.
Conversely, a falling interest rate environment may
result in our earning a smaller net interest spread. If
we are unable to effectively manage our interest rate
risk, it could have a material adverse effect on our
profitability. Further rapid increases in interest rates
could also trigger one or more of the following
additional effects, which could impact our business,
results of operations and financial condition:

Š changes in net interest revenue depending on our
balance sheet position at the time of change. See
discussion under “Asset/liability management” in
the MD&A – Results of Operations section in
this Annual Report;

Š an increased number of delinquencies,

bankruptcies or defaults and more nonperforming
assets and net charge-offs as a result of abrupt
increases in interest rates;

Š a decline in the value of our fixed-income

investment portfolio as a result of increasing
interest rates; and
increased borrowing costs.

A more detailed discussion of the interest rate and
market risks we face is contained in the “Risk
management” section in the MD&A – Results of
Operations in this Annual Report.

Continued market volatility may adversely impact
our business, financial condition and results of
operations and our ability to manage risk.

The capital and credit markets continue to experience
volatility and disruption. Under these conditions, our
hedging and other risk management strategies may not
be as effective at mitigating trading losses as they
would be under less volatile market conditions.
Further market volatility could produce downward
pressure on our stock price and credit availability
without regard to our underlying financial strength.
The broad decline in stock prices throughout the
financial services industry since 2008, which has
affected our common stock, could require us to
perform further goodwill impairment testing. While a
substantial goodwill impairment charge would not
have a significant impact on our financial condition, it
would have an adverse impact on our results of
operations. For a discussion of goodwill, see “Critical

accounting estimates – Goodwill and other
intangibles” in the MD&A – Results of Operations
section in this Annual Report. In addition, severe
market events have historically been difficult to
predict and we could realize significant losses if
unprecedented extreme market events were to reoccur.
If markets experience further upheavals, there can be
no assurance that we will not experience an adverse
effect, which may be material, on our ability to
manage risk and on our business, financial condition
and results of operations. For a discussion of our
management of market risk, see “Risk management-
Market risk” in the MD&A – Results of Operations
section in this Annual Report.

We may experience further write-downs of financial
instruments that we own and other losses related to
volatile and illiquid market conditions, reducing our
earnings.

We maintain an investment securities portfolio of
various holdings, types and maturities. These
securities are primarily classified as available-for-sale
and, consequently, are recorded on our balance sheet
at fair value with unrealized gains or losses reported
as a component of accumulated other comprehensive
income, net of tax. Our portfolio includes U.S.
Agency RMBS, U.S. Treasury and agency securities,
sovereign and sovereign-guaranteed debt, non-agency
U.S. and non-U.S. residential mortgage-backed
securities, European floating rate notes, commercial
mortgage-backed securities, municipal securities,
foreign covered bonds, corporate bonds, collateralized
loan obligations, consumer asset backed securities and
other securities, the values of which are subject to
market price volatility to the extent unhedged. This
volatility affects the amount of our capital. In
addition, if such investments suffer credit losses, as
we experienced with some of our investments in 2009,
we may recognize in earnings the credit losses as an
other-than-temporary impairment which could impact
our revenue in the quarter in which we recognize the
losses. For example, net securities losses totaled $4.8
billion in the third quarter of 2009, primarily as a
result of a charge related to restructuring the
investment securities portfolio, which resulted in
negative earnings per share that quarter. The losses in
2009 reflected both credit- and non-credit-related
losses on our investment securities portfolio. We
could experience losses related to our investment
securities portfolio in the future, which could
ultimately adversely affect our results of operations
and capital levels. For information regarding our
investment securities portfolio, refer to “Consolidated
balance sheet review – Investment securities” and for

BNY Mellon

Risk Factors (continued)

information regarding the sensitivity of and risks
associated with the market value of portfolio
investments and interest rates, refer to the “Risk
management – Market risk” sections both of which
are in the MD&A – Results of Operations section in
this Annual Report and Note 5 of the Notes to the
Consolidated Financial Statements in this Annual
Report.

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

Our principal operational focus is on fee-based
business, which is distinct from commercial banking
institutions that earn most of their revenues from loans
and other traditional interest-generating products and
services. Our fee-based businesses include investment
management, custody, corporate trust, depositary
receipts, clearing, collateral management and treasury
services.

Fees for many of our products and services are based
on the volume of transactions processed, the market
value of assets managed and administered, securities
lending volume and spreads, and fees for other
services rendered. Corporate actions, cross-border
investing, global mergers and acquisitions activity,
new debt and equity issuances, and secondary trading
volumes all affect the level of our revenues. If the
volumes of these activities decrease, our revenues will
also decrease, which would negatively impact our
results of operations.

Our business generally benefits when individuals
invest their savings in mutual funds and other
collective funds, in defined benefit plans, unit
investment trusts or exchange traded funds. If there is
a decline in the savings rates of individuals, or if there
is a change in investment preferences that leads to less
investment in mutual funds, other collective funds,
defined benefit plans or defined contribution plans,
our revenues could be adversely affected.

Our foreign exchange revenues may continue to be
adversely affected by a stable exchange-rate
environment or decreased cross-border investing
activity.

The degree of volatility in foreign exchange rates can
affect the amount of our foreign exchange trading
revenue. Most of our foreign exchange revenue is
derived from our securities servicing client base.
Activity levels and spreads are generally higher when
there is more volatility. Accordingly, we benefit from
currency volatility and our foreign exchange revenue
is likely to decrease during times of decreased
currency volatility.

Continuing declines in foreign exchange volatility
could continue to impact our foreign exchange
revenue. In addition, our future revenue may increase
or decrease depending upon the extent of increases or
decreases in cross-border or other investments made
by our clients. Economic and political uncertainties
resulting from terrorist attacks, military actions or
other events, including changes in laws or regulations
governing cross-border transactions, such as currency
controls, could result in decreased cross-border
investment activity.

Credit and Liquidity Risk

Asset-based fees are typically determined on a sliding
scale so that, as the value of a client portfolio grows,
we receive a smaller percentage of the increasing
value as fee income. This is particularly important to
our asset management, global funds services and
global custody businesses. In addition, weak financial
markets could result in reduced market values in some
of the assets that we manage and administer and result
in a corresponding decrease in the amount of fees we
receive and therefore would have an adverse effect on
our results of operations. Similarly, significant
declines in the volume of capital markets activity
would reduce the number of transactions we process
and the amount of securities lending we do and
therefore would also have an adverse effect on our
results of operations.

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

Our debt and trust preferred securities and the debt
and deposits of our subsidiaries, The Bank of New
York Mellon and BNY Mellon, N.A., are currently
rated investment grade by the major rating agencies.
These rating agencies regularly evaluate us and our
rated subsidiaries and their outlook on us and our
rated subsidiaries. Their credit ratings are based on a
number of factors, including our financial strength, as
well as factors not entirely within our control,

82 BNY Mellon

Risk Factors (continued)

including conditions affecting the financial services
industry generally as well as the U.S. Government. In
addition, rating agencies employ different models and
formulas to assess the financial strength of a rated
company, and from time to time rating agencies have,
in their discretion, altered these models. Changes to
rating agency models, general economic conditions, or
other circumstances outside of our control could
impact a rating agency’s judgment of the rating or
outlook it assigns us or our rated subsidiaries. In view
of the difficulties experienced in recent years by many
financial institutions, we believe that the rating
agencies have heightened their level of scrutiny,
increased the frequency and scope of their credit
reviews, have requested additional information, and
have adjusted upward the capital and other
requirements employed in their models for
maintenance of rating levels. For example, in March
2012, Moody’s downgraded our long-term senior and
subordinated debt and trust-preferred securities ratings
as well as the long-term debt and deposit ratings of
our bank subsidiaries by one notch.

Moreover, Moody’s has indicated that regulatory
changes in the Dodd-Frank Act could result in lower
debt and deposit ratings for U.S. banks and other
financial institutions, including us, whose ratings
currently benefit from assumed government support.
Currently, our ratings benefit from one notch of “lift”
and The Bank of New York Mellon and BNY Mellon,
N.A. benefit from two notches of “lift” as a result of
the rating agency’s government support assumptions.
Moody’s continues to evaluate whether to reduce its
support assumptions to below pre-financial crisis
levels for banks that currently benefit from ratings
uplift. There can be no assurance that we or our rated
subsidiaries will maintain our respective credit ratings
or outlook on our securities.

A material reduction in our credit ratings or the credit
ratings of our rated subsidiaries could have a material
adverse effect on our access to credit markets, the
related cost of funding and borrowing, our credit
spreads, our liquidity and on certain trading revenues,
particularly in those businesses where counterparty
creditworthiness is critical. Our credit spreads, which
is the amount in excess of the interest rate of U.S.
Treasury securities (or other benchmark securities) of
the same maturity that we need to pay our debt
investors, may be impacted by our credit ratings and
market perceptions of our creditworthiness. In
addition, in connection with certain over-the-counter
derivatives contracts and other trading agreements,
counterparties may require us to provide additional
collateral or to terminate these contracts and

agreements and collateral financing arrangements in
the event of a material credit ratings downgrade below
certain ratings levels. Termination of these contracts
and agreements could impair our liquidity by
requiring us to find other sources of financing or to
make significant cash payments or securities
movements. An increase in the costs of our funding
and borrowing, or an impairment of our liquidity,
could have a material adverse effect on our results of
operations and financial condition. We cannot predict
what actions rating agencies may take, or what actions
we may be required to take in response to the actions
of rating agencies, which may adversely affect us. For
further discussion on the impact of a credit rating
downgrade, see Note 24 of the Notes to the
Consolidated Financial Statements in this Annual
Report.

The failure or instability of any of our significant
counterparties, many of whom are major financial
institutions, and our assumption of credit and
counterparty risk, could expose us to loss and
adversely affect our business.

Our ability to engage in routine funding transactions
could be adversely affected by the actions and
commercial soundness of other financial institutions.
Financial services institutions are interrelated as a
result of trading, clearing, counterparty or other
relationships. We have exposure to many different
industries and counterparties, particularly with other
financial institutions, and we routinely execute
transactions with counterparties in the financial
industry, including brokers and dealers, commercial
banks, investment banks, mutual and hedge funds, and
other institutional clients. As a result, defaults or non
performance by, or even rumors or questions about,
one or more financial services institutions, or the
financial services industry generally, have in the past
led to market-wide liquidity problems and could lead
to losses or defaults by us or by other institutions in
the future. For example, as a result of our membership
in several industry clearing or settlement exchanges,
we may be required to guarantee obligations and
liabilities or provide financial support in the event that
other members do not honor their obligations or
default. These obligations may be limited to members
who dealt with the defaulting member or to the
amount (or a multiple of the amount) of our
contribution to a member’s guarantee fund, or, in a
few cases, the obligation may be unlimited. The
consolidation of financial service firms and the
failures of other financial institutions have increased
the concentration of our counterparty risk.

BNY Mellon

Risk Factors (continued)

The degree of client demand for short-term credit also
tends to increase during periods of market turbulence,
exposing us to further counterparty-related risks. For
example, investors in collective investment vehicles
for which we act as custodian may engage in
significant redemption activity due to adverse market
or economic news that was not anticipated by the
fund’s manager. Our relationship with our clients, the
nature of the settlement process and our systems may
result in our extension of short-term credit in such
circumstances. For some types of clients, we provide
credit to allow them to leverage their portfolios, which
may expose us to potential loss if the client
experiences credit difficulties. In addition to our
exposure to financial institutions, we are from time to
time exposed to concentrated credit risk at the
industry or country level, potentially exposing us to a
single market or political event or a correlated set of
events. As a consequence, we may incur a loss in
relation to one entity or product even though our
exposure to one of its affiliates or across product types
is over-collateralized. Moreover, not all of our
counterparty exposure is secured and, when our
exposure is secured, the realizable market value of the
collateral may have declined by the time we exercise
rights against that collateral. This risk may be
particularly acute if we are required to sell the
collateral into an illiquid or temporarily impaired
market. In addition, disputes with counterparties as to
the valuation of collateral significantly increase in
times of market stress and illiquidity.

We act as agent for securities lending arrangements
between customers and financial counterparties,
including broker-dealers, wherein securities are
sourced from our customers versus cash or securities
posted by such financial counterparties. We invest the
proceeds from such securities lending transactions
pursuant to certain instructions or guidelines from
customers. In certain cases, we agree to indemnify our
customers against defaults on the securities lending
agreements and may have to buy-in the securities with
the cash collateral or the proceeds from the liquidation
of the collateral. In those instances, we, rather than
our customers, are exposed to the risks of the
defaulting counterparty on the securities lending
transaction.

Although our overall business is subject to these
interdependencies, several of our business units are
particularly sensitive to them, including our currency
and other trading activities, our securities lending and
tri-party repo businesses and our investment
management business. There is no assurance that any
such losses would not materially and adversely affect
our results of operations.

84 BNY Mellon

We have credit, regulatory and reputation risks as a
result of our tri-party repo agent services, which
could adversely affect our business and results of
operations.

BNY Mellon offers tri-party agent services to dealers
and cash investors active in the tri-party repurchase,
or repo, market. BNY Mellon currently has
approximately 80% of the market share of the U.S. tri
party repo market. As a tri-party repo agent, we
facilitate settlement between dealers (cash borrowers)
and investors (cash lenders). Our involvement in a
transaction commences after a dealer and a cash
investor agree to a tri-party repo trade and send
instructions to us. We maintain custody of the
collateral (the subject securities of the repo) and
execute the payment and delivery instructions agreed
to and provided by the principals.

Providing these tri-party repo agent services to dealers
and cash investors involves credit risk at certain points
in time. To facilitate the tri-party repo market, we
extend secured intraday credit to dealers. In the event
of a default by a dealer to whom we have extended
secured intraday credit, we would be at risk for the
market value of the collateral securing such intraday
credit, and to the defaulting dealer for any shortfall
after the liquidation of such collateral, which could
adversely affect our results of operations. Once a tri
party trade settles, however, BNY Mellon is no longer
exposed to that dealer default risk.

BNY Mellon is working to reduce significantly the
risk associated with the secured intraday credit we
provide with respect to the tri-party repo market. We
have implemented several measures in that regard,
including: reducing the amount of time we extend
intraday credit, implementing three-way trade
confirmations, and automating the way dealers can
substitute collateral in their tri-party repo trades.
Additionally in 2013, we have limited the eligibility
for intraday credit associated with tri-party repo
transactions to certain more liquid asset classes that
will result in a reduction of exposures secured by less
liquid forms of collateral by dealers. These efforts are
consistent with the recommendations by the Tri-Party
Repo Infrastructure Reform Task Force that was
sponsored by the Payments Risk Committee of the
Federal Reserve Bank of New York and included
representatives from a diverse group of market
participants, including BNY Mellon.

We anticipate that the combination of these measures
will have reduced risks substantially in our tri-party
repo activity in the near term and, together with

Risk Factors (continued)

technology enhancements currently in development
will achieve the practical elimination of intraday
credit in this activity, by the end of 2014. We believe
the steps we are taking are responsive to recent
concerns voiced publicly by regulators that dealers
and investors should reduce reliance on intraday credit
provided by their tri-party repo agents and make risk
management practices more resilient to a stress event
in the tri-party repo market. We anticipate that
regulators will continue to monitor the actions of
market participants and use available supervisory
tools to encourage constructive and timely action to
reduce sources of risk in the tri-party market. Failure
to meet regulatory expectations could result in
regulatory and reputation risk and additional costs.

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

Our business is dependent in part on our ability to
meet our cash and collateral obligations at a
reasonable cost for both expected and unexpected
cash flows. We rely on our client deposits as a low-
cost and stable source of funding. If we lost a
significant amount of deposits (because, for example,
we received a material downgrade in our credit
ratings) we may need to replace such funding with
more expensive funding and/or reduce assets, which
would reduce our net interest revenue. In addition, the
Parent’s access to both short-term money markets and
long-term capital markets are significant sources of
liquidity. Events or circumstances often outside of our
control, such as market disruptions or loss of
confidence of debt purchasers or counterparties in us
or in the funds markets, could limit our access to
capital markets, increase our cost of borrowing,
adversely affect our liquidity, or impair our ability to
execute our business plan. In addition, our ability to
raise funding could be impaired if investors develop a
negative perception of our financial prospects. Such
negative perceptions could be developed if we suffer a
significant decline in the level of our business activity,
we are materially downgraded, regulatory authorities
take significant action against us, or we discover
significant employee misconduct or illegal activity,
among other reasons. If we are unable to raise funding
using the methods described above, we would likely
need to finance or liquidate unencumbered assets,
such as our investment portfolio, to meet funding
needs. We may be unable to sell some of our assets, or
we may have to sell assets at a discount from market
value, either of which could adversely affect our
financial condition and results of operations.
Additionally, if we experience cash flow mismatches,

market constraints from our inability to convert assets
to cash or raise cash in the markets or deposit run-off,
our liquidity could be severely impacted. For a further
discussion of our liquidity, see “Liquidity and
dividends” in the MD&A – Results of Operations
section in this Annual Report.

We could incur income statement charges through
provision expense if our reserves for credit losses,
including loan reserves, are inadequate.

When we loan money, commit to loan money or enter
into a letter of credit or other contract with a
counterparty, we incur credit risk, or the risk of losses
if our borrowers do not repay their loans or our
counterparties fail to perform according to the terms
of their agreements. Our credit exposure is comprised
of six classes of financing receivables: financial
institutions, commercial, commercial real estate, lease
financings, wealth management loans and mortgages,
and other residential mortgages. Though credit risk is
inherent in lending activities, our revenues and
profitability are adversely affected when our
borrowers default in whole or in part on their loan
obligations to us or when there is a significant change
in the credit quality of our loan portfolio. We reserve
for credit losses by establishing an allowance through
a charge to earnings. The allowance for loan losses
and allowance for lending related commitments
represents management’s estimate of probable losses
inherent in our credit portfolio. We utilize a
quantitative methodology, which is supplemented
with a qualitative framework that takes into account
internal and external environmental factors that are
not captured within the quantitative methodology. The
quantitative methodology and qualitative framework
determine the allowance for credit losses. We cannot
provide any assurance as to whether charge-offs
related to our credit exposure may occur in the future.
Current market and economic developments may
increase default and delinquency rates and negatively
impact the quality of our credit portfolio, which may
impact our charge-offs. If the allowance for credit
losses is inadequate due to deterioration in the credit
quality of the portfolio or significant charge-offs, we
would be required to record credit loss provisions
against current earnings, which could adversely
impact our net income.

BNY Mellon

Risk Factors (continued)

Other Risk

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

In the course of our business, we receive inquiries and
challenges from both U.S. and non-U.S. tax
authorities on the amount of taxes we owe. If we are
not successful in defending these inquiries and
challenges, we may be required to adjust the timing or
amount of taxable income or deductions or the
allocation of income among tax jurisdictions, all of
which can require a greater provision for taxes or
otherwise negatively affect earnings. Probabilities and
outcomes are reviewed as events unfold, and
adjustments to the reserves are made when necessary,
but the reserves may prove inadequate because we
cannot necessarily accurately predict the outcome of
any challenge, settlement or litigation or to what
extent it will negatively affect us or our business. In
addition, changes in tax laws or the interpretation of
existing tax laws worldwide could have a material
impact on our net income. See Notes 13 and 23 to
Consolidated Financial Statements in this Annual
Report for further information.

Changes in accounting standards could have a
material impact on our financial statements.

From time to time, the Financial Accounting
Standards Board, the International Accounting
Standards Board, the SEC and bank regulators change
the financial accounting and reporting standards
governing the preparation of our financial statements
such as the potential adoption of International
Financial Reporting Standards. In some cases, we
could be required to apply a new or revised standard
retroactively, resulting in our restating prior period
financial statements. See “Recent Accounting
Developments” in the MD&A section and Note 2 to
Consolidated Financial Statements in this Annual
Report. These changes are difficult to predict and can
materially impact how we record and report our
financial condition and results of operations and other
financial data.

We are a non-operating holding company, and as a
result, are dependent on dividends from our
subsidiaries, including our subsidiary banks, to meet
our obligations, including our obligations with respect
to our securities, and to provide funds for payment of
dividends to our stockholders and stock repurchases.

We are a non-operating holding company, whose
principal assets and sources of income are our

86 BNY Mellon

principal bank subsidiaries – The Bank of New York
Mellon and BNY Mellon, N.A. – and our other
subsidiaries. We are a legal entity separate and
distinct from our banks and other subsidiaries and,
therefore, we rely primarily on dividends and interest
from these banking and other subsidiaries to meet our
obligations, including our obligations with respect to
our securities, and to provide funds for payment of
common and preferred dividends to our stockholders,
to the extent declared by our Board of Directors.

There are various legal limitations on the extent to
which these banking and other subsidiaries can
finance or otherwise supply funds to us (by dividend
or otherwise) and certain of our affiliates. Many of our
subsidiaries, including our bank subsidiaries, are
subject to laws that restrict dividend payments or
authorize regulatory bodies to block or reduce the
flow of funds from those subsidiaries to the parent
company or other subsidiaries. In addition, our bank
subsidiaries are subject to restrictions on their ability
to lend or transact with affiliates and to minimum
regulatory capital and liquidity requirements, as well
as restrictions on their ability to use funds deposited
with them in bank or brokerage accounts to fund their
businesses.

Although we maintain cash positions for liquidity at
the holding company level, if our principal banking
subsidiaries or other subsidiaries were unable to
supply us with cash over time, we could be unable to
meet our obligations, including our obligations with
respect to our securities, declare or pay dividends in
respect of our capital stock, or perform stock
repurchases. See “Supervision and Regulation”, the
“Liquidity and Dividends” section in the MD&A –
Results of Operations section and Note 20 of the
Notes to Consolidated Financial Statements in this
Annual Report.

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

Risk Factors (continued)

Our ability to pay dividends on our common stock is
subject to the discretion of our Board of Directors
and may be limited by the Federal Reserve,
applicable provisions of Delaware law or our failure
to pay full and timely dividends on our preferred
stock.

Holders of our common stock are only entitled to
receive such dividends as our Board of Directors may
declare out of funds legally available for such
payments. Although we have historically declared
cash dividends on our common stock, we are not
required to do so. In addition, any increase in BNY
Mellon’s ongoing quarterly dividend would require
approval from the Federal Reserve. A failure to
increase dividends along with our competitors, or any
reduction of, or elimination of, our common stock
dividend would likely adversely affect the market
price of our common stock and market perceptions of
BNY Mellon.

Our ability to declare or pay dividends on, or
purchase, redeem or otherwise acquire, shares of our
common stock or any of our shares that rank junior to
the preferred stock as to the payment of dividends
and/or the distribution of any assets on any
liquidation, dissolution or winding-up of BNY Mellon
will be prohibited, subject to certain restrictions, in the

event that we do not declare and pay in full preferred
dividends for the then current dividend period of our
Series A preferred stock or the last preceding dividend
period of our Series C preferred stock.

Anti-takeover provisions in our certificate of
incorporation and bylaws could discourage a change
of control that our stockholders may favor, which
could negatively affect the market price of our
common stock.

Provisions of Delaware law and provisions of our
certificate of incorporation and bylaws could make it
more difficult for a third party to acquire control of us
or have the effect of discouraging a third party from
attempting to acquire control of us. Additionally, our
certificate of incorporation authorizes our Board of
Directors to issue additional series of preferred stock
and such preferred stock could be issued as a
defensive measure in response to a takeover proposal.
These provisions could make it more difficult for a
third party to acquire us even if an acquisition might
be in the best interest of our stockholders. These
provisions could also potentially deprive stockholders
of an opportunity to sell their shares of common stock
at a premium over prevailing market prices as a result
of a takeover bid or merger.

BNY Mellon

Supervision and Regulation

Evolving Regulatory Environment

Enhanced Prudential Standards

BNY Mellon, together with its subsidiaries, engages
in banking, investment advisory and other financial
activities in the U.S. and 35 other countries, and is
subject to extensive regulation. Global supervisory
authorities generally are charged with ensuring the
safety and soundness of financial institutions,
protecting the interests of customers, including
depositors in banking entities and investors in mutual
funds and other pooled vehicles, and safeguarding the
integrity of securities and other financial markets and
promoting systemic resiliency and financial stability
in the relevant country. They are not, however,
generally charged with protecting the interests of our
stockholders or non-deposit creditors. This discussion
outlines the material elements of selected laws and
regulations applicable to us. Changes in these
standards, or in their application, cannot be predicted,
but may have a material effect on our businesses and
results of operations.

The financial services industry has been the subject of
enhanced regulatory scrutiny in recent years and we
expect this trend to continue in the future. Our
business has been subject to myriad new global
reform measures. In particular, the Dodd-Frank Act,
when fully implemented, will significantly restructure
the financial regulatory regime in the United States
and enhance supervision and prudential standards for
BHCs like BNY Mellon. The implications of the
Dodd-Frank Act for our businesses will depend to a
large extent on the manner in which forthcoming rules
are implemented by the primary U.S. financial
regulatory agencies – the Federal Reserve, the FDIC,
the Office of the Comptroller of the Currency (the
“OCC”), the SEC and the Commodity Futures
Trading Commission (the “CFTC”). The implications
will also depend upon changes in market practices and
structures in response to the requirements of the
Dodd-Frank Act and financial reforms in other
jurisdictions. Many aspects of Dodd-Frank remain
subject to further rulemaking, take effect over various
transition periods, or contain other elements that make
it difficult to precisely anticipate their final impact.
Dodd-Frank contains many major domestic reforms
that will eventually be applicable to BNY Mellon;
however, there are additional national and global
reform measures being considered by various
policymakers that may materially impact us, including
the U.S. implementation of the Basel III accord and
several more general non-U.S. regulatory initiatives.
Relevant regulatory initiatives, whether national or
global, are discussed further below.

88 BNY Mellon

Sections 165 and 166 of the Dodd-Frank Act direct
the Federal Reserve to enact heightened prudential
standards applicable to financial institutions with total
consolidated assets of $50 billion or more (generally
referred to as “systemically important financial
institutions” or “SIFIs”), such as BNY Mellon. Dodd-
Frank mandates that the requirements applicable to
systemically important financial institutions be more
stringent than those applicable to other financial
companies. In December 2011, the Federal Reserve
issued for public comment a notice of proposed
rulemaking, which we refer to as the “Proposed SIFI
Rules,” establishing enhanced prudential standards
for:

risk-based capital requirements and leverage
limits;
stress testing of capital;
liquidity requirements;

Š
Š
Š overall risk management requirements; and
Š
single-counterparty credit exposure limits.

Only the rules addressing the stress testing of capital
have been finalized and the ultimate impacts of the
other proposals remain uncertain. The Proposed SIFI
Rules also include draft requirements to address
Dodd-Frank’s early remediation provisions. Those
rules, as released, would require institutions to take
remedial actions during the early stages of a
company’s financial distress, if specified trigger
events occur.

Capital Planning

Payment of Dividends, Stock Repurchases and Other
Capital Distributions

The Parent is a legal entity separate and distinct from
its bank subsidiaries and other subsidiaries. Dividends
and interest from its subsidiaries are its principal
sources of funds to make capital contributions or loans
to its subsidiaries, to service its own debt, to honor its
guarantees of debt issued by its subsidiaries or of trust
preferred securities issued by a trust or to make its
own capital distributions. Various federal and state
statutes and regulations limit the amount of dividends
that may be paid to us by our bank subsidiaries
without regulatory consent. If, in the opinion of the
applicable federal regulatory agency, a depository
institution under its jurisdiction is engaged in or is
about to engage in an unsafe or unsound practice
(which, depending on the financial condition of the
bank, could include the payment of dividends), the

Supervision and Regulation (continued)

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

In general, the amount of dividends that may be paid
by The Bank of New York Mellon, BNY Mellon,
N.A., The Bank of New York Mellon Trust Company,
National Association and BNY Mellon Trust
Company of Delaware is limited to the lesser of the
amounts calculated under a “recent earnings” test and
an “undivided profits” test. Under the recent earnings
test, a dividend may not be paid if the total of all
dividends declared and paid by the entity in any
calendar year exceeds the current year’s net income
combined with the retained net income of the two
preceding years, unless the entity obtains prior
regulatory approval. Under the undivided profits test,
a dividend may not be paid in excess of the entity’s
“undivided profits” (generally, accumulated net
profits that have not been paid out as dividends or
transferred to surplus). The ability of it’s bank
subsidiaries to pay dividends to the Parent may also
be affected by various minimum capital requirements
for banking organizations.

BNY Mellon’s capital distributions are subject to
Federal Reserve oversight. The major component of
that oversight is the Federal Reserve’s Comprehensive
Capital Analysis and Review (“CCAR”). The Federal
Reserve’s capital planning rules also include new
Dodd-Frank stress testing requirements, which were
included in the Proposed SIFI Rules and adopted in
final form in October 2012. The CCAR and stress
testing requirements substantially overlap, and the
Federal Reserve implements them at the BHC level on
a coordinated basis.

The rules require certain BHCs (including BNY
Mellon) to submit annual capital plans to their
respective Federal Reserve Bank. We are also
required to collect and report certain related data on a

quarterly basis to allow the Federal Reserve to
monitor progress against the annual capital plans.
BNY Mellon and other affected BHCs may pay
dividends, repurchase stock, and make other capital
distributions only in accordance with a capital plan
that has been reviewed by the Federal Reserve and as
to which the Federal Reserve has not objected. The
Federal Reserve may object to a capital plan if the
plan does not show that the covered BHC will meet all
minimum regulatory capital ratios and maintain a ratio
of Basel I Tier 1 common equity to risk-weighted
assets of at least 5% on a pro forma basis under
expected and stressful conditions throughout the nine-
quarter planning horizon covered by the capital plan.
The capital plan rules also stipulate that a covered
BHC may not make a capital distribution unless after
giving effect to the distribution it will meet all
minimum regulatory capital ratios and maintain a ratio
of Basel I Tier 1 common equity to risk-weighted
assets of at least 5%. As part of this process, BNY
Mellon also provides the Federal Reserve with
estimates of the composition and levels of regulatory
capital, risk-weighted assets and other measures under
Basel III under an identified scenario. We submitted
our 2013 capital plan to the Federal Reserve on Jan. 7,
2013. The Federal Reserve has indicated that it
expects to publish either its objection or non-objection
to the capital plan and proposed capital actions, such
as dividend payments and share repurchases, no later
than March 14, 2013. We anticipate announcing our
2013 capital plan shortly thereafter.

The purpose of CCAR is to ensure that these BHCs
have robust, forward-looking capital planning
processes that account for their unique risks and that
permit continued operations during times of economic
and financial stress. The CCAR rule, consistent with
prior Federal Reserve Board guidance, provides that
capital plans contemplating dividend payout ratios
exceeding 30% of projected after-tax net income will
receive particularly close scrutiny. BNY Mellon’s
common stock dividend payout ratio was 26% in
2012.

Regulatory Stress-Testing Requirements

In October 2012, the Federal Reserve, OCC and FDIC
finalized regulations implementing the stress testing
requirements required under the Dodd-Frank Act.
Under these regulations, we are required to undergo
regulatory stress tests conducted by the Federal
Reserve annually, and to conduct our own internal
stress tests pursuant to regulatory requirements twice
annually. In addition, both BNY Mellon, N.A. and
The Bank of New York Mellon are required to

BNY Mellon

Supervision and Regulation (continued)

conduct their own annual internal stress tests
(although these banks are permitted to combine
certain reporting and disclosure of their stress test
results with the results of BNY Mellon). These
requirements, which began in the fourth quarter of
2012, involve both company-run and supervisory-run
testing of capital under various scenarios, including
baseline, adverse and severely adverse scenarios
provided by the appropriate banking regulator. Results
from our annual company-run stress tests will be
reported to the appropriate regulators and we will be
required to publish summaries of the results of the
company-run stress tests under the severely adverse
scenario beginning in March 2013. In addition, the
Federal Reserve will publish summaries of the results
of the Federal Reserve-run stress tests under the
severely adverse scenario beginning in March 2013.

Capital Requirements – Basel III Accord and
Existing U.S. Requirements

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

Since the late 1980s, the U.S. banking agencies’
capital rules have been based on accords agreed to by
the Basel Committee. These frameworks include:

Š Risk-based capital guidelines applicable to all

BHCs and banks based on the Basel I agreement.
The banking agencies refer to these rules as the
“general risk-based capital rules”.

Š Risk-based capital rules applicable to BHCs

(including BNY Mellon) and banks having $250
billion or more in total consolidated assets or $10
billion or more in foreign exposures, based upon
the advanced internal ratings-based approach for
credit risk and the advanced measurement
approach for operational risk within the Basel
Committee on Banking Supervision’s
comprehensive June 2006 release entitled
“International Convergence of Capital
Measurement and Capital Standards: A Revised
Framework”, known as “Basel II”. The agencies
refer to these rules as the “Advanced Approaches
risk-based capital rules”.

90 BNY Mellon

In addition, the risk-based capital guidelines
incorporate a measure for market risk in foreign
exchange and commodity activities and in the trading
of debt and equity instruments. The market risk-based
capital guidelines require banking organizations with
significant trading activities to maintain capital for
market risk in an amount calculated by using the
banking organizations’ own internal value-at-risk
models, subject to parameters set by the regulators. In
January 2011, certain of the federal banking agencies
published proposed amendments to their market risk
rules, implementing revisions to the Basel framework,
commonly known as “Basel II.5”. In June 2012,
federal banking agencies issued the final Market Risk
rules that amend the Basel I Market Risk rules
effective Jan. 1, 2013.

In December 2010, the Basel Committee released its
final framework for strengthening international capital
and liquidity regulation in response to the financial
crisis, now officially identified by the Basel
Committee as “Basel III”. On June 7, 2012, the
federal banking agencies issued three NPRs that
would substantially revise the agencies’ existing
capital rules (both general and advanced approaches).
The NPRs would (i) implement Basel III for U.S.
BHCs and banks (including by redefining the
components of capital and establishing higher
minimum percentages for applicable capital ratios)
and (ii) substantially revise the agencies’ general risk-
based capital rules to make them more risk sensitive.
Comments on the NPRs were due on Oct. 22, 2012.
As proposed by the NPRs, the Basel III-based
amendments would have become effective Jan. 1,
2013, with phase-in periods that are consistent with
Basel III. On Nov. 9, 2012, the agencies confirmed
that the proposed rules would not become effective on
Jan. 1, 2013, but without specifying the effectiveness
date that would apply. If these rules when adopted
preserve the Basel III implementation schedule, they
are expected to be fully phased-in by Jan. 1, 2019.
The NPRs provided that the risk-weightings in the
new standardized approach, discussed below, would
not become effective until Jan. 1, 2015.

General Risk-Based Capital Rules

Under the general risk-based capital rules, the risk-
based capital ratio is determined by dividing the sum
of the capital components described further below, by
risk-weighted assets (including certain off-balance
sheet items, such as standby letters of credit). The
general risk-based capital rules provide that voting
common stockholders’ equity should be the
predominant element within Tier 1 capital and that

Supervision and Regulation (continued)

banks should avoid over-reliance on non-common
equity elements. Risk-adjusted assets are determined
by classifying assets and certain off-balance sheet
items into weighted categories. The required
minimum ratio of Total capital (the sum of Tier 1 and
Tier 2 capital) to risk-adjusted assets is currently
8.0%. The required minimum ratio of Tier 1 capital to
risk-adjusted assets is 4.0%. These rules are minimum
standards based primarily on broad credit-risk
considerations and do not take into account the other
types of risk to which a banking organization may be
exposed. The federal banking agencies retain
significant discretion to set higher capital
requirements for categories of banks, or for an
individual bank as situations warrant. At Dec. 31,
2012, BNY Mellon’s Basel I Tier 1 capital to risk-
adjusted assets and Total capital to risk-adjusted
assets ratios were 15.0% and 16.3%, respectively.

Advanced Approaches Risk-Based Capital Rules

The U.S. banking agencies’ Advanced Approaches
risk-based capital rules, which, as noted above are
based on Basel II’s Advanced Approaches, became
effective on April 1, 2008. Under these rules, 2009
was the first year that a bank could begin its first of
three transitional floor periods during which banks
calculate their capital requirements under both the old
regulations and new regulations. The rules originally
provided that Advanced Approaches banks would
calculate their capital requirements only under the
new Basel II-based requirements after completion of a
successful parallel run and the three transitional floor
periods. In the U.S., we began the parallel run of
calculations under both the old and new guidelines in
the second quarter of 2010. Our capital models are
currently with the Federal Reserve for their approval.
In response to a Dodd-Frank requirement, the federal
banking agencies have amended their capital rules to
provide that minimum capital as required under the
general risk-based capital rules will act as a floor for
minimum capital requirements calculated in
accordance with the advanced approaches rules.
Accordingly, the three-year transition to calculations
only under the Basel II-based requirements will be
eliminated.

The NPRs – Basel II and the New Standardized
Approach

The NPRs released by the U.S. banking agencies are
generally consistent with the Basel III accord and
would redefine the components of capital in the
numerators of regulatory capital ratios in a more
narrow way than existing standards, increase the

minimum risk-based capital ratios under both the
agencies’ advanced approaches and general risk-based
capital guidelines, and primarily, with respect to
securitizations and exposures to certain counterparties,
change the measure of risk-weighted assets in the
denominators of regulatory capital ratios. The NPRs,
like Basel III, provide for a number of new deductions
from and adjustments to Tier 1 common equity. These
include, for example, providing that unrealized gains
and losses on all available for sale debt securities
would not be filtered out for regulatory capital
purposes, and the requirement that mortgage servicing
rights, deferred tax assets dependent upon future
taxable income, defined pension fund assets and
significant investments in non-consolidated financial
entities be deducted from Tier 1 common equity to the
extent that any one such category exceeds 10% of Tier
1 common equity or all such categories in the
aggregate exceed 15% of Tier 1 common equity. At
Dec. 31, 2012, we did not exceed either threshold. In
addition, the NPRs would redefine regulatory capital
elements resulting in, among other things, cumulative
perpetual preferred stock and trust preferred
instruments no longer qualifying as Tier 1 capital,
subject to a phase-out schedule.

The NPRs, consistent with Basel III require higher
capital ratios for all banking institutions. As a result,
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).

All banking institutions will be subject to a minimum
leverage ratio of 4.0% after giving effect to the NPRs
(calculated as the ratio of Tier 1 capital to quarterly
average consolidated total assets as reflected on the
institution’s consolidated financial statements, net of
amounts deducted from capital). Additionally, the
NPRs, consistent with Basel III, would subject
Advanced Approaches banking institutions to a
supplementary leverage ratio commencing Jan. 1,
2015 with full implementation on Jan. 1, 2018. The

BNY Mellon

Supervision and Regulation (continued)

new supplementary leverage ratio would be calculated
as the ratio of Tier 1 capital to average balance sheet
exposures plus certain average off-balance sheet
exposures.

The capital conservation buffer is designed to absorb
losses during periods of economic stress. Banking
institutions with a ratio of Tier 1 common equity to
risk-weighted assets above the minimum but below
the conservation buffer (or below the combined
capital conservation buffer and countercyclical capital
buffer, when the latter is applied) are expected to face
constraints on dividends, equity repurchases and
compensation based on the amount of the shortfall.

The NPRs apply Basel III’s capital conservation
buffer to all banking institutions, but apply its
countercyclical capital buffer, when applicable, only
to advanced approaches banks. The NPRs permit
advanced approaches institutions, such as BNY
Mellon, to calculate both the capital conservation
buffer and the countercyclical capital buffer using
solely Advanced Approaches risk-weightings, rather
than applying a floor based on the general risk-based
capital rules.

In November 2011, the Basel Committee announced
the final framework for applying a new Tier 1
common equity surcharge to certain global
systemically important banks (“G-SIBs”), including
BNY Mellon. In its Proposed SIFI Rules and the
NPRs, the Federal Reserve indicated that it intends to
propose, in a separate rulemaking, a Tier 1 common
equity surcharge for G-SIBs based on the Basel
Committee’s final rules. In November 2012, the Basel
Committee and the Financial Stability Board updated
the list of G-SIBs, and identified provisional Tier 1
common equity surcharges applicable to each G-SIB,
including BNY Mellon. Each G-SIB would initially
be assigned to one of four “buckets”, with the capital
surcharges for those buckets ranging from 1% to
2.5%. In November 2012, BNY Mellon was
provisionally assigned to the 1.5% capital surcharge
bucket.

securities under the NPRs, earnings retention and an
increase in the value of the investment portfolio,
partially offset by balance sheet growth in 2012. We
expect the approximately $850 million charge related
to the Feb. 11, 2013 U.S. Tax Court ruling will
decrease the Basel III Tier 1 common equity ratio by
approximately 55 basis points. We believe that 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.

The components of the NPRs related to the
standardized approach would amend the agencies’
Basel I risk-based capital guidelines and replace the
risk-weighting categories currently used to calculate
risk-weighted assets in the denominator of capital
ratios with a broader array of risk weighting
categories that are intended to be more risk sensitive.
The new risk-weights for the standardized approach
range from 0% to 600% compared with the risk-
weights of 0% to 100%, in general, in the agencies’
existing Basel I risk-based capital guidelines. Higher
risk-weights would apply to a variety of exposures,
including certain securitization exposures, equity
exposures, claims on securities firms and exposures to
counterparties on OTC derivatives. Compared with
Basel I, the risk-weighting changes likely to have
significance for BNY Mellon are the replacement of
the 20% risk-weight for banks with OECD country
risk classification ratings, increased risk-weights for
residential mortgages, the removal of the 50% risk-
weight cap on derivative transactions, the 100% risk-
weight for exposures to securities firms, and the
elimination of the 0% risk-weight for commitments of
less than one year. In addition, advanced approaches
banking organizations will calculate risk-based capital
ratios under both the generally applicable standardized
approach and the advanced approaches rule, and then
use the lower of each capital ratio to determine
whether it meets its minimum risk-based capital
requirements.

Liquidity Ratios under Basel III

At Dec. 31, 2012, our estimated Basel III Tier 1
common equity ratio was 9.8%, on a fully phased-in
basis, based on our understanding of the NPRs and the
final market risk rules and calculated under the
Advanced Approaches basis, as proposed to be
amended by the NPRs. The increase in the ratio from
7.1% at Dec. 31, 2011, which was calculated under
prior Basel III guidance and the proposed market risk
rule, was primarily due to a reduction in risk-weighted
assets related to the treatment of sub-investment grade

Historically, regulation and monitoring of bank and
BHC liquidity have been addressed as a supervisory
matter, both in the U.S. and internationally, without
required formulaic measures. The Basel III final
framework requires banks and BHCs to measure their
liquidity against specific liquidity tests that, although
similar in some respects to liquidity measures
historically applied by banks and regulators for
management and supervisory purposes, going forward
will be required by regulation. One test, referred to as

92 BNY Mellon

Supervision and Regulation (continued)

the liquidity coverage ratio (“LCR”), is designed to
ensure that the banking entity maintains an adequate
level of unencumbered high-quality liquid assets equal
to the entity’s expected net cash outflow for a 30-day
time horizon (or, if greater, 25% of its expected total
cash outflow) under an acute liquidity stress scenario.
The other, referred to as the net stable funding ratio
(“NSFR”), is designed to promote more medium- and
long-term funding of the assets and activities of
banking entities over a one-year time horizon. The
Basel III liquidity framework, as modified in January
2013, contemplates that the LCR will be introduced
Jan. 1, 2015 with the minimum requirement beginning
at 60%, rising in equal annual steps of 10 percentage
points to reach 100% on Jan. 1, 2019. Similarly, it
contemplates that the NSFR will be subject to an
observation period through mid-2016 and, subject to
any revisions resulting from the analyses conducted
and data collected during the observation period,
implemented as a minimum standard by Jan. 1, 2018.

The Proposed SIFI Rules address liquidity
requirements for certain U.S. BHCs, including BNY
Mellon. In the release accompanying those rules, the
Federal Reserve states a general intention to
incorporate the Basel III liquidity framework for the
BHCs covered by the Proposed SIFI Rules or a
“subset” of those BHCs. Although the Proposed SIFI
Rules do not include prescriptive ratios like the LCR
and NSFR, they do include detailed liquidity-related
requirements, including requirements for cash flow
projections, liquidity stress testing (including, at a
minimum, over time horizons that include an
overnight time horizon, a 30-day time horizon, a 90
day time horizon and a one-year time horizon), and a
requirement that covered BHCs maintain a liquidity
buffer of unencumbered highly liquid assets sufficient
to meet projected net cash outflows and the projected
loss or impairment of existing funding sources for 30
days over a range of liquidity stress scenarios.

Prompt Corrective Action

The FDI Act, as amended by the Federal Deposit
Insurance Corporation Improvement Act of 1991
(“FDICIA”), requires the federal banking agencies to
take “prompt corrective action” in respect of
depository institutions that do not meet specified
capital requirements. FDICIA establishes five capital
categories for FDIC-insured banks: “well capitalized”,
“adequately capitalized”, “undercapitalized”,
“significantly undercapitalized” and “critically
undercapitalized”. A depository institution is deemed
to be “well capitalized” if the depository institution
has a total risk-based capital ratio of 10.0% or greater,

a Tier 1 risk-based capital ratio of 6.0% or greater,
and a leverage ratio of 5.0% or greater, and the
institution is not subject to an order, written
agreement, capital directive or prompt corrective
action directive to meet and maintain a specific level
for any capital measure. The FDI Act imposes
progressively more restrictive constraints on
operations, management and capital distributions,
depending on the capital category in which an
institution is classified. The U.S. banking agencies’
capital NPRs, discussed above under “Capital
Requirements”, would amend the prompt corrective
action requirements in certain respects, including
adding the Basel III Tier 1 common equity risk-based
capital ratio as one of the metrics (with a minimum of
6.5% for “well capitalized” status), increasing the Tier
1 risk-based capital ratio required at various levels
(for example, from 6.0% to 8.0% for “well
capitalized” status), and, for advanced approaches
banks only, adding the Basel III-based supplementary
leverage ratio at a minimum of 3% for “adequately
capitalized” status.

At Dec. 31, 2012, all of our bank subsidiaries were
“well capitalized” based on the ratios and guidelines
noted above. A bank’s capital category, however, is
determined solely for the purpose of applying the
prompt corrective action rules and may not be an
accurate representation of the bank’s overall financial
condition or prospects.

Volcker Rule

Dodd-Frank mandated that the U.S. banking agencies,
the SEC and CFTC adopt rules that prohibit banks and
their affiliates from engaging in proprietary trading
and investing in and sponsoring certain hedge funds
and private equity funds. This provision is commonly
called the Volcker Rule. While the Volcker Rule’s
statutory provisions became effective on July 21,
2012, the Federal Reserve issued interim guidance on
April 19, 2012 that provided that banks and their
affiliates must conform their covered activities and
investments with the final Volcker Rule regulations
by July 21, 2014. Banks and their affiliates are
expected to engage in good-faith efforts that will
result in conformance of all of their covered activities
and investments by no later than the end of the
conformance period. The Volcker Rule regulations
have yet to be finalized and adopted. Regulators have
proposed rules to implement the Volcker Rule, and
until those rules are finalized, their application and
impact will remain uncertain. BNY Mellon may be
affected by an overly inclusive designation of covered
funds, which could affect our ability to provide seed

BNY Mellon

Supervision and Regulation (continued)

capital to launch new hedge funds, private equity
funds and other covered funds. In addition, our ability
to engage in certain transactions with covered funds
(including, without limitation, certain U.S. funds for
which BNY Mellon acts as both sponsor/manager and
custodian) could be affected. This latter provision may
also affect BNY Mellon’s ability to perform certain
traditional custodial operational activities for these
covered funds.

Derivatives

U.S. regulators are in the process of implementing
comprehensive rules governing the supervision,
structure, trading and regulation of cleared and over
the-counter derivatives markets and participants.
Dodd-Frank requires a large number of rulemakings
in this area, many of which are not yet final. Once
these rules are finalized, they could affect the way
various BNY Mellon subsidiaries operate, and
changes to the markets and participants will impact
business models and profitability of certain BNY
Mellon subsidiaries.

Money Market Fund Reforms

Authorities have also focused on risks that money
market funds may pose to financial stability. In
November 2012, the Financial Stability Oversight
Council proposed several recommendations for
money market mutual fund reform, which include
requiring money market funds to use a floating net
asset value, requiring them to maintain a capital buffer
of up to 1% of a fund’s value coupled with a holdback
of 3 to 5% on redemptions to create a “first loss”
position and discourage runs, and requiring them to
maintain a capital buffer of up to 3% of a fund’s value
combined with other measures, such as investment
diversification requirements, minimum liquidity
levels, and/or more robust diversification
requirements. It is premature to predict the outcome of
these discussions and proposals, but regulatory
changes to the money market fund industry could
materially impact the operations and profitability of
BNY Mellon.

instructions to us. We maintain custody of the
collateral (the subject securities of the repo) and
execute the payment and delivery instructions agreed
to and provided by the principals.

Regulatory agencies worldwide have begun to re
examine systemic risks in various financial markets,
including the tri-party repo market, in which we act as
a tri-party repo agent. The Payment Risk Committee
of the Federal Reserve Bank of New York sponsored
a Task Force on Tri-Party Repo Infrastructure Reform
to examine the risks in the tri-party repo market and to
decide what changes should be implemented so that
such risks may be mitigated or avoided in the future.
The Task Force issued its recommendations on
May 17, 2010 and its final report regarding the tri
party repo market on Feb. 15, 2012. BNY Mellon is
working to implement recommendations by the Task
Force to significantly reduce the risk associated with
the secured intraday credit we provide with respect to
the tri-party repo market. BNY Mellon has
implemented several measures in that regard,
including reducing the amount of time we extend
intraday credit, implementing three-way trade
confirmations, and automating the way dealers can
substitute collateral in their tri-party repo trades.
Additionally, in 2013, we have limited the eligibility
for intraday credit associated with tri-party repo
transactions to certain more liquid asset classes that
will result in a reduction of exposures secured by less
liquid forms of collateral by dealers. We anticipate
that the combination of these measures will have
reduced risks substantially in our tri-party repo
activity in the near term and, together with technology
enhancements currently in development, will achieve
the practical elimination of intraday credit in this
activity by the end of 2014.

Since May 2010, the Federal Reserve Bank of New
York has released monthly reports on the tri-party
repo market, including information on aggregate
volumes of collateral used in all tri-party repo
transactions by asset class, concentrations, and margin
levels, which is available at http://
www.newyorkfed.org/tripartyrepo/margin_data.html.

Tri-Party Repo Reform

Resolution Planning

BNY Mellon offers tri-party agent services to dealers
and cash investors active in the tri-party repurchase,
or repo, market. As a tri-party repo agent, we facilitate
settlement between dealers (cash borrowers) and
investors (cash lenders). Our involvement in a
transaction commences after a dealer and a cash
investor agree to a tri-party repo trade and send

As required by the Dodd-Frank Act, the Federal
Reserve and FDIC jointly issued a final rule requiring
certain organizations, including each BHC with
consolidated assets of $50 billion or more, to report
periodically to regulators a resolution plan for its rapid
and orderly resolution in the event of material
financial distress or failure. In addition, the FDIC

94 BNY Mellon

Supervision and Regulation (continued)

issued a final rule that requires insured depository
institutions with $50 billion or more in total assets,
such as The Bank of New York Mellon, to submit to
the FDIC periodic plans for resolution in the event of
the institution’s failure.

The two resolution plan rules are complementary and
we submitted our initial resolution plan in conformity
with both rules on Oct. 1, 2012. The public portions of
our resolution plan are available on the FDIC’s
website. We are required to submit updated resolution
plans annually by July 1. Resolution planning efforts
might also become required in foreign jurisdictions
where we have operations, and we submitted the first
phase of our UK resolution pack to the Financial
Services Authority (“FSA”) in June of 2012.

Insolvency of an Insured Depository Institution or
a Bank Holding Company

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

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

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

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

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

The orderly liquidation authority provisions of the
Dodd-Frank Act became effective upon enactment.
However, a number of rulemakings are required under
the terms of Dodd-Frank, and a number of provisions
of the new authority require clarification. The FDIC
has completed its initial phase of rulemaking under
the orderly liquidation authority, but additional rules
are under consideration. These rules may affect the
manner in which the new authority is applied,
particularly with respect to broker-dealer and futures
commission merchant subsidiaries of BHCs.

Depositor Preference

Under federal law, depositors and certain claims for
administrative expenses and employee compensation
against an insured depository institution are afforded a

BNY Mellon

Supervision and Regulation (continued)

priority over other general unsecured claims against
such an institution, including federal funds and letters
of credit, in the “liquidation or other resolution” of
such an institution by any receiver. The FSA
published a consultation paper in Sept. 2012
concerning the implications of national depositor
preference regimes of countries not within the
European Economic Area (“EEA”) (including, among
others, the U.S.) that prioritize the claims of home-
country depositors over those of depositors outside the
home country if a deposit taking banking organization
becomes insolvent. The proposed new FSA rules
would prohibit firms, including BNY Mellon, from
non-EEA countries that operate such regimes from
accepting deposits through a UK branch, unless
measures are introduced to eliminate the perceived
disadvantage to UK depositors caused by the
subordination of their claims in favor of home country
depositors. The proposal would also require certain
depositor notice undertakings. The FSA initially
intended that these new standards would start to take
effect by January 2013, with a full compliance
deadline of January 2015, but the consultation period
for its proposal was extended to Jan. 31, 2013. The
FDIC recently initiated a related rulemaking to clarify
the treatment of non-U.S. deposits in a bank resolution
and for deposit insurance purposes.

Transactions with Affiliates and Insiders

Transactions between BNY Mellon’s bank
subsidiaries, on the one hand, and BNY Mellon and
its non-bank subsidiaries, on the other, are regulated
by the Federal Reserve. These regulations limit the
types and amounts of transactions (including loans
due and extensions of credit from the U.S. bank
subsidiaries) that may take place and generally require
those transactions to be on an arm’s-length basis.
These regulations generally do not apply to
transactions between a U.S. bank subsidiary and its
subsidiaries. In general, these restrictions require that
any extensions of credit by a BNY Mellon bank
subsidiary to BNY Mellon or to a BNY Mellon non-
bank subsidiary must be secured by designated
amounts of specified collateral and are limited, as to
any one of BNY Mellon or such non-bank affiliates,
to 10% of the lending bank’s capital stock and
surplus, and, as to BNY Mellon and all such non-bank
affiliates in the aggregate, to 20% of such lending
bank’s capital stock and surplus.

The Dodd-Frank Act significantly expanded the
coverage and scope of the limitations on affiliate
transactions within a banking organization. For
example, commencing in July 2012, the Dodd-Frank

96 BNY Mellon

Act required that the 10% of capital limit on covered
transactions apply to financial subsidiaries.
Commencing in July 2012, Dodd-Frank also
expanded the definition of a “covered transaction” to
include derivatives transactions and securities lending
transactions with a non-bank affiliate under which a
bank (or its subsidiary) has credit exposure (with the
term “credit exposure” to be defined by the Federal
Reserve under its existing rulemaking authority).
Collateral requirements will apply to such transactions
as well as to certain repurchase and reverse repurchase
agreements.

Deposit Insurance

Our U.S. banking subsidiaries, including The Bank of
New York Mellon and BNY Mellon, N.A., accept
deposits, and those deposits have the benefit of FDIC
insurance up to the applicable limit. The current limit
for FDIC insurance for deposit accounts is $250,000
for each depositor account. For noninterest-bearing
transaction accounts, temporary unlimited deposit
insurance coverage ceased on January 1, 2013. Under
the FDI Act, insurance of deposits may be terminated
by the FDIC upon a finding that the insured
depository institution has engaged in unsafe and
unsound practices, is in an unsafe or unsound
condition to continue operations or has violated any
applicable law, regulation, rule, order or condition
imposed by a bank’s federal regulatory agency.

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

The Dodd-Frank Act also directed the FDIC to
determine whether and to what extent adjustments to
the assessment base are appropriate for custody banks.
During 2011, the FDIC concluded that certain liquid
assets could be excluded from the deposit insurance
assessment base of custody banks that satisfy certain
institutional eligibility criteria. This has the effect of
reducing the amount of DIF insurance premiums due
from custody banks. The Bank of New York Mellon is
a custody bank for this purpose. The custody bank
assessment adjustment may not exceed total

Supervision and Regulation (continued)

transaction account deposits identified by the
institution as being directly linked to a fiduciary or
custody and safekeeping asset.

Source of Strength and Liability of Affiliates

Federal Reserve policy historically has required BHCs
to act as a source of strength to their bank subsidiaries
and to commit capital and financial resources to
support those subsidiaries. The Dodd-Frank Act
codified this policy as a statutory requirement. Such
support may be required by the Federal Reserve at
times when we might otherwise determine not to
provide it. In addition, any loans by BNY Mellon to
its bank subsidiaries would be subordinate in right of
payment to depositors and to certain other
indebtedness of its banks. In the event of a BHC’s
bankruptcy, any commitment by the BHC to a federal
bank regulator to maintain the capital of a subsidiary
bank will be assumed by the bankruptcy trustee and
entitled to a priority of payment. In addition, in certain
circumstances BNY Mellon’s insured depository
institutions could be assessed for losses incurred by
another BNY Mellon insured depository institution. In
the event of impairment of the capital stock of one of
BNY Mellon’s national banks or The Bank of New
York Mellon, BNY Mellon, as the banks’ stockholder,
could be required to pay such deficiency.

Incentive Compensation Arrangements Proposal

The Dodd-Frank Act requires federal regulators to
prescribe regulations or guidelines regarding
incentive-based compensation practices at certain
financial institutions. On April 14, 2011, federal
regulators including the FDIC, the Federal Reserve
and the SEC, issued a proposed rule 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 comment period on the proposed rule closed
May 31, 2011. Final regulations have not been issued
as of this date.

Anti-Money Laundering and the USA Patriot Act

A major focus of governmental policy on financial
institutions has been aimed at combating money
laundering and terrorist financing. The USA
PATRIOT Act of 2001 contains numerous anti-money
laundering requirements for financial institutions that
are applicable to BNY Mellon’s bank, broker-dealer
and investment adviser subsidiaries and mutual funds

and private investment companies advised or
sponsored by our subsidiaries. Those regulations
impose obligations on financial institutions to
maintain appropriate policies, procedures and controls
to detect, prevent and report money laundering and
terrorist financing and to verify the identity of their
customers. Certain of those regulations impose
specific due diligence requirements on financial
institutions that maintain correspondent or private
banking relationships with non-U.S. financial
institutions or persons.

Privacy

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

Acquisitions

Federal and state laws impose notice and approval
requirements for mergers and acquisitions involving
depository institutions or BHCs. The BHC Act
requires the prior approval of the Federal Reserve for
the direct or indirect acquisition by a BHC of more
than 5% of any class of the voting shares or all or
substantially all of the assets of a commercial bank,
savings and loan association or BHC. In reviewing
bank acquisition and merger applications, the bank
regulatory authorities will consider, among other
things, the competitive effect of the transaction,
financial and managerial issues including the capital
position of the combined organization, convenience
and needs factors, including the applicant’s record
under the Community Reinvestment Act of 1977
which requires U.S. banks to help serve the credit
needs of their communities (including credit to low
and moderate income individuals and geographies)
and the effectiveness of the subject organizations in
combating money laundering activities. In addition,
prior Federal Reserve approval would be required for
certain large non-banking acquisitions and
investments.

Regulated Entities of BNY Mellon and Ancillary
Regulatory Requirements

BNY Mellon is regulated as a BHC and a financial
holding company (“FHC”) under the Bank Holding

BNY Mellon

Supervision and Regulation (continued)

Company Act of 1956, as amended by the Gramm
Leach-Bliley Act and by the Dodd-Frank Act (the
“BHC Act”). We are subject to supervision by the
Federal Reserve. In general, the BHC Act limits a
BHC’s business activities to banking, managing or
controlling banks, performing certain servicing
activities for subsidiaries, engaging in activities
incidental to banking, and engaging in any activity, or
acquiring and retaining the shares of any company
engaged in any activity, that is either financial in
nature or complementary to a financial activity and
does not pose a substantial risk to the safety and
soundness of depository institutions or the financial
system generally.

A BHC’s ability to maintain FHC status is dependent
upon a number of factors, including:

its U.S. depository institution subsidiaries
qualifying on an ongoing basis as “well
capitalized” and “well managed” under the
prompt corrective regulations of the appropriate
regulatory agency (discussed above under
“Prompt Corrective Action”); and
the BHC itself, qualifying on an ongoing basis as
“well capitalized” and “well managed” under
applicable Federal Reserve regulations.

An FHC that does not continue to meet all the
requirements for FHC status will, depending on which
requirements it fails to meet, lose the ability to
undertake new activities, or make acquisitions, that
are not generally permissible for BHCs without FHC
status or to continue such activities.

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

We operate a number of broker-dealers that engage in
securities underwriting and other broker-dealer
activities in the United States. These companies are
SEC-registered broker-dealers and members of
Financial Industry Regulatory Authority, Inc.
(“FINRA”), a securities industry self-regulatory
organization. BNY Mellon’s non-bank subsidiaries
engaged in securities-related activities are regulated

98 BNY Mellon

by supervisory agencies in the countries in which they
conduct business. Certain of BNY Mellon’s public
finance and advisory activities are regulated by the
Municipal Securities Rulemaking Board. Certain of
BNY Mellon’s subsidiaries are registered with the
CFTC as commodity pool operators or commodity
trading advisors and, as such, are subject to CFTC
regulation. BNY Mellon also has a subsidiary that
clears futures and derivatives trades on behalf of
institutional clients and is registered with the CFTC as
a futures commission merchant and is a member of
the National Futures Association. The Bank of New
York Mellon provisionally registered as a Swap
Dealer (as defined in the Dodd-Frank Act) with the
CFTC, through the National Futures Association. As a
Swap Dealer, The Bank of New York Mellon is
subject to regulation, supervision and examination by
the CFTC. In connection with certain Dodd-Frank
clearing requirements, The Bank of New York Mellon
became a member of LCH Clearnet Limited’s
SwapClear interest rate swap clearing service in 2012.

Certain of our subsidiaries are registered investment
advisors under the Investment Advisers Act of 1940,
as amended, and as such are supervised by the SEC.
They are also subject to various U.S. federal and state
laws and regulations and to the laws and regulations
of any countries in which they conduct business. Our
subsidiaries advise both public investment companies
which are registered with the SEC under the
Investment Company Act of 1940 (the “’40 Act”),
including the Dreyfus family of mutual funds, and
private investment companies which are not registered
under the ‘40 Act.

Certain of our investment management, trust and
custody operations provide services to employee
benefit plans that are subject to the Employee
Retirement Income Security Act of 1974, as amended
(“ERISA”), administered by the U.S. Department of
Labor. ERISA imposes certain statutory duties,
liabilities, disclosure obligations, and restrictions on
fiduciaries, as applicable, related to the services being
performed and fees being paid. Certain proposed
expansions of the definition of a fiduciary could
require certain BNY Mellon businesses to modify
their practices, which could adversely affect results of
such businesses.

Operations and Regulations Outside of the United
States

In Europe, The Bank of New York Mellon SA/NV
(“BNY Mellon SA/NV”) is a public limited liability
company incorporated under the laws of Belgium.

Supervision and Regulation (continued)

BNY Mellon SA/NV, which has been granted a
banking license by the National Bank of Belgium, is
authorized to carry out all banking and savings
activities as a credit institution. BNY Mellon SA/NV
conducts its activities in Belgium as well as through
branch offices in the United Kingdom, Luxembourg,
the Netherlands, France and Germany.

Effective Feb. 1, 2013, The Bank of New York
Mellon (Ireland) Limited (the “Irish Bank”) merged
with the BNY Mellon SA/NV. As part of the merger
process, BNY Mellon SA/NV established a branch in
Ireland. As of and from Feb. 1, 2013, this branch
carries on the business activity in Ireland which was
previously conducted by the Irish Bank.

Certain of our financial services operations in the UK
are subject to regulation by and supervision of the
FSA. The FSA has broad supervisory and disciplinary
powers, which include the power to revoke the
authorization to carry on regulated business following
a breach of the UK Financial Services and Markets
Act 2000 (“FSMA 2000”) and/or regulatory rules, the
suspension of registered employees and censures and
fines for both regulated businesses and their registered
employees. The FSA regulates The Bank of New
York Mellon (International) Limited, our UK-
chartered bank, as well as the UK branches of The
Bank of New York Mellon and BNY Mellon SA/NV.
In addition, the FSA regulates our trust and depositary
and certain of our corporate trust businesses. Certain
of BNY Mellon’s UK incorporated subsidiaries are
authorized to conduct investment business in the UK
pursuant to the FSMA 2000. Their investment
management advisory activities and their sale and
marketing of retail investment products are regulated
by the FSA. Certain UK investment funds, including
BNY Mellon Investment Funds, an open-ended
investment company with variable capital advised by
UK-regulated subsidiaries of BNY Mellon, are
registered with the FSA and are offered for retail sale
in the UK. The UK government has announced that it
intends to abolish the FSA and to establish in its place
three new regulatory bodies, the Financial Policy
Committee, the Prudential Regulation Authority and
the Financial Conduct Authority. All changes are
expected to take effect early- to mid-2013.

The European Union (“EU”) Commission has
proposed a regulation conferring powers on the
European Central Bank (the “ECB”) for the prudential
supervision of all banks in the Eurozone, with a
mechanism for non-euro countries to join on a
voluntary basis. The ECB and EU Member State
National Competent Authorities will together be a

Single Supervisory Mechanism (“SSM”). Key
proposals address the scope of those credit institutions
that will fall within the SSM, how they will be
supervised and regulated and the investigation,
enforcement and other powers of the ECB. Certain of
BNY Mellon’s European subsidiaries would fall
within the SSM, including most likely BNY Mellon
SA/NV. In addition, a Recovery and Resolution
Directive has been proposed and is expected to be
voted on in the European Parliament in early- to mid
2013. This Directive would set out a recovery and
resolution framework for the EU, similar in some
respects to the Federal Reserve’s and FDIC’s
resolution plan rules described above under
“Resolution Planning”, and would provide a minimum
set of harmonized tools and powers to resolve or
implement recovery of relevant credit institutions and
other firms and entities, including branches of non-
EEA banks operating within the EEA. Key elements
include the preparation of recovery and resolution
plans; removing barriers to resolution; entering into
intra-group financial support arrangements; giving
relevant EEA regulators responsible for supervision,
powers to impose certain requirements on an
institution that is in financial difficulty before
resolution actions become necessary; and giving
authorities a set of resolution tools and powers to
facilitate the resolution of failing entities, such as the
power to “bail-in” the debt of an institution and the
power to require a firm to change their legal or
operating structure to remove impediments to
resolvability. Various BNY Mellon subsidiaries and
branches are expected to fall within the scope of this
Directive.

In addition, the Capital Requirements Directive IV
(and related Regulation) (“CRD IV”) will affect BNY
Mellon’s EU subsidiaries by implementing Basel III
and other changes, including the enhancement of the
quality of capital, and the strengthening of capital
requirements for counterparty credit risk, resulting in
higher capital requirements. Elements of CRD IV will
apply not only to BNY Mellon banking branches and
subsidiaries but also to investment management and
brokerage entities.

Our Investment Management and Investment Services
businesses are subject to significant regulation in
numerous jurisdictions around the world relating to,
among other things, the safeguarding, administration
and management of client assets and client funds.
Various new and revised European Directives will
impact our provision of these services, including
revisions to the Markets in Financial Instruments
Directive, the new Alternative Investment Fund

BNY Mellon

Supervision and Regulation (continued)

Managers Directive, the Directive on Undertakings
for Collective Investments in Transferable Securities,
the Central Securities Depository Regulation, the
European Market Infrastructure Regulation and the
Securities Law Legislation. These new and revised
European Directives will impact our operations and
risk profile and provide new opportunities for the
provision of BNY Mellon products and services.

The types of activities in which the foreign branches
of our banking subsidiaries and our international

subsidiaries may engage are subject to various
restrictions imposed by the Federal Reserve. Those
foreign branches and international subsidiaries are
also subject to the laws and regulatory authorities of
the countries in which they operate and, in the case of
banking subsidiaries, may be subject to regulatory
capital requirements in the jurisdictions in which they
operate. As of Dec. 31, 2012, each of BNY Mellon’s
non-U.S. banking subsidiaries had capital ratios above
their specified minimum requirements.

100 BNY Mellon

Recent Accounting Developments

Recently Issued Accounting Standards

ASU 2011-11—Disclosures about Offsetting Assets
and Liabilities

In December 2011, the Financial Accounting
Standards Board (“FASB”) issued Accounting
Standards Update (“ASU 2011-11”), “Disclosures
about Offsetting Assets and Liabilities”. Entities are
required to disclose both gross information and net
information about both instruments and transactions
eligible for offset in the balance sheet and instruments
and transactions subject to an agreement similar to a
master netting arrangement. This scope would include
derivatives, sale and repurchase agreements and
reverse sale and repurchase agreements, and securities
borrowing and securities lending arrangements. The
objective of this disclosure is to facilitate comparison
between those entities that prepare their financial
statements on the basis of U.S. GAAP and those
entities that prepare their financial statements on the
basis of IFRS. The amendments are effective for
reporting periods beginning on or after Jan. 1, 2013.
An entity would be required to provide the disclosures
required by those amendments retrospectively for all
comparative periods presented. Additionally, on Jan.
31, 2013 the FASB issued ASU No. 2013-01,
Clarifying the Scope of Disclosures about Offsetting
Assets and Liabilities. ASU 2013-01 clarifies that
ordinary trade receivables and receivables are not in
the scope of ASU No. 2011-11. This ASU will not
impact our results of operations.

ASU 2012-02—Testing Indefinite-Lived Intangible
Assets for Impairment

In July 2012, the FASB issued ASU 2012-02,
“Testing Indefinite-Lived Intangible Assets for
Impairment”. This guidance allows an entity an option
to first assess qualitative factors to determine whether
it is more likely than not (a likelihood of more than 50
percent) that an indefinite-lived intangible asset is
impaired. If the intangible asset is impaired, an entity
is required to perform the quantitative impairment
test. An entity is not required to calculate the fair
value of an indefinite-lived intangible asset and
perform the quantitative impairment test unless the
entity determines that it is more likely than not that
the asset is impaired. An entity choosing to perform
the qualitative assessment would need to identify and
consider the events and circumstances that,
individually or in the aggregate, most significantly
affect an indefinite-lived intangible asset’s fair value.
Examples of events and circumstances that should be
considered, include deterioration in the entity’s

operating environment, entity-specific events, such as
a change in management, and overall financial
performance, such as negative or declining cash
flows. An entity also should consider any positive and
mitigating events and circumstances, as well as
whether there have been changes to the carrying
amount of the indefinite-lived intangible asset. An
entity can choose to perform the qualitative
assessment on none, some, or all of its indefinite-lived
intangible assets. An entity can bypass the qualitative
assessment and perform the quantitative impairment
test for any indefinite-lived intangible in any period.
This ASU is effective for annual and interim
impairment tests performed for fiscal years beginning
after Sept. 15, 2012.

ASU 2013-02—Reporting of Amounts Reclassified
Out of Accumulated Other Comprehensive Income

In February 2013, the FASB issued ASU 2013-02,
“Reporting of Amounts Reclassified Out of
Accumulated Other Comprehensive Income”. This
ASU requires the presentation of the effects on the
line items of net income of significant amounts
reclassified out of accumulated other comprehensive
income – but only if the item reclassified is required
under U.S. GAAP to be reclassified to net income in
its entirety in the same reporting period; and a cross-
reference to other disclosures currently required under
U.S. GAAP for other reclassification items (that are
not required under U.S. GAAP) to be reclassified
directly to net income in their entirety in the same
reporting period. However, it will not amend the
current requirements for the reporting of net income
or other comprehensive income in the financial
statements. The amendments are effective for
reporting periods beginning after Dec. 15, 2012.

Proposed Accounting Standards

Proposed ASU—Revenue from Contracts with
Customers

In June 2010, the FASB issued a proposed ASU,
“Revenue from Contracts with Customers”. This
proposed ASU is the result of a joint project of the
FASB and the 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

BNY Mellon

101

Recent Accounting Developments (continued)

performance obligation is satisfied. In 2011, the
FASB and the 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.

In November 2011, the FASB re-exposed the
proposed ASU. A final standard is expected to be
issued in 2013. A retrospective application transition
method would be permitted, but the FASB and IASB
provides a practicable expedient to reduce the burden
on preparers. The FASB and IASB tentatively decided
that the effective date of the proposed standard would
be annual reporting periods beginning on or after Jan.
1, 2017.

Proposed ASU—Principal versus Agent Analysis

In November 2011, the FASB issued a proposed ASU
“Principal versus Agent Analysis”. This proposed
ASU would rescind the 2010 indefinite deferral of
FAS 167 for certain investment funds, including
mutual funds, hedge funds, mortgage real estate
investment funds, private equity funds, and venture
capital funds, and amends the pre-existing guidance
for evaluating consolidation of voting general
partnerships and similar entities. The proposed ASU
also amends the criteria for determining whether an
entity is a variable interest entity under FAS 167,
which could affect whether an entity is within its
scope. Accordingly, certain funds that previously were
not consolidated must be reviewed to determine
whether they will now be required to be consolidated.
The proposed accounting standard will continue to
require BNY Mellon to determine whether or not it
has a variable interest in a variable interest entity.
However, consolidation of its variable interest entity
and voting general partnership asset management
funds will be based on whether or not BNY Mellon,
as the asset manager, uses its power as a decision
maker as either a principal or an agent. Based on a
preliminary review of the proposed ASU, we do not
expect to be required to consolidate additional mutual
funds, hedge funds, mortgage real estate investment
funds, private equity funds, and venture capital funds.
In addition, we expect to de-consolidate a substantial
portion of the CLOs we currently consolidate, with
further deconsolidation possible depending on future
changes to BNY Mellon’s investment in subordinated
notes. The FASB is currently evaluating comment
letters received. A final ASU is expected to be issued
during the second quarter of 2013.

102 BNY Mellon

FASB and IASB project on Leases

In August 2010, the FASB and IASB issued a joint
proposed ASU, “Leases”. FASB has tentatively
decided that lessees would apply a “right-of-use”
accounting model. This would require the lessee to
recognize both a right-of-use asset and a
corresponding liability to make lease payments at the
lease commencement date, both measured at the
present value of the lease payments. The right-of-use
asset would be amortized on a systematic basis that
would reflect the pattern of consumption of the
economic benefits of the leased asset. The liability to
make lease payments would be subsequently de
recognized over time by applying the effective interest
method to apportion the periodic payment to
reductions in the liability to make lease payments and
interest expense. Lessors would account for leases by
applying a “receivable and residual” accounting
approach for those leases where the lessee acquires
and consumes more than an insignificant portion of
the underlying asset over the lease term. The lessor
would recognize a right to receive lease payments and
a residual asset at the date of the commencement of
the lease. The lessor would initially measure the right
to receive lease payments at the sum of the present
value of the lease payments, discounted using the rate
the lessor charges the lessee. The lessor would
initially measure the residual asset as an allocation of
the carrying amount of the underlying asset and would
subsequently measure the residual asset by accreting it
over the lease term, using the rate the lessor charges
the lessee. The FASB is expected to re-expose the
standard during 2013.

Proposed ASU—Financial Instruments—Credit
Losses

In December 2012, the FASB issued a proposed ASU,
“Financial Instruments-Credit Losses”. This proposed
ASU would result in a single model to account for credit
losses on financial assets. The proposal would remove
the probable threshold for recognizing credit losses and
require an estimate of the contractual cash flows an
entity does not expect to collect on financial assets not
measured at fair value through the income statement.
The proposal would also change current practice for
recognizing other-than-temporary impairment and
interest income on debt securities. In addition, the
proposal would result in the recognition of an allowance
for credit losses for nearly all types of debt instruments.
The proposal would expand the credit quality disclosures
to require information about changes in the factors that
influence estimates of credit losses and the reasons for
those changes. Comments on this proposed ASU are due
on April 30, 2013.

Recent Accounting Developments (continued)

Proposed ASU—Effective Control for Transfers with
Forward Agreements to Repurchase Assets and
Accounting for Repurchase Financings

In January 2013, the FASB issued a proposed ASU,
“Effective Control for Transfers with Forward
Agreements to Repurchase Assets and Accounting for
Repurchase Financings.” This proposed ASU would
require certain repurchase agreements to be accounted
for as secured borrowings. For repurchase agreements
and similar transactions accounted for as secured
borrowings, an entity would be required to disclose
the carrying value of the borrowing disaggregated by
the type of collateral pledged. Comments on this
proposed ASU are due on March 29, 2013.

Proposed ASU—Recognition and Measurement of
Financial Assets and Financial Liabilities

In February 2013, the FASB issued a proposed ASU,
“Recognition and Measurement of Financial Assets
and Financial Liabilities.” This proposed ASU would
affect entities that hold financial assets and liabilities
and would change the methodology related to
recognition, classification, measurement and
presentation of financial instruments. The scope of the
proposed ASU would exclude instruments classified
in shareholder’s equity, share-based arrangements,
pension plans, leases, guarantees and derivative
instruments accounted under ASC 815. Financial
assets would be classified and measured based on the
instrument’s cash flow characteristics and an entity’s
business model for managing the instrument.
Financial liabilities would generally be measured
initially at their transaction price. The proposal
includes three principal classification and
measurement categories: (1) fair value for which all
changes in fair value are recognized in net income;
(2) fair value with qualifying changes in fair value
recognized in other comprehensive income; and
(3) amortized cost. This proposed ASU requires
financial assets and liabilities to be presented
separately on the balance sheet by measurement
category. In addition, the fair value of financial assets
and liabilities accounted for under amortized cost
would be presented parenthetically on the balance
sheet. Comments on this proposed ASU are due on
May 15, 2013.

Adoption of new accounting standards

For a discussion of the adoption of new accounting
standards, see Note 2 of the Notes to Consolidated
Financial Statements.

IFRS

International Financial Reporting Standards (“IFRS”)
are a set of standards and interpretations adopted by
the International Accounting Standards Board. The
SEC is currently considering a potential IFRS
adoption process in the United States, 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. 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 United States 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.

In May 2011, the SEC published a staff paper,
“Exploring a Possible Method of Incorporation”, that
presents a possible framework for incorporating IFRS
into the U.S. financial reporting system. In the staff
paper, the SEC staff elaborates on an approach that
combines elements of convergence and endorsement.
This approach would establish an endorsement
protocol for the FASB to incorporate newly issued or
amended IFRS into U.S. GAAP. During a transition
period (e.g., five to seven years), differences between
IFRS and U.S. GAAP would be potentially eliminated
through ongoing FASB standard setting.

In July 2012, the SEC staff released its final report on
IFRS. This Final Report will be used by the SEC
Commissioners to decide whether and, if so, when and
how to incorporate IFRS into the financial reporting
system for U.S. companies. The staff has not

BNY Mellon

103

Recent Accounting Developments (continued)

specifically requested comments on the Final Report.
It is not known when the SEC will make a final
decision on the adoption of IFRS in the U.S.

The COSO Board has updated the original Framework
to make it more relevant to investors and other
stakeholders.

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,
Hong Kong, Canada and South Korea.

Proposed Update to Internal Controls—Integrated
Framework

In December 2011, The Committee of Sponsoring
Organizations of the Treadway Commission
(“COSO”) issued for public comment a proposed
update to Internal Control—Integrated Framework.
The original Framework, issued in 1992, is used by
most U.S. public companies and many others to
evaluate and report on the effectiveness of their
internal control over external financial reporting.

Since the original Framework was introduced,
business has become increasingly global and complex.
Regulatory regimes also have expanded, and
additional forms of external reporting are emerging.

The more significant proposed changes to the original
Framework include: applying a principles-based
approach, clarifying the role of objective-setting in
internal control, reflecting the increased relevance of
technology, enhancing governance concepts,
expanding the objectives of financial reporting,
enhancing consideration of anti-fraud expectations,
and considering different business models and
organizational structures.

In September 2012, COSO released a draft of its
Internal Control Over External Financial Reporting
(“ICEFR”): Compendium of Approaches and
Examples (“the Compendium”). The Compendium
provides guidance on applying COSO’s Internal
Control -Integrated Framework to external financial
reporting. COSO also released a revised version of its
Internal Control -Integrated Framework (“ICIF”) that
incorporates changes based on comments received.
Comments on the Compendium and the revised ICIF
were due on Nov. 20, 2012.

The final document is expected to be issued in the first
quarter of 2013.

104 BNY Mellon

Business Continuity

We are prepared for events that could damage our
physical facilities, cause delay or disruptions to
operational functions, including telecommunications
networks, or impair our 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, commercial paper, mutual
fund accounting and custody, securities lending,
master trust, Unit Investment Trust, corporate trust,
item processing, wealth management and treasury
units have common functionality in multiple sites
designed to facilitate continuance of operations or
rapid recovery. In addition, we have recovery
positions for over 13,400 employees on a global basis
of which over 7,500 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 meet substantially 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.

In October 2012, several of our facilities in the
northeastern U.S. were impacted by Superstorm
Sandy. Our business continuity plans functioned well
in the storm and its aftermath.

BNY Mellon

105

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 Tier 1 common equity to
risk-weighted assets and the ratio of tangible common
shareholders’ equity to tangible assets of operations
are measures of capital strength that provide
additional useful information to investors,
supplementing the Tier 1 and Total capital ratios
which are utilized by regulatory authorities. The ratio
of Basel I Tier 1 common equity to risk-weighted
assets excludes preferred stock, as well as the trust
preferred securities, which will be phased out of Basel
I Tier 1 regulatory capital beginning in 2013. Unlike
the Basel I Tier 1 and Total capital ratios, 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. 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 presented its estimated
Basel III Tier 1 common equity ratio on a basis that is
representative of how it currently understands the
Basel III rules. Management views the Basel III Tier 1
common equity ratio as a key measure in monitoring
BNY Mellon’s capital position. Additionally, the
presentation of the Basel III Tier 1 common equity
ratio allows investors to compare BNY Mellon’s
Basel III Tier 1 common equity ratio with estimates
presented by other companies. See “Capital” for a
reconciliation of total Tier 1 capital – Basel I to total
estimated Basel III Tier 1 common equity and total
risk-weighted assets – Basel I to total estimated Basel
III risk-weighted assets.

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

106 BNY Mellon

related to consolidated investment management funds;
expense measures which exclude M&I expenses,
litigation charges, restructuring charges, amortization
of intangible assets, support agreement charges and
asset-based taxes; 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
to certain ongoing charges as a result of prior
transactions or where we have incurred charges. M&I
expenses primarily relate to the 2007 merger of The
Bank of New York Company, Inc. and Mellon
Financial Corporation 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. 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. Litigation charges represent accruals for
loss contingencies that are both probable and
reasonably estimable, but exclude standard business-
related legal fees. Restructuring charges relate to our
operational excellence initiatives and migrating
positions to global delivery centers. Excluding these
charges permits investors to view expenses on a basis
consistent with how management views the business.
With regards to the exclusion of net securities gains
(losses), BNY Mellon’s primary businesses are
Investment Management and Investment 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 segment. The
primary objective of the investment securities
portfolio is to generate net interest revenue from the
liquidity generated by BNY Mellon’s processing
businesses. BNY Mellon does not generally originate
or trade the securities in the investment securities
portfolio. Excluding the discrete tax benefits related to
a tax loss on mortgages and the benefit of tax

Supplemental Information (unaudited) (continued)

settlements permits investors to calculate the tax
impact of BNY Mellon’s primary businesses.
The presentation of income of consolidated investment
management funds, net of net income (loss) attributable
to noncontrolling interests related to the consolidation of
certain investment 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.

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

In this Annual Report, the net interest margin is
presented on an FTE basis. We believe that this
presentation provides comparability of amounts
arising from both taxable and tax-exempt sources, and
is consistent with 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 business-level basis.

2012

2011

2010

2009

2008

Income (loss) from continuing operations before income taxes – GAAP
Less: Net securities gains (losses)

$ 3,302
N/A

$ 3,617
N/A

$ 3,694
27

$ (2,208)
(5,369)

$ 1,946
(1,628)

Noncontrolling interests of consolidated investment management
funds

Add: SILO/LILO charges

Support agreement charges
M&I, litigation and restructuring charges
Asset-based taxes
Amortization of intangible assets

Income (loss) from continuing operations before income taxes excluding net
securities gains (losses), noncontrolling interests of consolidated investment
management funds, SILO/LILO charges, support agreement charges, M&I,
litigation and restructuring charges, asset-based taxes and amortization of
intangible assets – Non-GAAP

Fee and other revenue – GAAP
Income of consolidated investment management funds – GAAP
Net interest revenue – GAAP

Total revenue – GAAP

Less: Net securities gains (losses)
Noncontrolling interests of consolidated investment management funds
Add: SILO/LILO charges

Total revenue excluding net securities gains (losses), noncontrolling
interests of consolidated investment management funds and SILO/LILO
charges – Non-GAAP

Pre-tax operating margin (a)
Pre-tax operating margin, excluding net securities gains (losses),

noncontrolling interests of consolidated investment management funds,
SILO/LILO charges, support agreement charges, M&I, litigation and
restructuring charges, asset-based taxes and amortization of intangible
assets – Non-GAAP (a)

(a) Income (loss) before taxes divided by total revenue.

76
-
N/A
559
-
384

50
---
N/A
390
-
428

N/A
384
-
421

N/A
417
20
426

-
489
894
670
-
473

$ 4,169

$ 4,385

$ 4,413

$ 4,024

$ 6,100

$11,393
189
2,973

14,555
N/A
76
-

$11,546
200
2,984

14,730
N/A
50
---

$10,724
226
2,925

13,875
27
59

$ 4,739
-
2,915

$10,714
-
2,859

7,654
(5,369)

13,573
(1,628)

-
489

$14,479

$14,680

$13,789

$13,023

$15,690

23%

25%

27%

N/M

14%

29%

30%

32%

31%

39%

BNY Mellon

107

Supplemental Information (unaudited) (continued)

Return on common equity and tangible common equity – continuing
operations
(dollars in millions)

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

York Mellon Corporation before extraordinary loss (a)
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 of tax

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 (a)

Less: Net securities gains (losses)
Add: SILO/LILO/tax settlements
Support agreement charges
M&I, litigation, and restructuring charges
Discrete tax benefits and the benefit of tax settlements

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, M&I, litigation and restructuring
charges, discrete tax benefits and the benefit of tax settlements and
amortization of intangible assets – Non-GAAP (a)

Average common shareholders’ equity
Less: Average goodwill

Average intangible assets

Add: Deferred tax liability – tax deductible goodwill

Deferred tax liability – non-tax deductible intangible assets

2012

2011

2010

2009

2008

$ 2,427
-

$ 2,516
-

$ 2,518
(66)

$ (1,367)
(270)

$ 1,412
14

2,427
247

2,516
269

2,584
264

(1,097)
265

1,398
292

2,674
N/A
-
N/A
339
-

2,785
N/A
-
N/A
240
-

2,848
17
-
N/A
240
-

(832)
(3,360)

-
N/A
259
(267)

1,690
(983)
410
533
399
-

$ 3,013

$ 3,025

$ 3,071

$ 2,520

$ 4,015

$34,333
17,967
4,982
1,130
1,310

$33,519
18,129
5,498
967
1,459

$31,100
17,029
5,664
816
1,625

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

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

Average tangible common shareholders’ equity – Non-GAAP

$13,824

$12,318

$10,848

$ 7,902

$ 8,231

Return on common equity before extraordinary loss – GAAP (a)
Return on common equity before extraordinary loss excluding net securities
gains (losses), SILO/LILO/tax settlements, support agreement charges,
M&I, litigation and restructuring charges, discrete tax benefits and the
benefit of tax settlements and amortization of intangible assets – Non-
GAAP (a)

Return on tangible common equity before extraordinary loss – Non-GAAP (a)
Return on tangible common equity before extraordinary loss excluding net
securities gains (losses), SILO/LILO/tax settlements, support agreement
charges, M&I, litigation and restructuring charges, discrete tax benefits and
the benefit of tax settlements – Non-GAAP (a)

7.1%

7.5%

8.3%

N/M

5.0%

8.8%

9.0%

9.9%

9.3%

14.2%

19.3%

22.6%

26.3%

N/M

20.5%

21.8%

24.6%

28.3%

31.9%

48.8%

(a) In 2008, BNY Mellon incurred an extraordinary loss of $26 million, net of tax, related to the consolidation of a commercial paper

conduit.

The following table presents income from consolidated investment management funds, net of noncontrolling
interests.

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

Income from consolidated investment management funds
Less: Net income attributable to noncontrolling interests of consolidated investment management funds

Income from consolidated investment management funds, net of noncontrolling interests

2012

$189
76

$113

2011

$200
50

$150

2010

$226
59

$167

108 BNY Mellon

Supplemental Information (unaudited) (continued)

The following table presents the line items in the Investment Management business impacted by the consolidated
investment management funds.

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

Investment management and performance fees
Investment and other income

Income from consolidated investment management funds, net of noncontrolling interests

2012

$ 81
32

$113

2011

$107
43

$150

2010

$125
42

$167

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

BNY Mellon shareholders’ equity at period end – GAAP
Less: Preferred stock

BNY Mellon common shareholders’ equity at period end –

GAAP

Less: Goodwill

Intangible assets

Add: Deferred tax liability – tax deductible goodwill

Deferred tax liability – non-tax deductible intangible
assets

Tangible BNY Mellon shareholders’ equity at

period end – Non-GAAP

2012

36,431
1,068

35,363
18,075
4,809
1,130

2011

33,417
-

33,417
17,904
5,152
967

Dec. 31,

2010

32,354
-

32,354
18,042
5,696
816

2009

28,977
-

28,977
16,249
5,588
720

2008

28,050
2,786

25,264
15,898
5,856
599

1,310

1,459

1,625

1,680

1,841

14,919

12,787

11,057

9,540

5,950

Total assets at period end – GAAP
Less: Assets of consolidated investment management funds

$ 358,990
11,481

$ 325,266
11,347

$ 247,259
14,766

$ 212,224
-

$ 237,512
-

Subtotal assets of operations – Non-GAAP

Less: Goodwill

Intangible assets
Cash on deposit with the Federal Reserve and other
central banks (a)
U.S. Government-backed commercial paper (a)

347,509
18,075
4,809

90,040
-

313,919
17,904
5,152

90,230
-

232,493
18,042
5,696

18,566
-

212,224
16,249
5,588

7,375
-

237,512
15,898
5,856

53,278
5,629

Tangible total assets of operations at period end – Non-GAAP

$ 234,585

$ 200,633

$ 190,189

$ 183,012

$ 156,851

BNY Mellon shareholders’ equity to total assets – GAAP

10.1%

10.3%

13.1%

13.7%

11.8%

BNY Mellon common shareholders’ equity to total assets –

GAAP

Tangible BNY Mellon shareholders’ equity to tangible assets

9.9%

10.3%

13.1%

13.7%

10.6%

of operations – Non-GAAP

6.4%

5.8%

5.2%

3.8%

Period end common shares outstanding (in thousands)

1,163,490

1,209,675

1,241,530

1,207,835

1,148,467

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

$
$

30.39
12.82

$
$

27.62
10.57

$
$

26.06
8.91

$
$

23.99
7.90

$
$

22.00
5.18

(a) Assigned a zero percentage risk weighting by the regulators.

BNY Mellon

109

Supplemental Information (unaudited) (continued)

Calculation of Basel I Tier 1 common equity to risk-weighted assets ratio (a)

(dollars in millions)

Total Tier 1 capital – Basel I
Less: Trust preferred securities
Preferred stock

Total Tier 1 common equity

2012

2011

$ 16,694
623
1,068

$ 15,389
1,659
-

Dec. 31,
2010

$ 13,597
1,676
-

2009

2008

$ 12,883
1,686
-

$ 15,402
1,654
2,786

$ 15,003

$ 13,730

$ 11,921

$ 11,197

$ 10,962

Total risk-weighted assets – Basel I

$111,180

$102,255

$101,407

$106,328

$116,713

Basel I Tier 1 common equity to risk-weighted assets ratio –

Non-GAAP

13.5%

13.4%

11.8%

10.5%

9.4%

(a) Determined under Basel I regulatory guidelines. The periods ended Dec. 31, 2010 and Dec. 31, 2009 include discontinued operations.

The following table presents the calculation of our estimated Basel III Tier 1 common equity ratio.

Estimated Basel III Tier 1 common equity ratio – Non-GAAP (a)
(dollars in millions)

Total Tier 1 capital – Basel I
Add: Deferred tax liability – tax deductible intangible assets
Less: Trust preferred securities
Preferred stock
Adjustments related to AFS securities and pension liabilities included in AOCI (b)
Adjustments related to equity method investments (b)
Deferred tax assets
Net pension fund assets (b)
Other

Total estimated Basel III Tier 1 common equity

Total risk-weighted assets – Basel I
Add: Adjustments (c)

Total estimated Basel III risk-weighted assets (d)
Estimated Basel III Tier 1 common equity ratio – (Non-GAAP)

Dec. 31,

2012

16,694
78
623
1,068
85
501
47
249
-

14,199
111,180
33,104

144,284

$
$

2011

15,389
N/A
1,659

944
555

90
(3)

12,144
102,255
67,813

170,068

9.8%

7.1%

$
$

(a) The estimated Basel III Tier 1 common equity ratios at Dec. 31, 2012 was based on the NPRs and final market risk rule. The estimated
Basel III Tier1 common equity ratio at Dec. 31, 2011 was based on prior Basel III guidance and the proposed market risk rule.
(b) The NPRs and prior Basel III guidance do not add back to capital the adjustment to other comprehensive income that Basel I makes

for pension liabilities and available-for-sale securities. Also, under the NPRs and prior Basel III guidance, pension assets recorded on
the balance sheet and adjustments related to equity method investments are a deduction from capital.

(c) Primary differences between risk-weighted assets determined under Basel I compared with the NPRs and prior Basel III guidance

include: the determination of credit risk under Basel I uses predetermined risk weights and asset classes and relies in part on the use
of external credit ratings, while the NPRs use, in addition to the broader range of predetermined risk weights and asset classes, certain
alternatives to external credit ratings. Securitization exposure receives a higher risk-weighting under the NPRs and prior Basel III
guidance than Basel I; also, the NPRs and prior Basel III guidance include additional adjustments for operational risk, market risk,
counterparty credit risk and equity exposures.

(d) Calculated on an Advanced Approaches basis, as amended by Basel III.

110 BNY Mellon

Supplemental Information (unaudited) (continued)

Rate/volume analysis

Rate/volume analysis (a)

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

Interest-bearing deposits with banks (primarily foreign banks)
Interest-bearing deposits with the Federal Reserve and other

central banks

Federal funds sold and securities purchased 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—tax exempt
Other securities:

Domestic offices
Foreign offices
Total other securities

Trading securities (primarily domestic)

Total securities

Total interest revenue

Interest expense
Interest-bearing deposits:

Domestic offices:

Money market rate accounts and demand deposit accounts
Savings
Time deposits

Total domestic offices

Foreign offices:

Banks
Other

Total foreign offices

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

Commercial paper
Payables to customers and broker-dealers
Long-term debt

Total interest expense
Changes in net interest revenue

2012 over (under) 2011

Due to change in

2011 over (under) 2010

Due to change in

Average
balance

Average
rate

Net
change

Average
balance

Average
rate

Net
change

$(163)

$(155)

$ (12)

$ 64

$ 52

4
45

1
(37)
6
(30)

44
389
105

5
11
16
24
578
$ 480

8
(1)
—
7

—
11
11
18

—
(6)

(8)
(1)
(9)
2
1
29
$ 35
$ 445

(42)

3
(6)

(21)
20
21
20

(11)
(197)
(30)

(144)
(132)
(276)
(2)
(516)
$(533)

(9)
—
1
(8)

(4)
(93)
(97)
(105)

(2)
(2)

—
4
4
—
—
—
$(105)
$(428)

7
39

(20)
(17)
27
(10)

33
192
75

(139)
(121)
(260)
22
62
$ (53)

(1)
(1)
1
(1)

(4)
(82)
(86)
(87)

(2)
(8)

(8)
3
(5)
2
1
29
$ (70)
$ 17

103

2
51

7
15
3
25

111
49
36

67
34
101
8
305
$474

$ 1
—
6
7

6
12
18
25

16
4

(3)
—
(3)
—
1
24
$ 67
$407

(4)

(38)
(10)

(21)
(55)
(6)
(82)

4
(98)
(18)

(368)
207
(161)
(5)
(278)
$(348)

(5)
(2)
(2)
(9)

34
60
94
85

(57)
(13)

(2)
2
—
—
—
(23)
$
(8)
$(340)

(36)
41

(14)
(40)
(3)
(57)

115
(49)
18

(301)
241
(60)
3
27
$ 126

(4)
(2)
4
(2)

40
72
112
110

(41)
(9)

(5)
2
(3)
—
1
1
$ 59
$ 67

(a) Changes which are solely due to balance changes or rate changes are allocated to such categories on the basis of the respective
percentage changes in average balances and average rates. Changes in interest revenue or interest expense arising from the
combination of rate and volume variances are allocated proportionately to rate and volume based on their relative absolute
magnitudes.

BNY Mellon

111

2012

2011

Quarter ended

Dec. 31

Sept. 30

June 30 March 31

Dec. 31

Sept. 30

June 30 March 31

$ 2,850

$ 2,879

$ 2,826

$ 2,838

$ 2,765

$ 2,887

$ 3,056

$ 2,838

42
725

3,617
(61)
2,825

853
207

646

47
749

3,675
(5)
2,705

975
225

750

57
734

3,617
(19)
3,047

589
93

496

43
765

3,646
5
2,756

885
254

631

(11)

(25)

(30)

(12)

635

(13)

725

(5)

466

—

619

—

(5)
780

3,540
23
2,828

689
211

478

505

—

32
775

3,694
(22)
2,771

945
281

664

63
731

3,850
—
2,816

1,034
277

757

110
698

3,646
—
2,697

949
279

670

(13)

(22)

(45)

651

—

735

—

625

—

$
$

622

0.53
0.53

$
$

720

0.61
0.61

$
$

466

0.39
0.39

$112,812
102,512
43,613
270,215
324,601
335,995
222,706
19,259
1,066

$103,050
100,004
42,428
255,228
307,919
318,914
208,490
19,535
611

$ 96,378
91,859
42,992
239,755
293,718
305,002
193,342
20,084
60

$
$

619

0.52
0.52

$ 98,621
86,808
43,209
236,331
289,900
301,344
192,051
20,538
—

$
$

505

0.42
0.42

$
$

651

0.53
0.53

$
$

735

0.59
0.59

$
$

625

0.50
0.50

$115,746
79,981
44,236
247,724
304,235
316,074
206,652
19,546
—

$121,527
70,863
40,489
240,253
298,325
311,463
199,184
18,256
—

$ 93,359
68,782
40,328
209,923
264,254
278,480
168,996
17,380
—

$ 78,004
65,397
38,566
190,179
243,356
257,698
155,131
17,014
—

34,962

34,522

34,123

33,718

33,761

34,008

33,464

32,827

1.09%
7.1%
24%

1.20%
8.3%
27%

1.25%
5.5%
16%

1.32%
7.4%
24%

1.27%
5.9%
19%

1.30%
7.6%
26%

1.41%
8.8%
27%

1.49%
7.7%
26%

$ 26.25
22.63
24.33
25.70
0.13
$ 29,902

$ 24.95
20.13
22.20
22.62
0.13
$ 26,434

$ 24.72
19.30
21.92
21.95
0.13
$ 25,929

$ 24.70
19.74
22.01
24.13
0.13
$ 28,780

$ 22.57
17.10
19.64
19.91
0.13
$ 24,085

$ 26.43
18.28
22.01
18.59
0.13
$ 22,543

$ 30.77
24.15
27.90
25.62
0.13
$ 31,582

$ 32.50
28.07
30.66
29.87
0.09
$ 37,090

Dividends per common share
Market capitalization (b)
(a) At Dec. 31, 2012, there were 31,486 shareholders registered with our stock transfer agent, compared with 33,222 at Dec. 31, 2011 and 35,028 at Dec.
31, 2010. In addition, there were 45,101 of BNY Mellon’s current and former employees at Dec. 31, 2012 who participate in BNY Mellon’s Retirement
Savings Plans. All shares of BNY Mellon’s common stock held by the Plans for its participants are registered in the name of The Bank of New York
Mellon Corporation, as trustee.

Selected Quarterly Data (unaudited)

(dollar amounts in millions,
except per share amounts)

Consolidated income statement
Total fee and other revenue
Income (loss) from consolidated investment

management funds

Net interest revenue

Total revenue

Provision for credit losses
Noninterest expense

Income before taxes
Provision for income taxes

Net income

Net (income) loss attributable to

noncontrolling interests

Net income applicable to shareholders of

The Bank of New York Mellon
Corporation

Preferred stock dividends

Net income applicable to common

shareholders of The Bank of New York
Mellon Corporation

Basic earnings per common share
Diluted earnings per common share
Average balances
Interest-bearing deposits with banks
Securities
Loans
Total interest-earning assets
Assets of operations
Total assets
Deposits
Long-term debt
Preferred stock
Total The Bank of New York Mellon
Corporation common shareholders’
equity

Net interest margin (FTE)
Annualized return on common equity
Pre-tax operating margin
Common stock data (a)
Market price per share range:

High
Low
Average
Period end close

(b) At period end.

112 BNY Mellon

Forward-looking Statements

Some statements in this document are forward-
looking. These include all statements about the
usefulness of Non-GAAP measures; the future results
of BNY Mellon and our long-term goals and
strategies, including 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 relative to a
group of peer companies; and key components of our
strategy. In addition, these forward-looking statements
relate to expectations regarding: Basel III and our
estimated Basel III Tier 1 common equity ratio; the
streamlining and enhancing of our data collection
processes and systems relating to AUC/A and the
correction and enhancement of our disclosure policies
and procedures; the impact and timing of the Newton
transaction; updating our capital targets; an after-tax
charge during the first quarter of 2013 and the impact
of this charge on our well-capitalized status and
Basel III Tier 1 common equity ratio; our decision to
appeal the U.S. Tax Court’s ruling; the central
securities depository; the timing of the Federal
Reserve’s notice of objection or non-objection
regarding our capital plan and the announcement of
our 2013 capital plan; the impact of the continued net
run-off of structured debt securitizations on our total
annual revenue; our foreign exchange revenue;
elevated levels of legal and litigation costs; our
effective tax rate; the seasonality impact on our
business; estimations of market value impact on fee
revenue and earnings per share; our tri-party repo
business; the impact on our foreign assets of changes
in demand or pricing resulting from fluctuations in
currency exchange rates or other factors; the effect of
credit ratings on allowances; the possible divergence
of actual prices and valuations from results predicted
by models; the impact of worsening delinquencies,
default rates and loss severity assumptions on
impairment losses in future periods; the impact that a
goodwill impairment charge would have on our
financial condition, results of operations, regulatory
capital ratios and debt issuance; the impact of money
market fee waivers or changes in levels of assets
under management on the fair value of Asset
Management; estimates of net pension expense; our
expected long-term rate of return on plan assets; the
impact of significant changes in ratings classifications
for our investment securities portfolio; assumptions
with respect to residential mortgage-backed securities;
private equity commitments; goals with respect to our
commercial portfolio; statements on our credit
strategies; our anticipated quarterly provision for
credit losses in 2013; our liquidity cushion, liquidity
ratios, liquidity asset buffer and potential uses of

liquidity; a reduction in our Investment Services
businesses; access to capital markets and our shelf
registration statements; the impact of a change in
rating agencies’ assumptions on ratings of the Parent,
The Bank of New York Mellon and BNY Mellon,
N.A.; capital, including anticipated redemptions or
other actions with regard to outstanding securities;
distributions on the PCS and dividends on preferred
stock; statements regarding the capitalization status of
BNY Mellon and its bank subsidiaries; our repurchase
of common stock; balance sheet size and client
deposit levels; assumptions with respect to the effects
of changes in risk-weighted assets/quarterly average
assets on capital ratios; our foreign exchange and
other trading counterparty risk rating profile;
estimations and assumptions on net interest revenue
and net interest rate sensitivities; our earnings
simulation model; impact of certain events on the
growth or contraction of deposits, our assumptions
about depositor behavior, our balance sheet and net
interest revenue; how economic value of equity and
tangible common equity would change in response to
changes in interest rates; our goal of having a superior
debt rating among our peers; the impact to us of
operational risk events; our efforts to limit on- and
off- balance sheet credit risk; goals with respect to
liquidity risk; our expectations to continue to refine
the methodologies used to estimate our economic
capital requirements; the timing and effects of
pending and proposed legislation and regulation,
including the Dodd-Frank Act; the Federal Reserve’s
proposed rules regarding enhanced prudential
standards and early remediation requirements;
regulatory stress-testing requirements; the Federal
Reserve’s rules regarding its comprehensive capital
analysis and review; the NPRs, Basel II and Basel III
requirements and the impact on our capital ratios; the
impact of being identified as a G-SIB or D-SIB; our
expectations and statements regarding the Volcker
rule; money market fund reforms; tri-party repo
reform; the Federal Reserve’s and FDIC’s
implementation of its resolution planning rules; the
impact of proposed expansions of the definition of a
fiduciary; the impact of CRD IV and other European
Directives; the timing and impact of adoption of
recently issued and proposed accounting standards;
the implementation of IFRS; compliance with the
requirements of the Sound Practices Paper; statements
with respect to our business continuity plans;
expectations regarding climate change; the effect of
geopolitical factors and other external factors on risk;
BNY Mellon’s anticipated actions with respect to
legal or regulatory proceedings; future litigation costs,
the expected outcome and the impact of judgments

BNY Mellon

113

Forward-looking Statements (continued)

and settlements, if any, arising from pending or
potential legal or regulatory proceedings and BNY
Mellon’s expectations with respect to litigation
accruals.

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,” “continue,” “seek,”
“believe,” “plan,” “goal,” “could,” “should,” “may,”
“will,” “strategy,” “synergies,” “opportunities,”
“trends” and words of similar meaning, signify
forward-looking statements.

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 a
number of factors, including those discussed in the
“Risk Factors” section of this Annual Report.
Investors should consider all risks in this Annual
Report and any subsequent reports filed with the SEC
by BNY Mellon pursuant to the Exchange Act.

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. The contents of BNY Mellon’s website or any
other websites referenced herein are not part of this
report.

114 BNY Mellon

Glossary

Accumulated Benefit Obligation (“ABO”)—The
actuarial present value of benefits (vested and non-
vested) attributed to employee services rendered.

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.

Alternative investments—Usually refers to
investments in hedge funds, leveraged loans,
subordinated and distressed debt, real estate and
foreign currency overlay. 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.

Asset-backed commercial paper (“ABCP”)—A
short-term instrument issued by a financial institution
that is collateralized by other assets.

Assets under custody and/or administration
(“AUC/A”)—Assets that we hold directly or
indirectly on behalf of clients under a safekeeping or
custody arrangement or for which we provide
administrative services for clients. These assets are
not on our balance sheet. The following types of
assets under administration are not and historically
have not been included in AUC/A: performance and
risk analytics, transfer agency and asset aggregation
services. To the extent that we provide more than one
AUC/A service for a client’s assets, the value of the
asset is only counted once in the total amount of
AUC/A.

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.

bps—basis points.

Central Securities Depository (“CSD”)—Has three
principal functions; the issuance of financial
instruments, settlement of financial instrument
transactions, and safekeeping of financial instruments.

Collateral management—A comprehensive program
designed to simplify collateralization and expedite
securities transfers for buyers and sellers.

Collateralized Debt Obligations (“CDOs”)—A type
of asset-backed security and structured credit product
constructed from a portfolio of fixed-income assets.

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. Such events include
bankruptcy, insolvency and failure to meet payment
obligations when due.

Credit risk—The risk of loss due to borrower or
counterparty default.

Credit valuation adjustment (“CVA”)—The market
value of counterparty credit risk on OTC derivative
transactions.

Currency swaps—An agreement to exchange
stipulated amounts of one currency for another
currency.

Daily average revenue trades (“DARTS”)—
Represents the number of trades from which an entity
can expect to generate revenue through fees or
commissions on a given day.

Debit valuation adjustment (“DVA”)—The market
value of our credit risk on OTC derivative
transactions.

Depositary Receipts (“DR”)—A negotiable security
that generally represents a non-U.S. company’s
publicly traded equity.

CAMELS—An international bank-rating system
where bank supervisory authorities rate institutions
according to six factors. The six factors are Capital
adequacy, Asset quality, Management quality,
Earnings, Liquidity and Sensitivity to Market Risk.

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.

BNY Mellon

115

Glossary (continued)

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 law broadly affects the financial
services industry and contains numerous provisions
aimed at strengthening the sound operation of the
financial services sector.

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.

Earnings allocated to participating securities—
Amount of undistributed earnings, after payment of
taxes, preferred stock dividends and the required
adjustment for common stock dividends declared, that
is allocated to securities that are eligible to receive a
portion of the Company’s earnings.

Economic Capital—The amount of capital required
to absorb potential losses and reflects the probability
of remaining solvent over a one-year time horizon.

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.

Eurozone—An economic and monetary union of 17
European Union member states that have adopted the
euro (€) as their common currency. The Eurozone
currently includes Germany, France, Belgium, the
Netherlands, Luxembourg, Austria, Finland, Italy,
Ireland, Spain, Portugal, Greece, Estonia, Cyprus,
Malta, Slovenia and Slovakia.

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.

116 BNY Mellon

Fiduciary risk—The risk arising from our role as
trustee, executor, investment agent or guardian in
accordance with governing documents, prudent person
principles and applicable laws, rules and regulations.

Foreign currency options—Similar to interest rate
options except they are based on foreign exchange
rates. Also, see interest rate options in this glossary.

Foreign currency swaps—An agreement to
exchange stipulated amounts of one currency for
another currency at one or more future dates.

Foreign exchange contracts—Contracts that provide
for the future receipt or delivery of foreign currency at
previously agreed-upon terms.

Forward rate agreements—Contracts to exchange
payments on a specified future date, based on a
market change in interest rates from trade date to
contract settlement date.

Fully Taxable Equivalent (“FTE”)—Basis for
comparison of yields on assets having ordinary
taxability with assets for which special tax exemptions
apply. The FTE adjustment reflects an increase in the
interest yield or return on a tax-exempt asset to a level
that would be comparable had the asset been fully
taxable.

Generally Accepted Accounting Principles
(“GAAP”)—Accounting rules and conventions
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 which is allowed to use diverse
strategies that are unavailable to mutual funds,
including selling short, leverage, program trading,
swaps, arbitrage and derivatives.

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.

Glossary (continued)

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 are 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.

Investment grade—Represents Moody’s long-term
rating of Baa3 or better; and/or a Standard & Poor’s,
Fitch or DBRS long-term rating of BBB- or better; or
if unrated, an equivalent rating using our internal risk
ratings. Instruments that fall below these levels are
considered to be non-investment grade.

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.

Leverage ratio (Basel I guideline)—Tier 1 capital
divided by quarterly average total assets, as defined
by the regulators.

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.

Litigation risk—Arises when in the ordinary course
of business, we are named as defendants or made
parties to legal actions.

Loans for purchasing or carrying securities—
Loans primarily to brokers and dealers in securities.

Market risk—The potential loss in value of
portfolios and financial instruments caused by
movements in market variables, such as interest and
foreign exchange rates, credit spreads, and equity and
commodity prices.

Master netting agreement—An agreement between
two counterparties that have multiple contracts with
each other that provides for the net settlement of all
contracts through a single payment in the event of
default or termination of any one contract.

Mortgage-Backed Security (“MBS”)—An asset-
backed security whose cash flows are backed by the
principal and interest payments of a set of mortgage
loans.

N/A—Not applicable.

N/M—Not meaningful.

Net interest margin—The result of dividing net
interest revenue by average interest-earning assets.

Nostro account—An account held in a foreign
country by a domestic bank, denominated in the
currency of that country. Nostro accounts are used to
facilitate settlement of foreign exchange and currency
trading transactions.

Notice of proposed rulemaking (“NPR”)—A public
notice issued by law when one of the independent
agencies of the United States government wishes to
add, remove, or change a rule or regulation as part of
the rulemaking process.

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.

Other than temporary impairment (“OTTI”)—An
impairment charge taken on a security whose fair
value has fallen below the carrying value on the
balance sheet and its value is not expected to recover
through the holding period of the security.

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.

Qui tam action—An action brought under a statute
that allows a private person to sue for a recovery, part
of which the government or some specified public
institution will receive.

BNY Mellon

117

Tier 1 and total capital (Basel I guidelines)—
Includes common shareholders’ equity (excluding
certain components of comprehensive income),
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.

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.

Glossary (continued)

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.

Repurchase Agreement (“Repo”)—An instrument
used to raise short term funds whereby securities are
sold with an agreement for the seller to buy back the
securities at a later date.

Reputational risk—Arises when events or actions
that negatively impact our reputation lead to a loss of
existing clients and could make it more challenging to
acquire new business.

Residential Mortgage-Backed Security
(“RMBS”)—An asset-backed security whose cash
flows are backed by principal and interest payments of
a set of residential mortgage loans.

Restructuring charges—Typically result from the
consolidation and/or relocation of operations.

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.

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.

Subprime securities—A classification of securities
collateralized by loans to borrowers who have a
tarnished or limited credit history.

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.

118 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, 2012, 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,
2012. 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 2012
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 120.

BNY Mellon

119

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, 2012, 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, 2012, 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, 2012 and 2011, and the
related consolidated statements of income, comprehensive income, changes in equity, and cash flows for each of
the years in the three-year period ended December 31, 2012, and our report dated February 28, 2013 expressed an
unqualified opinion on those consolidated financial statements.

New York, New York
February 28, 2013

120 BNY Mellon

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

Consolidated Income Statement

(in millions)
Fee and other revenue
Investment services fees:

Asset servicing
Issuer services
Clearing services
Treasury services

Total investment services fees

Investment management and performance fees
Foreign exchange and other trading revenue
Distribution and servicing
Financing-related fees
Investment and other income
Total fee revenue

Net securities gains (losses)—including other-than-temporary impairment
Noncredit-related gains (losses) on securities not expected to be sold (recognized in OCI)

Net securities gains
Total fee and other revenue

Operations of consolidated investment management funds
Investment income
Interest of investment management fund note holders

Income from consolidated investment 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
Amortization of intangible assets
Merger and integration, litigation and restructuring charges

Total noninterest expense

Income
Income from continuing operations before income taxes
Provision for income taxes

Net income from continuing operations

Discontinued operations:

Loss from discontinued operations
Benefit for income taxes

Net loss from discontinued operations
Net income

Net (income) attributable to noncontrolling interests (includes $(76), $(50) and $(59) related to

consolidated investment management funds)

Net income applicable to shareholders of The Bank of New York Mellon Corporation

Preferred stock dividends

Net income applicable to common shareholders of The Bank of New York Mellon Corporation

Year ended Dec. 31,

2012

2011

2010

$ 3,780 $ 3,697 $ 3,076
1,460
1,445
1,005
1,159
530
535
6,071
6,836
2,868
3,002
886
848
210
187
195
170
467
455
10,697
11,498
(43)
(86)
(70)
(134)
27
48
10,724
11,546

1,052
1,193
549
6,574
3,174
692
192
172
427
11,231
242
80
162
11,393

593
404
189

3,507
534
2,973
(80)
3,053

5,761
1,222
593
524
421
331
275
269
994
384
559
11,333

3,302
779
2,523

-
-
-
2,523

670
470
200

3,588
604
2,984
1
2,983

5,726
1,217
624
485
416
330
261
298
937
428
390
11,112

3,617
1,048
2,569

-
-
-
2,569

663
437
226

3,470
545
2,925
11
2,914

5,215
1,099
588
410
377
315
271
247
843
421
384
10,170

3,694
1,047
2,647

(110)
(44)
(66)
2,581

(78)
2,445
(18)

(63)
2,518
-
$ 2,427 $ 2,516 $ 2,518

(53)
2,516
-

BNY Mellon

121

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

Consolidated Income Statement (continued)

Reconciliation of net income to the net income applicable to common shareholders

of The Bank of New York Mellon Corporation

(in millions)

Net income
Net (income) attributable to noncontrolling interests
Preferred stock dividends

Net income applicable to common shareholders of The Bank of New York Mellon Corporation

Less: Earnings allocated to participating securities

Change in the excess of redeemable value over the fair value of noncontrolling interests

Net income applicable to the common shareholders of The Bank of New York Mellon

Corporation after required adjustments for the calculation of basic and diluted earnings per
common share

Net loss from discontinued operations

Net income from continuing operations applicable to common shareholders of The Bank of

New York Mellon Corporation

Average common shares and equivalents outstanding
of The Bank of New York Mellon Corporation
(in thousands)

Basic
Common stock equivalents
Less: Participating securities

Diluted

Anti-dilutive securities (a)

Earnings per share applicable to the common shareholders
of The Bank of New York Mellon Corporation (b)
(in dollars)

Basic:

Net income from continuing operations
Net loss from discontinued operations

Net income applicable to common stock

Diluted:

Net income from continuing operations
Net loss from discontinued operations

Net income applicable to common stock

Year ended Dec. 31,

2012

$2,523
(78)
(18)

2,427
35
(5)

2011

$2,569
(53)
-

2,516
27
9

2010

$2,581
(63)
-

2,518
23
-

2,397
-

2,480
-

2,495
(66)

$2,397

$2,480

$2,561

Year ended Dec. 31,

2012

2011

2010

1,176,485
10,970
(9,025)

1,220,804
8,425
(6,203)

1,212,630
9,508
(5,924)

1,178,430

1,223,026

1,216,214

91,347

86,270

87,058

Year ended Dec. 31,

2012

2011

2010

$2.04
-

$2.04

$2.03
-

$2.03

$2.03
-

$2.03

$2.03
-

$2.03

$ 2.11
(0.05)

$ 2.06

$ 2.11
(0.05)

$ 2.05 (c)

(a) Represents stock options, restricted stock, restricted stock units and participating securities outstanding but not included in the

computation of diluted average common shares because their effect would be anti-dilutive.

(b) Basic and diluted earnings per share under the two-class method are determined on the net income applicable to common

shareholders of The Bank of New York Mellon Corporation reported on the income statement less earnings allocated to participating
securities, and the change in the excess of redeemable value over the fair value of noncontrolling interests.

See accompanying Notes to Consolidated Financial Statements.

122 BNY Mellon

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

Consolidated Comprehensive Income Statement

(in millions)
Net income
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments:

Foreign currency translation adjustments arising during the period
Reclassification adjustment (b)

Total foreign currency translation adjustments

Unrealized gain (loss) on assets available-for-sale:

Unrealized gain (loss) arising during the period
Reclassification adjustment (b)

Total unrealized gain (loss) on assets available-for-sale

Defined benefit plans:

Prior service cost arising during the period
Net loss arising during the period
Foreign exchange adjustment
Amortization of prior service credit, net loss and initial obligation included in net periodic

benefit cost

Total defined benefit plans
Net unrealized gain (loss) on cash flow hedges:

Unrealized hedge gain (loss) arising during the period
Reclassification adjustment

Total unrealized gain (loss) on cash flow hedges

Total other comprehensive income (loss), net of tax (a)

Net (income) loss attributable to noncontrolling interests
Other comprehensive (income) loss attributable to noncontrolling interests
Other reclassification (b)
Net comprehensive income (loss)

Year ended Dec. 31,
2011
$2,569

2012
$2,523

2010
$2,581

130
-
130

1,007
(106)
901

57
(190)
-

104
(29)

(195)
-
(195)

306
(26)
280

-
(443)
(3)

69
(377)

(363)
(18)
(381)

747
18
765

25
(52)
2

46
21

4
(3)
1
1,003
(78)
(19)
-
$3,429

3
-
3
(289)
(53)
17
-
$2,244

12
(5)
7
412
(63)
44
(14)
$2,960

(a) Other comprehensive income (loss) attributable to The Bank of New York Mellon Corporation shareholders was $984 million for the
year ended Dec. 31, 2012, $(272) million for the year ended Dec. 31, 2011 and $456 million for the year ended Dec. 31, 2010.

(b) Includes a net reclassification adjustment of $14 million to retained earnings from other comprehensive income in 2010.

See accompanying Notes to Consolidated Financial Statements.

BNY Mellon

123

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 $8,389 and $3,540)
Available-for-sale

Total securities

Trading assets
Loans
Allowance for loan losses

Net loans

Premises and equipment
Accrued interest receivable
Goodwill
Intangible assets
Other assets (includes $1,299 and $1,848, at fair value)

Subtotal assets of operations

Assets of consolidated investment management funds, at fair value:

Trading assets
Other assets

Subtotal assets of consolidated investment management funds, at fair value

Total assets

Liabilities
Deposits:

Noninterest-bearing (principally U.S. offices)
Interest-bearing deposits in U.S. offices
Interest-bearing deposits in Non-U.S. 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 $121 and $103,

also includes $578 and $382, at fair value)

Long-term debt (includes $345 and $326, at fair value)

Subtotal liabilities of operations

Liabilities of consolidated investment management funds, at fair value:

Trading liabilities
Other liabilities

Subtotal liabilities of consolidated investment management funds, at fair value

Total liabilities

Temporary equity
Redeemable noncontrolling interests
Permanent equity
Preferred stock – par value $0.01 per share; authorized 100,000,000 preferred shares; issued 10,826 and - shares
Common stock – par value $0.01 per share; authorized 3,500,000,000 common shares;

issued 1,254,182,209 and 1,249,061,305 shares

Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss, net of tax
Less: Treasury stock of 90,691,868 and 39,386,698 common shares, at cost

Total The Bank of New York Mellon Corporation shareholders’ equity

Non-redeemable noncontrolling interests of consolidated investment management funds

Total permanent equity
Total liabilities, temporary equity and permanent equity

See accompanying Notes to Consolidated Financial Statements.

124 BNY Mellon

Dec. 31,

2012

2011

$ 4,727
90,110
43,910
6,593

$ 4,175
90,243
36,321
4,510

8,205
92,619
100,824
9,378
46,629
(266)
46,363
1,659
593
18,075
4,809
20,468
347,509

3,521
78,467
81,988
7,861
43,979
(394)
43,585
1,681
660
17,904
5,152
19,839
313,919

10,961
520
11,481
$358,990

10,751
596
11,347
$325,266

$ 93,019
53,826
99,250
246,095
7,427
8,176
16,095
338
1,380
7,316

6,010
18,530
311,367

10,152
29
10,181
321,548

178

1,068

13
23,485
14,622
(643)
(2,114)
36,431
833
37,264
$358,990

$ 95,335
41,231
82,528
219,094
6,267
8,071
12,671
10
2,174
6,235

6,525
19,933
280,980

10,053
32
10,085
291,065

114

12
23,185
12,812
(1,627)
(965)
33,417
670
34,087
$325,266

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

Consolidated Statement of Cash Flows

(in millions)
Operating activities
Net income
Net (income) attributable to noncontrolling interests
Net loss from discontinued operations
Net income from continuing operations applicable to shareholders of The Bank of New York Mellon

Corporation

Adjustments to reconcile net income to net cash provided by (used for) operating activities:

Provision for credit losses
Pension plan contribution
Depreciation and amortization
Deferred tax (benefit) expense
Net securities (gains) and venture capital (income)

Change in trading activities
Change in accruals and other, net

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
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 change in loans
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
Proceeds from the sale of premises and equipment
Acquisitions, net cash
Dispositions, net cash
Other, net
Net effect of discontinued operations

Net cash (used for) investing activities

Financing activities

Change in deposits
Change in federal funds purchased and securities sold under repurchase agreements
Change in payables to customers and broker-dealers
Change in other borrowed funds
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
Issuance of preferred stock
Treasury stock acquired
Common cash dividends paid
Preferred cash dividends paid
Other, net

Net cash provided by financing activities

Effect of exchange rate changes on cash
Change in cash and due from banks

Change in cash and due from banks
Cash and due from banks at beginning of period
Cash and due from banks at end of period

Supplemental disclosures

Interest paid
Income taxes paid
Income taxes refunded

See accompanying Notes to Consolidated Financial Statements.

Year ended Dec. 31,

2012

2011

2010

$ 2,523
(78)
-

$ 2,569
(53)
-

$ 2,581
(63)
(66)

2,445

2,516

2,584

(80)
(441)
1,246
252
(170)
(1,412)
(211)
1,629

(6,892)
133
(3,477)
829
710
(43,788)
10,265
9,769
8,606
(2,754)
320
(2,083)
59
(652)
6
(29)
-
(409)
-

(29,387)

26,226
1,160
3,424
(796)
328
2,761
(4,163)
40
25
1,068
(1,148)
(623)
(18)
4
28,288
22

1
(71)
776
12
(65)
(425)
(533)
2,211

12,983
(70,787)
(1,226)
233
1,127
(42,367)
9,507
8,332
9,385
(6,863)
604
659
162
(642)
13
(64)
-

(1,234)

(80,178)

74,252
665
2,709
(549)
-
5,042
(1,911)
18
25
-
(873)
(593)
-
(20)
78,765
(298)

11
(46)
629
1,199
(57)
(155)
(115)
4,050

7,073
(11,187)
(19)
255
316
(23,585)
5,981
7,944
2,666
310
511
(1,634)
(160)
(230)
14
(2,793)
133
(591)
59

(14,937)

8,527
2,058
(762)
1,988
(2)
1,347
(2,614)
31
697
-
(41)
(440)
-
1
10,790
40

552
4,175
$ 4,727

500
3,675
$ 4,175

(57)
3,732
$ 3,675

561
709
51

586
640
136

591
699
197

BNY Mellon

125

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

Preferred Common
paid-in Retained
stock
capital earnings
$12 $23,185 $12,812

stock
-

Non-
redeemable
noncontrolling
interests of
consolidated
investment

Accumulated
other
Total
comprehensive
income (loss), Treasury management permanent
equity
$34,087 (a)

net of tax
stock
$(1,627) $ (965)

funds
$670

Redeemable
non-
controlling
interests/
temporary
equity
$114

-
-
-

(2)
-
-

6
2,445
-

-
-
-

(623)
(18)
-

-
-
984

-
-
-

-
-

(1,148)

72
76
15

-
-
-

76
2,521
999

(623)
(18)
(1,148)

(10)

23
2
4

-
1,068
-
$1,068

-
-
1

-
20
-
-
-
255
$13 $23,485 $14,622

-
-
-

-
-
(1)
$ (643) $(2,114)

-
-
-
$833

20
1,068
255
$37,264 (a)

$178

(in millions, except per share amounts)
Balance at Dec. 31, 2011
Shares issued to shareholders of

noncontrolling interests

Redemption of subsidiary shares from

noncontrolling interests

Other net changes in noncontrolling

interests
Net income
Other comprehensive income
Dividends:

Common stock at $0.52 per share
Preferred stock

Repurchase of common stock
Common stock issued under:
Employee benefit plans
Direct stock purchase and

dividend reinvestment plan

Preferred stock issued
Stock awards and options exercised
Balance at Dec. 31, 2012

(a) Includes total The Bank of New York Mellon Corporation common shareholders’ equity of $33,417 million at Dec 31, 2011, and

$35,363 million at Dec 31, 2012.

The Bank of New York Mellon Corporation shareholders

(in millions, except per share amounts)
Balance at Dec. 31, 2010
Shares issued to shareholders of

noncontrolling interests

Redemption of subsidiary shares
from noncontrolling interests

Other net changes in

noncontrolling interests

Net income
Other comprehensive income
Dividend on common stock at

$0.48 per share

Repurchase of common stock
Common stock issued under:
Employee benefit plans
Direct stock purchase and

Additional

Common
stock
$12

paid-in Retained
capital earnings
$22,885 $10,898

-
-
-

-
-

17
-
-

-
-

(9)
2,516
-

(593)
-

dividend reinvestment plan
Stock awards and options exercised
Other
Balance at Dec. 31, 2011

-
-
-
$12

20
231
-

-
(1)
1
$23,185 $12,812

Non-
redeemable
noncontrolling
interests of
redeemable consolidated
investment

non-

Accumulated
other
Total
comprehensive
income (loss), Treasury controlling management permanent
equity

Non-

net of tax
$(1,355)

stock
$ (86)

interest
$ 12

funds
$699 $33,065 (a)

Redeemable
non-
controlling
interests/
temporary
equity
$ 92

-
-
(272)

-
-

-
-
-

-
(873)

-
(9)
-

(12)
-
-

-
-

-
-
-
-

(63)
50
(16)

-
-

-
-
-

(67)
2,566
(288)

(593)
(873)

20
221
1

$670 $34,087 (a)

(19)

(2)
3
(1)

$114

$(1,627)

$(965)

(a) Includes total The Bank of New York Mellon Corporation common shareholders’ equity of $32,354 million at Dec 31, 2010, and

$33,417 million at Dec 31, 2011.

See accompanying Notes to Consolidated Financial Statements.

126 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

Common
stock
$12

Additional

paid-in Retained
capital earnings
$21,917 $ 8,912

Non-redeemable
noncontrolling
interests of
consolidated
investment

Accumulated
other
comprehensive
Total
income (loss), Treasury controlling management permanent
equity
interest
$29,003 (a)
$ 26

Non-
redeemable
non-

net of tax
$(1,835)

stock
$(29)

funds
-
$

Redeemable
non-
controlling
interests/
temporary
equity
$

(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

-
12

-
21,917

(73)
8,891

(1,811)

-
(29)

noncontrolling interests

Redemption of subsidiary shares
from noncontrolling interests

Distributions paid to

noncontrolling interests

Other net changes in

noncontrolling interests
Consolidation of investment

management funds

Deconsolidation of investment

management funds

Net income
Other comprehensive income
Dividend 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

Balance at Dec. 31, 2010

-
-
-

-
-

(18)

-
-
-

-
-

676
34

(55)

-
2,518
(14)

(441)
-

-
-

-
$12

245

(1)
$22,885 $10,898

-
-
456

-
-

$(1,355)

-
-
-

-
(41)

-
1

(17)
$(86)

-
$ 12

-
26

(4)

(10)

-
-
-

-
-

(73)
29,006

(18)

(4)

(89)

(139)

785

(12)
59
(44)

-
-

(12)
2,577
398

(441)
(41)

676
35

227

$699 $33,065 (a)

(6)

$92

(a) Includes total The Bank of New York Mellon Corporation common shareholders’ equity of $28,977 million at Dec 31, 2009, and

$32,354 million at Dec 31, 2010.

BNY Mellon

127

Notes to Consolidated Financial Statements

Note 1—Summary of significant accounting
and reporting policies

income, as appropriate, in the period earned. Our most
significant equity method investments are:

Basis of Presentation

Equity method investments at Dec. 31, 2012
(dollars in millions)

Percentage ownership Book value

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.

CIBC Mellon
Wing Hang
Siguler Guff
ConvergEx

50.0%
20.7%
20.0%
33.2%

$602
$449
$272
$117

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.

Use of estimates

The preparation of financial statements in conformity
with U.S. GAAP requires management to make
estimates based upon assumptions about future
economic and market conditions which affect reported
amounts and related disclosures in our financial
statements. Although our current estimates
contemplate current conditions and how we expect
them to change in the future, it is reasonably possible
that actual conditions could be worse than anticipated
in those estimates, which could materially affect our
results of operations and financial condition. Amounts
subject to estimates are items such as the allowance
for loan losses and lending-related commitments, the
fair value of financial instruments and other-than
temporary impairments, goodwill and intangible
assets and pension accounting. Among other effects,
such changes in estimates could result in future
impairments of investment securities, goodwill and
intangible assets and establishment of allowances for
loan losses and lending-related commitments as well
as changes in pension and post-retirement expense.

Acquired businesses

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
completed prior to Jan. 1, 2009, we record the fair
value of any contingent payments as an additional cost
of the equity acquired in the period that the payment
becomes probable. For acquisitions completed after
Jan. 1, 2009, contingent purchase consideration was
measured at its fair value and recorded on the
purchase date. Any subsequent changes in the fair
value of a contingent consideration liability will be
recorded through the income statement.

Parent financial statements

The Parent financial statements in Note 20 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; and
MIPA, LLC, a single-member limited liability
company, created to hold and administer corporate-
owned life insurance. Financial data for the Parent, the
financing subsidiary and the single-member limited
liability 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.

Equity method investments

Nature of operations

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
investment services fees or investment and other

BNY Mellon is a global leader in providing a broad
range of financial products and services in domestic
and international markets. Through our two principal
businesses, Investment Management and Investment
Services, we serve the following major classes of
customers—institutions, corporations, and high net

128 BNY Mellon

Notes to Consolidated Financial Statements (continued)

worth individuals. For institutions and corporations,
we provide the following services:

Š
investment management;
Š
trust and custody;
Š
foreign exchange;
Š
fund administration;
Š
securities lending;
Š depositary receipts;
Š corporate trust;
Š global payment/cash management;
Š banking services; and
Š clearing services.

For individuals, we provide mutual funds, separate
accounts, wealth management and private banking
services. BNY Mellon’s investment management
businesses provide investment products in many asset
classes and investment styles on a global basis.

Variable interest entities

Accounting guidance on the consolidation of variable
interest entities (“VIEs”) is included in ASC 810
Consolidation, ASU 2009-17 “Improvements to
Financial Reporting by Enterprises Involved with
Variable Interest Entities”, and ASU 2010-10
“Amendments for Certain Investment Funds,” which
defers ASU 2009-17 for certain 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.

VIEs are defined as certain entities in which the
equity investors:

Š do not have sufficient equity at risk for the entity

to finance its activities without additional
subordinated financial support; or
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.

We consider the underlying facts and circumstances
of individual transactions when assessing whether or
not an entity is a potential VIE. BNY Mellon is
required to consolidate a VIE if BNY Mellon is
determined to be the primary beneficiary.

As a result of ASU 2010-10, BNY Mellon continues
to apply 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 VIE’s expected losses,
receives a majority of its expected residual returns or
both.

BNY Mellon has two securitizations and several
CLOs, which are assessed for consolidation in
accordance with ASU 2009-17. The primary
beneficiary of these VIE’s is the party that has both:
(1) the power to direct the activities of the VIE that
most significantly impact that entity’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.

Voting interest entities

If BNY Mellon can exert control over the financial
and operating policies of an investee, which generally
can occur if there is a 50% or more voting interest or
if partners or members of an investee do not have
certain substantive rights, BNY Mellon consolidates
the investee.

Investees structured as limited partnerships or limited
liability companies for which BNY Mellon is either
the general partner or managing member are
presumed to be controlled by BNY Mellon. In
accordance with ASC 810-20 Control of Partnerships
and Similar Entities, we review the rights of the
limited partners and members to determine whether
that presumption can be overcome. The presumption
of control is overcome when the limited partners or
managing members have the ability to dissolve the
entity, can remove BNY Mellon, as the general
partner or managing member without cause based on a
simple majority vote of unaffiliated limited partners or
members or have other substantive participating
rights. If the presumption of control is not overcome,
the entity is consolidated.

BNY Mellon

129

Notes to Consolidated Financial Statements (continued)

Trading account securities, available-for-sale
securities, and held-to-maturity securities

Securities are accounted for under ASC 320
Investments—Debt and Equity Securities. Securities
are generally classified in the trading, available-for
sale investment or the held-to-maturity investment
securities portfolios when they are purchased.
Securities are classified as trading securities when our
intention is to resell. Securities are classified as
available-for-sale securities when we intend to hold
the securities for an indefinite period of time or when
the securities may be used for tactical asset/liability
purposes and may be sold from time to time to
effectively manage interest rate exposure, prepayment
risk and liquidity needs. Securities are classified as
held-to-maturity securities when we intend to hold
them until maturity.

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. Held-to-maturity securities
are stated at cost.

Income on investment securities purchased is adjusted
for amortization of premium and accretion of discount
on a level yield basis.

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;

130 BNY Mellon

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 determination of whether a credit loss exists is based
on best estimates of the present value of cash flows to be
collected from the debt security. Generally, cash flows
are discounted at the effective interest rate implicit in the
debt security at the time of acquisition. For debt
securities that are beneficial interests in securitized
financial assets and are not high credit quality, ASC 325
provides that cash flows be discounted at the current
yield used to accrete the beneficial interest.

The credit component of an OTTI of a debt security is
recognized in earnings and the non-credit 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 of its cost basis.

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 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 of its cost basis, the non
credit component of OTTI is recognized in earnings

Notes to Consolidated Financial Statements (continued)

and subsequently accreted to interest income on an
effective yield basis over the life of the 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 cost or market 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 and other 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
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 on loans $1
million or greater is 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 a provision
for credit loss. 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 loan losses, shown as a valuation
allowance to loans, and the allowance for lending-
related commitments recorded in other liabilities are
referred to as BNY Mellon’s allowance for credit
losses. 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 loan losses is maintained to absorb
losses inherent in the loan portfolio as of the balance
sheet date based on our judgment. The allowance
determination methodology is designed to provide
procedural discipline in assessing the appropriateness
of the allowance. Credit losses are charged against the
allowance. Recoveries are added to the allowance.

The methodology for determining the allowance for
lending-related commitments considers the same
factors as the allowance for loan losses, as well as an
estimate of the probability of drawdown. We utilize a
quantitative methodology and qualitative framework
for determining the allowance for loan losses and the

BNY Mellon

131

Notes to Consolidated Financial Statements (continued)

allowance for lending-related commitments. Within
this qualitative framework, management applies
judgment when assessing internal risk factors and
environmental factors to compute an additional
allowance for each component of the loan portfolio.

The three elements of the allowance for loan losses
and the allowance for lending-related commitments
include the qualitative allowance framework. The
three elements are:

Š an allowance for impaired credits of $1 million

or greater;

Š an allowance for higher risk-rated credits and

pass-rated credits; and

Š an allowance for residential mortgage loans.

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 impaired loans of $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.

132 BNY Mellon

data derived from our residential mortgage portfolio.
Prior to 2012, estimates of probability of default and
loss given default factors were based on a
combination of external data from third-party
databases and internal data. The decision to change
was triggered when five years of historical data
became available in 2012. The use of internal
historical data provides a better estimate of the
allowance, given that it is based on actual default and
loss experience on our residential mortgage portfolio.
For each pool, the inherent loss is calculated using the
above factors. The resulting probable loss factor (the
probability of default multiplied by the loss given
default) is applied against the loan balance to
determine the allowance held for each pool. For home
equity lines of credit, probability of default and loss
given default are based on external data from third
party databases due to the small size of the portfolio
and insufficient internal data.

The qualitative framework is used to determine an
additional allowance for each portfolio based on the
factors below:

Internal risk factors:

Š Nonperforming loans to total non-margin loans;
Š Criticized assets to total loans and lending-

related commitments;

Š Ratings volatility;
Š Borrower concentration; and
Š Significant concentration in high-risk industries.

Environmental risk factors:

Š U.S. noninvestment grade default rate;
Š Unemployment rate; and
Š Change in real GDP.

The objective of the qualitative framework is to
capture incurred losses that may not have been fully
captured in the quantitative reserve which is based
primarily on historical data. Management determines
the qualitative allowance each period based on
judgment informed by consideration of internal and
external risk factors. Once determined in the
aggregate, our qualitative allowance is then allocated
to each of our loan classes based on the respective
classes’ quantitative allowance balances with the
allocations adjusted, when necessary, for class
specific risk factors.

For each risk factor, we calculate the minimum and
maximum values, and percentiles in-between, to
evaluate the distribution of our historical experience.

Notes to Consolidated Financial Statements (continued)

The distribution of historical experience is compared
to the risk factor’s current quarter observed
experience to assess the current risk inherent in the
portfolio and overall direction/trend of a risk factor
relative to our historical experience.

with an internal-use software project are expensed as
incurred. Capitalized software is recorded in other
assets.

Identified intangible assets and goodwill

Based on this analysis, we assign a risk level- no
impact, low, moderate, high and elevated—to each
risk factor for the current quarter. Management
assesses the impact of each risk factor to determine an
aggregate risk level. We do not quantify the impact of
any particular risk factor. Management’s assessment
of the risk factors, as well as the trend in the
quantitative allowance, supports management’s
judgment for the overall required qualitative
allowance. A smaller qualitative allowance may be
required when our quantitative allowance has
reflected incurred losses associated with the aggregate
risk level. A greater qualitative allowance may be
required if our quantitative allowance does not yet
reflect the incurred losses associated with the
aggregate risk level.

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 two 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

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 annually for impairment, or more
often if events and circumstances indicate it is more
likely than not they may be impaired. 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.

Seed capital

Seed capital investments are classified as other assets.
Unrealized gains and losses on seed capital
investments are recorded in investment and other
income.

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

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

We record investment services fees, investment
management fees, foreign exchange and other trading
revenue, 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.

BNY Mellon

133

Notes to Consolidated Financial Statements (continued)

Additionally, we recognize revenue from non
refundable, upfront implementation fees under
outsourcing contracts using a straight-line method,
commencing in the period the ongoing services are
performed through the expected term of the
contractual relationship. Incremental direct set-up
costs of implementation, up to the related
implementation fee or minimum fee revenue amount,
are deferred and amortized over the same period that
the related implementation fees are recognized. If a
client terminates an outsourcing contract prematurely,
the unamortized deferred incremental direct set-up
costs and the unamortized deferred up-front
implementation fees related to that contract are
recognized in the period the contract is terminated.

Performance fees are recognized in the period in
which the performance fees are earned and become
determinable. Performance fees are generally
calculated as a percentage of the applicable portfolio’s
performance in excess of a benchmark index or a peer
group’s performance. 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 income (loss).
Revenue and expense transactions are translated at the
applicable daily rate or the weighted average monthly
exchange rate when applying the daily rate is not
practical.

134 BNY Mellon

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 curves of
high-quality corporate bonds available in the
marketplace. The net periodic pension expense or
credit includes service costs, interest costs based on an
assumed discount rate, an expected return on plan
assets based on an actuarially derived market-related
value and amortization of prior years’ actuarial gains
and losses.

Actuarial gains and losses include the impact of plan
amendments, gains or losses related to changes in the
amount of the projected benefit obligation or plan
assets resulting from experience different from the
assumed rate of return, changes in the discount rate or
other assumptions. To the extent an actuarial gain or
loss exceeds 10 percent of the greater of the projected
benefit obligation or the market-related value of plan
assets, the excess is recognized over the future service
periods of active employees.

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 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 5-year
period.

BNY Mellon’s accounting policy regarding pensions
has been identified as a “critical accounting estimate”
as it requires management to make numerous complex
and subjective assumptions relating to amounts which
are inherently uncertain. See Note 19 of the Notes to
Consolidated Financial Statements for additional
disclosures related to pensions.

Notes to Consolidated Financial Statements (continued)

Severance

BNY Mellon provides separation benefits for U.S.
based employees through The Bank of New York
Mellon Corporation Supplemental Unemployment
Benefit Plan. These benefits are provided to eligible
employees separated from their jobs for business
reasons not related to individual performance. Basic
separation benefits are 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. Severance expense is recorded
when management commits to an action that will
result in separation and the amount of the liability can
be reasonably estimated.

Income taxes

We record current tax liabilities or assets through
charges or credits to the current tax provision for the
estimated taxes payable or refundable for the current
year. Deferred tax assets and liabilities are recorded
for future tax consequences attributable to differences
between the financial statement carrying amounts of
assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income
in the years in which those temporary differences are
expected to be recovered or settled. A deferred tax
valuation allowance is established if it is more likely
than not that all or a portion of the deferred tax assets
will not be realized. A tax position that fails to meet a
more-likely-than-not recognition threshold will result
in either reduction of current or deferred tax assets,
and/or recording of current or deferred tax liabilities.
Interest and penalties related to income taxes are
recorded as income tax expense.

Derivative financial instruments

Derivative contracts, such as futures contracts,
forwards, interest rate swaps, foreign currency swaps
and options and similar products used in trading
activities are recorded at fair value. Gains and losses
are included in foreign exchange and other trading
revenue in fee and other revenue. Unrealized gains are
recognized as trading assets and unrealized losses are
recognized as 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 either fair value or 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 associated with the designated
risks being hedged. Gains and losses on cash flow
hedges are recorded in OCI, until reclassified into
earnings to meet the risks being hedged. Foreign
currency transaction gains and losses related to a
hedged net investment in a foreign operation, net of
their tax effect, are recorded with cumulative foreign
currency translation adjustments within OCI.

We formally document all relationships between
hedging instruments and hedged items, as well as our
risk-management objectives and strategy for
undertaking various hedging transactions.

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. 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 discontinued 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 discontinued cash flow hedges are
reclassified from OCI and recognized in current
earnings in foreign exchange and other trading
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

BNY Mellon

135

Notes to Consolidated Financial Statements (continued)

requires us to make numerous assumptions based on
the available market data. See Note 24 of the Notes to
Consolidated Financial Statements for additional
disclosures related to derivative financial instruments.

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 relating to all share-based
payments is recognized in the income statement, on a
straight-line basis, over the applicable vesting period.

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.

Note 2—Accounting changes and new
accounting guidance

ASU 2011-04—Amendments to Achieve Common Fair
Value Measurement and Disclosure Requirements in
U.S. GAAP and IFRSs

In May 2011, the FASB issued ASU 2011-04,
“Amendments to Achieve Common Fair Value
Measurement and Disclosure Requirements in U.S.
GAAP and IFRSs”. The ASU clarifies the application
of existing fair value measurement and disclosure
requirements including 1) the application of concepts
of highest and best use and valuation premise in a fair
value measurement are relevant only when measuring
the fair value of non-financial assets and are not
relevant when measuring the fair value of financial
assets or any liabilities, 2) measuring the fair value of
an instrument classified in shareholders’ equity from
the perspective of a market participant that holds that
instrument as an asset, and 3) disclosures about
quantitative information regarding the unobservable
inputs used in a fair value measurement that is
categorized within Level 3 of the fair value hierarchy.
This ASU also requires the disclosure of the level of
the fair value hierarchy for financial instruments not
reported at fair value on the balance sheet. This ASU
did not impact our results of operations. See Note 21
“Fair value measurement” of the Notes to
Consolidated Financial Statements for the related
disclosures.

136 BNY Mellon

ASU 2011-05—Presentation of Comprehensive
Income

In June 2011, the FASB issued ASU 2011-05,
“Presentation of Comprehensive Income”. This ASU
increased the prominence of other comprehensive
income in the financial statements. The ASU requires
the disclosure of comprehensive income and its
components in one of two ways: a single continuous
statement or in two separate but consecutive
statements. The ASU did not change the components
of other comprehensive income. This ASU did not
impact our results of operations. BNY Mellon adopted
the two-statement approach. See the Consolidated
Comprehensive Income Statement and Note 17 “Other
comprehensive income (loss)” of the Notes to
Consolidated Financial Statements for the related
disclosures.

ASU 2011-08—Testing Goodwill for Impairment

In September 2011, the FASB issued ASU 2011-08,
“Testing Goodwill for Impairment”, which amended
the guidance in ASC 350 for goodwill impairment.
This ASU permits entities performing goodwill
impairment tests the option of performing a
qualitative assessment before calculating the fair value
of the reporting unit (i.e., Step 1 of the goodwill
impairment test). If entities determine, on the basis of
qualitative factors, that the fair value of the reporting
unit is more likely than not less than the carrying
amount, the two-step impairment test would be
required. The ASU did not change how goodwill was
calculated or assigned to reporting units, or the annual
goodwill impairment testing requirement. In addition,
the ASU did not amend the requirement to perform
interim goodwill impairment tests if events or
circumstances warrant; however, it did revise the
examples of events and circumstances that an entity
should consider. The amendments were effective for
annual and interim goodwill impairment tests
performed for fiscal years beginning after Dec. 15,
2011. This ASU did not impact our results of
operations.

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

Notes to Consolidated Financial Statements (continued)

will be recorded through the income statement.
Contingent payments totaled $7 million in 2012.

Dispositions in 2011

At Dec. 31, 2012, 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 $15 million to $46
million over the next two years.

Acquisitions in 2012

On Oct 1, 2012, BNY Mellon acquired the remaining
50% interest of the WestLB Mellon Asset
Management joint venture for cash of $22 million. We
later renamed the unit Meriten Investment
Management GmbH (“Meriten”). We are obligated to
pay, upon occurrence of certain events, contingent
additional consideration of up to $13 million.
Goodwill related to this acquisition, including the fair
value of the contingent additional consideration,
totaled $70 million and is included in our Investment
Management business. This goodwill is not deductible
for tax purposes. Customer relationship intangible
assets related to this acquisition are included in our
Investment Management business, with a life of 8
years, and totaled $23 million.

Acquisitions in 2011

On July 1, 2011, BNY Mellon acquired the wealth
management operations of Chicago-based Talon Asset
Management (“Talon”) for cash of $11 million. We
are obligated to pay, upon occurrence of certain
events, contingent additional consideration of $5
million, which was recorded as goodwill at the
acquisition date. Talon manages assets of wealthy
families and institutions. Goodwill related to this
acquisition, is included in our Investment
Management business and totaled $10 million and is
deductible for tax purposes. Customer relationship
intangible assets related to this acquisition are
included in our Investment Management business,
with a life of 20 years, and totaled $6 million.

On Nov. 30, 2011, BNY Mellon acquired Penson
Financial Services Australia Pty Ltd., a clearing firm
located in Australia, in a $33 million share purchase
transaction. Goodwill related to this acquisition is
included in our Investment Services business and
totaled $10 million and is non-tax deductible.
Customer relationship intangible assets related to this
acquisition are included in our Investment Services
business, with a life of nine years, and totaled $6
million.

On Dec. 31, 2011, BNY Mellon sold the Shareowner
Services business. The sales price of $550 million
resulted in a pre-tax gain of $98 million. We recorded
an immaterial after-tax gain primarily due to the write-
off of non-tax deductible goodwill associated with the
business. Excluding the gain on the sale, the
Shareowner Services business contributed $273 million
of revenue and $21 million of pre-tax income in 2011.

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 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 totaled $477 million with lives ranging
from 10 years to 20 years.

On Aug. 2, 2010, we acquired BAS for cash of $370
million. This transaction included the purchase of
Frankfurter Service Kapitalanlage—Gesellschaft
mbH, a 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 $3.6 billion and
primarily consisted of securities of approximately
$2.6 billion. Liabilities assumed totaled approximately
$3.4 billion and included deposits of $2.3 billion.
Goodwill related to this acquisition of $272 million is
tax deductible. Customer contract intangible assets
related to this acquisition totaled $40 million with a
life of 10 years.

On Sept. 1, 2010, we acquired I(3) Advisors of
Toronto, an independent wealth advisory company,
for cash of $21.1 million. Goodwill related to this
acquisition totaled $8 million and is non-tax
deductible. Customer relationship intangible assets
related to this acquisition totaled $10 million with a
life of 33 years.

Dispositions in 2010

On Jan. 15, 2010, BNY Mellon sold Mellon United
National Bank (“MUNB”), our national bank

BNY Mellon

137

Notes to Consolidated Financial Statements (continued)

Note 5—Securities

The following tables present the amortized cost, the
gross unrealized gains and losses and the fair value of
securities at Dec. 31, 2012 and 2011.

Securities at
Dec. 31, 2012

(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
Corporate bonds
Other debt securities
Equity securities
Money market funds
Alt-A RMBS (b)
Prime RMBS (b)
Subprime RMBS (b)

Total securities

Gross
unrealized

Amortized

cost Gains Losses

Fair
value

$17,539 $ 467 $ 3 $ 18,003

1,044

1,074

6,039
33,355
255
728
508
2,850
3,031
1,285

2,123
3,596
1,525
11,516
23
2,190
1,574
833
113

112
846
40
9
6
53
153
7

11
122
63
276
4
-
400
177
17

29
8
16
9
62
109
45
10

3
-
3
-
-
-
4
-
-

6,122
34,193
279
728
452
2,794
3,139
1,282

2,131
3,718
1,585
11,792 (a)
27
2,190
1,970
1,010
130

available-for-sale

90,127 2,793

301

92,619

Held-to-maturity:
U.S. Treasury
State and political
subdivisions
Agency RMBS
Alt-A RMBS
Prime RMBS
Subprime RMBS
Other RMBS
Commercial MBS
Other securities

Total securities

held-to-maturity

1,011

1,070

67
5,879
111
97
28
983
26
3

2
139
9
1
-
36
-
-

-
1
6
1
1
52
1
-

69
6,017
114
97
27
967
25
3

8,205

246

8,389

Total securities

$98,332 $3,039 $363 $101,008

(a) Includes $9.4 billion, at fair value, of government-sponsored

and guaranteed entities, and sovereign debt.

(b) Previously included in the Grantor Trust. The Grantor Trust

was dissolved in 2011.

subsidiary located in Florida. The results for MUNB
were classified as discontinued operations. See Note 4
of the Notes to Consolidated Financial Statements for
additional information on the MUNB transaction.

Note 4—Discontinued operations

On Jan. 15, 2010, BNY Mellon sold MUNB, our
former national bank subsidiary located in Florida.
We applied discontinued operations accounting to this
business. Summarized financial information for
discontinued operations is as follows:

Discontinued operations
(in millions)

Net interest revenue
Noninterest expense:

Staff
Professional, legal and other

purchased services

Net occupancy
Other

Total noninterest expense

Loss from operations
Loss on assets held for sale
Loss on sale of MUNB
Benefit for income taxes

Net (loss) from discontinued

operations

2012

2011

2010

-
-
-

-
-
-
-

-
-
-

-
-
-
-

4
1
3

(3)
(106)
(1)
(44)

$ (66)

Certain loans were not sold as part of the MUNB
transaction and are held-for-sale. Loans of $76 million
at Dec. 31, 2012 are included in other assets on the
balance sheet. These loans are recorded at the lower of
cost or market. In 2012 and 2011, we recorded income
of $44 million and $100 million, respectively,
primarily related to gains from sales/paydowns and
valuation changes on loans held-for-sale.

There were no assets or liabilities of discontinued
operations at Dec. 31, 2012 and Dec. 31, 2011.

Results for 2010 included in these Financial
Statements and Notes reflect continuing operations,
unless otherwise noted.

138 BNY Mellon

Notes to Consolidated Financial Statements (continued)

Securities at
Dec. 31, 2011
(in millions)

Amortized

Gross
unrealized

cost Gains Losses

Fair
value

Securities at
Dec. 31, 2010
(in millions)

Amortized

Gross
unrealized

cost Gains Losses

Fair
value

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
Corporate bonds
Other debt securities
Equity securities
Money market funds
Alt-A RMBS (b)
Prime RMBS (b)
Subprime RMBS (b)

Total securities

$16,814 $ 514 $

932

2 $17,326
958
-

47
2,739
11 26,796
273
42
815
102
418
190
903
230
3,339
77
1,444
37

securities

532
2,425
1,738

3
3
5
33 14,579(a) Other debt securities

Foreign covered bonds
Corporate bonds

-
-
68
21
3

30
973
1,879
1,175
125

Equity securities
Money market funds
Alt-A RMBS (b)
Prime RMBS (b)
Subprime RMBS (b)

Total securities

2,724
26,232
306
916
606
1,133
3,327
1,480

527
2,410
1,696
14,320
26
973
1,790
1,090
122

62
575
9
1
2
-
89
1

8
18
47
292
4
-
157
106
6

$12,650 $
1,007

97 $ 138 $12,609
1,005
4

559
19,383
475
1,305
696
1,665
2,650
263

532
2,884
291
11,509
36
2,538
2,164
1,626
128

4
387
34
8
-
1
89
-

9
-
16
132
11
-
364
205
30

55
508
43 19,727
470
39
1,227
86
508
188
1,331
335
2,639
100
249
14

539
2,868
285

2
16
22
35 11,606 (a)

-
-
15
6
-

47
2,538
2,513
1,825
158

available-for-sale

77,424 1,917

874 78,467

available-for-sale

62,361 1,389 1,098 62,652

Held-to-maturity:
U.S. Treasury
State and political
subdivisions
Agency RMBS
Alt-A RMBS
Prime RMBS
Subprime RMBS
Other RMBS
Commercial MBS
Other securities

813

100
658
153
121
28
1,617
28
3

3
39
4
-
-
47
-
-

866

-
-
19
10
3
93
2
-

103
697
138
111
25
1,571
26
3

Total securities held-to-

maturity

3,521

146

127

3,540

Total securities

$80,945 $2,063 $1,001 $82,007

(a) Includes $13.1 billion, at fair value, of government-

sponsored and guaranteed entities, and sovereign debt.
(b) Previously included in the Grantor Trust. The Grantor Trust

was dissolved in 2011.

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

was dissolved in 2011.

Net securities gains (losses)

(in millions)

Realized gross gains
Realized gross losses
Recognized gross impairments

2012

2011

2010

$ 296
(10)
(124)

$183
(56)
(79)

$ 48
(5)
(16)

Total net securities gains (losses)

$ 162

$ 48

$ 27

BNY Mellon

139

Notes to Consolidated Financial Statements (continued)

Temporarily impaired securities
At Dec. 31, 2012, 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 12 months or more.

Temporarily impaired securities at Dec. 31, 2012

(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
Corporate bonds
Alt-A RMBS (a)

Total securities available-for-sale

Held-to-maturity:
Agency RMBS
Alt-A RMBS
Prime RMBS
Subprime RMBS
Other RMBS
Commercial MBS

Total securities held-to-maturity
Total temporarily impaired securities

Less than 12 months
Fair Unrealized
losses

value

12 months or more

Total

Fair Unrealized
losses

value

Fair Unrealized
losses

value

$ 956
1,139
1,336
31
110
13
64
131
314
779
178
22
$5,073

$ 234
38
-
-
413
-
$ 685
$5,758

$ 3
7
8
13
2
3
19
1
1
2
3
-
$62

$ 1
-
-
-
-
-
$ 1
$63

-
173
96
39
253
397
670
310
321
7
-
30
$2,296

-
24
56
24
373
25
$ 502
$2,798

-
22
-
3
7
59
90
44
9
1
-
4
$239

-
6
1
1
52
1
$ 61
$300

$ 956
1,312
1,432
70
363
410
734
441
635
786
178
52
$7,369

$ 234
62
56
24
786
25
$1,187
$8,556

$ 3
29
8
16
9
62
109
45
10
3
3
4
$301

$ 1
6
1
1
52
1
$ 62
$363

(a) Previously included in the Grantor Trust. The Grantor Trust was dissolved in 2011.

Temporarily impaired securities at Dec. 31, 2011

Less than 12 months

12 months or more

Total

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

Fair Unrealized
losses

value

Fair Unrealized
losses

value

Fair Unrealized
losses

value

118
483
3,844
132
324
-
5
340
1,143
60
368
254
2,613
595
437
50
$10,766

69
-
-
107
-
$
176
$10,942

$ 2
2
10
16
25
-
4
2
26
1
1
5
7
53
21
3
$178

$ 3
-
-
2
-
$ 5
$183

-
157
140
69
447
400
895
495
211
18
406
-
54
29
-
-
$3,321

42
56
25
573
26
$ 722
$4,043

-
45
1
26
77
190
226
75
11
2
2
-
26
15
-
-
$696

$ 16
10
3
91
2
$122
$818

118
640
3,984
201
771
400
900
835
1,354
78
774
254
2,667
624
437
50
$14,087

111
56
25
680
26
$
898
$14,985

2
47
11
42
102
190
230
77
37
3
3
5
33
68
21
3
$ 874

19
10
3
93
2
$ 127
$1,001

(a) Previously included in the Grantor Trust. The Grantor Trust was dissolved in 2011.

140 BNY Mellon

Notes to Consolidated Financial Statements (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, 2012.

State and
political
subdivisions
Amount Yield (a) Amount Yield (a) Amount Yield (a) Amount Yield (a) Amount Yield (a)

Other bonds,
notes and
debentures

U.S.
Government
agencies

U.S.
Treasury

Mortgage/
asset-backed and
equity
securities

Total

$ 3,054
9,033
2,365
3,551

0.57% $ 176
832
0.92
66
2.66
-
3.11

0.95% $ 114
2,934
1.76
2,597
2.06
477
-

1.52% $ 3,439
10,874
1.75
2,709
3.16
73
3.74

1.03% $
1.28
2.67
8.08

-
-
-
-

-
-
-

44,695
3,413
2,217

-% $ 6,783
23,673
-
7,737
-
4,101
-

2.73
1.33
-

44,695
3,413
2,217
2.51% $92,619

Total

$18,003

1.52% $1,074

1.65% $6,122

2.50% $17,095

1.48% $50,325

Maturity distribution
and yield on investment
securities

(dollars in millions)

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 (b)

Securities held-to

maturity:
One year or less
Over 1 through 5 years
Over 5 through 10 years
Over 10 years
Mortgage-backed

securities

Total

-
682
329
-

%
1.49
2.65
-

$ 1,011

1.87% $

-
-
-
-

(a) Yields are based upon the amortized cost of securities.
(b) Includes money market funds.

Other-than-temporary impairment

We routinely conduct periodic reviews of all
securities using economic models to identify and
evaluate each investment security to determine
whether OTTI has occurred. Various inputs to the
economic models are used to determine if an
unrealized loss on securities is other-than-temporary.
For example, the most significant inputs related to
non-agency RBMS 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 an unrealized loss 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

-% $
-
-
-

1
-
26
40

6.65% $
-
6.78
6.41

6.56% $

3
-
-
-

0.02% $
-
-
-

-
-
-
-

4
682
355
40

7,124

0.02% $ 7,124

7,124
2.92%
2.92% $ 8,205

underlying the bond to determine the impact on cash
flows. If we determine that a given security 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 the
securities previously held in the Grantor Trust we
established in connection with the restructuring of our
investment securities portfolio in 2009, at Dec. 31,
2012 and 2011.

Projected weighted-average default rates and loss severities
Dec. 31, 2011

Dec. 31, 2012

Default rate Severity Default rate Severity

Alt-A
Subprime
Prime

43%
61%
24%

57%
72%
43%

44%
63%
25%

57%
73%
43%

BNY Mellon

141

Notes to Consolidated Financial Statements (continued)

The following table provides pre-tax net securities
gains (losses) by type.

Note 6—Loans and asset quality

Net securities gains (losses)
(in millions)

Sovereign debt
U.S. Treasury
Agency RMBS
Corporate bonds
FDIC-insured debt
Prime RMBS
Trust-preferred
Alt-A RMBS
Subprime RMBS
European floating rate notes
Other

Total net securities gains (losses)

2012 2011
$ 96 $ 36
77
8
-
-
(1)
-
(36)
(21)
(39)
24
$162 $ 48

83
43
29
10
(15)
(18)
(19)
(34)
(34)
21

2010

$ -
15
15
-
-
-
-
(13)
(4)
(3)
17

$ 27

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 Jan. 1
Add: Initial OTTI credit losses

Subsequent OTTI credit losses
Less: Realized losses for securities sold

Ending balance as of Dec. 31

Pledged assets

2012 2011
$253 $182
61
18
8
$288 $253

73
50
88

At Dec. 31, 2012, assets amounting to $90 billion
were pledged primarily for potential borrowing at the
Federal Reserve Discount Window. The significant
components of pledged assets were as follows: $80
billion of securities, $5 billion of interest-bearing
deposits with banks and $5 billion of loans. Also
included in these pledged assets were securities
available-for-sale of $1 billion 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, 2012, the market value of the securities
received that can be sold or repledged was $31 billion.
We routinely repledge or lend these securities to third
parties. As of Dec. 31, 2012, the market value of
collateral sold and repledged was $9 billion.

142 BNY Mellon

Loans

The table below provides the details of our loan
distribution and industry concentrations of credit risk
at Dec. 31, 2012 and 2011.

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
Wealth management loans and

mortgages

Commercial real estate
Lease financings (a)
Other (primarily overdrafts)

Total foreign
Total loans

Dec. 31,

2012

2011

$ 5,455
1,306

$ 4,606
752

8,796
1,677
1,329
1,632
2,228
639
13,397
36,459

5,833
111

7,342
1,449
1,558
1,923
2,958
623
12,760
33,971

6,538
528

68
63
1,025
3,070
10,170
$46,629

-
-
1,051
1,891
10,008
$43,979

(a) Net of unearned income on domestic and foreign lease

financings of $1,135 million at Dec. 31, 2012 and $1,343
million at Dec. 31, 2011.

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
$5 million at Dec. 31, 2012 and $3 million at both Dec.
31, 2011 and Dec. 31, 2010. These loans are primarily
extensions of credit under revolving lines of credit
established for such entities.

Our loan portfolio is comprised of three portfolio
segments: commercial, lease financings 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.

(in millions)

Beginning balance
Charge-offs
Recoveries

Net (charge-offs)

Provision

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

(in millions)

Beginning balance
Charge-offs
Recoveries

Net (charge-offs)

Provision

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

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, 2012

Commercial

Commercial Financial

All
real estate institutions financings mortgages mortgages Other

Lease

Wealth
management

Other
loans and residential

91
(2)
2

-
13

$ 104

30
74

57
12

34
-
-

-
(4)

20
10

17
1

63
(13)
-

(13)
(14)

12
24

3
-

66
-
-

-
(17)

49
-

-
-

29
(1)
-

(1)
2

26
4

31
7

$ 156 $
(22)
6

(16)
(52)

88 $

88 $
-

- $
-

-
-
-

-
2

2
-

-
-

Foreign

Total

58
-
-

-
(10)

39
9

9
4

497
(38)
8

(30)
(80)

387

266
121

117
24

(a) Includes $2,228 million of domestic overdrafts, $13,397 million of margin loans and $639 million of other loans at Dec. 31, 2012.

$1,249
18

$1,660
19

$5,452
12

$1,329
49

$8,765
19

$1,632 $16,264 (a) $10,161
35
2

$46,512
242

Allowance for credit losses activity for the year ended Dec. 31, 2011

Commercial

Commercial Financial

All
real estate institutions financings mortgages mortgages Other

Lease

Wealth
management

Other
loans and residential

$ 93
(6)
3

(3)
1

40
(4)
-

(4)
(2)

11
(8)
2

(6)
58

90
-
-

-
(24)

41
(1)
-

(1)
(11)

$ 235 $
(56)
3

(53)
(26)

1
-
-

-
(1)

$ 91

$ 34

$ 156 $

$ 33
58

$ 26
9

24
10

38
7

41
22

24
7

66
-

-
-

23
6

30
5

$ 156 $

- $
-

-
-

Foreign

Total

60
(8)
-

(8)
6

571
(83)
8

(75)
1

497

51
7

10
4

394
103

128
32

$726
24

$1,411
17

$4,582
34

$1,558
66

$7,312
18

$1,923 $16,341 (a) $9,998
47
-

156

$43,851
362

(a) Includes $2,958 million of domestic overdrafts, $12,760 million of margin loans and $623 million of other loans at Dec. 31, 2011.

BNY Mellon

143

Notes to Consolidated Financial Statements (continued)

Allowance for credit losses activity for the year ended Dec. 31, 2010

(in millions)

Beginning balance
Charge-offs
Recoveries

Net (charge-offs)
recoveries

Provision

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

Commercial

Commercial Financial

All
real estate institutions financings mortgages mortgages Other

Lease

Foreign

Total

Wealth
management

Other
loans and residential

$ 155
(5)
15

10
(72)

45
(8)
1

(7)
2

76
(25)
2

(23)
(42)

51
42

32
10

28
12

44
9

1
10

4
-

80
-
-

-
10

90
-

-
-

58
(4)
-

(4)
(13)

$ 164 $
(46)
2

(44)
115

$ 235 $

38
3

53
5

$ 235 $

- $
-

-
-
-

-
1

1
-

-
-

50
-
-

-
10

54
6

7
2

$1,218
41

$1,548
19

$4,626
1

$1,605
90

$6,453
33

$2,079 $12,105 (a) $8,034
52

235

628
(88)
20

(68)
11

571

498
73

140
26

$37,668
472

(a) Includes $4,524 million of domestic overdrafts, $6,810 million of margin loans and $771 million of other loans at Dec. 31, 2010.

Nonperforming assets

The table below sets forth information about our
nonperforming assets.

Nonperforming assets
(in millions)

Nonperforming loans:
Domestic:

Other residential mortgages
Wealth management loans and mortgages
Commercial
Commercial real estate
Financial institutions

Total domestic

Foreign loans

Total nonperforming loans

Other assets owned

Total nonperforming assets (a)

Dec. 31,
2012 2011

$158 $203
32
21
40
23

30
27
18
3

236
9

245
4

319
10

329
12

$249 $341

(a) Loans of consolidated investment management funds are not
part of BNY Mellon’s loan portfolio. Included in these loans
are nonperforming loans of $174 million at Dec. 31, 2012
and $101 million at Dec. 31, 2011. 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.

At Dec. 31, 2012, 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:

2012

2011

2010

Total
Foreign

$ 5
-

$ 2
-

Amount by which interest income

would have increased if
nonperforming loans at year-end had
been performing for the entire year:

Total
Foreign

$15
-

$17
-

$20(a)
-

(a) Lost interest excludes discontinued operations for 2010.

144 BNY Mellon

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.

Impaired loans

Year ended

(in millions)

Impaired loans with an allowance:

Commercial
Commercial real estate
Financial institutions
Wealth management loans and mortgages
Foreign

Total impaired loans with an allowance

Impaired loans without an allowance:

Commercial
Commercial real estate
Financial institutions
Wealth management loans and mortgages

Total impaired loans without an allowance (a)

Dec. 31, 2012

Dec. 31, 2011

Dec. 31, 2010

Average
recorded
investment

Interest
income
recognized

Average
recorded
investment

Interest
income
recognized

Average
recorded
investment

Interest
income
recognized

$ 54
27
7
28
10

126

-
3
2
4

$4
-
-
-
-

-
-
-
-

$ 27
22
9
37
10

105

1
13
-
2

$1
-
-
1
-

-
-
-
-

$ 30
34
35
53
2

154

6
11
-
3

$1
-
-
1
-

-
-
-
-

Total impaired loans

$135

$121

$174

(a) 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.

Impaired loans

(in millions)

Dec. 31, 2012
Unpaid
principal
balance

Related
allowance (a)

Dec. 31, 2011
Unpaid
principal
balance

Related
allowance (a)

Recorded
investment

Impaired loans with an allowance:

Commercial
Commercial real estate
Financial institutions
Wealth management loans and mortgages
Foreign

Total impaired loans with an allowance

Impaired loans without an allowance:

Commercial real estate
Financial institutions
Wealth management loans and mortgages

Total impaired loans without an allowance (b)

Total impaired loans (c)

$ 57
15
1
28
9

110

2
1
4

$117

$ 61
16
1
28
17

123

2
8
4

$137

$ 12
1
—
7
4

N/A
N/A
N/A

N/A

$ 24

$ 26
35
21
27
10

119

3
3
3

$128

$ 31
41
21
27
18

138

3
9
3

$153

9
7
7
5
4

N/A
N/A
N/A

N/A

$ 32

(a) The allowance for impaired loans is included in the allowance for loan losses.
(b) When the discounted cash flows, collateral value or market price equals or exceeds the carrying value of the loan, then the loan does

not require an allowance under the accounting standard related to impaired loans.

(c) Excludes an aggregate of $2 million of impaired loans in amounts individually less than $1 million at both Dec. 31, 2012 and Dec. 31,
2011. The allowance for loan loss associated with these loans totaled less than $1 million at both Dec. 31, 2012 and Dec. 31, 2011.

BNY Mellon

145

Notes to Consolidated Financial Statements (continued)

Past due loans

The table below sets forth information about our past due loans.

Past due loans and still accruing interest

Dec. 31, 2012

Days past due

Dec. 31, 2011

Days past due

(in millions)

Domestic:

Commercial real estate
Wealth management loans and mortgages
Commercial
Other residential mortgages
Financial institutions

Total domestic

Foreign

Total past due loans

30-59

60-89

>90

Total past due

30-59

60-89

>90

$ 44
33

-60

50
-

127
-

$ -
7

9
-

76
-

$127

$76

$
1
-
5
-

6
-

$ 44
41
60
64
-

209
-

$ 47
89
60
36
36

268
-

$ 9
3
7
10
-

29
-

$ -
-
-
13
-

13
-

$209

$268

$29

$13

Total
past due

$ 56
92
67
59
36

310
-

$310

Troubled debt restructurings (“TDRs”)

A modified loan is considered a TDR if the debtor is
experiencing financial difficulties and the creditor
grants a concession to the debtor that would not
otherwise be considered. A TDR may include a
transfer of real estate or other assets from the debtor

to the creditor, or a modification of the term of the
loan. Not all modified loans are considered TDRs.

The following table presents TDRs that occurred in 2012 and 2011.

TDRs

(dollars in millions)

Commercial
Commercial real estate
Wealth management loans and mortgages
Other residential mortgages
Foreign

2012

Outstanding
recorded investment

2011

Outstanding
recorded investment

Number of

Pre-

Post-
contracts modification modification
$ 37
12
3
49
3

$ 42
11
3
44
3

3
2
6
166
1

Number of

Pre-

Post
contracts modification modification
$ 2
-
-
8
-

$ 2
-
-
8
-

1
-
-
21
-

Total TDRs

178

$103

$104

$10

Commercial

Commercial real estate

The modifications of the commercial loans and
unfunded lending-related commitments in 2012
consisted of changing the stated interest rates and/or
extending the maturity dates of the loans. The
modification of the commercial loan in 2011 consisted
of reducing the stated interest rate and extending the
maturity date of the loan. The difference between the
book value of the loan and net cash flow discounted at
the original loan’s rate, if no observable market price
exists, is included in the allowance for credit losses.

The modifications of the commercial real estate loans
and unfunded lending- related commitments in 2012
consisted of changing the stated interest rates and
extending the maturity dates of the loans. The
difference between the book value of the loan and the
estimated fair value of the collateral is included in the
allowance for credit losses.

Wealth management loans and mortgages

The modifications of the wealth management loans
and mortgages in 2012 consisted of changes in

146 BNY Mellon

Notes to Consolidated Financial Statements (continued)

payment terms and extensions of the maturity dates.
The difference between the book value of the loan and
the estimated fair value of the collateral is included in
the allowance for credit losses.

Other residential mortgages

The modifications of the other residential mortgage
loans in 2012 and 2011 consisted of reducing the
stated interest rates and in certain cases, a forbearance
of default and extending the maturity dates. The value
of modified loans is based on the fair value of the
collateral. Probable loss factors are applied to the
value of the modified loans to determine the
allowance for credit losses.

Credit quality indicators

Foreign

The modification of the foreign loan in 2012 consisted
of extending the maturity date of the loan. The
difference between the book value of the loan and the
net present value discounted at the original loan’s rate
is included in the allowance for credit losses.

TDRs that subsequently defaulted

There were 21 residential mortgage loans that had been
restructured in a TDR during the previous 12 months
and have subsequently defaulted in 2012. The total
recorded investment of these loans was $6 million.

The following tables set forth information about credit quality indicators.

Commercial loan portfolio

Commercial loan portfolio – Credit risk profile by creditworthiness category

(in millions)
Investment grade
Noninvestment grade

Total

Commercial
Dec. 31, Dec. 31,
2011
$ 906
374
$1,280

2012
$1,064
353
$1,417

Commercial real estate
Dec. 31,
2012
$1,289
451
$1,740

Financial institutions
Dec. 31, Dec. 31, Dec. 31,
2011
$ 9,643
1,501
$11,144

2012
$ 9,935
1,353
$11,288

2011
$1,062
387
$1,449

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- (S&P)/Baa3 (Moody’s) 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

Wealth management loans and mortgages – Credit risk
profile by internally assigned grade

(in millions)

Wealth management loans:

Investment grade
Noninvestment grade

Wealth management mortgages

Total

Dec. 31, Dec. 31,
2011

2012

$4,597
125
4,142
$8,864

$3,450
111
3,781
$7,342

Wealth management non-mortgage loans are not
typically rated by external rating agencies. 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 types of assets, including business assets, fixed
assets, or a modest amount of commercial real estate.
For the loans collateralized by other assets, the credit
quality of the obligor is carefully analyzed, but we do
not consider this portfolio of loans to be investment
grade.

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

BNY Mellon

147

Notes to Consolidated Financial Statements (continued)

primarily by residential property. These loans are
primarily interest-only adjustable rate mortgages with
an average loan to value ratio of 63% at origination.
In the wealth management portfolio, 1% of the
mortgages were past due at Dec. 31, 2012.

At Dec. 31, 2012, the private wealth mortgage
portfolio was comprised of the following geographic
concentrations: New York – 22%; California – 19%;
Massachusetts – 17%; Florida – 8%; and other – 34%.

Other residential mortgages

The other residential mortgage portfolio primarily
consists of 1-4 family residential mortgage loans and
totaled $1,632 million at Dec. 31, 2012 and $1,923
million at Dec. 31, 2011. These loans are not typically
correlated to external ratings. Included in this
portfolio at Dec. 31, 2012 are $497 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, 2012, the purchased loans in this
portfolio had a weighted-average loan-to-value ratio
of 75% at origination and 24% 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 $5,298 million at Dec.
31, 2012 and $4,849 million at Dec. 31, 2011.
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 $13,397 million of secured margin loans on
our balance sheet at Dec. 31, 2012 compared with
$12,760 million at Dec. 31, 2011. Margin loans are
collateralized with marketable securities and
borrowers are required to maintain a daily collateral
margin in excess of 100% of the value of the loan. We
have rarely suffered a loss on these types of loans and
do not allocate any of our allowance for credit losses
to margin loans.

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.

148 BNY Mellon

Reverse repurchase agreements

Reverse repurchase agreements are transactions fully
collateralized with high-quality liquid securities.
These transactions carry minimal credit risk and
therefore are not allocated an allowance for credit
losses.

Note 7—Goodwill and intangible assets

Impairment testing

BNY Mellon’s three business segments include seven
reporting units for which goodwill impairment testing
is performed on an annual basis. The Investment
Management segment is comprised of two reporting
units. The Investment Services segment is comprised
of four reporting units. One reporting unit is included
in the Other segment.

BNY Mellon conducted its annual goodwill
impairment test on a quantitative basis on all seven
reporting units in the second quarter of 2012. The
estimated fair value of each of the Company’s
reporting units exceeded the carrying value and no
goodwill impairment was recognized.

Intangible assets not subject to amortization are tested
annually for impairment or more often if events or
circumstances indicate they may be impaired.

Goodwill

The level of goodwill increased in 2012 compared
with 2011 primarily as a result of foreign exchange
translation on non-U.S. dollar denominated goodwill
and the Meriten acquisiton. The table below provides
a breakdown of goodwill by business.

Notes to Consolidated Financial Statements (continued)

Goodwill by business
(in millions)

Balance at Dec. 31, 2010
Acquisitions/dispositions
Foreign exchange translation
Other (b)

Balance at Dec. 31, 2011

Acquisition
Foreign exchange translation
Other (b)

Balance at Dec. 31, 2012

Investment
Management
$9,359
10
(32)
36
$9,373
70
63
2
$9,508

Investment
Services (a) Other (a)
$ 168
(128)
-
-
$ 40
-
-
10
$ 50

$8,515
10
(29)
(5)
$8,491
-
38
(12)
$8,517

Consolidated
$18,042
(108)
(61)
31
$17,904
70
101
-
$18,075

(a) Includes the reclassification of goodwill associated with the Shareowner Services business from Investment Services to the Other

segment.

(b) Other changes in goodwill include purchase price adjustments and certain other reclassifications.

Intangible assets

The decrease in intangible assets in 2012 compared
with 2011 resulted from amortization of intangible
assets, partially offset by the Meriten acquisition and

foreign exchange translation on non-U.S. dollar
denominated goodwill.
Amortization of intangible assets was $384 million,
$428 million and $421 million in 2012, 2011 and
2010, respectively.

The table below provides a breakdown of intangible assets by business.

Intangible assets – net carrying amount by business

(in millions)
Balance at Dec. 31, 2010
Acquisitions/dispositions
Amortization
Foreign exchange translation
Impairment
Other (b)

Balance at Dec. 31, 2011

Acquisition
Amortization
Foreign exchange translation
Other (b)

Balance at Dec. 31, 2012

Investment
Management
$2,592
6
(214)
(2)
-
-
$2,382
23
(192)
15
-
$2,228

Investment
Services (a) Other (a)
$991
(128)
(15)
-
-
-
$848
-
-
-
1
$849

$2,113
17
(199)
(2)
(9)
2
$1,922
-
(192)
3
(1)
$1,732

Consolidated
$5,696
(105)
(428)
(4)
(9)
2
$5,152
23
(384)
18
-
$4,809

(a) Includes the reclassification of intangible assets associated with the Shareowner Services business from Investment Services to the

Other segment.

(b) Other changes in intangible assets include purchase price adjustments and certain other reclassifications.

The table below provides a breakdown of intangible assets by type.
Dec. 31, 2012
Intangible assets

Dec. 31, 2011

(in millions)
Subject to amortization:

Customer relationships—Investment

Management

Customer contracts—Investment Services
Other

Total subject to amortization

Not subject to amortization: (a)

Trade name
Customer relationships

Total not subject to amortization
Total intangible assets

Gross

Net
carrying Accumulated carrying amortization carrying Accumulated carrying
amount
amount

amortization

amount

period

Gross

Net

Remaining
weighted
average

$2,114
2,353
125
4,592

1,368
1,320
2,688
$7,280

$(1,353)
(1,018)
(100)
(2,471)

N/A
N/A
N/A
$(2,471)

$ 761
1,335
25
2,121

1,368
1,320
2,688
$4,809

12 yrs.
12 yrs.
5 yrs.
12 yrs.

N/A
N/A
N/A
N/A

$2,109
2,351
131
4,591

1,366
1,313
2,679
$7,270

$(1,189)
(834)
(95)
(2,118)

N/A
N/A
N/A
$(2,118)

$ 920
1,517
36
2,473

1,366
1,313
2,679
$5,152

(a) Intangible assets not subject to amortization have an indefinite life.

BNY Mellon

149

Notes to Consolidated Financial Statements (continued)

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)

2013
2014
2015
2016
2017

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
Fair value of hedging derivatives
Prepaid expenses
Prepaid pension assets
Due from customers on acceptances
Other

Total other assets

$340
302
272
240
216

2012

Dec. 31, Dec. 31,
2011
$ 4,360 $ 4,216
4,208
2,573

4,255
3,099

2,664
1,148
1,117
989
508
419
376
1,533

2,677
961
986
1,600
784
144
321
1,369
$20,468 $19,839

In our Investment 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.
BNY Mellon also holds private equity investments,
which consist of investments in private equity funds,
mezzanine financings and direct equity investments.
Seed capital and 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.

(a) Includes Federal Reserve Bank stock of $436 million and

$429 million, respectively, at cost.

Seed capital and private equity investments valued using NAV

Dec. 31, 2012

Dec. 31, 2011

Unfunded
(dollar amounts in millions) Value commitments

Fair

Redemption Redemption

Unfunded
frequency notice period Value commitments

Fair

Private equity funds (a)
Other funds (b)

Total

$ 99
153

$252

$13
N/A
31 Monthly-yearly

N/A
3-45 days

$44

$122
72

$194

$24
-

$24

Redemption Redemption
frequency notice period

N/A
Monthly-yearly

N/A

3-45 days

(a) 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.

(b) Other funds include various market neutral, leveraged loans, hedge funds, real estate and structured credit funds. Redemption notice

periods vary by fund.

N/A - Not applicable.

150 BNY Mellon

Notes to Consolidated Financial Statements (continued)

Note 9—Deposits

Note 11—Noninterest expense

Total time deposits in denominations of $100,000 or
greater was $50.3 billion at Dec. 31, 2012, and $44.2
billion at Dec. 31, 2011. At Dec. 31, 2012, the
scheduled maturities of all time deposits are as
follows: 2013 – $50.7 billion; 2014 – $22 million;
2015 – $3 million; 2016 – $- million; 2017 –$
million; and 2018 and thereafter – $3 million.

Note 10—Net interest revenue

The following table provides the components of net
interest revenue presented on the consolidated income
statement.

Net interest revenue
(in millions)

Interest revenue

Non-margin loans
Margin loans
Securities:
Taxable
Exempt from federal income

taxes

Total securities

Deposits in banks
Deposits with the Federal Reserve

2012

2011

2010

$ 671 $ 681 $ 738
88

168

129

1,913

1,949

1,944

1,997
388

1,985
543

1,969
491

and other central banks

152

148

Federal funds sold and securities

purchased under resale
agreements
Trading assets

The following table provides a breakdown of
noninterest expense presented on the consolidated
income statement.

Noninterest expense
(in millions)

Staff:
Compensation
Incentives
Employee benefits

Total staff

Professional, legal and other

purchased services

Net occupancy
Software
Litigation
Distribution and servicing
Furniture and equipment
Business development
Sub-custodian
Communications
Clearing
Other
Amortization of intangible

assets

Merger and integration and
restructuring charges

2012

2011

2010

$ 3,531
1,280
950

$ 3,567
1,262
897

$ 3,237
1,193
785

5,761

5,726

5,215

1,222
593
524
488
421
331
275
269
141
127
726

384

1,217
624
485
210
416
330
261
298
173
135
629

428

180

1,099
588
410
217
377
315
271
247
140
127
576

421

167

Total noninterest expense

$11,333

$11,112

$10,170

35
96

28
74

64
71

Note 12—Restructuring charges

Total interest revenue

3,507

3,588

3,470

Interest expense

Deposits in domestic offices
Deposits in foreign offices
Federal funds purchased and

securities sold under repurchase
agreements
Trading liabilities
Other borrowed funds
Commercial paper
Customer payables
Long-term debt

Total interest expense

46
108

-
24
16
2
8
330

534

47
194

2
32
21
-
7
301

604

49
82

43
41
24
-
6
300

545

Net interest revenue

$2,973 $2,984 $2,925

Restructuring charges are recorded as a separate line
on the income statement and reported in the Other
segment as they are corporate initiatives and not
directly related to the operating performance of the
businesses. The aggregate restructuring charge is
included in the merger and integration, litigation and
restructuring charges expense category on the income
statement. Severance payments are primarily paid
over the salary continuance period in accordance with
the separation plan.

Operational excellence initiatives

In 2011, we announced our operational excellence
initiatives which include an expense reduction
initiative impacting approximately 1,500 positions or
approximately 3% of our global workforce, as well as
additional initiatives to transform operations,
technology and corporate services that will increase
productivity and reduce the growth rate of expenses.
We recorded a pre-tax restructuring charge of $107
million related to the operational excellence initiatives

BNY Mellon

151

Notes to Consolidated Financial Statements (continued)

in 2011. This charge was comprised of $78 million of
severance costs and $29 million primarily for
operating lease-related items and consulting costs. In
2012, we recorded a net recovery of $2 million
associated with the operational excellence initiatives.
The net recovery in 2012 reflects additional severance
charges and a lease restructuring, which were more
than offset by a gain on the sale of a property. The
following table presents the activity in the
restructuring reserve related to the operational
excellence initiatives through Dec. 31, 2012.

Operational excellence initiatives 2011 – restructuring reserve
activity
(in millions)

Severance Other

Total

Global location strategy 2009 – restructuring
reserve activity

(in millions)
Original restructuring charge
Additional charges
Utilization

Balance at Dec. 31, 2010

Net (recovery)
Utilization

Balance at Dec. 31, 2011

Net (recovery)
Utilization

Balance at Dec. 31, 2012

Severance
$102
29
(50)
81
(15)
(39)
27
(12)
(14)
$ 1

Asset
write-offs/
other
$ 37
6
(24)
19
-
(8)
11
-
-
$ 11

Total
$139
35
(74)
100
(15)
(47)
38
(12)
(14)
$ 12

$ 29
(29)

$107

(33)

The table below presents the restructuring charge if it
had been allocated by business.

Original restructuring charge
Utilization

Balance at Dec. 31, 2011

Net additional charges
(net recovery/gain)
Utilization

$ 78
(4)

55
(37)

(57)
57

(2)
20

Balance at Dec. 31, 2012

$ 92

The table below presents the restructuring charge if it
had been allocated by business.

Operational excellence initiatives 2011 –
restructuring charge (recovery) by business

(in millions)

Investment Management
Investment Services
Other segment (including Business

2012 2011

$ 31 $ 17
41

Total
charges
since
inception

$ 48
60

Partners)

(52)

(3)

Total restructuring charge (recovery)

$ (2) $107

$105

Global location strategy

The 2009 global location strategy focused on
migrating positions to our global growth centers. In
2012, we recorded a recovery of $12 million
associated with the global location strategy. The
global location strategy program was substantially
complete at Dec. 31, 2012.

The following table presents the activity in the
restructuring reserve related to the global location
strategy through Dec. 31, 2012.

Global location strategy 2009 – restructuring
charge (recovery) by business

(in millions)
Investment Management
Investment Services
Other segment (including
Business Partners)
Total restructuring charge

Total
charges
since
inception
$ 54
64

2012 2011 2010
$ (1) $
$15
(12)
26

-
(18)

(6)

(recovery)

$(12) $(15) $35

$147

Note 13—Income taxes

Provision (benefit) for

income taxes
(in millions)
Current taxes (benefits):

Federal
Foreign
State and local

Total current tax expense

(benefit)

Deferred tax expense (benefit):

Federal
Foreign
State and local

Total deferred tax expense
Provision for income taxes

Year ended Dec. 31,

2012

2011 2010 (a)

$271 $ 691
236
317
20
28

$ (670)
408
110

527

1,036

(152)

130
(34)
39
(16)
83
62
252
12
$779 $1,048

1,278
(75)
(4)
1,199
$1,047

(a) Based on continuing operations for 2010.

The components of income before taxes are as
follows:

Components of income before
taxes
(in millions)
Domestic
Foreign

Income before taxes

Year ended Dec. 31,

2012

$1,962 $2,336
1,340
1,281
$3,302 $3,617

2011 2010 (a)
$2,363

1,331

$3,694

152 BNY Mellon

(a) Based on continuing operations for 2010.

Notes to Consolidated Financial Statements (continued)

The components of our net deferred tax liability are as
follows:

Net deferred tax liability
(in millions)

Depreciation and amortization
Lease financings
Pension obligation
Reserves not deducted for tax
Credit losses on loans
Net operating loss carryover
Employee benefits
Equity investments
Securities valuation
Other assets
Other liabilities

Net deferred tax liability

Dec. 31,

2012

2011

$2,672 $2,599
1,040
(49)
(401)
(290)
(126)
(544)
238
(15)
(193)
297

932
45
(397)
(230)
(105)
(570)
256
545
(128)
353

$3,373 $2,556

As of Dec. 31, 2012, we have net operating loss
carryforwards for state and local income tax purposes
of $915 million which will expire in 2029. We have a
German net operating loss carryforward of $198
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, 2012, we had approximately
$4.3 billion of earnings attributable to foreign
subsidiaries that have been permanently reinvested
abroad and for which no incremental U.S. income tax
provision has been recorded. If these earnings were to
be repatriated, the estimated U.S. tax liability as of
Dec. 31, 2012 would be up to $930 million.
Management has no intention of repatriating these
earnings to the U.S. in the foreseeable future.

The following table presents a reconciliation of the
statutory federal income tax rate to our effective
income tax rate.

Effective tax rate

Federal rate
State and local income taxes, net of

federal income tax benefit

Tax credits
Tax-exempt income
Foreign operations
Other – net

Effective rate

Year ended Dec. 31,
2012
2011
35.0% 35.0% 35.0%

2010

2.1
(4.8)
(3.2)
(5.0)
(0.5)

1.6
(2.1)
(2.6)
(3.2)
0.3

2.4
(1.8)
(2.3)
(5.2)
0.2

23.6% 29.0% 28.3%

Unrecognized tax positions
(in millions)
Beginning balance at Jan. 1, –gross
Prior period tax positions:

Increases
Decreases

Current period tax positions
Settlements
Statute expiration
Ending balance at Dec. 31, – gross

2012
$250

2011
$290

2010
$ 335

163
(66)
21
(28)
-
$340

24
(13)
16
(64)
(3)
$250

98
(60)
41
(119)
(5)
$ 290

Our total tax reserves as of Dec. 31, 2012 were $340
million compared with $250 million at Dec. 31, 2011.
If these tax reserves were unnecessary, $340 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, 2012 is
accrued interest, where applicable, of $35 million. The
additional tax expense related to interest for the year
ended Dec. 31, 2012 was $11 million compared with
$31 million for the year ended Dec. 31, 2011.

As previously disclosed, on Nov. 10, 2009 BNY
Mellon filed a petition with the U.S. Tax Court
challenging the IRS’ disallowance of certain foreign
tax credits claimed for the 2001 and 2002 tax years.
Trial was held from April 16 to May 17, 2012.

On Feb. 11, 2013 BNY Mellon received an adverse
decision from the U.S. Tax Court. We continue to
believe the tax treatment of the transaction was correct
and will appeal the Court’s decision. As a result of the
ruling and in accordance with the accounting for
uncertain tax positions under ASC 740, BNY Mellon
expects to record a tax charge of approximately $850
million during the first quarter of 2013. Excluding this
charge, it is reasonably possible the total reserve for
uncertain tax positions could decrease within the next
12 months by an amount up to $67 million as a result
of adjustments related to tax years that are still subject
to examination. See Note 23 of the Notes to
Consolidated Financial Statements for additional
information.

Our federal income tax returns are closed to
examination for all periods through 2002. The years
2003 through 2006 remain open to examination. The
years 2007 and 2008 are closed for further
examination, however one matter is before the
Internal Revenue Service (“IRS”) appeals. Our New
York State and New York City income tax returns are
closed to examination through 2010. Our UK income
tax returns are closed to examination through 2008.

BNY Mellon

153

Notes to Consolidated Financial Statements (continued)

Note 14—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.

Total long-term debt that matures during the next five
years for BNY Mellon is as follows: 2013 – $1.61
billion, 2014 – $4.36 billion, 2015 – $3.66 billion,
2016 – $1.85 billion and 2017 – $1.25 billion. At Dec.
31, 2012, subordinated debt of $407 million may be
redeemable at our option in 2013.

Trust-preferred securities

At Dec. 31, 2012, two 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 these two
trusts are junior subordinated deferrable interest
debentures of BNY Mellon with maturities and
interest rates that 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.

Dec. 31, 2012

Rate Maturity Amount

Dec. 31, 2011
Rate Amount

0.70-6.92% 2013-2021
0.11-1.16% 2013-2038
4.75-7.50% 2014-2033
6.37-7.78% 2026-2036

$13,184
1,979
2,732
635

$18,530

1.50-6.92% $12,367
2,679
0.35-1.40%
3,201
4.75-7.50%
1,686
5.95-7.78%

$19,933

Additionally, at Dec. 31, 2012, we also owned Mellon
Capital IV, whose sole assets were originally junior
subordinated debentures and a stock purchase contract
for preferred stock. Through a remarketing in May
2012, the junior subordinated debentures issued by
BNY Mellon and held by Mellon Capital IV were sold
to third party investors and then exchanged for BNY
Mellon’s senior notes, which were sold in a public
offering. The proceeds of the sale of the senior notes
were used to fund the purchase by Mellon Capital IV
of $500 million of BNY Mellon’s Series A preferred
stock, which was issued on June 20, 2012. At Dec. 31,
2012, the Series A preferred stock was the sole asset
of Mellon Capital IV. See Note 16 of the Notes to
Consolidated Financial Statements for additional
disclosures related to preferred stock, including the
Series A preferred stock.

On Nov. 26, 2012, BNY Mellon redeemed all
outstanding 6.875% Trust Preferred Securities, Series
E, issued by BNY Capital IV (liquidation amount $25
per security and $200 million in the aggregate) and all
outstanding 5.95% Trust Preferred Securities, Series
F, issued by BNY Capital V (liquidation amount $25
per security and $350 million in the aggregate).

The following tables set forth a summary of the trust preferred securities issued by the Trusts as of Dec. 31, 2012
and Dec. 31, 2011:

Trust preferred securities at Dec. 31, 2012

(dollar amounts in millions)
BNY Institutional Capital Trust A
MEL Capital III (b)
MEL Capital IV
Total

Amount of junior
subordinated
debentures
$300
323
-
$623

Assets
Interest
of trust
rate
7.78% $ 309
316
6.37%
500
-
$1,125

Due
date
2026
2036
-

Call
date
2006
2016
-

Call
price

101.56% (a)
Par
-

(a) Call price decreases ratably to par in the year 2016.
(b) Amount was translated from Sterling into U.S. dollars on a basis of U.S. $1.62 to £1, the rate of exchange on Dec. 31, 2012.

154 BNY Mellon

Notes to Consolidated Financial Statements (continued)

Trust preferred securities at Dec. 31, 2011

(dollar amounts in millions)
BNY Institutional Capital Trust A
BNY Capital IV
BNY Capital V
MEL Capital III (c)
MEL Capital IV
Total

Amount of junior
subordinated
debentures
$ 300
200
350
309
500
$1,659

Interest
rate
7.78%
6.88%
5.95%
6.37%
6.24%

Assets
of trust (a)
$ 309
206
361
300
500
$1,676

Due
date
2026
2028
2033
2036
-

Call
date
2006
2004
2008
2016
2012

Call
price

101.95% (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. $1.54 to £1, the rate of exchange on Dec. 31, 2011.

Note 15—Securitizations and variable interest
entities

ownership liquidation requests, including any seed
capital invested in the VIE by BNY Mellon.

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 has other VIEs, including securitization
trusts, which are no longer considered qualifying
special purpose entities, 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 following tables present the incremental assets
and liabilities included in BNY Mellon’s consolidated
financial statements, after applying intercompany
eliminations, as of Dec. 31, 2012 and Dec. 31, 2011,
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’

Investments consolidated under ASC 810 and ASU 2009-17 at
Dec. 31, 2012

Investment
Management

funds Securitizations

Total
consolidated
investments

$
-
10,961
520

$11,481

10,152
29

$499
-
-

$499

-
461

$
499
10,961
520

$11,980

10,152
490

(in millions)

Available-for-sale
Trading assets
Other assets

Total assets

Trading liabilities
Other liabilities

Total

liabilities

$10,181

$461

$10,642

Non-redeemable
noncontrolling
interests

833

Investments consolidated under ASC 810 and ASU 2009-17 at
Dec. 31, 2011

(in millions)

Available-for-sale
Trading assets
Other assets

Total assets

Trading liabilities
Other liabilities

Total liabilities

Non-redeemable
noncontrolling
interests

Investment
Management

funds Securitizations

Total
consolidated
investments

$
-
10,751
596

$11,347

10,053
32

$10,085

$479
-
-

$479

-
443

$443

$
479
10,751
596

$11,826

10,053
475

$10,528

670

BNY Mellon is 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.

BNY Mellon

155

Notes to Consolidated Financial Statements (continued)

Non-consolidated VIEs

Consolidated credit supported VIEs

As of Dec. 31, 2012 and Dec. 31, 2011, the following
assets related to the VIEs, where BNY Mellon is not
the primary beneficiary, are included in our
consolidated financial statements.

Non-consolidated VIEs at Dec. 31, 2012

Maximum
loss
exposure

Assets

Liabilities

$100

(in millions)

Other

Non-consolidated VIEs at Dec. 31, 2011

(in millions)

Assets

Liabilities

Trading
Other

Total

$ 1
41

$42

$-
-

Maximum
loss
exposure

$ 1
41

$42

The maximum loss exposure indicated in the above
tables relates solely to BNY Mellon’s seed capital or
residual interests invested in the VIEs.

Preferred stock

At Dec. 31, 2012, BNY Mellon had no remaining
consolidated credit supported VIEs. At Dec. 31, 2011,
BNY Mellon’s financial statements included certain
funds created solely with securities subject to credit
support agreements where we agreed to absorb the
majority of loss.

Consolidated credit supported VIEs at Dec. 31,
2011
(in millions)

Assets

Liabilities

Available-for-sale
Other

Total

$14
-

$14

$ -
22

$22

Maximum
loss
exposure

$14
10

$24

Note 16—Shareholders’ equity

Common stock

BNY Mellon has 3.5 billion authorized shares of
common stock with a par value of $0.01 per share. At
Dec. 31, 2012, 1,163,490,341 shares of common stock
were outstanding.

BNY Mellon has 100 million authorized shares of preferred stock with a par value of $0.01. The table below
presents a summary of BNY Mellon’s preferred stock issued and outstanding at Dec. 31, 2012.

Preferred stock summary
(dollars in millions, unless
otherwise noted)

Series

Series A

Series C

Description

Noncumulative
Perpetual
Preferred Stock

Total shares
issued and
outstanding

Liquidation
preference
per share
(in dollars)

Carrying
value at
Dec. 31,
2012

5,001

$100,000

$500

Dividends paid
per share in
2012
(in dollars)

$2,033

Per annum dividend rate

Greater of (i) three-month LIBOR
plus 0.565% for the related
distribution period; or (ii) 4.000%

5,825

$100,000

$568 (a)

5.2%

$1,314

(a) The carrying value is recorded net of issuance costs.

On June 20, 2012, BNY Mellon issued the Series A
preferred stock for $500 million. On Sept. 19, 2012,
BNY Mellon issued 22 million and on Oct. 10, 2012,
BNY Mellon issued an additional 1.3 million of Series
C Depositary Shares, each representing a 1/4,000th
interest in a share of BNY Mellon’s Series C preferred
stock for an aggregate of $568 million, net of issuance
costs. Holders of both the Series A and Series C
preferred stock issues are entitled to receive dividends
on each dividend payment date (March 20, June 20,
Sept. 20 and Dec. 20 of each year), if declared by
BNY Mellon’s Board of Directors. BNY Mellon’s

156 BNY Mellon

ability to declare or pay dividends on, or purchase,
redeem or otherwise acquire, shares of our common
stock or any of our shares that rank junior to the
preferred stock as to the payment of dividends and/or
the distribution of any assets on any liquidation,
dissolution or winding-up of BNY Mellon will be
prohibited, subject to certain restrictions, in the event
that we do not declare and pay in full preferred
dividends for the then current dividend period of the
Series A preferred stock or the last preceding dividend
period of the Series C preferred stock.

Notes to Consolidated Financial Statements (continued)

All of the outstanding shares of the Series A preferred
stock are owned by Mellon Capital IV, which will
pass through any dividend on the Series A preferred
stock to the holders of its Normal Preferred Capital
Securities. All of the outstanding shares of the Series
C preferred stock are held by the depositary of the
depositary shares, which will pass through the
applicable portion of any dividend on the Series C
Preferred Stock to the holders of record of the
depositary shares.

The preferred stock is not subject to the operation of a
sinking fund and is not convertible into, or
exchangeable for, shares of our common stock or any
other class or series of our other securities. Subject to
the restrictions in BNY Mellon’s 2007 replacement
capital covenant, subsequently amended on May 8 and
Sept. 11, 2012, we may redeem the Series A preferred
stock, in whole or in part, at our option. We may also,
at our option, redeem the shares of the Series C
preferred stock in whole or in part, on or after the
dividend payment date in September 2017, or in
whole but not in part at any time within 90 days
following a regulatory capital treatment event (as
defined in the Certificate of Designations of the Series
C preferred stock).

The terms of the Series A preferred stock and the
Series C preferred stock are more fully described in
each of their Certificate of Designations, each of
which is filed as an exhibit to BNY Mellon’s Annual
Report on Form 10-K for the year ended Dec. 31,
2012.

Temporary equity

Temporary equity was $178 million at Dec. 31, 2012
and $114 million at Dec. 31, 2011. Temporary equity
represents amounts recorded for redeemable non-
controlling interests resulting from equity-classified
share-based payment arrangements that are currently
redeemable or are expected to become redeemable.
The current redemption value of such awards is
classified as temporary equity and is adjusted to its
redemption value at each balance sheet date.

Common stock repurchase program

with share repurchases under our 2011 capital plan,
the Board of Directors authorized the repurchase of an
additional 12 million shares of common stock, of
which 6.8 million shares of common stock remained
available for repurchase under the Feb. 2012 board
authorization. While there are no expiration dates on
the prior share repurchase authorizations, BNY
Mellon does not intend to use the prior authorizations
for any future share repurchases. On March 13, 2012,
in connection with the Federal Reserve’s non-
objection to our 2012 capital plan, the Board of
Directors authorized a new stock purchase program
providing for the repurchase of an aggregate of $1.16
billion of common stock. The new share repurchase
program may be executed through open market
purchases or privately negotiated transactions at such
prices, times and upon such other terms as may be
determined from time to time. At Dec. 31, 2012, the
maximum dollar value of shares that may yet be
purchased under the program totaled $416 million.
There is no expiration date on the share repurchase
authorizations. In 2012, we repurchased 49.8 million
common shares in the open market, at an average
price of $22.38 per share for a total of $1.12 billion.

Capital adequacy

As of Dec. 31, 2012 and 2011, BNY Mellon and our
bank subsidiaries were considered well capitalized on
the basis of the Basel I Total and Tier 1 capital to risk-
weighted assets ratios and the leverage ratio (Basel I
Tier 1 capital to quarterly average assets as defined
for regulatory purposes).

BNY Mellon

157

Notes to Consolidated Financial Statements (continued)

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

The following table presents the components of our
Basel I Tier 1 and Total risk-based capital at Dec. 31,
2012 and 2011.

Components of Basel I Tier 1

and total risk-based capital (a)
(in millions)

Tier 1 capital:

Common shareholders’ equity
Preferred stock
Trust preferred securities

Adjustments for:

Goodwill and other

intangibles (b)
Pensions/cash flow hedges
Securities valuation allowance
Merchant banking investments

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
Total risk-weighted assets
Average assets for leverage capital

Dec. 31,

2012

2011

$ 35,363 $ 33,417

1,659

1,068
623

(20,445)
1,454
(1,350)
(19)

(20,630)

1,426

(450)

(33)

16,694

15,389

2
1,058
386

1,446

2
1,545
497

2,044

$ 18,140 $ 17,433
$111,180 $102,255

purposes

$315,273 $296,484

(a) On a regulatory basis as determined under Basel I

guidelines.

(b) Reduced by deferred tax liabilities associated with non-tax

deductible identifiable intangible assets of $1,310 million at
Dec. 31, 2012 and $1,459 million at Dec. 31, 2011, and
deferred tax liabilities associated with tax deductible
goodwill of $1,130 million at Dec. 31, 2012 and $967 million
at Dec. 31, 2011.

Consolidated and largest bank subsidiary
capital ratios (a)
Consolidated capital ratios:

Tier 1 capital
Total capital
Leverage – guideline

The Bank of New York Mellon capital ratios:

Tier 1 capital
Total capital
Leverage

Dec. 31,
2012 2011

15.0% 15.0%
16.3
5.3

17.0
5.2

14.0% 14.3%
14.6
5.4

17.7
5.3

(a) Determined under Basel I guidelines. For a banking

institution to qualify as “well capitalized,” its Basel I Tier 1,
Total (Tier 1 plus Tier 2) and leverage capital ratios must be
at least 6%, 10% and 5%, respectively. For The Bank of New
York Mellon, our largest bank subsidiary, to qualify as
“adequately capitalized ,” Basel I Tier 1, Total and leverage
capital ratios must be at least 4%, 8% and 3%, respectively.

If a financial holding company such as BNY Mellon
fails to qualify as well capitalized, it may lose its
status as a financial holding company, which may
restrict its ability to undertake or continue certain
activities or make acquisitions that are not generally
permissible for bank holding companies without
financial holding company status. If a bank holding
company such as BNY Mellon or bank such as The
Bank of New York Mellon or BNY Mellon, N.A. fails
to qualify as “well capitalized,” it may be subject to
higher FDIC assessments.

If a bank holding company such as BNY Mellon or
bank such as The Bank of New York Mellon or BNY
Mellon, N.A. fails to qualify as adequately
capitalized, regulatory sanctions and limitations are
imposed.

At Dec. 31, 2012, the amounts of capital by which
BNY Mellon and The Bank of New York Mellon,
exceed the well-capitalized guidelines are as follows:

Capital above guidelines at Dec. 31, 2012

(in millions)

Tier 1 capital
Total capital
Leverage

The Bank of
Consolidated New York Mellon

$10,023
7,023
930

$7,745
4,461
932

158 BNY Mellon

Notes to Consolidated Financial Statements (continued)

Note 17—Other comprehensive income (loss)

Components of other comprehensive income

Dec. 31, 2012

Tax

Year ended
Dec 31, 2011

Tax

Dec. 31, 2010

Tax

(in millions)
Foreign currency translation adjustments:

Foreign currency translation adjustments

arising during the period
Reclassification adjustment (a)

Total foreign currency translation

adjustments

Unrealized gain (loss) on assets available-for

sale:
Unrealized gain (loss) arising during period
Reclassification adjustment (a)

Net unrealized gain (loss) on assets

available-for-sale

Defined benefit plans:

Prior service cost arising during the period
Net loss arising during the period
Foreign exchange adjustment
Amortization of prior service credit, net loss

and initial obligation included in net
periodic benefit cost
Total defined benefit plans

Unrealized gain (loss) on cash flow hedges:

Unrealized hedge gain (loss) arising during

period

Reclassification adjustment

Net unrealized gain (loss) on cash flow

hedges

Pre-tax (expense) After-tax Pre-tax (expense) After-tax Pre-tax (expense) After-tax
amount
benefit
amount

amount amount

benefit

80
-

$ 50
-

$ 130
-

$(184)

$ (11)

$(195) $ (295) $ (68)

(18)

$(363)
(18)

130

(184)

(11)

(195)

(313)

(68)

(381)

1,611
(162)

(604)
56

1,007
(106)

483
(48)

(177)
22

306
(26)

1,216
6

(469)
12

747
18

1,449

(548)

901

435

(155)

280

1,222

(457)

765

98
(298)
-

(41)
108
-

57
(190)
-

--
(741)
(4)

298
1

-
(443)
(3)

22
(91)
2

173

(27)

(69)

(2)

104

114

(29)

(631)

(45)

254

(377)

6
(3)

(2)
-

(2)

4
(3)

5
(2)

(2)
2

3
-

12
(7)

3
39
-

(30)

-
2

25
(52)
2

12
(5)

Total other comprehensive income (loss)

$1,505

$(502)

$1,003

$(377)

$ 88

$(289) $ 923

$(511)

$ 412

(a) Includes a net reclassification adjustment of $14 million to retained earnings from other comprehensive income in 2010.

Changes in accumulated other comprehensive income (loss) attributable to The Bank of New York Mellon Corporation
shareholders

(in millions)

2009 ending balance
Adjustments for the cumulative effect of

applying ASC 810

Adjusted balance at Jan. 1, 2010
Change in 2010

2010 ending balance

Change in 2011

2011 ending balance

Change in 2012

2012 ending balance

ASC 820 Adjustments

Foreign
currency
translation

Pensions