The Bank of New York Mellon Annual Report 2013

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FY2013 Annual Report · The Bank of New York Mellon

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THE INVESTMENTS COMPANY
FOR THE WORLD

2013 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 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

Earnings per common share – diluted (a)

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) (c)
Assets under custody and/or administration at year end (in trillions)

BALANcE shEET AT DEcEmBER 31

2013

2012

2,111
(64)

2,445
(18)

2,047

2,427

1.74

2.03

14,983
11,306

14,555
11,333

78%

37%

1,583
27.6

78%

37%

1,386
26.3

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

$ 374,310
261,129
35,959

358,990
246,095
35,363

cAPiTAL RATiOs AT DEcEmBER 31

Estimated Basel III Tier 1 common equity ratio – Non-GAAP (d)(e)

Standardized Approach
Advanced Approach

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 – based rules:
Leverage capital ratio

10.6%
11.3% (f)
9.6%

N/A
9.8%
9.9%

6.8%

6.4%

5.4%

5.3%

(a) Diluted earnings per share under the two-class method is 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.
Includes fee revenue, net interest revenue and income of consolidated investment management funds, net of net income attributable to
noncontrolling interests.

(b)

(c) Excludes securities lending cash management assets and assets managed in the Investment Services business.
(d) The estimated Basel III Tier 1 common equity ratio at Dec. 31, 2013, is based on our interpretation of the final capital rules released by

the Board of Governors of the Federal Reserve (the “Federal Reserve”) on July 2, 2013, on a fully phased-in basis. At Dec. 31, 2012, this ratio
was estimated using our interpretation of the Federal Reserve’s Notices of Proposed Rulemaking dated June 7, 2012, on a fully phased-in basis.

(e) See “Supplemental Information – Explanation of GAAP and Non-GAAP financial measures” beginning on page 118 for a calculation of these ratios.
(f) Changes in January 2014 to the probable loss model associated with unsecured wholesale credit exposures within our Advanced Approach
capital model will impact risk-weighted assets. The Company did not include the impact at Dec. 31, 2013. However, a preliminary estimate of
the revised methodology to the portfolio at Sept. 30, 2013, would have added approximately 6% to the risk-weighted assets.

�
Dear Fellow ShareholDerS

In 2013, we continued to reinvent our company to meet the increasingly complex investing needs of our

clients. We are proud to be the investments company for the world. BNY Mellon is singularly focused on

the investment lifecycle – either servicing financial assets through our Investment Services business or

managing them through our 16 boutiques that make up Investment Management and providing investment

advice through our wealth management offerings. Our clients entrust us with their valuable financial assets,

and it is that stewardship responsibility that drives us.

Secular trends are shaping our strategy for providing solutions to help our clients meet their objectives.

The investment process is becoming increasingly global. In a low-interest-rate environment, with slow

economic growth in almost every part of the world, investors are challenged to find adequate risk-adjusted

returns. Pension funds are no longer being created to build protection for retiring employees and populations

in developed countries are aging, putting further strain on individuals’ ability to meet their long-term needs.

Consequently, individuals are now charged with saving and investing for themselves.

Investors – be they sophisticated global investment managers, hedge funds, endowments and foundations,

sovereign wealth funds, governments, financial advisors, families, individuals or the banks and broker-dealers

that act as intermediaries to the markets – all turn to us for our deep investments expertise and integrated

set of services and advice to solve some of the most complex issues in the investment process. Our broad

perspective enables us to address some of the world’s more pressing investment challenges, powering global

investments to help our clients succeed.

Many people think of or describe BNY Mellon as a “custody bank.” It is true that we are the world’s largest

custodian, with more than $27 trillion in assets under custody and/or administration. We earn recurring fees for

providing these services. Custody is also the foundation for a growing series of fee-based services we provide

across multiple asset classes. We are in the business of developing sophisticated solutions that allow our

clients to better understand their portfolios of assets and how they might perform under various scenarios,

and allow them to nimbly develop investment strategies should their outlook change.

What we do differently from other “custody banks” is that we also provide clearing and settlement services

for the vast majority of the world’s institutional broker-dealers. In addition, we provide technology through the

Pershing platform that services broker-dealers and financial advisors of all sizes who, in turn, offer capabili
ties to their end clients. We are among the world’s largest providers of clearing for institutions and services for

financial advisors. And, increasingly, these technology platforms are being developed and used globally and far

beyond traditional clearing and recordkeeping purposes. I say all this because, in Investment Services, we are

a technology and services company embedded in a well-capitalized, extremely liquid, conservatively managed

and highly rated bank. And our company is an institution that is integral to the smooth and continuous

functioning of the world’s financial markets.

This brings me to Investment Management. It is a terrific business and highly complementary to our other

businesses. It, too, is fee-based and relies on intellectual rather than financial capital to grow and thrive. It is

driven by people who research, study, analyze and develop investment portfolios and strategies that meet the

needs of our discerning clients. We have become the eighth-largest investment manager in the world through

our 16 highly successful investment boutiques. Each boutique is run as a separately branded firm with its own

investment strategies, products and/or fund structures, and independently managed for the benefit of the

investors it serves.

Investment Management takes advantage of being associated with the world’s largest Investment Services

firm. The technology platforms and services I discussed earlier are utilized extensively by our various

boutiques. Investment Management is actively collaborating with our Pershing team on developing a separately

managed account platform in the Asia Pacific region where our investment products will be prominently

offered. It is the first multicurrency platform of its kind, where other financial institutions and their advisors

will have the ability to select investment products from us and other leading asset managers that fit their

clients’ needs.

Our Wealth Management unit is also collaborating with Pershing, offering banking products and trust services

to clients of financial advisors who subscribe to Pershing’s platform. And there are many more such efforts

across our two major businesses that have real upside potential for our clients and shareholders.

Since our role is so critical, we purposely manage our balance sheet conservatively and take relatively modest
credit risk. Our clients not only entrust us with their assets, they also tend to leave their excess cash with us,
particularly during times of stress, as we are viewed as a safe haven. We invest that cash in relatively short-
duration, high-quality assets. We have purposely limited the credit risk in our investment securities and loan
portfolios, which makes us a very attractive counterparty. In this prolonged low-rate environment, we have also
reduced the duration risk in our securities portfolio, positioning us to benefit when short-term interest rates
ultimately rise. We have purposely maintained strict investment criteria in our securities portfolio at the
sacrifice of income in the short term, but strongly feel that is the most prudent course for us.

Our business model is one that is fee income-based and does not rely on growing risk-weighted assets. We
generate significant capital that can be reinvested in new services and strategies that can either drive future
earnings or be returned to our shareholders. We have significant financial flexibility and are very focused on
managing capital wisely for the benefit of our shareholders.

reVIew oF oUr PerForMaNCe
BNY Mellon had a successful year in 2013, with solid financial results that highlight our focus on driving organic
growth, building our capital base, powering innovation and operational excellence and returning excess capital
to shareholders. Here are a few highlights:

• SHAREHOLDER RETURN: In 2013, our Total Shareholder Return was 39 percent. That was after a
32 percent increase in 2012. We outperformed the S&P 500 Financials Index and our peer group.
Admittedly, however, we are still lagging in these measures over a three- and five-year horizon, so we
must continue to stay focused on driving performance for the future.

• BOOK VALUE: As of year-end, our book value per common share was $31.48, up 4 percent versus 2012.
Book value remains one of the best measures of our progress in increasing the long-term value of our
company.

• RETURN ON TANGIBLE COMMON EQUITY: By this measure, we achieved a healthy return of 15.4 percent1

in 2013, but it was down from 19.3 percent1 in 2012. The year-over-year decline in returns reflects
additional equity to support the regulatory capital requirements as well as a large tax reserve we took
related to a legacy Bank of New York tax matter that significantly impacted current income. One of our
key goals for 2014 is improving our return on equity.

• EARNINGS PER SHARE: On a core basis, we did well and earned $2.24 per share1 in 2013, up 10 percent1
year over year. But that is after adjusting for the tax reserve we took for the legacy Bank of New York tax
matter I noted above, which had the effect of reducing earnings to $1.74 per share on a GAAP basis.

Among our most notable accomplishments in 2013, we:

• grew assets under management by 14 percent year over year, with net inflows of $100 billion;
• grew assets under custody and/or administration by 5 percent year over year;
• increased the quarterly common stock dividend by 15 percent and repurchased more than $1 billion

of our common stock, resulting in a payout ratio for 2013 of 83 percent; and

• strengthened our capital position over the year, ending 2013 with an estimated Basel III Tier 1

common equity ratio under the Advanced Approach of 11.3 percent.2

oUr BUSINeSSeS
In 2013, we delivered strong growth in our core investment management and investment services fees and
continued to invest for future growth.

INVESTMENT SERVICES – Investment services fees benefitted from new business, increased client activity
and improved equity values. Our assets under custody and/or administration totaled $27.6 trillion at the end
of 2013, up $1.3 trillion, or 5 percent year over year. Many of the drivers of our Investment Services business
showed significant improvement over 2012.

Let me share some business metrics that help explain our underlying performance. Average long-term
mutual fund assets (U.S. platform) grew 19 percent and global daily average revenue trades (DARTS) were
up 18 percent, benefiting clearing services. Average Investment Services loans were up 11 percent, a sign
of how of our Global Collateral Services business is growing. Depositary receipts programs were down, as
certain programs terminated due to market events such as M&A and corporate restructurings, and we lost

some business as we strengthened our pricing discipline. In addition, ongoing weakness in the structured
debt markets continued to impact Corporate Trust.

Another important trend is that we are having more robust discussions with the largest investment managers
in the world about offering a broader solution set beyond custody. For example, one of our largest hedge fund
clients has been working with us in an outsourcing arrangement to provide an integrated set of capabilities
that leverage our technology platforms to provide middle-office solutions that connect seamlessly with the
clients’ front-end, risk management and compliance systems.

INVESTMENT MANAGEMENT – We had another year of excellent results in Investment Management.
Fees were up strongly year over year and we attracted net inflows of $100 billion. Our distinctive investment
capabilities, our success in delivering consistently strong investment performance and our quality client
service were key factors in driving our results. Additionally, our outcome-oriented solutions were especially
valuable to our clients in helping them meet their investment needs, and we experienced growth in demand
for alternative investments, especially in credit-related investment offerings.

Throughout 2013, we continued to expand our reach to a wide array of clients globally, including an expansion
of our European distribution capabilities with both wholesale and institutional clients, and we experienced
especially strong net flows as a result. In the Asia Pacific region, we continued to build out our distribution
and manufacturing capabilities, including a range of Japanese equity strategies.

In Wealth Management, we have become the seventh-largest wealth management firm in the U.S., with
average Wealth Management loans up 18 percent and deposits up 22 percent during 2013.

CreaTING ShareholDer ValUe
We have a clear set of strategic priorities to accelerate our progress, increase the value we provide to our
clients, deliver consistent earnings-per-share growth and improve our returns on equity. These priorities
can be categorized into three major areas:

• investments that generate organic revenue growth;
• investments that improve the operational efficiency, productivity and resiliency of our firm; and
• investments that enhance our ability to meet global regulatory requirements, mitigate systemic
risks following the financial crisis and improve our risk management capabilities and oversight.

INVeSTMeNTS ThaT GeNeraTe orGaNIC reVeNUe GrowTh
We are making targeted investments to enhance our client solutions and create new revenue streams.

Within Investment Services:

• Our investment in creating an end-to-end solution for our clients’ growing collateral needs has created
new business opportunities – particularly in collateral segregation, optimization and margin lending –
and has started to show up in our revenues.

• The enhancements we introduced this year to our electronic Global Markets trading platforms

have enabled us to be more competitive and attract greater foreign exchange volumes.

• We are investing in our technology platform to differentiate BNY Mellon in the marketplace by uniquely

integrating brokerage and bank custody capabilities for financial intermediaries.

• We established a new European Central Securities Depository to position our company to benefit from

the structural changes in the European settlement process scheduled to go into effect in 2016.

• We are enhancing our capabilities to service and support alternative assets on our global platforms.

Early in 2014, we announced an agreement to acquire the remaining 65 percent interest of HedgeMark
International, LLC, a provider of hedge fund managed account and risk analytic services. HedgeMark
assists in the structuring, oversight and risk monitoring of hedge funds, specifically dedicated managed
accounts. More and more, institutional investors globally are using dedicated managed accounts –
single-investor funds – as a way to invest in hedge funds that allow for greater customization,
transparency, liquidity and control.

III

Within Investment Management:

• We are investing to grow our share of the U.S. retail investment market with our Dreyfus-branded

products and expand our investment distribution capabilities to the retirement market.

• Last June, we kicked off an ambitious two-year campaign to increase our Wealth Management sales
force by 50 percent, which is helping us enter attractive new U.S. markets, such as Silicon Valley, and
expand in large markets, such as Houston and Dallas.

• We are continuing to expand our alternative investment offerings and strategies to meet the growing

investor demand for alternatives, as institutions and individuals seek to enhance risk-adjusted returns.
• We invested in the growth of a number of our investment boutiques, including the expansion of both the
breadth of their investment capabilities, such as those of Alcentra, our global credit investment firm, as
well as their geographic reach, such as facilitating the expansion of Insight into the U.S. and both
Mellon Capital and Standish into Asia.

During 2013, we launched our new BNY Mellon brand, centered on powering global investments to help our
clients succeed. To help strengthen our brand recognition, we are investing in targeted sponsorships closely
linked to the expansion of key businesses, such as the BNY Mellon Boat Race between Oxford and Cambridge
universities, our presenting sponsorship of the Head of the Charles® Regatta and our lead sponsorship of the
largest Andy Warhol exhibition ever held in Asia. During 2013, we were named Official Investments Company of
the San Francisco 49ers, which supports our Wealth Management expansion and the planned opening of our
Silicon Valley Innovation Lab in 2014. These moves will allow us to tap into and associate with an impressive
talent pool of engineers, innovators and achievers. Our new Invested in the World advertising campaign
highlights how our expertise and capabilities help the global markets work and our clients succeed.

All these investments in organic growth require some upfront spending before we realize the related revenue,
but we are confident they will enhance our financial results and shareholder value.

INVeSTMeNTS ThaT IMProVe oUr oPeraTIoNal eFFICIeNCY, ProDUCTIVITY aND
reSIlIeNCY
The Operational Excellence Initiatives program we completed helped mitigate increased regulatory and compli
ance costs and fund other strategic investments. It also set the stage for a broader effort that will engage the
entire company in a continuous improvement process designed to increase efficiencies. This is an opportunity
to become more flexible, innovative, collaborative and client-centric; invest in our growth initiatives; free up
the resources to help reduce risk in the marketplace; and, very importantly, help us deliver positive operating
leverage to our shareholders. Key components include:

• taking advantage of the restructuring of our Investment Services businesses under one umbrella to

strengthen collaboration and reduce costs;

• further automating and reengineering work to increase straight-through processing, thereby creating

service quality and productivity gains while reducing risk;

• leveraging new cloud-based and other infrastructure technologies that allow us to reduce the cost
of our infrastructure, dedicate a greater proportion of our technology expenditures to strategic
efforts and improve our return on technology investment; and

• better aligning pricing with value provided and reducing or eliminating sub-scale and low-margin

activities.

We recognize that at the end of the day, you need to see the results in two key metrics – positive operating
leverage and an improving servicing fees-to-expense ratio in Investment Services. All of our business leaders
have their personal goals and compensation more directly aligned with the performance around these key
metrics, as appropriate.

INVeSTMeNTS ThaT eNhaNCe oUr aBIlITY To MeeT GloBal reGUlaTorY reQUIreMeNTS
aND To MaNaGe rISK
We have been at the forefront of creating technology to significantly reduce the risks associated with secured
intraday credit provided in the tri-party repurchase market, where we are the industry leader. We have made
significant investments in technology enhancements to implement new procedures, controls and reporting –

an investment that is unique to our company. But, given our role in the clearing and tri-party market, we
recognize our importance in solving one of the key areas of concern during and after the financial crisis.
I am pleased to report that the intraday credit risk associated with the book of business where we operate
as agent has been reduced by almost 85 percent, well on the way to achieving the goal of 90 percent risk
reduction by the end of 2014 outlined by the tri-party reform task force sponsored by the Federal Reserve.
We are setting the standard for the industry in reforming critical elements of the capital markets
infrastructure, and we recognize the importance of maintaining strong relationships with our regulators.

We have also invested in strengthening our compliance, risk and control functions, recognizing that our clients
and the global capital markets rely on us to be resilient, no matter the circumstances. We have reinforced in
every employee a risk-awareness mindset and responsibility for identifying and controlling risks. These efforts
have impacted our expenses, but they are worth it: a sound and strong risk culture allows us the flexibility
to adapt to changing regulatory environments, contributes to maintaining positive shareholder value and
strengthens the trust our clients place in us to protect their assets.

DePloYING CaPITal aND MaNaGING rISK wISelY
Capital strength is one of the distinguishing characteristics of our institution. Our businesses generate capital
at a relatively fast pace, and we do not rely significantly on growing risk-weighted assets to grow earnings.
These attributes, combined with our high-quality balance sheet, allow us to perform well in stressed scenarios.
They also provide us with the financial flexibility to make targeted investments that drive growth and, at the
same time, return capital to our shareholders.

We returned approximately $1.7 billion to shareholders in the form of dividends and share repurchases during
2013, reflecting our commitment to return capital to shareholders.

Our key capital ratios remain strong, with an estimated Basel III Tier 1 common equity ratio under the Advanced
Approach of 11.3 percent at year-end.2 In February 2014, the Federal Reserve announced that BNY Mellon had
been approved to exit parallel run reporting for U.S. regulatory capital purposes. This approval reflects the fact
that we have met specific risk management and measurement criteria when calculating risk-based capital
requirements. While we await the final rules governing the new supplementary leverage ratio, we continue
to generate significant levels of capital and have many options, if needed, to address this requirement with
limited impact on our business.

INVeSTeD IN oUr worlD
Every financial services company has a responsibility to apply its resources and knowledge to help address the
needs of our communities. Given the critical contribution BNY Mellon makes to the smooth functioning of the
financial markets, our corporate social responsibility is extensive – helping our communities, maintaining the
highest standards of integrity, and contributing to global financial growth, stability and systemic risk reduction.

During 2013, BNY Mellon was recognized by two leading CSR ratings organizations. Our company was named
to the Dow Jones Sustainability Indices, one of the most highly regarded global sustainability indices. We also
earned the highest score among all participating financial companies from CDP, an organization that rates
companies on their approach to disclosure of climate change information.

Nearly half of our investment boutiques’ assets under management are now covered under the principles of the
United Nations Principles for Responsible Investment, which explicitly acknowledge the relevance to the inves
tor of environmental, social and governance (ESG) factors. BNY Mellon also has in place a supplier relationship
management program that focuses on integrating human rights, environmental and societal concerns into our
core strategic supplier management.

Our company sustained our tradition of investing in our community during 2013, making a combined
$34 million in company and employee contributions to enhance education, job training and career development
opportunities for individuals around the globe facing challenges including chronic unemployment, poverty and
homelessness, and to support disaster relief. BNY Mellon contributed more than 7 million meals to food-
related charities and helped ship 100,000 packed meals to the Philippines for disaster relief. Our employees
also donated 90,000 volunteer hours to causes in their local communities.

Our Returning Military Referral program is helping military personnel successfully transition to civilian life by
assisting them in understanding how their skills can create value in the civilian world and connecting them
with employment opportunities through BNY Mellon and other companies.

looKING ForwarD
We enter 2014 with increased confidence in our ability to meet our strategic and financial goals. I am excited
about our future and strong strategic position to capitalize on growth opportunities and changing trends in
both technology and the investment process.

We are passionate about accelerating our progress and delivering better returns to you. Achieving positive
operating leverage in this environment while making the investments we need to drive future growth is a
delicate balancing act, and we are determined to get it right. Developing and sustaining a culture of excellence
and continuous improvement will help support our pursuit of this goal. I know we are up to the challenge.

I see around the company a growing sense of confidence. My colleagues share an unwavering commitment to
capitalize on the strengths of our people and business model through collaboration and innovation, and
by embracing an entrepreneurial spirit.

We recognize we have a great opportunity ahead of us to enrich the client experience and create greater
shareholder value.

We are working to execute with speed and care, and to demonstrate our commitment to helping clients
succeed and achieving higher levels of performance.

I wish to thank our 51,100 employees, who are delivering solutions for some of the most complex issues in
the financial markets and providing sound investment advice to institutions and individuals around the world.
I am grateful for their drive, dedication and creativity, and for living our values every day.

I also wish to thank our Board of Directors for their strategic counsel and for continuing to challenge us to ask
more of ourselves and our company. Our executive team and I are proud to lead this great company and share
a steadfast commitment to excellence and driving shareholder value.

Thank you for your continuing support.

Gerald L. Hassell
Chairman and Chief Executive Officer

1 For a reconciliation and explanation of these non-GAAP measures, see pages 118-122 of our 2013 Annual Report.

2 At Dec. 31, 2013, the estimated Basel III Tier 1 common equity ratio (non-GAAP) is based on our interpretation of the final rules released

by the Board of Governors of the Federal Reserve on July 2, 2013, on a fully phased-in basis. Changes in January 2014 to the probable loss

model associated with unsecured wholesale credit exposures within our Advanced Approach capital model will impact risk-weighted assets.

The Company did not include the impact at Dec. 31, 2013. However, a preliminary estimate of the revised methodology to the portfolio at

Sept. 30, 2013, would have added approximately 6 percent to the risk-weighted assets.

FINANCIAL SECTION

THE BANK OF NEW YORK MELLON CORPORATION

2013 Annual Report

Table of Contents

Financial Summary

Page

Financial Statements:

Page

Management’s Discussion and Analysis of Financial

Condition and Results of Operations:
Results of Operations:

General
Overview
Key 2013 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
Supervision and Regulation
Risk Factors
Recent Accounting Developments
Business Continuity
Supplemental information (unaudited):

Explanation of GAAP and Non-GAAP financial

measures (unaudited)

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

Report of Management on Internal Control Over

Financial Reporting

Report of Independent Registered Public

Accounting Firm

114

117

118

123

124

125

127

132

133

Consolidated Income Statement
Consolidated Comprehensive Income Statement
Consolidated Balance Sheet
Consolidated Statement of Cash Flows
Consolidated Statement of Changes in Equity

Notes to Consolidated Financial Statements:

Note 1 - Summary of significant accounting and

reporting policies

Note 2 - Accounting changes and new accounting

guidance

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

entities

Note 15 - Shareholders’ equity
Note 16 - Other comprehensive income (loss)
Note 17 - Stock-based compensation
Note 18 - Employee benefit plans
Note 19 - Company financial information
Note 20 - Fair value measurement
Note 21 - Fair value option
Note 22 - Commitments and contingent liabilities
Note 23 - Derivative instruments
Note 24 - Lines of businesses
Note 25 - International operations
Note 26 - Supplemental information to the

Consolidated Statement of Cash Flows

Report of Independent Registered Public

Accounting Firm

Directors, Executive Committee and Other

Executive Officers

134

136

137

138

139

141

149

150

151

155

162

163

164

165

166

167

168

169

173

174

176

184

186

201

206

211

214

215

216

Performance Graph
Corporate Information

217

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

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

Bank of New York Mellon Corporation

Earnings per diluted common share applicable to common

shareholders of The Bank of New York Mellon Corporation:

2013

2012

2011

2010

2009

$ 11,650
141
183
3,009
14,983
(35)
11,306

$ 11,231
162
189
2,973
14,555
(80)
11,333

$ 11,498
48
200
2,984
14,730
1
11,112

$ 10,697
27
226
2,925
13,875
11
10,170

$ 10,108
(5,369)
—
2,915
7,654
332
9,530

3,712
1,520
2,192
—
2,192
(81)

2,111
(64)

3,302

779
2,523
—
2,523
(78)

2,445
(18)

3,617

1,048
2,569
—
2,569
(53)

2,516

—

3,694

1,047
2,647
(66)
2,581
(63)

2,518

—

(2,208)

(1,395)
(813)
(270)
(1,083)
(1)

(1,084)

(283) (a)

2,047

2,427

$ 2,516

2,518

(1,367)

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

Net income (loss) applicable to common stock

1.74
—
1.74

2.03
—
2.03

2.11
(0.05)
2.05 (b) $

(0.93)
(0.23)
(1.16) (c)

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

shareholders’ equity

$ 305,169
363,038
374,310
261,129
19,864
1,562

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

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

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

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

35,959

35,363

33,417

32,354

28,977

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

$ 1,260
25.1
266 (h)

1,583
27.6
235 (g)

1,172
24.1
269 (h)

1,386
26.3
237

1,115
N/A
238 (h)

been anti-dilutive.

(d) Excludes securities lending cash management assets and assets managed in the Investment Services business.
(e) Includes the assets under custody and/or administration (“AUC/A”) of CIBC Mellon Global Securities Company (“CIBC Mellon”), a
joint venture with the Canadian Imperial Bank of Commerce, of $1.2 trillion at Dec. 31, 2013, $1.1 trillion at Dec. 31, 2012, Dec. 31,
2011 and Dec. 31, 2010 and $905 billion at Dec. 31, 2009.

(f) Represents the securities on loan managed by the Investment Services business. Excludes securities on loans relating to CIBC Mellon.
(g) Excludes securities booked at BNY Mellon beginning in late 2013 resulting from the CIBC Mellon joint venture, which totaled $62

billion at Dec. 31, 2013.

(h) Reflects revisions which were not material.

2 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
Return on tangible common equity - Non-GAAP (a)
Return on average assets
Continuing operations basis:
Return on common equity (a)

Non-GAAP adjusted (a)(b)

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

Non-GAAP adjusted (a)(b)

Pre-tax operating margin (a)

Non-GAAP adjusted (a)(b)

Fee revenue as a percentage of total revenue excluding net

securities gains (losses)

Annualized fee revenue per employee (based on average

headcount) (in thousands)

Percentage of non-U.S. total revenue (c)
Net interest margin (on a fully taxable equivalent basis)
Cash dividends per common share
Common dividend payout ratio (d)
Common dividend yield
Closing stock price per common share
Market capitalization (in billions)
Book value per common share – GAAP (a)
Tangible book value per common share – Non-GAAP (a)
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 (a)(g):

2013

2012

2011

2010

5.9%

15.4
0.60

5.9%
8.3
15.4
19.7
25
27

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

2009

N/M
N/M
N/M

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

232

237

241

37%

1.13
0.58

33%
1.7%

34.94
39.9
31.48
13.97
51,100
1,142,250

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%

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

10.6%

11.0%

11.5%

13.1%

13.4%

Standardized Approach
Advanced Approach

10.6%
11.3

(h)

N/A
9.8%

N/A
N/A

Basel I Tier 1 common equity to risk-weighted assets ratio–

Non-GAAP (a)

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 (a)
BNY Mellon common shareholders’ equity to total assets

ratio (a)

BNY Mellon tangible common shareholders’ equity to
tangible assets of operations ratio – Non-GAAP (a)

14.5
16.2
17.0
5.4
10.0

9.6

6.8

13.5

15.0
16.3
5.3
10.1

9.9

6.4

13.4%

11.8%

10.5%

15.0
17.0
5.2
10.3

10.3

6.4

13.4
16.3
5.8
13.1

13.1

5.8

12.1
16.0
6.5
13.7

13.7

5.2

(a) See “Supplemental information – Explanation of GAAP and Non-GAAP financial measures” beginning on page 118 for a calculation of these

ratios.

(b) Non-GAAP excludes merger and integration (“M&I”), litigation and restructuring charges. Additionally, Non-GAAP for 2013 excludes the net

(c)

impact of the U.S. Tax Court’s decisions regarding certain foreign tax credits.
Includes fee revenue, net interest revenue and income from consolidated investment management funds, net of net income attributable to
noncontrolling interests.

(d) The common dividend payout ratio was 26% for 2013 after adjusting for the net impact of the U.S. Tax Court’s decisions regarding certain

foreign tax credits.
Includes discontinued operations in 2010 and 2009.

(e)
(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 that capital measure, as calculated under the Board of Governors of the Federal Reserve System’s (the “Federal
Reserve”) risk-based capital rules that are based on the 1988 Basel Accord, which is often referred to as “Basel I.” Similarly, when in this
Annual Report we refer to BNY Mellon’s “Basel III” capital measures (e.g., Basel III Tier 1 common equity), we mean that capital measure as
calculated under the final revised capital rules (the “Final Capital Rules”) released by the Federal Reserve on July 2, 2013.

(g) At Dec. 31, 2013, the estimated Basel III Tier 1 common equity ratio is based on our interpretation of the Final Capital Rules, on a fully phased-

in basis. For periods prior to Dec. 31, 2013, these ratios were estimated using our interpretation of the Federal Reserve’s Notices of Proposed
Rulemaking (“NPRs”) dated June 7, 2012, on a fully phased-in basis.

(h) Changes in January 2014 to the probable loss model associated with unsecured wholesale credit exposures within our Advanced Approach

capital model will impact risk-weighted assets. The Company did not include the impact at Dec. 31, 2013. However, a preliminary estimate of
the revised methodology to the portfolio at Sept. 30, 2013 would have added approximately 6% to the risk-weighted assets.

BNY Mellon 3

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,” “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 Annual Report 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

Throughout this Annual Report, certain 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 practice. Certain immaterial reclassifications
have been made to prior periods to place them on a
basis comparable with the current period

4 BNY Mellon

presentation. See “Supplemental information -
Explanation of GAAP and Non-GAAP financial
measures” beginning on page 118 for a reconciliation
of financial measures presented in accordance with
U.S. generally accepted accounting principles
(“GAAP”) to adjusted Non-GAAP financial
measures.

All information for 2013, 2012 and 2011 in this
Annual Report is reported on a net income basis. On
Jan. 15, 2010, BNY Mellon sold Mellon United
National Bank (“MUNB”), our former national bank
subsidiary located in Florida. We applied
discontinued operations accounting to this business.
As a result, certain information for 2010 and 2009 in
this Annual Report is reported on a continuing
operations basis.

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 35 countries
and more than 100 markets. As of Dec. 31, 2013,
BNY Mellon had $27.6 trillion in assets under
custody and/or administration, and $1.6 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.

Results of Operations (continued)

Key components of our strategy include:

•
•
•

•

focusing on organic growth opportunities;
providing superior client service versus peers;
delivering strong investment performance relative
to benchmarks;
generating above-median revenue growth relative
to peer companies;
increasing the percentage of revenue and income
derived from outside the United States;

purposes of determining whether we meet minimum
risk-based capital requirements, starting with the
second quarter of 2014 our common equity Tier 1
capital ratio, Tier 1 capital ratio, and total capital ratio
will be the lower of that calculated under the general
risk-based capital rules (during 2014 these ratios are
determined using a Basel III numerator and Basel I
risk-weightings) and under the Advanced Approaches
rule.

• maintaining a highly liquid balance sheet with

Volcker Rule

excellent credit quality;
improving efficiency and reducing operational
risk; and
disciplined capital deployment.

•

The Basel I Tier 1 capital ratio has been our principal
capital measure through 2013 with a targeted ratio of
Basel I Tier 1 capital to risk-weighted assets of 10%.
Our current target is to maintain our Basel III Tier 1
common equity ratio more than 100 basis points
above the regulatory minimum guidelines. We expect
to establish a target Basel III Supplementary
Leverage ratio when the ongoing rulemaking and
commentary process ends and we move closer to
implementation.

Key 2013 and subsequent events

Acquisition of HedgeMark International, LLC

On Feb. 24, 2014, BNY Mellon announced that it has
signed an agreement to acquire the remaining 65%
interest of HedgeMark International, LLC, a current
affiliate and a provider of hedge fund managed
account and risk analytic services. The deal is
expected to close in the second quarter, subject to
regulatory approval. BNY Mellon has held a 35%
ownership stake in HedgeMark since 2011.

Exit from parallel run period for calculating risk-
weighted assets under the advanced approaches rule

On Feb. 21, 2014 the Federal Reserve announced that
BNY Mellon had been approved to exit parallel run
reporting for U.S. regulatory capital purposes, and
will transition from the general risk-based capital
rules to the Final Capital Rules’ Advanced
Approaches, effective starting in the second quarter
of 2014, subject to ongoing qualification. We will be
required to comply with Advanced Approaches
reporting and public disclosures commencing on June
30, 2014. This means, among other things, for

On Dec. 10, 2013, final rules to implement the
Volcker Rule were adopted. BNY Mellon must
conform its covered activities and investments with
the final Volcker Rule by July 21, 2015. The Volcker
Rule prohibits covered banking organizations,
including BNY Mellon, from engaging in proprietary
trading and conditionally allows banking
organizations to hold or sponsor only certain U.S. and
foreign private equity and hedge funds. Ownership
interests in covered funds that banking entities
organize and offer will be limited to 3% of the total
outstanding ownership interests of any individual
fund at any time more than one year after the date of
its establishment, and with respect to the aggregate
value of all such ownership interests in covered
funds, 3% of the banking organization’s Tier 1
capital. Moreover, beginning in the third quarter of
2015, a banking entity relying on the final Volcker
Rule’s exemption for sponsoring covered funds will
need to deduct from its Tier 1 capital the value of
related ownership interests, calculated in accordance
with the final rule. For additional information
regarding the Volcker Rule, see “Supervision and
Regulation”.

Proposed rulemaking concerning implementation of
minimum liquidity standards

On Oct. 24, 2013, the Federal Reserve approved a
notice of proposed rulemaking developed jointly with
the Office of the Comptroller of the Currency
(“OCC”) and the Federal Deposit Insurance
Corporation (“FDIC”) regarding the U.S.
implementation of the Basel III liquidity coverage
ratio (the “LCR Notice”). The LCR Notice would
establish a quantitative liquidity coverage ratio
requirement for certain banking organizations,
including BNY Mellon, designed to ensure that such
organizations maintain an adequate level of
unencumbered high-quality liquid assets equal to the
entity’s expected net cash outflow for a 30-day time

BNY Mellon 5

Results of Operations (continued)

horizon under an acute liquidity stress scenario. This
proposal was open for comment until Jan. 31, 2014.
For additional information regarding the LCR Notice,
see “Supervision and Regulation”.

Sale of Newton’s private client business

On Sept. 27, 2013, Newton Management Limited,
together with Newton Investment Management
Limited, an investment boutique of BNY Mellon,
sold Newton’s private client business. At the time of
the sale, assets under management related to
Newton’s private client business totaled $5 billion.
We recorded a pre-tax gain of $27 million and an
after-tax gain of $5 million related to this transaction.

New risk-based and leverage regulatory capital rules

In July 2013, the U.S. banking agencies finalized
rules (the “Final Capital Rules”) revising the capital
framework applicable to U.S. bank holding
companies (“BHCs”) and banks. The Final Capital
Rules implement Basel III and certain provisions of
the Dodd-Frank Wall Street Reform and Consumer
Protection Act (the “Dodd-Frank Act” or “Dodd-
Frank”) for U.S. BHCs and banks (including by
redefining the components of capital and establishing
higher minimum percentages for applicable capital
ratios) and substantially revise the agencies’ general
risk-based capital rules in a manner designed to make
them more risk sensitive. The Final Capital Rules
establish a graduated implementation schedule and
will be principally phased-in by 2019. In general, the
Final Capital Rules largely adhere to the rules as
initially proposed in June 2012. Our estimated Basel
III Tier 1 common equity ratio (Non-GAAP)
calculated under the Standardized Approach and
based on our interpretation of the Final Capital Rules,
on a fully phased-in basis, was 10.6% at Dec. 31,
2013. For additional information on the Final Capital
Rules, see “Capital” and “Supervision and
Regulation”.

Supplementary leverage ratio proposals

The Final Capital Rules implement, among other
things, for Advanced Approaches banking
organizations, including the Company, a new Basel
III-based supplementary leverage ratio with a
minimum of 3%, to become effective Jan. 1, 2018. In
addition, the Basel Committee and the U.S. banking
agencies are each independently considering potential
changes to the supplementary leverage ratio that,

6 BNY Mellon

individually or taken together, could make it
substantially more restrictive. In January 2014, the
Basel Committee finalized modifications to the Basel
III supplementary leverage ratio. Those
modifications would adjust the supplementary
leverage ratio’s denominator (referred to as the
“exposure amount”) by making changes to the
calculation of the exposure amount attributable to
certain derivatives exposures and certain securities
financing transactions but would maintain the
minimum Tier 1 supplementary leverage ratio
requirement of 3%. These changes to the
supplementary leverage ratio denominator have not
yet been adopted in the U.S.

Separately, on July 9, 2013, the U.S. banking
agencies proposed revisions to the supplementary
leverage ratio under a notice of proposed rulemaking
that would only apply to the largest U.S. BHCs and
banks, including BNY Mellon. The July 9 proposal
would require BNY Mellon and other bank holding
companies that are G-SIBs to maintain a 5%
supplementary Tier 1 leverage ratio (comprised of the
current minimum requirement of 3% plus a 2%
buffer) and require bank subsidiaries of those bank
holding companies (including our largest bank
subsidiary, The Bank of New York Mellon), in order
to qualify as “well capitalized” under the U.S.
banking agencies’ prompt corrective action
framework, to maintain a 6% supplementary Tier 1
leverage ratio. For additional information regarding
the supplementary leverage ratio proposals, see
“Supervision and Regulation”.

Sale of SourceNet Solutions

On May 31, 2013, BNY Mellon sold SourceNet
Solutions, our accounts payable outsourcing support
services provider that was part of our Investment
Services business. The impact of the sale was not
significant on net income.

ConvergEx

ConvergEx, an entity in which BNY Mellon has a
minority interest, completed a divestiture of its
software platform business. As a result of the
divestiture and other events, we recognized an after-
tax gain of $109 million on our equity investment in
April 2013. This gain was offset by an after-tax loss
recorded in December 2013 of $115 million related to
the write-down of the goodwill in our equity
investment in ConvergEx. The net impact of these

Results of Operations (continued)

events resulted in a net loss of $6 million, or less than
$0.01 per diluted common share, in 2013.

Capital plan and share repurchase program and
dividend increase

In March 2013, BNY Mellon received confirmation
that the Federal Reserve did not object to our 2013
capital plan submitted in connection with the Federal
Reserve’s Comprehensive Capital Analysis and
Review (“CCAR”). The board of directors
subsequently approved the repurchase of up to $1.35
billion worth of common shares through the first
quarter of 2014, including both open market
purchases and employee benefit plan repurchases,
and a 15% increase in BNY Mellon’s quarterly
common stock dividend.

In 2013, we repurchased 35.1 million common shares
at an average price of $29.24 per common share for a
total of $1.03 billion. Through the 2013 capital plan,
we are authorized to repurchase $385 million worth
of common shares through the first quarter of 2014.
Through Feb. 27, 2014, we repurchased 10.6 million
common shares at an average price of $32.41 per
common share for a total of $345 million.

On April 9, 2013, The Bank of New York Mellon
Corporation announced a 15% increase in the
quarterly common stock dividend, from $0.13 per
share to $0.15 per share.

We submitted our 2014 capital plan on Jan. 6, 2014.
The Federal Reserve has indicated it expects to
publish its objection or non-objection to the capital
plan and proposed capital actions, such as dividend
payments and share repurchases, on March 26, 2014.
We anticipate announcing our 2014 capital plan
shortly thereafter.

U.S. Tax Court rulings

As previously disclosed, 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 this ruling, BNY Mellon recorded an
$854 million after-tax charge in the first quarter of
2013.

As previously disclosed, on Sept. 23, 2013, the U.S.
Tax Court amended its prior ruling. The new ruling
increased the interest expense that BNY Mellon could

deduct as a valid business expense and excluded
certain items from BNY Mellon’s taxable income for
those years. The combination of these items for all
years involved and related interest, increased after-tax
income in 2013 by $261 million.

As a result of these rulings by the U.S. Tax Court,
BNY Mellon recorded a net after-tax charge of $593
million, or $0.50 per diluted common share, in 2013.
The U.S. Tax Court ruling was finalized on Feb. 20,
2014.

Summary of financial results

We reported net income applicable to common
shareholders of BNY Mellon of $2.0 billion, or $1.74
per diluted common share in 2013. Excluding the net
impact of the U.S. Tax Court’s decision related to the
disallowance of certain foreign tax credits, net
income applicable to common shareholders totaled
$2.64 billion, or $2.24 per diluted common share, in
2013 - Non-GAAP. These results compare with $2.4
billion, or $2.03 per diluted common share in 2012
and $2.5 billion, or $2.03 per diluted common share
in 2011.

Highlights of 2013 results

• AUC/A totaled $27.6 trillion at Dec. 31, 2013
compared with $26.3 trillion at Dec. 31, 2012.
The increase primarily reflects higher market
values and net new business. (See the
“Investment Services business” beginning on
page 24.)

•

• Assets under management (“AUM”), excluding
securities lending assets, totaled a record $1.6
trillion at Dec. 31, 2013 compared with $1.4
trillion at Dec. 31, 2012. The increase primarily
resulted from net new business and higher equity
market values. (See the “Investment
Management business” beginning on page 21).
Investment services fees totaled $6.8 billion in
2013, an increase of 4% compared with $6.6
billion in 2012. The increase reflects higher core
asset servicing fees driven by organic growth and
higher market values, higher clearing services
fees and higher Depositary Receipts revenue,
partially offset by lower Corporate Trust fees
reflecting the continued run-off of high margin
structured debt securitizations. (See the
“Investment Services business” beginning on
page 24).

BNY Mellon 7

Results of Operations (continued)

•

Investment management and performance fees
totaled $3.4 billion in 2013, compared with $3.2
billion in 2012. The increase was driven by
higher equity market values, net new business
and the full-year impact of the acquisition of the
remaining 50% interest in Meriten Investment
Management GmbH (“Meriten”), partially offset
by the average impact of the stronger U.S. dollar
and higher money market fee waivers. (See the
“Investment Management business” beginning on
page 21).

•

• Foreign exchange and other trading revenue
totaled $674 million in 2013, compared with
$692 million in 2012. In 2013, foreign exchange
revenue increased 17% year-over-year, driven by
higher volumes and volatility. Other trading
revenue decreased in 2013 reflecting lower fixed
income trading revenue. (See “Fee and other
revenue” beginning on page 9).
Investment income and other revenue totaled
$416 million in 2013 compared with $427 million
in 2012. The decrease primarily resulted from
lower leasing and seed capital gains and a decline
in revenue on foreign currency remeasurement,
primarily offset by higher equity investment
revenue and asset-related gains driven by the pre
tax gain on the sale of Newton’s private client
business in 2013. (See “Fee and other revenue”
beginning on page 9).

• Net interest revenue totaled $3.0 billion in 2013,
an increase of $36 million compared with 2012,
as a change in the mix of interest-earning assets,
lower funding costs and higher average interest-
earning assets driven by higher deposits were
primarily offset by lower yields. Net interest
margin (FTE) was 1.13% in 2013 compared with
1.21% in 2012. The decrease primarily reflects
the impact of lower market rates on interest-
earning assets, partially offset by a change in the
mix of earning assets. (See “Net interest
revenue” beginning on page 13).

• The provision for credit losses was a credit of $35
million in 2013 and a credit of $80 million in
2012. The credit in 2013 was primarily driven by
a broad improvement in the credit quality of the
loan portfolio and a reduction in our qualitative
allowance. (See “Asset quality and allowance for
credit losses” beginning on page 49).

• Noninterest expense totaled $11.3 billion in 2013,
a decrease of $27 million compared with 2012,
reflecting lower litigation expense, primarily
offset by higher staff, software and our branding

8 BNY Mellon

initiatives. (See “Noninterest expense” beginning
on page 16).

• The provision for income taxes totaled $1.5

billion (40.9% effective tax rate-GAAP) in 2013
and included a net charge of $593 million
resulting from the U.S. Tax Court’s decisions
related to the disallowance of certain foreign tax
credits. Excluding the net charge related to the
disallowance of certain foreign tax credits, the
provision for income taxes totaled $927 million
(25.0% effective tax rate) on an operating basis-
Non-GAAP. This compares with an income tax
provision of $779 million (23.6% effective tax
rate) in 2012. (See “Income taxes” on page 18).

• The net unrealized pre-tax gain on our total

investment securities portfolio was $309 million
at Dec. 31, 2013 compared with $2.4 billion at
Dec. 31, 2012. The decrease primarily reflects an
increase in long-term interest rates. (See
“Investment securities” beginning on page 41).
• At Dec. 31, 2013, our estimated Basel III Tier 1
common equity ratio (Non-GAAP) calculated
under the Standardized Approach and based on
our interpretation of and expectations regarding
the Final Capital Rules, on a fully phased-in
basis, was 10.6%. (See “Capital” beginning on
page 60).

Results for 2012

In 2012 we reported net income applicable to
common shareholders of BNY Mellon of $2.4 billion,
or $2.03 per diluted common share. These results
were primarily driven by:

•

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,
was 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 run-off of high margin structured
debt securitizations.
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.

• Foreign exchange and other trading revenue

totaled $692 million in 2012 compared with $848

Results of Operations (continued)

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 revenue.

• 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.

• Noninterest expense totaled $11.3 billion in 2012

compared with $11.1 billion in 2011. The
increase was driven by higher litigation expense
and the cost of generating certain tax credits,
partially offset by the impact of the sale of
Shareowner Services and the impact of our
Operational Excellence Initiatives.

Fee and other revenue

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

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
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.

• Foreign exchange and other trading revenue

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

• Noninterest expense totaled $11.1 billion

reflecting the full-year impact of the Acquisitions,
higher staff expense, volume-related expenses
and software expense.

(b)

2013

2012

2011

$ 3,905
1,264
1,090
554
6,813
3,395
674
180
172
416
11,650
141
$ 11,791

$ 3,780 $ 3,697
1,159
1,445
535
6,836
3,002
848
187
170
455
11,498
48
$ 11,393 $ 11,546

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

2013
vs.
2012

2012
vs.
2011

3%
6
4
1
4
7
(3)
(6)
—
(3)
4
N/M

2 %
3
(27)
3
(4)

(18)

(6)

(2)
N/M

(1)%

Fee revenue as a percentage of total revenue excluding net securities gains

78%

14%
AUM at period end (in billions) (c)
5%
AUC/A at period end (in trillions) (d)
(a) Asset servicing fees include securities lending revenue of $155 million in 2013, $198 million in 2012 and $183 million in 2011.
(b) Issuer services fees excluding Shareowner Services were $1,251 million (Non-GAAP) in 2011. The Shareowner Services business was

$ 1,386 $ 1,260
25.1
$

$ 1,583
27.6
$

26.3 $

10 %
5 %

sold on Dec. 31, 2011.

(c) Excludes securities lending cash management assets and assets managed in the Investment Services business.
(d) Includes the AUC/A of CIBC Mellon of $1.2 trillion at Dec. 31, 2013 and $1.1 trillion at both Dec. 31, 2012 and Dec. 31, 2011.

BNY Mellon 9

Results of Operations (continued)

Fee and other revenue

Fee and other revenue totaled $11.8 billion in 2013,
an increase of 3%, compared with $11.4 billion in
2012. The year-over-year increase was primarily
driven by higher investment management revenue,
asset servicing revenue and clearing services revenue,
partially offset by lower net securities gains, foreign
exchange and other trading revenue and distribution
and servicing fees.

Investment services fees

Investment services fees were impacted by the
following compared with 2012:

•

• Asset servicing fees increased 3% primarily
reflecting organic growth and higher market
values, partially offset by lower securities lending
revenue primarily driven by narrower spreads.
• Clearing services fees increased 6% primarily
driven by higher mutual fund and asset-based
fees and clearance revenue reflecting an increase
in DARTs, partially offset by higher money
market fee waivers.
Issuer services fees increased 4% primarily
reflecting higher Depositary Receipts revenue
driven by corporate actions, partially offset by
lower money market mutual fund balances and
the continued run-off of high margin structured
debt securitizations in Corporate Trust. We
continue to estimate that the run-off of high
margin structured debt securitizations could
reduce the Company’s total annual revenue by up
to one-half of 1% if the structured debt markets
do not recover.

• Treasury services fees increased 1% primarily
reflecting higher cash management fees.

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

Investment management and performance fees

Investment management and performance fees totaled
$3.4 billion in 2013, an increase of 7% compared
with 2012. The increase was primarily driven by
higher equity market values, net new business and the
full-year impact of the Meriten acquisition, partially
offset by higher money market fee waivers and the
average impact of the stronger U.S. dollar.
Performance fees were $130 million in 2013 and
$136 million in 2012.

10 BNY Mellon

Total AUM for the Investment Management business
was a record $1.6 trillion at Dec. 31, 2013, compared
with $1.4 trillion at Dec. 31, 2012. The increase
primarily resulted from net new business and higher
equity market values. Long-term inflows in 2013
totaled $95 billion and primarily benefited from
liability-driven investments and other fixed-income
products, index funds and alternative investments.

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)
Foreign exchange
Other trading revenue:
Fixed income
Equity/other

Total other trading revenue
Total foreign exchange and
other trading revenue

2013
608 $

2012
520 $

2011
761

38
28
66

142
30
172

65
22
87

674 $

692 $

848

Foreign exchange and other trading revenue
decreased $18 million, or 3%, from $692 million in
2012. In 2013, foreign exchange revenue totaled
$608 million, an increase of 17% compared with
$520 million in 2012. The increase was driven by
higher volumes and volatility. Other trading revenue
totaled $66 million in 2013, a decrease of 62%
compared with 2012. The decrease primarily reflects
lower fixed income trading revenue due to lower
derivatives trading revenue and a loss on inventory
driven by higher interest rates. Foreign exchange
revenue and fixed income trading revenue is reported
in the Investment Services business and the Other
segment. Equity/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. Revenues are
impacted by market pressures which continue to be
increasingly competitive. 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

Results of Operations (continued)

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
are 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 adjusted by a
pre-negotiated spread. 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. 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
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. In the
first quarter of 2014, we upgraded one of our standard
standing instruction programs, known as Session

Range. The upgrades include pricing pursuant to pre
defined rules and enhanced post-trade reporting.

With respect to our historical Session Range 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. A description of the pricing rules used in the
upgraded Session Range program is set forth in the
program’s disclosure documentation, which is
available to clients and their investment managers.
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 competitive market pressures on the
foreign exchange business may negatively impact our
foreign exchange revenue. We continue to invest in
our foreign exchange trading and execution
capabilities, which is leading towards enhanced
customer service and higher volumes. For the year
ended Dec. 31, 2013, our total revenue for all types of
foreign exchange trading transactions was $608
million, or approximately 4% of our total revenue and
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 fee revenue 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.

BNY Mellon 11

Results of Operations (continued)

The $12 million decrease in distribution and servicing
fee revenue compared with 2012 primarily reflects
higher money market fee waivers and the average
impact of the stronger U.S. dollar. The impact of
distribution and servicing fees on income in any one
period is partially offset by distribution and servicing
expense paid to other financial intermediaries to
cover their costs for distribution and servicing of
mutual funds. Distribution and servicing expense is
recorded as noninterest expense on the income
statement.

Shareowner Services business, which was sold on
Dec. 31, 2011. Other income (loss) primarily
includes foreign currency remeasurement gain (loss),
other investments and various miscellaneous
revenues. The $11 million decrease in investment
and other income compared with 2012 primarily
resulted from lower lease residual and seed capital
gains and lower revenue on foreign currency
remeasurement, partially offset by higher equity
investment revenue, as well as asset-related gains
related to the sale of Newton’s private client business.

Financing-related fees

Net securities gains

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 totaled $172 million in both
2013 and 2012.

Investment and other income

Investment and other income
(in millions)
Corporate/bank-owned
life insurance
Equity investment revenue
Asset-related gains
Expense reimbursements from joint

venture
Seed capital gains
Lease residual gains
Transitional services agreements
Private equity gains
Other income (loss)

Total investment and other
income

2013

2012

2011

$ 144 $ 148 $ 154
44
177

16
34

98
71

42
34
18
11
6
(8)

38
59
51
24
8
49

38
—
42
2
18
(20)

$ 416 $ 427 $ 455

Investment and other income, which is primarily
reported in the Other segment and Investment
Management business, includes revenue from
insurance contracts, equity investments, asset-related
gains, expense reimbursements from our CIBC
Mellon joint venture, seed capital gains, lease
residual gains, transitional services agreements, gains
and losses on private equity investments, and other
income and loss. Asset-related gains include loan,
real estate and other asset dispositions. Expense
reimbursements from our CIBC Mellon joint venture
relate to expenses incurred by BNY Mellon on behalf
of the CIBC Mellon joint venture. Transitional
services agreements primarily relate to the

12 BNY Mellon

Net securities gains totaled $141 million in 2013
compared with $162 million in 2012. The low
interest rate environment in 2013 created the
opportunity for us to realize gains as we rebalanced
and managed the duration risk of the investment
securities portfolio.

2012 compared with 2011

Fee and other revenue totaled $11.4 billion in 2012
compared with $11.5 billion in 2011. The decrease
primarily reflects the impact of the sale of the
Shareowner Services business.

Fee and other revenue was also impacted by the
following:

•

Investment services fees decreased 4% compared
with 2011 reflecting the impact of lower issuer
services fees driven by lower Depository
Receipts revenue and lower Corporate Trust fees
partially offset by an increase in asset servicing
fees, clearing services fees, and treasury services
fees.
Investment management and performance fees
increased 6% primarily reflecting higher market
values, net new business, higher performance
fees and the Meriten acquisition.

• Foreign exchange and other trading revenue
decreased 18%. Foreign exchange revenue
decreased 32% driven by a sharp decline in
volatility and a modest decrease in volumes.
Other trading revenue increased 98% due to
improved fixed income trading revenue.

• Net securities gains totaled $162 million in 2012

compared with $48 million in 2011.

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)

2013
3,009
63
3,072
$ 272,841

2012
2,973
55
3,028
$ 250,450

2011
2,984
27
3,011
$ 222,226

1.13%

1.21%

1.36%

2013
vs.
2012

2012
vs.
2011

1 %

— %

N/M

1 %
9 %
(8) bps

1 %
13 %
(15) bps

2012 compared with 2011

Net interest revenue totaled $3.0 billion in 2012, a
decrease of $11 million compared with 2011, as
higher average assets driven by growth in client
deposits, increased investment in high 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 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.

Net interest revenue of $3.0 billion in 2013 increased
$36 million compared with 2012 as a change in the
mix of interest-earning assets, lower funding costs
and higher average interest-earning assets driven by
higher deposits were primarily offset by lower yields.

The net interest margin (FTE) was 1.13% in 2013
compared with 1.21% in 2012. The decline in the net
interest margin (FTE) primarily reflects the impact of
lower market rates on higher interest-earning assets,
partially offset by a change in the mix of earning
assets.

Average interest-earning assets were $273 billion in
2013, compared with $250 billion in 2012. The
increase primarily reflects higher client deposits and
uncertainty in the global marketplace. Average total
securities increased to $108 billion in 2013, up from
$99 billion in 2012, reflecting our strategy to invest in
high-quality investment securities. Average loans
increased to $48 billion in 2013, up from $43 billion
in 2012, primarily driven by higher non-margin loans.
Average interest-bearing deposits with the Federal
Reserve and other central banks increased to $67
billion in 2013, up from $64 billion in 2012,
reflecting higher client deposits.

BNY Mellon 13

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
Savings
Demand deposits
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

Net interest margin (FTE)
Percentage of assets attributable to foreign offices (c)
Percentage of liabilities attributable to foreign offices
(a)

Average balance

2013
Interest

Average rates

279
150
47
160

192
322
160
674

292
859
158

512
126
638
158
2,105
3,415

(a)

(b)

13
2
2
18
35

38
1
31
70
105
(16)
38

4
3
7
—
8
201
343

41,222
67,073
8,412
14,288

6,001
15,742
12,285
34,028

17,148
44,815
6,463

15,978
17,304
33,282
6,110
107,818
272,841
(230)
5,662
52,438
11,600
342,311

5,891
932
3,271
40,975
51,069

6,362
4,047
90,930
101,339
152,408
10,942
2,611

322
855
1,177
690
9,038
19,103
195,969
73,288
25,514
10,295
305,066

196

36,220

829

37,049
342,311

33%
33

0.68%
0.23
0.56
1.12

3.20
2.04
1.30
1.98

1.70
1.92
2.46

3.20
0.73
1.92
2.59
1.96
1.25%

0.22%
0.26
0.07
0.04
0.07

0.60
0.01
0.04
0.07
0.07
(0.15)
1.46

1.05

0.37

0.55
0.06
0.09
1.05
0.17%

1.13%

Includes fees of $37 million in 2013. Non-accrual loans are included in the average loan balance; the associated income, recognized on the cash basis, is
included in interest.

(b) The tax equivalent adjustment was $63 million in 2013, 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:

2012

Interest

Average
balance

Average
rates

Average
balance

2011

Interest

Average
rates

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

$ 388
152
35
168

1.00%
0.24
0.63
1.28

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

$ 543
148
28
129

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 consolidated investment management funds

Total assets

Liabilities
Interest-bearing liabilities:
Interest-bearing deposits:

Domestic offices:

Money market rate accounts
Savings
Demand deposits
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

Commerical 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

Net interest margin (FTE)
Percentage of assets attributable to foreign offices (c)
Percentage of liabilities attributable to foreign offices
(a)

197
299
175
671 (a)

267
817
134

541
293
834
96
2,148

$ 3,562 (b)

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

217
316
148
681 (a)

234
625
59

680
414
1,094
74
2,086

$ 3,615 (b)

3.46
2.12
1.72
2.24

1.49
2.12
2.64

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

15,003
21,684
1,394

15,756
3.42
17,457
1.63
33,213
2.47
2,889
2.54
2.18
74,183
1.42% $ 222,226
(444)
4,586
51,398
13,379
$ 291,145

$ 6,839
724
972
34,777
43,312

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

15
1
1
29
46

54
1
53
108
154
—
24

538
854
1,392
819
8,033
19,852

8
8
16
2
8
330
$ 175,816 $ 534

69,951
24,002
10,007
279,776

110

34,770
725
35,495
$ 315,381

33%
31

0.22%
0.18
0.10
0.08
0.11

$ 4,659
1,443
82
34,760
40,944

0.77
0.05
0.07
0.12
0.11
—
1.65

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

16
2
1
28
47

58
1
135
194
241
2
32

16
1,026
1.51
5
906
1.04
21
1,932
1.22
—
98
0.19
7
7,319
0.10
1.66
301
18,057
0.30% $ 162,525 $ 604
57,984
24,244
12,073
256,826

33,519
736
34,255
$ 291,145

Includes fees of $38 million in 2012 and $39 million in 2011. Non-accrual loans are included in the average loan balance; the associated income,
recognized on the cash basis, is included in interest.

(b) The tax equivalent adjustment was $55 million in 2012 and $27 million in 2011, and is based on the applicable tax rate (35%).
(c)

Includes the Cayman Islands branch office.

BNY Mellon 15

1.21%

1.36%

36%
33

0.99%
0.31
0.58
1.34

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%

0.34%
0.12
0.84
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%

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

2013

2012

2011

$ 3,620
1,384
1,015
6,019
1,252
629
596
435
337
317
280
1,029
342
70
$ 11,306

$ 3,531 $ 3,567
1,262
897
5,726
1,217
624
485
416
330
261
298
937
428
390
$ 11,333 $ 11,112

1,280
950
5,761
1,222
593
524
421
331
275
269
994
384
559

(a)

2013
vs.
2012

3 %
8
7
4
2
6
14
3
2
15
4
4
(11)
(87)
— %

2012
vs.
2011

(1)%
1
6
1
—
(5)
8
1
—
5
(10)
6
(10)
43

2 %

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

40%

39%

51,100

49,500

48,700

3 %

2 %

Memo:
Total noninterest expense excluding amortization of intangible assets and
M&I, litigation and restructuring charges - Non-GAAP

$ 10,894

$ 10,390 $ 10,294

5 %

1 %

(a) Total noninterest expense excluding Shareowner Services was $10,923 million (Non-GAAP) in 2011. The Shareowner Services business

was sold on Dec. 31, 2011.

Total noninterest expense decreased $27 million
compared with 2012, primarily reflecting lower
litigation expense, partially offset by higher staff,
software, business development, net occupancy and
consulting expenses. Excluding amortization of
intangible assets and M&I, litigation and
restructuring charges, noninterest expense increased
5% compared with 2012.

We continue to invest in our Compliance, Risk and
other control functions in light of increasing
regulatory requirements. Accordingly, our expenses
are continuing to increase in those areas as a result of
the need to hire additional staff and advisors and to
enhance our technology platforms.

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 both
2013 and 2012, excluding amortization of intangible
assets and M&I, litigation and restructuring charges.

16 BNY Mellon

Staff expense is comprised of:

•

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
employee benefit expense, primarily medical
benefits, payroll taxes, pension and other
retirement benefits.

Staff expense was $6.0 billion in 2013, an increase of
4% compared with 2012. The increase in staff
expense was primarily driven by higher incentive
expense as a result of higher pre-tax income, higher
compensation expense reflecting the continued
investment in our business, and higher employee

Results of Operations (continued)

benefits primarily resulting from increased pension
expense.

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 $4.9 billion in 2013, an
increase of 5% compared with 2012. The increase
primarily reflects higher software, business
development, net occupancy, consulting and other
expenses. Increased software was driven by
enhancements to our technology platforms and
periodic reimbursable customer technology expenses.
Reimbursement for these expenses is included in fee
revenue. The higher business development expense
resulted from our corporate branding investments and
other marketing initiatives. The increase in net
occupancy expense resulted from costs related to our
global footprint and New York City real estate
initiative. Any benefits resulting from these
initiatives will be realized in future periods. The
higher consulting expense was driven by regulatory/
compliance requirements in support of business
initiatives. The increase in other expense resulted
from a provision for administrative errors in certain
off-shore tax-exempt funds and higher regulatory
costs, partially offset by a decrease in the cost of
generating certain tax credits.

In 2013, we incurred $70 million of M&I, litigation
and restructuring charges compared with $559
million in 2012. The decrease reflects lower
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 and enforcement
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 22 of the Notes to Consolidated Financial
Statements.

In 2013, we recorded $45 million in restructuring
charges, reflecting additional severance charges. For
additional information on restructuring charges, see
Note 11 of the Notes to Consolidated Financial
Statements.

2012 compared with 2011

Noninterest expense was $11.3 billion in 2012, an
increase of $221 million, or 2%, compared with
2011. The increase primarily reflects higher litigation
expense, higher variable costs, the cost of generating
certain tax credits in 2012, higher software
amortization, employee benefits expense and business
development expense, the impact of the Meriten
acquisition and the benefit of state tax credits which
were recorded in 2011. Partially offsetting these
increases was the impact of the sale of the
Shareowner Services business and savings from our
Operational Excellence Initiatives.

Operational Excellence Initiatives update

Expense initiatives (pre-tax)

(dollar amounts in millions)
Business operations
Technology
Corporate services

Gross savings (b)

Program
savings
2013
389
132
115
636

Targeted
savings by the
end of 2013 (a)
$ 310 - $ 320
$ 105 - $ 110
90
85 - $
$
$ 500 - $ 520

Incremental program expenses
to achieve goals (c)

70 - $

(a) Targeted program savings were expected to be $650 million

$700 million by the end of 2014.

(b) 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.

(c) Program costs include incremental costs to plan and execute
the programs including dedicated program managers,
consultants, severance and other costs. Program costs may
include restructuring expenses, where applicable.

In 2013, we achieved savings of $716 million on a
run-rate basis in the fourth quarter of 2013. In 2013,
we achieved the following operational excellence
initiatives:

• Realized savings from business restructuring,
management rationalization and vendor
management in Investment Services.

• Realized savings from reengineering activities
relating to Investment Boutique restructurings

BNY Mellon 17

Results of Operations (continued)

and Dreyfus back office operations
consolidations.

• Realized savings from continued insourcing of
third-party contract developers to our Global
Delivery Centers and staffing efficiencies in the
Technology organization.

• Realized savings from optimizing internal
technology platforms used by employees.
• Executed an enhanced procurement process to

reduce operating expenses.

• Continued global footprint position migrations.
• Lowered operating costs as we continued job

migrations to the new Eastern European Global
Delivery Center and our existing Global Delivery
Centers.

• Consolidated offices and reduced real estate by

an additional 250,000 square feet, primarily in the
New York Metro region.

• Moved the New York-based treasury and trading
operations from leased space in December 2013
and January 2014 and consolidated into an owned
building in downtown Manhattan, which will
facilitate future savings.

Income taxes

BNY Mellon recorded an income tax provision of
$1,520 million (40.9% effective tax rate) in 2013
including a net charge of $593 million resulting from
the U.S. Tax Court’s decisions related to the
disallowance of certain foreign tax credits. Excluding
the net charge related to the disallowance of certain
foreign tax credits, the provision for income taxes
totaled $927 million (25.0% effective tax rate) on an
operating basis - Non-GAAP. This compares with
$779 million (23.6% effective tax rate) in 2012 and
$1.0 billion (29.0% effective tax rate) in 2011.

See “Supplemental information - Explanation of
GAAP and Non-GAAP financial measures”
beginning on page 118 for additional information.

We expect the effective tax rate to be approximately
26% in the first quarter of 2014.

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.

18 BNY Mellon

Business accounting principles

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

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 24 of the Notes to Consolidated Financial
Statements.

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

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 the fourth quarter, we
typically incur higher business development and
marketing expenses. 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.

Net securities gains (losses) are recorded in the Other
segment. M&I expense is a corporate-level item and
is recorded in the Other segment. Beginning in the
fourth quarter of 2013, restructuring charges were
recorded in the businesses. Prior to the fourth quarter
of 2013, restructuring charges were reported in the
Other segment.

The results of our businesses in 2013 were driven by
the following factors. The Investment Management
business benefited from higher market values and net
new business. Results in the Investment Services
business benefited from increased core asset servicing
fees driven by organic growth and higher market
values, mutual fund and asset-based fees and
clearance revenue reflecting an increase in DARTS,

Results of Operations (continued)

higher Depositary Receipts revenue and higher
foreign exchange and other trading revenue, partially
offset by the continued run-off of high margin
structured debt securitizations in Corporate Trust.

Net interest revenue increased as a change in the mix
of interest-earning assets and higher average interest-

earning assets were primarily offset by the continued
impact of the low interest rate environment.

Noninterest expense decreased slightly compared
with 2012 as a result of lower litigation expense,
partially offset by higher staff, software and business
development expenses.

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
Barclays Capital Global Aggregate BondSM Index (a) (b)
NYSE and NASDAQ share volume (in billions)
JPMorgan G7 Volatility Index – daily average (c)
(a) Period end.
(b) Unhedged in U.S. dollar terms.
(c) The JPMorgan G7 Volatility Index is based on the implied volatility in 3-month currency options.

2012
1426
1379
5898
5743
1339
1272
366
724
9.23

2013
1848
1644
6749
6472
1661
1496
354
705
9.19

2011
1258
1268
5572
5681
1183
1259
347
893
11.96

Increase/(Decrease)

2013 vs. 2012
30%
19
14
13
24
18
(3)
(3)
—

2012 vs. 2011
13%
9
6
1
13
1
5
(19)
(23)

Fee revenue in Investment Management, and to a
lesser extent in Investment Services, is impacted by
the value of market indices. At Dec. 31, 2013, 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 $0.02 to $0.04. If however, global
equity markets do not perform in line with the S&P
500 Index, the impact to fee revenue and earnings per
share could be different.

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

For the year ended Dec. 31, 2013
(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

3,726
260
3,986
—
2,992
994
25%

Investment
Services
7,640
2,514
10,154
1
7,401
2,752

27%

(a) $

38,546

$ 247,431

2,844
1,142

7,207
2,946

(a)

Other Consolidated

528 $
235
763
(36)
913
(114) $
N/M
56,334 $

913 $
(114)
N/M

11,894
3,009
14,903
(35)
11,306
3,632

(a)

24%

342,311

10,964
3,974

(a)

27%
(a) Total fee and other revenue includes income from consolidated investment management funds of $183 million, net of noncontrolling
interests of $80 million, for a net impact of $103 million. Income before taxes includes noncontrolling interests of $80 million.

29%

(b) Income before taxes divided by total revenue.

BNY Mellon 19

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.

30%

25%

Investment
Management

3,507
214
3,721
—
2,811
910
24%

Investment
Services
7,368
2,440
9,808
(2)
7,592
2,218

23%

(a) $

36,120

$ 223,233

2,619
1,102

(a)

7,400
2,410

Other Consolidated
11,506
2,973
14,479
(80)
11,333
3,226

631 $
319
950
(78)
930
98 $

N/M
56,028 $

22%

315,381

(a)

930 $
98
N/M

10,949
3,610

(a)

Investment
Management

3,243
204
3,447
1
2,743
703
20%

Investment
Services
7,656
2,568
10,224
—
7,233
2,991

29%

(a) $

36,696

$ 205,337

7,033
3,191

(a)

2,530
916
27%

Other Consolidated
11,696
2,984
14,680
1
11,112
3,567

797 $
212
1,009
—
1,136
(127) $
N/M
49,112 $

(a)

24%

291,145

10,684
3,995

(a)

1,121 $
(112)
N/M

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.

31%

Results of Operations (continued)

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 before taxes
Pre-tax operating margin (b)

(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)

(b) Income before taxes divided by total revenue.

20 BNY Mellon

Results of Operations (continued)

Investment Management business

(dollar amounts in millions)
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:

2013

2012

2011

1,177
1,466
639
3,282
130
172
142
3,726
260
3,986
—
2,844
1,142
148
994

25%

32%

1,106 $
1,326
621
3,053
137
187
130
3,507
214
3,721
—
2,619
1,102
192
910 $
24%

1,073
1,248
628
2,949
93
181
20
3,243
204
3,447
1
2,530
916
213
703
20%

33%

30%

2013
vs.
2012

6%
11
3
8
(5)
(8)
9
6
21
7
—
9
4
(23)

2012
vs.
2011

3%
6
(1)
4
47
3
N/M
8
5
8
N/M
4
20
(10)
29%

Average loans
Average deposits

9,361
$ 13,755

7,950 $
$ 11,311 $

6,970
9,769

18%
22%

14%
16%

(a) Total fee and other revenue includes the impact of the consolidated investment management funds. See “Supplemental information -

Explanation of GAAP and Non-GAAP financial measures” beginning on page 118. 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 $429 million, $415 million and $412 million for 2013, 2012 and 2011,
respectively.

AUM trends (a)
(dollar amounts in billions)
AUM at period end, by product type:
Equity securities
Fixed income securities (b)
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)

2013

2012

2011

2010

2009

560 $
616
299
108
1,583 $

1,072 $
425
86
1,583 $

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

1,386 $

1,260 $

1,172 $

1,115 $

928

Net market/currency impact
Acquisitions/divestitures
Ending balance of AUM
(a) Excludes securities lending cash management assets and assets managed in the Investment Services business.
(b) Includes liability-driven investments.

95
5
100
102
(5)
1,583 $

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

BNY Mellon 21

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 institutional,
intermediary, retirement and retail investment
management, distribution and related services across
North America, EMEA and Asia-Pacific. 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
Investment Management EMEA Limited, BNY
Mellon Investment Management Hong Kong and
BNY Mellon Investment Management Singapore,
which are responsible for the investment management
and distribution of locally registered products, and the
Dreyfus Corporation and its affiliates, which are
responsible for U.S. investment management and
distribution of retail mutual funds, separately
managed 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. We
provide these services through an extensive network
of offices in the U.S. and select locations around the
world. Clients include high-net-worth individuals
and families, family offices, charitable gift programs,
endowments and foundations. BNY Mellon Wealth
Management is ranked as the nation’s seventh largest
wealth manager.

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:

•
•

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

22 BNY Mellon

•

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.

Managed equity assets typically generate higher
percentage fees than money market and fixed-income
assets. Also, actively managed assets typically
generate higher management fess 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 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.

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 $1.6
trillion at Dec. 31, 2013 compared with $1.4 trillion
at Dec. 31, 2012, an increase of 14%. The increase
primarily resulted from net new business and higher
equity market values. Net long-term inflows were
$95 billion in 2013 and benefited from liability-
driven investments and other fixed-income products,

Results of Operations (continued)

index funds and alternative investments. Net short-
term inflows were $5 billion in 2013.

Revenue generated in the Investment Management
business included 46% from non-U.S. sources in
2013 compared with 45% in 2012.

In 2013, Investment Management had pre-tax income
of $994 million compared with $910 million in 2012.
Excluding amortization of intangible assets, pre-tax
income increased $40 million in 2013 compared with
2012. Investment Management results for 2013
reflect higher equity market values, net new business,
the impact of the Meriten acquisition and the pre-tax
gain on the sale of Newton’s private client business,
partially offset by higher money market fee waivers
and the average impact of the stronger U.S. dollar.

Investment management fees in the Investment
Management business were $3.3 billion in 2013
compared with $3.1 billion in 2012. The increase
was primarily driven by higher equity market values,
net new business and the impact of the Meriten
acquisition, partially offset by higher money market
fee waivers and the average impact of the stronger
U.S. dollar.

Performance fees were $130 million in 2013
compared with $137 million in 2012. Performance
across a range of strategies generated positive returns,
which were primarily offset with exceptional
performance fees generated on liability-driven
investments in 2012.

In 2013, 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 6% in 2013
compared with 2012. The increase primarily reflects
higher equity market values and net new business.

Distribution and servicing fees were $172 million in
2013 compared with $187 million in 2012. The
decrease primarily reflects higher money market fee
waivers and the average impact of the stronger U.S.
dollar.

Other fee revenue was $142 million in 2013
compared with $130 million in 2012. The increase
resulted from the pre-tax gain on the sale of Newton’s
private client business.

Net interest revenue was $260 million in 2013
compared with $214 million in 2012. The increase
primarily resulted from higher average loans and
deposits. Average loans increased 18% in 2013
compared with 2012, while average deposits
increased 22% in 2013 compared with 2012.

Noninterest expense excluding amortization of
intangible assets was $2.8 billion in 2013 compared
with $2.6 billion in 2012. The increase primarily
reflects higher incentive expense driven by improved
results, the impact of the Meriten acquisition,
investments in strategic initiatives and the annual
employee merit increase.

2012 compared with 2011

Income before taxes totaled $910 million in 2012
compared with $703 million in 2011. Income before
taxes (excluding intangible amortization) was $1.1
billion in 2012 compared with $916 million in 2011.
Fee and other revenue increased $264 million
compared to 2011, primarily due to higher market
values, net new business in both the investment
management boutiques and wealth management
business, higher seed capital gains and higher
performance fees. Net interest revenue increased $10
million compared to 2011 primarily as a result of
higher average loan and deposit levels, partially offset
by narrower spreads and lower accretion. Noninterest
expense (excluding intangible amortization) increased
$89 million compared to 2011, primarily due to
higher incentives expense resulting from an increase
in performance fees, the annual employee merit
increase, the Meriten acquisition and higher business
development expenses.

BNY Mellon 23

Results of Operations (continued)

Investment Services business

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

Investment services fees:

Asset servicing
Clearing services
Issuer 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

2013

2012

2011

2013
vs.
2012

2012
vs.
2011

3,800
1,264
1,087
544
6,695
687
258
7,640
2,514
10,154
1
7,207
2,946
194
2,752

$ 3,663
1,193
1,049
527
6,432
641
295
7,368
2,440
9,808
(2)
7,400
2,410
192
$ 2,218

$ 3,585
1,159
1,252
513
6,509
845
302
7,656
2,568
10,224
—
7,033
3,191
200
$ 2,991

4 %
6
4
3
4
7
(13)
4
3
4

2 %
3
(16)
3
(1)
(24)
(2)
(4)
(5)
(4)
N/M N/M
5
(24)
(4)
(26)%

(3)
22
1
24 %

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

27%
29%
93%

23%
25%
93%

29%

31%

95%

Securities lending revenue

117

155

146

(25)%

6 %

Metrics:

Average loans
Average deposits

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

$ 28,407
$ 206,793

$
$

27.6
235

$ 25,503
$ 185,440

$
$

26.3
237

$ 24,326
$ 166,823

11 %
12 %

5 %

11 %

$
$

25.1
266

(e)

5 %
(1)%

5 %

(11)%

Asset servicing:

Estimated new business wins (AUC/A) (in billions)

639

$ 1,479

$ 1,219

Depositary Receipts:

Number of sponsored programs

1,335

1,379

1,389

(3)%

(1)%

Clearing services:

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

214
5,602
$ 376,852
8,538
$

182
5,441
$ 317,839
$ 8,010

198
5,427
$ 292,252
$ 7,347

18 %
(8)%

3 % — %

19 %
9 %

7 %
9 %

Broker-Dealer:

Average tri-party repo balances (in billions)
(a) Total fee and other revenue includes investment management fees and distribution and servicing revenue.
(b) Noninterest expense excludes amortization of intangible assets, support agreement charges and litigation expense.
(c) Includes the AUC/A of CIBC Mellon, a joint venture with the Canadian Imperial Bank of Commerce, of $1.2 trillion at Dec. 31, 2013

$ 1,865

$ 2,012

— %

2,016

8 %

and $1.1 trillion at both Dec. 31, 2012 and Dec. 31, 2011.

(d) Represents the total amount of securities on loan managed by the Investment Services business. Excludes securities booked at BNY

Mellon beginning in late 2013 resulting from the CIBC Mellon joint venture, which totaled $62 billion at Dec. 31, 2013.

(e) Reflects revisions of prior periods which were not material.
(f) Represents DARTs occurring in our Clearing Services business only.

24 BNY Mellon

Results of Operations (continued)

Business description

Our Investment Services business provides global
custody and related services, broker-dealer services,
global collateral services, corporate trust and
depositary receipt and clearing services, as well as
global payment/working capital solutions to global
financial 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 35 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 $27.6 trillion of AUC/A at Dec. 31,
2013. 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. Globalization tends to drive cross-
border investment and capital flows, which increases
the opportunity to provide solutions to our clients.
The changing regulatory environment is also driving
demand for new products and services among clients.

BNY Mellon is a leader in both global securities and
U.S. Government securities clearance. We settle
securities 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 a leader in servicing tri
party repo collateral with approximately $2 trillion
globally. We currently service approximately $1.3
trillion of the $1.6 trillion tri-party repo market in the
U.S.

BNY Mellon offers tri-party collateral agency
services to dealers and cash investors active in the
tri-party repurchase, or repo, market. We currently
have approximately 84% of the market share of the
U.S. tri-party repo market. As agent, we facilitate
settlement between dealers (cash borrowers) and
investors (cash lenders). Our involvement in a
transaction commences after a dealer and 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), monitor the eligibility and
sufficiency of the collateral, and execute the payment
and delivery instructions agreed to and provided by
the principals.

BNY Mellon continues to work to significantly
reduce the risk associated with the secured intraday
credit it provides to dealers with respect to their tri
party repo trades. BNY Mellon has implemented
several important measures in that regard, including
reducing the amount of time during which we extend
intraday credit, implementing three-way trade
confirmations, reducing the amount of credit
provided in connection with processing collateral
substitutions, introducing a functionality that enables
us to “roll” maturing trades into new trades without
extending credit, and requiring dealers to prefund
their repayment obligations in connection with trades
collateralized by DTC sourced securities.
Additionally, in 2013, we limited the collateral
eligible to secure intraday credit to certain more
liquid asset classes, resulting in a reduction of
exposures secured by less liquid forms of collateral.
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

BNY Mellon 25

Results of Operations (continued)

technology enhancements currently in development,
will achieve the practical elimination (defined as a
90% reduction) of intraday credit related to tri-party
repo processing by the end of 2014.

These efforts are consistent with the
recommendations of the Tri-Party Repo
Infrastructure Reform Task Force (the “Task Force”)
that was sponsored by the Payment Risk Committee
of the Federal Reserve Bank of New York and
included representatives from a diverse group of
market participants, including BNY Mellon.

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 are available at http://
www.newyorkfed.org/banking/tpr_infr_reform.html.

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 30 markets.

We serve as depositary for 1,335 sponsored
American and global depositary receipt programs at
Dec. 31, 2013, acting in partnership with leading
companies from 65 countries - an estimated 60%
global market share.

Pershing and its affiliates provide business solutions
to approximately 1,600 financial organizations
globally by delivering dependable operational
support; robust trading services; flexible technology;
and an expansive array of investment solutions,
practice management support and service excellence.

26 BNY Mellon

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 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, 2013 were $27.6 trillion, an
increase of 5% from $26.3 trillion at Dec. 31, 2012.
The increase was primarily driven by higher market
values and net new business. AUC/A were
comprised of 36% equity securities and 64% fixed
income securities at Dec. 31, 2013 compared with
33% equity securities and 67% fixed income
securities at Dec. 31, 2012.

Income before taxes was $2.8 billion in 2013
compared with $2.2 billion in 2012. Income before
taxes, excluding amortization of intangible assets,
was $2.9 billion in 2013 compared with $2.4 billion
in 2012. The increase compared with 2012 reflects
higher asset servicing and clearing services fees and
higher foreign exchange revenue, higher net interest
revenue and lower litigation expense.

Revenue generated in the Investment Services
business included 35% from non-U.S. sources in
2013 compared with 36% in 2012.

Results of Operations (continued)

Investment services fees increased $263 million, or
4%, in 2013 compared with 2012 reflecting the
following factors:

Net interest revenue was $2.5 billion in 2013
compared with $2.4 billion in 2012, primarily
reflecting higher average loans and deposits.

• Asset servicing fees (global custody, broker-

dealer services and global collateral services)
were $3.8 billion in 2013 compared with $3.7
billion in 2012. The increase primarily reflects
higher core asset servicing fees driven by organic
growth and higher market values, partially offset
by lower securities lending revenue primarily
driven by narrower spreads.

• Clearing services fees were $1.3 billion in 2013

•

compared with $1.2 billion in 2012. The
increase was driven by higher mutual fund and
asset-based fees and clearance revenue reflecting
an increase in DARTs, partially offset by higher
money market fee waivers.
Issuer services fees (Corporate Trust and
Depositary Receipts) were $1.1 billion in 2013,
compared with $1.0 billion in 2012. The
increase primarily resulted from higher
Depositary Receipts revenue driven by corporate
actions, partially offset by lower money market
mutual fund balances and the continued run-off
of high margin structured debt securitizations in
Corporate Trust.

• Treasury services fees were $544 million in 2013

compared with $527 million in 2012. The
increase primarily reflects higher cash
management fees.

Foreign exchange and other trading revenue totaled
$687 million in 2013, compared with $641 million in
2012. The increase was primarily driven by higher
volumes and volatility.

Noninterest expense, excluding amortization of
intangible assets, was $7.2 billion in 2013, compared
with $7.4 billion in 2012. The decrease primarily
resulted from lower litigation expense, partially
offset by higher staff, software and volume-driven
expenses, as well as higher consulting expense
driven by regulatory/compliance requirements and
business initiatives.

2012 compared with 2011

Income before taxes totaled $2.2 billion in 2012
compared with $3.0 billion in 2011. Income before
taxes, excluding intangible amortization,was $2.4
billion in 2012 compared with $3.2 billion in 2011.
Fee and other revenue decreased $288 million
reflecting lower foreign exchange revenue,
Depositary Receipts revenue and Corporate Trust
fees, partially offset by higher asset servicing fees
driven by net new business, higher market values and
higher clearing services revenue reflecting higher
mutual fund fees and cash management balances.
Net interest revenue decreased $128 million
compared with 2011, primarily reflecting lower
accretion and narrower spreads, partially offset by
higher average customer deposits. Noninterest
expense, excluding amortization of intangible assets,
increased $367 million compared with 2011. The
increase primarily resulted from higher litigation
expense and higher software amortization expenses,
partially offset by volume-driven expenses and the
impact of the Operational Excellence Initiatives.

BNY Mellon 27

Results of Operations (continued)

Other segment

(dollars in millions)
Revenue:

Fee and other revenue
Net interest revenue
Total revenue
Provision for credit losses
Noninterest expense (ex. amortization of intangible assets)

Income (loss) before taxes (ex. amortization of intangible assets)

Amortization of intangible assets

Income (loss) before taxes

Average loans and leases

Business description

The Other segment primarily includes:

•
•
•

•

•
•

•

credit-related services;
the leasing portfolio;
corporate treasury activities, including our
investment securities portfolio;
our equity investment in Wing Hang Bank
Limited (“Wing Hang”);
a 33.9% equity interest in ConvergEx;
business exits, including the results of the
Shareowner Services business in 2011; and
corporate overhead.

Revenue primarily reflects:

•

net interest revenue from the credit services and
lease financing portfolios;
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
gains (losses) associated with the valuation of
investment securities and other assets.

Expenses include:

• M&I expenses;
• Beginning in the fourth quarter of 2013,

restructuring charges were recorded in the
businesses. Prior to the fourth quarter of 2013,
restructuring charges were reported in the Other
segment;

28 BNY Mellon

2013

2012

2011

528 $
235
763
(36)
913
(114)
—
(114) $
10,548 $

631 $
319
950
(78)
930
98
—
98 $
9,607 $

797
212
1,009
—
1,121
(112)
15
(127)
9,623

•

direct expenses supporting credit-related services,
leasing, investing, and funding activities, and the
Shareowner Services business; and
certain corporate overhead not directly
attributable to the operations of other businesses.

Review of financial results

The Other segment had a pre-tax loss of $114 million
in 2013 compared with pre-tax income of $98 million
in 2012.

Total fee and other revenue decreased $103 million
compared with 2012. The decrease primarily reflects
lower fixed income trading revenue due to lower
derivatives trading revenue and a loss on inventory
driven by higher interest rates, lower leasing and
securities gains and lower foreign currency
remeasurement, partially offset by higher equity
investment revenue driven by a gain on the sale of a
property.

Net interest revenue decreased $84 million compared
with 2012. The decrease primarily reflects increases
to the internal credit rates to the businesses for
domestic deposits in 2013.

The provision for credit losses was a credit of $36
million in 2013 primarily driven by a broad
improvement in the credit quality of the loan portfolio
and a reduction in our qualitative allowance.

Noninterest expense (excluding amortization of
intangible assets) decreased $17 million in 2013
compared with 2012. The decrease primarily reflects
lower M&I expense and a decrease in the cost of
generating certain tax credits, partially offset by
higher restructuring charges, net occupancy expense,

Results of Operations (continued)

pension expense and higher business development
expenses related to our corporate branding
investment.

2012 compared with 2011

Income before taxes totaled $98 million in 2012
compared with a pre-tax loss of $127 million in 2011.
Total revenue decreased $59 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, net securities
gains and fixed income trading revenue. Noninterest
expense, excluding amortization of intangible assets,
decreased $191 million in 2012 compared with 2011.
The decrease was driven by the impact of the sale of
the Shareowner Services business and lower
restructuring charges, partially offset by the costs of
certain tax credits in 2012 and the benefit of state
investment tax credits received 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 35 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, 2013, we had approximately 9,400
employees in Europe, the Middle East and Africa
(“EMEA”), approximately 11,600 employees in the
Asia-Pacific region (“APAC”) and approximately 800
employees in other global locations, primarily Brazil.

BNY Mellon Investment Management operates on a
multi-boutique model, bringing investors the skills of
our specialist boutique asset managers, which
together manage investments spanning virtually all
asset classes.

We are one of the largest global asset managers,
ranking 8th in the marketplace and are the 8th largest
asset manager in Europe. We are also a market leader
in the field of liability-driven investments.

At Dec. 31, 2013, our international operations
managed 42% of BNY Mellon’s AUM compared with
41% at Dec. 31, 2012. The increase primarily
resulted from higher market values and net new
business.

In 2013, BNY Mellon CSD SA/NV received
regulatory approval as a designated securities
settlement system and 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.

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 one of the
largest administrators (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 settle securities transactions in over 100 markets.
We are a leader in servicing tri-party repo collateral
with approximately $2 trillion globally.

We serve as depositary for 1,335 sponsored American
and global depositary receipt programs at Dec. 31,
2013, acting in partnership with leading companies
from 65 countries - an estimated 60% global market
share.

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

BNY Mellon 29

Results of Operations (continued)

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 trading
rooms in Europe, Asia and North America.

Revenue generated in the Investment Services
business includes 35% from non-U.S. sources in 2013
compared with 36% in 2012.

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:

2013

2012

2011

$ 1.6526
1.3767

$1.6168
1.3184

$ 1.5448
1.2934

British pound
Euro

$ 1.5645
1.3281

$1.5849
1.2858

$ 1.6038
1.3921

International clients accounted for 37% of revenues
in 2013, 2012 and in 2011. Net income from
international operations was $1.6 billion in 2013
compared with $1.4 billion in 2012 and $1.5 billion
in 2011.

In 2013, revenues from EMEA were $3.8 billion,
compared with $3.7 billion in 2012 and $3.8 billion
in 2011. Revenues from EMEA were up 3% for 2013
compared to 2012. The increase in 2013 primarily
reflects higher investment management revenue,
partially offset by lower asset servicing and Corporate
Trust revenue. Investment Services generated 62%
and Investment Management generated 37% of
EMEA revenues. Net income from EMEA was $822
million in 2013 compared with $761 million in 2012
and $867 million in 2011.

30 BNY Mellon

Revenues from APAC were $936 million in 2013
compared with $902 million in 2012 and $842
million in 2011. Revenues from APAC were up 4%
for 2013 compared to 2012. The increase in 2013
primarily resulted from higher equity investment
revenue, partially offset by lower investment
management revenue. Revenue from APAC in 2013
was generated by Investment Services 67%,
Investment Management 23% and the Other segment
10%. Net income from APAC was $399 million in
2013 compared with $349 million in 2012 and $325
million in 2011.

For additional information regarding our International
operations, see Note 25 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 and Spain at Dec. 31,
2013 and Dec. 31, 2012. 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.

BNY Mellon has a limited economic interest in the
performance of assets of consolidated investment
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 of the funds.
Any loss in the value of assets of consolidated
investment management funds would be incurred by
the fund’s noteholders.

At Dec. 31, 2013, BNY Mellon had exposure of less
than $1 million in both Portugal and in Greece. At
Dec. 31, 2012, BNY Mellon had exposure of less than
$1 million in Portugal and no exposure in Greece.
Additionally, BNY Mellon had no sovereign exposure
to the countries disclosed below at Dec. 31, 2012.

Results of Operations (continued)

Our exposure in Ireland is principally related to Irish-
domiciled investment funds. Servicing provided to
these funds and fund families may result in overdraft
exposure. See “Risk management” for additional

information on how our exposures are managed.
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, 2013
(in millions)
On-balance sheet exposure
Gross:

Interest-bearing deposits with banks (a)
Investment securities (primarily European Floating Rate Notes and sovereign

debt) (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

100 $

217 $

375 $

692

165
267
62
594

87
—
87
507 $

70 $

115
185

68
117

279
3
35
534

137
1
18
531

30
2
32
502 $

18
1
19
512 $

— $
3
3

—
3

— $
13
13

13
— $

581
271
115
1,659

135
3
138
1,521

70
131
201

81
120

779 $
155
624 $

537 $
32
505 $

544 $
32
512 $

1,860
219
1,641

(a) Interest-bearing deposits with banks represent a $99 million placement with an Irish subsidiary of a UK holding company, a $100

million placement with a financial institution in Italy, $350 million of placements with financial institutions in Spain and $143 million of
nostro accounts related to our custody activities located in Italy, Spain and Ireland.

(b) Represents $257 million, fair value, of residential mortgage-backed securities located in Ireland and Italy and $308 million of sovereign
debt located in Spain and Italy, of which 74% were investment grade, and $16 million, fair value, of investment grade asset-backed
collateralized loan obligations (“CLOs”) located in Ireland.

(c) Loans and leases include $184 million of overdrafts primarily to Irish-domiciled investment funds resulting from our custody business, a
$70 million commercial lease to a company located in Ireland, which was fully collateralized by U.S. Treasuries, $13 million of loans to
financial institutions located in Ireland, which were collateralized by $12 million of marketable securities, $1 million of overdrafts to a
financial institution located in Italy 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.

(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 $62 million of receivables primarily due from Irish-domiciled investment funds and $53 million of
receivables primarily due from financial institutions in Italy and Spain. Cash collateral on the trading assets totaled $5 million in
Ireland, $30 million in Italy and $5 million in Spain. Trading assets located in Spain are also collateralized by $13 million of U.S.
Treasuries.

(e) Lending-related commitments include $70 million to an insurance company, collateralized by $3 million of marketable securities.
(f) Represents $65 million of letters of credit extended to an insurance company in Ireland, fully collateralized by marketable securities, a

$48 million letter of credit to a financial institution in Ireland, a $2 million letter of credit to an oil and gas company in Ireland, a $3
million letter of credit extended to a financial institution in Italy and a $13 million letter of credit extended to an insurance company in
Spain, fully collateralized by marketable securities.

BNY Mellon 31

Results of Operations (continued)

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
—
74
405 $

101 $
74
175

91
84 $

654 $
165
489 $

125 $
130
7
39
301

38
2
40
261 $

— $
4
4

—
4 $

305 $
40
265 $

— $
—
3
15
18

6
1
7
11 $

— $
14
14

14
— $

32 $
21
11 $

226
294
176
102
798

118
3
121
677

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 activities.

(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.

32 BNY Mellon

Results of Operations (continued)

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.

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

(in millions)
2013:

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

2012:

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

2011:

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

Banks and other
financial
institutions (a)

Public sector

Commercial,
industrial and
other

Total cross-border
outstandings (b)

5,668 $
2,116
4,125
1,885
2,474
3,710
2,859

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

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

— $

2,154
16
2,020
1,551
—
45

46 $

2,054
—
—
1,378
897
—

2,790 $
2,050
2,230
15
—
71

11
829 (c)
251
196
59
6
641

1,152
1,337 (c)
7
259
198
34
4

116
415
814 (c)

16
239
663

5,679
5,099
4,392
4,101
4,084
3,716
3,545

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

(a) Primarily short-term interest-bearing deposits with banks. Also includes global trade finance loans.
(b) Excludes assets of consolidated investment management funds.
(c) 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 $15 billion at
Dec. 31, 2013 compared with $11 billion at Dec. 31,
2012. The increase in emerging markets exposure
was primarily driven by higher global trade finance
loans with banks located in China.

BNY Mellon 33

Results of Operations (continued)

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 20;
information on other-than-temporary impairment can
be found in “Securities” in Note 4; policies related to
goodwill and intangible assets can be found in
“Goodwill and intangible assets” in Note 6; and
information on pensions can be found in “Employee
benefit plans” in Note 18.

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:

34 BNY Mellon

•

an allowance for impaired credits of $1 million or
greater;
an allowance for higher risk-rated credits and
pass-rated credits; and
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 loans over $1 million are individually
analyzed before being assigned a credit rating. All
borrowers are assigned to pools based on their credit
rating. 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 and an
estimate of the use of the facility at default (usage
given default). 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. We
completed our annual update of the allowance
parameters utilized in our probable loss model to
calculate the quantitative allowance in the fourth
quarter of 2013, which increased the quantitative
allowance by $20 million.

Results of Operations (continued)

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:
• Nonperforming loans to total non-margin loans;
• Criticized assets to total loans and lending-related

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

Environmental risk factors:
• U.S. non-investment grade default rate;
• Unemployment rate; and
• 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 and other considerations that
may be deemed relevant during the period. 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.

The methodologies to determine the loss given
default, probability of default and usage given default
allowance parameters utilized in our probable loss
model to calculate the quantitative allowance were
updated in the fourth quarter of 2013. In
management’s judgment, the quantitative allowance
is now capturing additional incurred losses associated
with the aggregate risk level in the credit portfolio.
The update to the allowance parameters included in
the quantitative allowance resulted in a lower
qualitative allowance as a percentage of the total
allowance for credit losses. In 2013, the qualitative
allowance decreased $30 million primarily driven by
the improvement in the U.S. housing market and
internal and environmental risk factors and the
updates to the allowance parameters in the fourth
quarter of 2013 described above.

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 $84 million, while if each
credit were rated one grade worse, the allowance
would have increased by $185 million. Similarly, if
the loss given default were one rating worse, the

BNY Mellon 35

Results of Operations (continued)

allowance would have increased by $30 million,
while if the loss given default were one rating better,
the allowance would have decreased by $29 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 $1 million,
respectively.

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.

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

36 BNY Mellon

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, 2013.

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

Results of Operations (continued)

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.

See Note 20 of the Notes to Consolidated Financial
Statements for details of our securities by ASC 820
hierarchy level.

Fair value - Derivative financial instruments

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.

Level 1 - Derivative financial instruments - Includes
derivative financial instruments that are actively
traded on exchanges, principally listed equity options.

For details of our derivative financial instruments by
ASC 820 hierarchy level, see Note 20 of the Notes to
Consolidated Financial Statements.

Level 2 - Derivative financial instruments - Includes
the vast majority of our over-the-counter derivative
financial instruments. Derivatives classified as Level
2 are valued utilizing discounted cash flow analysis
and financial models for which the valuation inputs
are observable or can be corroborated, directly or
indirectly, for substantially the full term of the
instrument. Valuation inputs include interest rates,
foreign exchange rates, equity prices, credit spreads,
option volatilities and other factors. The valuation
process takes into consideration factors such as
counterparty credit quality, liquidity and
concentration concerns. Level 2 over-the-counter
derivatives generally include interest rate swaps and
options, foreign exchanges forwards and options,
forward rate agreements, equity swaps and options,
and credit default swaps.

Level 3 - Derivative financial instruments - Certain
derivatives that are highly structured require
significant judgment and analyses 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

Fair value option

ASC 825 provides the option to elect fair value as an
alternative measurement basis for selected financial
assets, financial liabilities, unrecognized firm
commitments and written loan commitments which
are not subject to fair value under other accounting
standards. Under ASC 825, fair value is used for both
the initial and subsequent measurement of the
designated assets, liabilities and commitments, with
the changes in fair value recognized in income. See
Note 21 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 “Summary of
significant accounting and reporting policies” 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

BNY Mellon 37

Results of Operations (continued)

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 non-agency
RMBS will be subject to a write-down or loss, we
record the expected credit loss as a charge to
earnings.

In recent years, 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 4 of the Notes to
Consolidated Financial Statements for projected
weighted-average default rates and loss severities at
Dec. 31, 2013 and 2012 for the 2007, 2006 and
late-2005 non-agency RMBS and the securities
previously held in the Grantor Trust we established in

38 BNY Mellon

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 2013 were $141 million
compared with $162 million in 2012. The low
interest rate environment in 2013 created the
opportunity for us to realize gains as we rebalanced
and managed the duration risk of the investment
securities portfolio.

At Dec. 31, 2013, if we were to increase 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 $2 million (pre-tax). If we were to
decrease each of our projected loss severity and
default rates by 100 basis points on each of the
positions, credit-related impairment charges on these
securities would have been immaterial.

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 acquired assets and liabilities.
Goodwill ($18.1 billion at Dec. 31, 2013) and
indefinite-lived intangible assets ($2.7 billion at Dec.
31, 2013) 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

Results of Operations (continued)

comprised of four reporting units; and one reporting
unit is included in the Other segment.

Asset Management broadly, as well as the fair value
of this reporting unit.

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.

In the second quarter of 2013, 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, 2013. The discount rate
applied to these cash flows ranged from 10% to
12.5% and incorporated a 6.75% 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 25%. The Asset
Management reporting unit has $7.6 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

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 ($1.8 billion at Dec. 31, 2013) 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 6 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 19,200 U.S. employees and
approximately 11,700 non-U.S. employees.

BNY Mellon has two qualified and several non-
qualified defined benefit pension plans in the U.S.
and several pension plans overseas. As of Dec. 31,
2013, the U.S. plans accounted for 78% of the
projected benefit obligation. The pension expense for
BNY Mellon plans was $176 million in 2013
compared with $141 million in 2012 and $93 million
in 2011.

A net pension expense of $68 million is expected to
be recorded by BNY Mellon in 2014, assuming
currency exchange rates at Dec. 31, 2013. The
expected decrease in pension expense in 2014 is
primarily driven by an increase in the discount rate
and favorable asset returns for the U.S. plans. The
discount rate is discussed below.

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 2011, these
key elements have varied as follows:

BNY Mellon 39

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 $1.3 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
return on plan
assets
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

Increase in
pension expense

(Decrease) in
pension expense

(100) bps

(50) bps

50 bps

100 bps

$ 53

$ 26

$ (27)

$ (53)

(50) bps

(25) bps

25 bps

50 bps

$ 45

$ 22

$ (22)

$ (42)

(20) %

(10) %

10 %

20 %

$ 214

$ (10)

$107

$ (5)

$ 12

$ 6

$(107)

(5)

$(213)

$ 10

$ (11)

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.

Results of Operations (continued)

(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)

2014

2013

2012

2011

7.25%

7.38%

7.50%

4.99%

4.25%

4.75%

5.71%

$ 4,430

$ 4,121 $ 3,763 $ 3,836

$ 32.81

$ 24.60 $ 22.96 $ 29.48

N/A $ (133) $ (107) $

(54)

N/A

(43)

(34)

(39)

N/A $ (176) $ (141) $

(93)

(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 4.99% as of Dec. 31,
2013.

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 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.

40 BNY Mellon

Results of Operations (continued)

Consolidated balance sheet review

At Dec. 31, 2013, total assets were $374 billion
compared with $359 billion at Dec. 31, 2012. Total
assets averaged $342 billion in 2013 compared with
$315 billion in 2012. Fluctuations in the period-end
and average total assets were primarily driven by the
level of client deposits. Deposits totaled $261 billion
at Dec. 31, 2013 compared with $246 billion at Dec.
31, 2012. Total deposits averaged $226 billion in
2013 and $204 billion in 2012. At Dec. 31, 2013,
total interest-bearing deposits were 54% of total
interest-earning assets compared with 52% at Dec.
31, 2012.

At Dec. 31, 2013, we had $44 billion of liquid funds
and $111 billion of cash (including $104 billion of
overnight deposits with the Federal Reserve and other
central banks) for a total of $155 billion of available
funds. This compares with available funds of $145
billion at Dec. 31, 2012. The increase in available
funds resulted from an increase in client deposits.
Total available funds as a percentage of total assets
was 41% at Dec. 31, 2013 compared with 40% at
Dec. 31, 2012. Of the $44 billion in liquid funds held
at Dec. 31, 2013, $35 billion was placed in interest-
bearing deposits with large, highly-rated global
financial institutions with a weighted-average life to
maturity of approximately 59 days. Of the $35
billion, $6 billion was placed with banks in the
Eurozone.

Investment securities were $99 billion, or 26% of
total assets, at Dec. 31, 2013, compared with $101
billion, or 28% of total assets, at Dec. 31, 2012. The
decrease primarily reflects a decrease in the
unrealized gain on our investment securities portfolio.

Trading assets were $12 billion at Dec. 31, 2013
compared with $9 billion at Dec. 31, 2012. The
increase in trading assets resulted from a higher level
of securities inventory, primarily U.S. equity

securities and Agency RMBS, as we expand our
broker-dealer business.

Loans were $52 billion, or 14% of total assets, at
Dec. 31, 2013, compared with $47 billion, or 13% of
total assets, at Dec. 31, 2012. The increase in loan
levels primarily reflects higher loans in the financial
institutions portfolio, and higher margin loans driven
by our term loan program.

Long-term debt totaled $19.9 billion at Dec. 31, 2013
and $18.5 billion at Dec. 31, 2012. The Parent issued
$3.9 billion of senior debt in 2013, which was
partially offset by $1.6 billion of maturities, a
decrease in the fair value of hedged long-term debt,
$300 million of repayments of trust preferred
securities and calls of subordinated debt of $107
million.

Total The Bank of New York Mellon Corporation’s
shareholders’ equity was $37.5 billion at Dec. 31,
2013 and $36.4 billion at Dec. 31, 2012. The
increase primarily reflects earnings retention, higher
additional paid-in capital resulting from employee
stock options and awards and employee benefit plan
contributions, and the issuance of noncumulative
perpetual preferred stock, partially offset by a decline
in the value of the investment securities portfolio, net
of taxes, and share repurchases.

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 securities portfolio could indicate
increased credit risk for us and could be accompanied
by a reduction in the fair value of our investment
securities portfolio.

BNY Mellon 41

Results of Operations (continued)

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

Investment securities
portfolio

(dollars in millions)
Agency RMBS
U.S. Treasury
Sovereign debt/sovereign

guaranteed (b)

(d)

Non-agency RMBS (c)
Non-agency RMBS
European floating rate notes
Commercial MBS
State and political subdivisions
Foreign covered bonds (e)
Corporate bonds
CLO
U.S. Government agency debt
Consumer ABS
Other (f)

Dec. 31,
2012
Fair
value

$ 40,210
18,890

9,304

3,110
1,697
4,137
2,838
6,191
3,718
1,585
1,206
1,074
2,124
4,619

Dec. 31, 2013

2013
change in
unrealized Amortized
gain/(loss)
cost

Fair
value
(1,435) $ 40,132 $ 39,673
16,827
16,687

(200)

(93)

12,003

12,028

(26)
31
77
(131)
(117)
(48)
(53)
9
(32)
(13)
(31)

2,131
1,334
2,922
4,052
6,750
2,798
1,808
1,485
1,356
2,894
2,769

2,695
1,335
2,878
4,064
6,718
2,872
1,815
1,496
1,354
2,891
2,784

Total investment securities

$ 100,703 (g) $

(2,062) $ 99,121 $ 99,430 (g)

Fair value
as a % of
amortized Unrealized AAA/ A+/ BBB+/
BBB-

cost (a)

A-

BB+
and Not
lower
rated

Ratings

99% $

gain/(loss) AA-
(459)
140

100% —% —% —% —%
100 —

— — —

101

100

78
92
98
100
100
103
100
101
100
100
101
99% $

564
1
(44)
12
(32)
74
7
11
(2)
(3)
15
309

98 —

— —

1
—
11
1
29
66
8
91
80
18
100 —
66
21
100 —
100 —
6
94
60
33
5%
89%

4
93
2
1
62
25
5 —
—
— —
1
1
1 —
— — —
— —
13
—
— —
— — —
— —
—
7
—
—
1%
4%
1%

(a) Amortized cost before impairments.
(b) Primarily comprised of exposure to UK, Germany, Netherlands 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.
Includes RMBS, commercial MBS and other securities. Primarily comprised of exposure to UK and Netherlands.

(d)
(e) Primarily comprised of exposure to Canada, UK and Netherlands.
(f)

Includes commercial paper of $2.2 billion and $1.7 billion, fair value, and money market funds of $2.2 billion and $938 million, fair value, at Dec. 31,
2012 and Dec. 31, 2013, respectively.
Includes net unrealized losses on derivatives hedging securities available-for-sale of $305 million at Dec. 31, 2012 and net unrealized gains on
derivatives hedging securities available-for-sale of $678 million at Dec. 31, 2013.

(g)

The fair value of our investment securities portfolio
was $99.4 billion at Dec. 31, 2013 compared with
$100.7 billion at Dec. 31, 2012. The decrease in the
fair value of the investment securities portfolio
primarily reflects a decrease in the unrealized gain on
our investment securities. Additionally, during 2013,
we reevaluated the mix of the securities portfolio and
decreased investments in U.S. Treasury securities,
European floating rate notes, money market funds,
foreign covered bonds and commercial paper. We
increased investments in sovereign debt, commercial
MBS, consumer asset-backed securities and state and
political subdivisions. In 2013, we received $829
million of paydowns and sold $235 million of sub-
investment grade securities.

At Dec. 31, 2013, the total investment securities
portfolio had a net unrealized pre-tax gain of $309
million compared with $2.4 billion at Dec. 31, 2012.

The decline in the valuation of the investment
securities portfolio was primarily driven by an
increase in long-term interest rates. The unrealized
net of tax gain on our investment securities available-
for-sale portfolio included in accumulated other
comprehensive income was $357 million at Dec. 31,
2013, compared with $1.3 billion at Dec. 31, 2012.

At both Dec. 31, 2013 and Dec. 31, 2012, 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.)

The following table presents the amortizable net
purchase premium related to the investment securities
portfolio and accretable discount related to the
restructuring of the investment securities portfolio.

42 BNY Mellon

Results of Operations (continued)

Net premium amortization and discount accretion of investment securities (a)

(dollars in millions)
Amortizable purchase premium (net of discount) relating to investment securities:

Balance at period end
Estimated average life remaining at period end (in years)
Amortization

Accretable discount related to the restructuring of the investment securities portfolio:

Balance at period end
Estimated average life remaining at period end (in years)
Accretion

2013

2012

2,377 $ 2,476
4.2
575

5.2
625 $

642 $
6.0
218 $

871
5.3
279

(b)

(a) Amortization of purchase premium decreases net interest revenue while accretion of discount increases net interest revenue. Both were

recorded on a level yield basis.

(b) The amortization and accretion amounts reported for 2012 have been restated from previously reported amounts. There was no impact

to consolidated results.

The increase in the net premium amortization in 2013
primarily relates to an increase in net purchase
premium throughout 2012.

In 2013, securities gains of $141 million were
recorded as we reduced the size of the investment
securities portfolio and its sensitivity to interest rates.
In addition, in 2013 Agency RMBS securities with an
amortized cost of $7.3 billion and fair value of $7.0
billion were transferred from available-for-sale
securities to held-to-maturity securities. These
combined actions are expected to mute the impact to
our accumulated other comprehensive income in the
event of a rise in interest rates.

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

Net securities gains (losses)

(in millions)
U.S. Treasury
Commercial MBS
State and political subdivisions
European floating rate notes
Foreign covered bonds
Corporate bonds
Sovereign debt
Non-agency RMBS
Other

2013

2012

60 $
16
13
8
8
4
2
(1)
31

83 $
11
—
(34)
7
29
96
(68)
38

Total net securities gains

$ 141 $ 162 $

2011

77
—
(3)
(39)
—
—
36
(58)
35
48

The following table shows the fair value of the
European floating rate notes by geographical location
at Dec. 31, 2013. The unrealized loss on these
securities was $44 million at Dec. 31, 2013, an
improvement of $77 million compared with $121
million at Dec. 31, 2012.

European floating rate notes at Dec. 31, 2013 (a)

(in millions)
United Kingdom
Netherlands
Ireland
Italy
Other

Total fair value

RMBS

$ 1,661 $
744
149
108
42
$ 2,704 $

Other

Total
fair
value
107 $ 1,768
795
51
165
16
108
—
42
—
174 $ 2,878

(a) 66% of these securities are in the AAA to AA- ratings

category.

See Note 20 of the Notes to Consolidated Financial
Statements for details of securities by level in the fair
value hierarchy.

Equity investments

Our equity investments are primarily categorized as
other assets. Included in other assets are
(parenthetical amounts indicate carrying values at
Dec. 31, 2013): joint ventures and other equity
investments ($1.6 billion), seed capital ($308
million), Federal Reserve Bank stock ($441 million),
private equity investments ($86 million), and tax
advantaged low-income housing investments ($543
million). For additional information on the fair value
of our private equity investments and certain seed
capital, see Note 7 of the Notes to Consolidated
Financial Statements.

Our equity investment in Wing Hang, which is
located in Hong Kong, had a fair value of $963
million (book value of $535 million) based on its
share price at Dec. 31, 2013. Equity income related
to our investment in Wing Hang totaled $95 million
in 2013, including $37 million from the sale of a
property. Equity income totaled $44 million in 2012

BNY Mellon 43

Results of Operations (continued)

and $53 million in 2011. An agreement with certain
other shareholders of Wing Hang prohibits the sale of
this interest without their permission. We received
stock dividends from Wing Hang with a value of $13
million (or 1.4 million shares) in 2013, $14 million
(or 1.5 million shares) in 2012 and $12 million (or 1.1
million shares) in 2011, as well as cash dividends of
$4 million in 2013. No cash dividends were received
in 2012 or 2011.

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 $86
million at Dec. 31, 2013, down $13 million from $99

million at Dec. 31, 2012. At Dec. 31, 2013, private
equity investments consisted of investments in private
equity funds of $63 million, direct equity of less than
$15 million, and leveraged bond funds of $8 million.
Income on these investments was $6 million in 2013.

At Dec. 31, 2013, we had $31 million of unfunded
investment commitments to private equity funds. If
unused, the commitments expire between 2014 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.

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, 2013
Unfunded
commitments

Loans

Total
exposure

Dec. 31, 2012
Unfunded
commitments

Loans

Total
exposure

14.4 $
1.6
16.0
9.8
2.0
2.3
1.4
3.7
0.8
36.0
15.7
51.7 $

17.0 $
19.5
36.5
1.7
2.4
—
—
—
—
40.6
0.5
41.1 $

31.4
21.1
52.5
11.5
4.4
2.3
1.4
3.7
0.8
76.6
16.2
92.8

11.3 $
1.4
12.7
8.9
1.7
2.4
1.6
5.3
0.6
33.2
13.4
46.6 $

15.7 $
18.3
34.0
1.7
1.9
—
—
—
0.2
37.8
0.9
38.7 $

27.0
19.7
46.7
10.6
3.6
2.4
1.6
5.3
0.8
71.0
14.3
85.3

At Dec. 31, 2013, total exposures were $92.8 billion,
an increase of 9% from $85.3 billion at Dec. 31,
2012. 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 trade finance;
and
an increase in unfunded commitments resulting
from a renewed effort to grow our credit portfolio

to support client relationships where revenue
growth opportunities exist.

Our financial institutions and commercial portfolios
comprise our largest concentrated risk. These
portfolios made up 57% of our total lending exposure
at Dec. 31, 2013 and 55% at Dec. 31, 2012.
Additionally, a substantial portion of our overdrafts
relate to financial institutions and commercial
customers.

44 BNY Mellon

Results of Operations (continued)

Financial institutions

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

Financial institutions
portfolio exposure
(dollar amounts in billions)
Banks
Asset managers
Securities industry
Insurance
Government
Other

Total

Unfunded
commitments

Dec. 31, 2013
Total
exposure
11.7
5.5
4.9
4.4
3.6
1.3
31.4

2.3 $
4.1
2.0
4.3
3.2
1.1
17.0 $

% Inv.
grade
86%
97
96
99
97
89
93%

Loans

9.4 $
1.4
2.9
0.1
0.4
0.2
14.4 $

% due
<1 yr

Loans

Dec. 31, 2012
Unfunded
commitments

89% $
73
86
22
28
36
67% $

5.6 $
1.1
4.2
0.1
—
0.3
11.3 $

Total
exposure
7.6
4.9
6.3
4.4
2.1
1.7
27.0

2.0 $
3.8
2.1
4.3
2.1
1.4
15.7 $

The financial institutions portfolio exposure was
$31.4 billion at Dec. 31, 2013 compared with $27.0
billion at Dec. 31, 2012. The increase primarily
reflects higher exposure to banks driven by a higher
level of trade finance loans.

Financial institution exposures are high quality, with
93% of the exposures meeting the investment grade
equivalent criteria of our internal credit rating
classification at Dec. 31, 2013. Each customer is
assigned an internal credit rating, which is mapped to
an equivalent external rating agency grade based
upon a number of dimensions which are continually
evaluated and may change over time. The exposure
to financial institutions is generally short-term. Of
these exposures, 67% expire within one year, and
35% expire within 90 days. In addition, 36% of the
financial institutions exposure is secured. For
example, securities industry and asset managers often
borrow against marketable securities held in custody.

Commercial

For ratings of non-U.S. counterparties, as a
conservative measure, our internal credit rating is
generally capped at a rating equivalent to the
sovereign rating of the country where the
counterparty resides regardless of the internal credit
rating assigned to the counterparty or the underlying
collateral.

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 97% of the exposures meeting our
investment grade equivalent ratings criteria as of Dec.
31, 2013. These exposures are generally short-term
liquidity facilities, with the vast majority to regulated
mutual funds.

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

Commercial portfolio exposure

Dec. 31, 2013

Loans

Unfunded
commitments

(dollar amounts in billions)
Energy and utilities
Services and other
Manufacturing
Media and telecom

Total

0.7 $
0.6
0.2
0.1
1.6 $

Dec. 31, 2012
Unfunded
commitments

Loans

Total % Inv. % due
grade
<1 yr
98%
94
91
94
94%

exposure
6.6
6.6
6.1
1.8
21.1

14% $
18
9
7
13% $

5.9 $
6.0
5.9
1.7
19.5 $

0.5 $
0.5
0.3
0.1
1.4 $

Total
exposure
6.0
6.1
5.9
1.7
19.7

5.5 $
5.6
5.6
1.6
18.3 $

BNY Mellon 45

Results of Operations (continued)

The commercial portfolio exposure increased 7% to
$21.1 billion at Dec. 31, 2013, from $19.7 billion at
Dec. 31, 2012, reflecting an increase in all segments
of our commercial portfolio.

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

Loans are approved on the basis of existing or
projected cash flows, and supported by appraisals and
knowledge of local market conditions. Development
loans are structured with moderate leverage, and in
many instances, involve some level of recourse to the
developer. Our commercial real estate exposure
totaled $4.4 billion at Dec. 31, 2013 compared with
$3.6 billion at Dec. 31, 2012.

Percentage of the portfolios
that are investment grade
Financial institutions
Commercial

Dec. 31,
2012

2013

2011

93%
94%

93%
93%

93%

91%

Our credit strategy is to focus on investment grade
names to support cross-selling opportunities and
avoid single name/industry concentrations and our
goal is to maintain a predominantly investment grade
loan portfolio. The execution of our strategy has
resulted in 93% of our financial institutions portfolio
and 94% of our commercial portfolio rated as
investment grade at Dec. 31, 2013.

Wealth management loans and mortgages

Our wealth management exposure was $11.5 billion
at Dec. 31, 2013 compared with $10.6 billion at Dec.
31, 2012. The increase primarily reflects growth in
the wealth management mortgage portfolio. 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 64% at
origination. In the wealth management portfolio, 1%
of the mortgages were past due at Dec. 31, 2013.

At Dec. 31, 2013, the wealth management mortgage
portfolio was comprised of the following geographic
concentrations: New York - 21%; California - 21%;
Massachusetts - 16%; Florida - 8%; and other - 34%.

Commercial real estate

Our income producing commercial real estate
facilities are focused on experienced owners and are
structured with moderate leverage based on existing
cash flows. Our commercial real estate lending
activities also include construction and renovation
facilities. Our client base consists of experienced
developers and long-term holders of real estate assets.

46 BNY Mellon

At Dec. 31, 2013, 59% of our commercial real estate
portfolio was secured. The secured portfolio is
diverse by project type, with 54% secured by
residential buildings, 15% secured by office
buildings, 12% secured by retail properties, and 19%
secured by other categories. Approximately 99% of
the unsecured portfolio is comprised of real estate
investment trusts (“REITs”), which are primarily
investment grade, and real estate operating
companies.

At Dec. 31, 2013, our commercial real estate
portfolio is comprised of the following
concentrations: New York metro - 45%; REITs and
real estate operating companies - 40%; and other -
15%.

Lease financings

The leasing portfolio exposure totaled $2.3 billion
and included $166 million of airline exposures at
Dec. 31, 2013, compared with $2.4 billion of leasing
exposures, including $191 million of airline
exposures, at Dec. 31, 2012. At Dec. 31, 2013,
approximately 87% of the leasing exposure was
investment grade.

At Dec. 31, 2013, the $2.1 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 49% 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, 2013,
were as follows:

•
•
•

61% of the counter parties were A, or equivalent;
32% were BBB; and
7% were non-investment grade.

Results of Operations (continued)

At Dec. 31, 2013, our $166 million of exposure to the
airline industry consisted of $68 million to major U.S.
carriers, $74 million to foreign airlines and $24
million to U.S. regional airlines.

Our airline lease customers participated in the
industry recovery that continued in 2013. However, a
significant portion of these customers remain highly
leveraged and vulnerable to both economic
downturns and rising fuel prices. Because of these
factors, we continue to maintain a sizable allowance
for loan losses against these exposures and 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 $1.4 billion at Dec. 31, 2013, compared with
$1.6 billion at Dec. 31, 2012. Included in this
portfolio at Dec. 31, 2013 are $411 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, 2013, the purchased loans in this
portfolio had a weighted-average loan-to-value ratio
of 76% at origination and 20% of the serviced loan
balance was at least 60 days delinquent. The
properties securing the prime and Alt-A mortgage
loans were located (in order of concentration) in
California, Florida, Virginia, the tri-state area (New
York, New Jersey and Connecticut) and Maryland.

To determine the projected loss on the prime and Alt-
A mortgage portfolios, 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).

Overdrafts

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

Other loans

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

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 $6.7 billion of
loans at Dec. 31, 2013 and $5.1 billion at Dec. 31,
2012 related to a term loan program that offers fully
collateralized loans to broker-dealers.

BNY Mellon 47

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

2013

2012

2011

2010 (a)

2009 (a)

$ 4,511
1,534
9,743
2,001
1,322
1,385
1,314
768
15,652
38,230

9,848
113
75
9
945
—
2,437
13,427
$ 51,657

$ 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

(a) Presented on a continuing operations basis.
(b) Net of unearned income on domestic and foreign lease financings of $1,020 million at Dec. 31, 2013, $1,135 million at Dec. 31, 2012,

$1,343 million at Dec. 31, 2011, $2,036 million at Dec. 31, 2010 and $2,282 million at Dec. 31, 2009.

Maturity of loan portfolio

International loans

The following table shows the maturity structure of
our loan portfolio at Dec. 31, 2013.

Maturity of loan portfolio at Dec. 31, 2013 (a)

Within
1 year

Between
1 and 5
years

After
5 years

Total

$ 3,921 $
375

590
1,159

$ —
—

$ 4,511
1,534

1,393
—
—
500
3,642
481

2,001
250
1,314
1,314
768
768
15,652
15,152
25,780
21,780
11,812
12,407
$33,592 $ 4,123 (b) $ 472 (b) $38,187
(a) Excludes loans collateralized by residential properties, lease
financings and wealth management loans and mortgages.
(b) Variable rate loans due after one year totaled $4.6 billion

358
—
—
—
358
114

Foreign

Total

(in millions)
Domestic:
Financial
institutions
Commercial
Commercial
real estate
Overdrafts
Other
Margin loans
Subtotal

and fixed rate loans totaled $24 million.

48 BNY Mellon

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 $12.5 billion at
Dec. 31, 2013 and $9.1 billion at Dec. 31, 2012. The
increase primarily resulted from an increase in loans
to financial institutions, primarily banks, partially
offset by lower overdrafts.

Matter related to Sentinel

Results of Operations (continued)

Court, ordered that the funds distributed to BNY
Mellon after the district court’s favorable decision be
returned to the bankruptcy estate and held in a reserve
earmarked for purposes of BNY Mellon’s claim until
the district court issues its decision on the merits of
the challenges to BNY Mellon’s lien. Accordingly,
the loan was reestablished as a fully collateralized
performing loan in the first quarter of 2014. A total
of $337 million, representing the loan and accrued
interest, was recorded on Feb. 5, 2014. The ongoing
litigation could result in a ruling adverse to BNY
Mellon at some point in the future. For additional
information on our legal proceedings related to this
matter, see Note 22 of the Notes to Consolidated
Financial Statements.

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. We
believe credit solidifies customer relationships and,
through a disciplined allocation of capital, can earn
acceptable rates of return as part of an overall
relationship.

The following table details changes in our allowance
for credit losses.

BNY Mellon 49

Results of Operations (continued)

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
Wealth management loans and mortgages
Other residential mortgages
Foreign

Total charge-offs

Recoveries:

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

Total recoveries
Net charge-offs

Provision for credit losses
Transferred to discontinued operations
Balance, Dec. 31,
Domestic
Foreign

Total allowance, Dec. 31, (a)

Allowance for loan losses
Allowance for lending-related commitments
Net charge-offs to average loans outstanding
Net charge-offs to total allowance for credit losses
Allowance for loan losses as a 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

$
$

2013

$ 15,652
36,005
51,657
48,316

2012
13,397 $
33,232
46,629
43,060

2011
12,760 $
31,219
43,979
40,919

2010 (a)

6,810 $

30,998
37,808
36,305

2009 (a)
4,657
32,032
36,689
36,424

439 $
58
497

511 $
60
571

578 $
50
628

(2)
—
(13)
(1)
(22)
—
(38)

2
—
—
—
—
6
8
(30)
(80)
—

(6)
(4)
(8)
(1)
(56)
(8)
(83)

3
—
2
—
—
3
8
(75)
1
—

(5)
(8)
(25)
(4)
(46)
—
(88)

15
1
2
—
—
2
20
(68)
11
—

508
21
529

(90)
(31)
(34)
(1)
(60)
—
(216)

—
—
—
1
1
—
2
(214)
332
(19)

339
48
387

(4)
(1)
—
(1)
(8)
(3)
(17)

1
—
4
—
—
4
9
(8)
(35)
—

$
$

288
56
344
210
134
0.02%
2.33
0.41
0.58
0.67
0.96

339
48

387 $
266 $
121
0.07%
7.75
0.57
0.80
0.83
1.16

439
58

497 $
394 $
103
0.18%

511
60

571 $
498 $
73
0.19%

15.09
0.90
1.26
1.13
1.59

11.91
1.32
1.61
1.51
1.84

578
50
628
503
125
0.59%

34.08
1.37
1.57
1.71
1.96

(a) The allowance for credit losses at Dec. 31, 2010, and 2009 excludes discontinued operations.

Net charge-offs were $8 million in 2013, $30 million
in 2012 and $75 million in 2011. Net charge-offs in
2013 included $4 million of other residential
mortgages primarily located in New York, California
and New Jersey, $3 million of commercial loans and
$3 million of foreign loans. 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.

50 BNY Mellon

The provision for credit losses was a credit of $35
million in 2013 primarily driven by a broad
improvement in the credit quality of the loan portfolio
and a reduction in our qualitative allowance. The
provision for credit losses was a credit of $80 million
in 2012 and a provision of $1 million in 2011. We
anticipate the quarterly provision for credit losses to
be $0 to $15 million in 2014.

The total allowance for credit losses was $344 million
at Dec. 31, 2013 and $387 million at Dec. 31, 2012.
The ratio of the total allowance for credit losses to
non-margin loans was 0.96% at Dec. 31, 2013, 1.16%
at Dec. 31, 2012 and 1.59% at Dec. 31, 2011. The
ratio of the allowance for loan losses to non-margin

Results of Operations (continued)

loans was 0.58% at Dec. 31, 2013 compared with
0.80% at Dec. 31, 2012 and 1.26% at Dec. 31, 2011.
The decrease in the total allowance for credit losses
and the lower ratios at Dec. 31, 2013 compared with
both prior periods primarily reflect a decrease in the
reserve for credit losses related to the residential
mortgage and lease financing portfolios.

We had $15.7 billion of secured margin loans on our
balance sheet at Dec. 31, 2013 compared with $13.4
billion at Dec. 31, 2012. 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 as a percentage of 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 the Notes to Consolidated Financial
Statements, we have allocated our allowance for
credit losses as follows:

Allocation of allowance

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

Total

2013 2012 2011 2010 (a) 2009 (a)
24%
16
16
14
12
11
7

27%
23
12
9
8
13
8
100% 100% 100%

16%
41
11
2
7
16
7
100%

25%
26
8
12
7
13
9
100%

18%
31
12
13
7
13
6

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

Includes the allowance for wealth management mortgages.

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

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
Commercial
Wealth management
Foreign
Commercial real estate
Financial institutions

Total nonperforming loans

Other assets owned

Total nonperforming assets (a)

2013

2012

2011

2010

2009

$ 117
15
11
6
4
—
153
3
$ 156

$ 158
27
30
9
18
3
245
4
(b) $ 249

$ 203
21
32
10
40
23
329
12
(b) $ 341

$ 244
34
59
7
44
5
393
6
(b) $ 399

$ 190
65
58
—
61
172
546
4
(b) $ 550

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
(a) Nonperforming assets at Dec. 31, 2010 and Dec. 31, 2009 exclude discontinued operations.
(b) Loans of consolidated investment management funds are not part of BNY Mellon’s loan portfolio. Included in the loans of consolidated
investment management funds are nonperforming loans of $16 million at Dec. 31, 2013, $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.

0.30%
0.4
137.3
134.6
224.8
220.5

1.06%
1.3
126.7
124.8
145.3
143.1

0.78%
1.1
119.8
115.5
151.1
145.7

0.53%
0.7
108.6
106.8
158.0
155.4

1.50%
1.7
92.1
91.5
115.0
114.2

BNY Mellon 51

Results of Operations (continued)

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

2013

2012
$ 249 $ 341
75
(39)
(27)
(86)
(15)
$ 156 $ 249

62
(39)
(12)
(99)
(5)

Nonperforming assets were $156 million at Dec. 31,
2013, a decrease of $93 million compared with $249
million at Dec. 31, 2012. The decrease primarily
resulted from repayments of $40 million in the
commercial loan portfolio, $23 million in the other
residential mortgage portfolio, $20 million in the
wealth management portfolio, $13 million in the
commercial real estate portfolio and $3 million in the
financial institutions portfolio. Also in 2013, $37
million in the other residential mortgage portfolio and
$2 million in the commercial real estate portfolio
returned to accrual status. Charge-offs in 2013 were
$7 million in the other residential mortgage portfolio
and $3 million in the foreign loan portfolio.
Additions in 2013 included $31 million in the other
residential mortgage portfolio and $29 million in the
commercial loan 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)
Domestic:

2013 2012

2011 2010 2009

Consumer
Commercial
Total domestic
Foreign

Total past due loans $

7 $
6 $ 13 $ 21 $ 93
— — —
338
7
431
13
6
— —
—
—
7 $
6 $ 13 $ 33 $ 431

12
33
—

Loans past due 90 days or more at Dec. 31, 2013
were primarily comprised of other residential
mortgage loans. For additional information, see Note
5 of the Notes to Consolidated Financial Statements.

52 BNY Mellon

Deposits

Total deposits were $261.1 billion at Dec. 31, 2013,
an increase of 6% compared with $246.1 billion at
Dec. 31, 2012. The increase in deposits reflects
higher levels of both foreign and domestic interest-
bearing deposits primarily resulting from higher
client deposits in our Investment Services business.

Noninterest-bearing deposits were $95.5 billion at
Dec. 31, 2013 compared with $93.0 billion at Dec.
31, 2012. Interest-bearing deposits were $165.7
billion at Dec. 31, 2013 compared with $153.1 billion
at Dec. 31, 2012.

The aggregate amount of deposits by foreign
customers in domestic offices was $8.5 billion and
$6.7 billion at Dec. 31, 2013 and 2012, respectively.

Deposits in foreign offices totaled $119.4 billion at
Dec. 31, 2013, and $107.4 billion at Dec. 31, 2012.
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, 2013.

Domestic time deposits > $100,000 at Dec. 31, 2013

(in millions)

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

Certificates
of deposit

64
23
8
4

99 $

Other
time
deposits

44,742
—
—
—
44,742 $

Total

44,806
23
8
4
44,841

Short-term borrowings

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

Results of Operations (continued)

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.

2013

2012

Federal funds purchased and securities sold under
repurchase agreements
(dollar amounts in
millions)
Maximum daily balance
during the year
Average daily balance
Weighted-average rate
during the year
Ending balance at
Dec. 31
Weighted-average rate at
Dec. 31

$ 21,818
$ 10,022

$ 23,022
$ 10,942

$ 7,427

$ 9,648

(0.15)%

(0.11)%

(0.02)%

0.00 %

2011

$ 21,690
$ 8,572

0.02 %

$ 6,267

(0.05)%

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
Sept. 30,
2013

Dec. 31,
2013

Dec. 31,
2012

$ 23,022
$ 13,155

$ 20,994
$ 12,164

$ 19,971

$ 10,158

(0.10)%

(0.12)%

0.07 %

$ 9,648

$ 9,737

$ 7,427

(0.11)%

(0.07)%

(0.02)%

Federal funds purchased and securities sold under
repurchase agreements were $9.6 billion at Dec. 31,
2013 compared with $9.7 billion at Sept. 30, 2013
and $7.4 billion at Dec. 31, 2012. The maximum
daily balance in the fourth quarter of 2013 was $23.0
billion compared with $21.0 billion in the third
quarter of 2013 and $20.0 billion in the fourth
quarter of 2012. The average daily balance was
$13.2 billion in the fourth quarter of 2013, $12.2
billion in the third quarter of 2013 and $10.2 billion
in the fourth quarter of 2012. Fluctuations between
periods resulted from overnight borrowing
opportunities. The weighted-average rates in all
periods presented reflect revenue earned on securities
sold under repurchase agreements related to certain
securities for which we were able to charge 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
during the year
Average daily balance (a)
Weighted-average rate
during the year

Ending balance at Dec. 31
Weighted-average
rate at Dec. 31

2013

2012

2011

$ 17,290
$ 15,365

$ 16,476 $ 14,481
$ 13,466 $ 11,853

0.09%

0.10%

0.09%

$ 15,707

$ 16,095 $ 12,671

0.07%

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 $9,038 million in
2013, $8,033 million in 2012 and $7,319 million in the
2011.

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,
2013

Sept. 30, Dec. 31,
2012

2013

$ 17,290
$ 15,964

$ 16,938 $ 16,476
$ 15,405 $ 14,275

0.09%

$ 15,707

$ 15,293 $ 16,095

0.07%

0.10%

(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 $9,400 million in
the fourth quarter of 2013, $8,659 million in the third
quarter of 2013 and $8,532 million in the fourth quarter of
2012.

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 $15.7 billion at Dec. 31, 2013,
compared with $15.3 billion at Sept. 30, 2013 and
$16.1 billion at Dec. 31, 2012. Payables to
customers and broker-dealers are driven by customer
trading activity levels and market volatility.

BNY Mellon 53

Results of Operations (continued)

Information related to commercial paper is presented
below.

Commercial paper

(dollar amounts in millions)
Maximum daily balance
during the year
Average daily balance
Weighted-average rate
during the year
Ending balance at Dec. 31
Weighted-average rate at Dec. 31

2013

2012

2011

$ 4,873
$ 690

$ 2,547 $ 575
$ 819 $ 98

0.06%
96
0.03%

0.19% 0.08%

$ 338 $ 10

0.10% 0.03%

Commercial paper

(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, Sept. 30, Dec. 31,
2012

2013

$ 4,827
$ 1,254

$ 4,873 $ 2,358

$ 1,186 $ 805

0.05%
96

0.05%

0.12%

$ 1,851 $ 338

0.03%

0.01%

0.10%

Commercial paper outstanding was $96 million at
Dec. 31, 2013 compared with $1.9 billion at Sept. 30,
2013, and $338 million at Dec. 31, 2012. Average
commercial paper outstanding was $1.3 billion in the
fourth quarter of 2013, $1.2 billion in the third
quarter of 2013 and $805 million in the fourth
quarter of 2012. The maximum daily balance in the
fourth quarter of 2013 was $4.8 billion compared
with $4.9 billion in the third quarter of 2013 and $2.4
billion in the fourth quarter of 2012. Fluctuations
between periods were a result of attractive overnight
borrowing opportunities. 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 during the

year

2013

2012

2011

$7,383
$1,177

$5,506 $ 4,561
$1,392 $ 1,932

0.55%

1.22%

1.10%

Ending balance
Weighted-average rate at Dec. 31

$ 663

$1,380 $ 2,174

0.81%

1.89%

1.15%

54 BNY Mellon

Other borrowed funds

(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, Sept. 30, Dec. 31,
2012

2013

$ 7,383
$ 1,124

$ 3,663 $ 2,072

$ 1,047 $ 1,064

0.83%

$ 663

0.35%
844 $ 1,380

1.45%

0.81%

0.46%

1.89%

Other borrowed funds primarily include overdrafts of
sub-custodian account balances in our Investment
Services businesses and borrowings under lines of
credit by our Pershing subsidiaries. Overdrafts
typically relate to timing differences for settlements.
Other borrowed funds were $663 million at Dec. 31,
2013 compared with $844 million at Sept. 30, 2013
and $1.4 billion Dec. 31, 2012. Other borrowed
funds averaged $1.1 billion in the fourth quarter of
2013, $1.0 billion in the third quarter of 2013 and
$1.1 billion in the fourth quarter of 2012. The
maximum daily balance in the fourth quarter of 2013
was $7.4 billion compared with $3.7 billion in the
third quarter of 2013 and $2.1 billion in the fourth
quarter of 2012. Changes from prior periods
primarily reflect higher overdrafts of sub-custodian
account balances in our Investment Services
businesses.

Liquidity and dividends

BNY Mellon defines liquidity as the ability of the
Parent and its subsidiaries to access funding or
convert assets to cash quickly and efficiently,
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
adversely affecting daily operations or our financial
condition. Liquidity risk can arise from cash flow
mismatches, market constraints from the 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
“Risk Management - Liquidity risk”.

Results of Operations (continued)

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.

When monitoring liquidity, we evaluate multiple
metrics in order to have ample liquidity for expected
and unexpected events. Metrics include cashflow
mismatches, asset maturities, debt spreads, peer
ratios, liquid assets, unencumbered collateral, funding
sources and balance sheet liquidity ratios.

Internal 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-earning 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 internal ratios exceeded our minimum

Available and liquid funds
(in millions)
Available funds:
Liquid funds:

guidelines at Dec. 31, 2013. In addition, we monitor
the revised Basel III liquidity coverage ratio and
continue to evaluate the U.S. banking agencies’
proposal for the Basel III liquidity coverage ratio
(“LCR”).

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.

Commencing January 2015, we will also be subject to
the liquidity requirements of the Federal Reserve’s
heightened prudential standards for BHCs with total
consolidated assets of $50 billion or more, described
under “Supervision and Regulation - Enhanced
Prudential Standards”.

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, 2013 compared with Dec.
31, 2012 primarily resulted from a higher level of
client deposits and attractive overnight borrowing
opportunities.

Dec. 31,
2013

Dec. 31,
2012

Average
2012

2013

2011

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

Total liquid funds

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

Total available funds
Total available funds as a percentage of total assets

$ 35,300
9,161
44,461
6,460
104,359
$ 155,280

$ 43,910
6,593
50,503
4,727
90,110
$ 145,340

$ 41,222
8,412
49,634
5,662
67,073
$ 122,369

$ 38,959 $ 55,218
4,809
60,027
4,586
47,097
$ 112,547 $ 111,710

5,492
44,451
4,311
63,785

41%

40%

36%

38%

BNY Mellon 55

Results of Operations (continued)

On an average basis for 2013 and 2012, non-core
sources of funds such as money market rate accounts,
federal funds purchased, trading liabilities,
commercial paper and other borrowings were $21.3
billion and $20.5 billion, respectively. The increase
primarily reflects higher levels of trading liabilities
and federal funds purchased, partially offset by lower
levels of money market rate accounts. Average
foreign deposits, primarily from our European-based
Investment Services business, were $101.3 billion for
2013 compared with $90.9 billion for 2012. The
increase primarily reflects growth in client deposits.
Domestic savings, interest-bearing demand and time
deposits averaged $45.2 billion for 2013 compared
with $36.5 billion for 2012. The increase primarily
reflects higher time and interest-bearing demand
deposits.

Average payables to customers and broker-dealers
were $9.0 billion for 2013 and $8.0 billion for 2012.
Payables to customers and broker-dealers are driven
by customer trading activity and market volatility.
Long-term debt averaged $19.1 billion for 2013 and
$19.9 billion for 2012. The decrease in average long
term debt was driven by debt maturities and a
decrease in the fair value of hedged long-term debt.
Average noninterest-bearing deposits increased to
$73.3 billion for 2013 from $70.0 billion for 2012
reflecting growth in client deposits. A significant
reduction in our Investment Services business would
reduce our access to deposits. See “Asset/liability
management” for additional factors that could impact
our deposit balances.

The Parent has four major sources of liquidity:

•
•
•
•

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

Subsequent to Dec. 31, 2013, our bank subsidiaries
could declare dividends to the Parent of
approximately $2.9 billion, without the need for a
regulatory waiver. In addition, at Dec. 31, 2013, non-
bank subsidiaries of the Parent had liquid assets of
approximately $1.9 billion.

In April 2013, BNY Mellon announced a 15%
increase in the quarterly common stock cash dividend
from $0.13 to $0.15 per common share. Our common
stock dividend payout ratio was 33% for the full-year
of 2013, or 26% after adjusting for the net impact of

56 BNY Mellon

the U.S. Tax Court’s decisions regarding certain
foreign tax credits. The Federal Reserve’s current
guidance provides that, for large bank holding
companies like us, dividend payout ratios exceeding
30% of after-tax net income will receive particularly
close scrutiny.

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

In 2013 and 2012, the Parent’s average commercial
paper borrowings were $690 million and $819
million, respectively. The Parent had cash of $6.8
billion at Dec. 31, 2013, compared with $4.0 billion
at Dec. 31, 2012. 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 $96 million at Dec. 31, 2013 and $338
million at Dec. 31, 2012. Net of commercial paper
outstanding, the Parent’s cash position at Dec. 31,
2013, increased by $3.0 billion compared with Dec.
31, 2012, primarily reflecting the issuance of senior
medium term notes, preferred stock and dividends
from its subsidiaries, partially offset by maturities of
long-term debt and common 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 2013, we repurchased 35.1 million common shares
at an average price of $29.24 per common share for a
total of $1.03 billion.

The Parent’s liquidity policy is to have sufficient
unencumbered cash and cash equivalents on hand to
meet its forecasted debt redemptions, net interest
payments and net tax payments over the next 18 to 24
months without the need to receive dividends from its
bank subsidiaries or issue debt. As of Dec. 31, 2013,
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
2013, we filed shelf registration statements on Form

Results of Operations (continued)

S-3 with the Securities and Exchange Commission
(“SEC”) covering the issuance of certain securities,
including an unlimited amount of debt, common
stock, preferred stock and trust preferred securities, as
well as common stock issued under the Direct Stock
Purchase and Dividend Reinvestment Plans. These
registration statements will expire in June 2016, at
which time we plan to file new shelf registration
statements.

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, 2013, were as follows:

Credit ratings

Parent:
Long-term senior debt
Subordinated debt
Preferred stock
Trust-preferred
securities

Short-term debt

Moody’s

S&P

Fitch

DBRS

A1
A2
Baa2

A+ AA

A+
BBB BBB

BBB BBB+

A-1

F1+

AA (low)
A (high)
A (low)

A (high)

R-1
(middle)
Stable

Outlook - Parent:

Stable Negative Stable

The Bank of New York Mellon:
Long-term senior debt
Long-term deposits
Short-term deposits

Aa2
Aa2
P1

AA
AA
A-1+

AA
AA
F1+

AA
AA
R-1 (high)

BNY Mellon, N.A.:
Long-term senior debt
Long-term deposits
Short-term deposits

Aa2
Aa2
P1

(a)

AA
AA
A-1+

AA
AA
F1+

AA
AA
R-1 (high)

Outlook - Banks:

Stable

Stable Stable

Stable

(a) Represents senior debt issuer default rating.

As a result of S&P’s government support assumptions
on certain U.S. financial institutions, the Parent’s
ratings by S&P 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 Investor Service (“Moody’s”)
and one notch of “lift” from S&P. In June 2013, S&P
indicated that they are reconsidering the inclusion of
assumed government support in its ratings on the
eight U.S. bank holding companies that they view as
having high systemic importance, including The Bank
of New York Mellon Corporation.

On Nov. 14, 2013, Moody’s concluded its previously
announced reviews of the three large U.S. trust and
custody banks’ long-term ratings. As a result of these
reviews, which included both U.S. government

support ratings, and stand-alone ratings, Moody’s
downgraded all three of the large U.S. trust and
custody banks. Moody’s downgraded our ratings and
those of The Bank of New York Mellon and BNY
Mellon, N.A. by one notch. Our short-term ratings
and those of The Bank of New York Mellon and BNY
Mellon, N.A. were unchanged. For further discussion
on the impact of a credit rating downgrade, see Note
23 of the Notes to Consolidated Financial Statements.

Long-term debt totaled $19.9 billion at Dec. 31, 2013
and $18.5 billion at Dec. 31, 2012. In 2013, the
Parent issued $3.9 billion of senior debt, partially
offset by maturities of $1.6 billion, a decrease in the
fair value of hedged long-term debt and $300 million
of repayments of trust preferred securities. The fair
value of the derivatives hedging long-term debt is
recorded in other assets. Additionally, the Parent
called $107 million of subordinated debt in 2013.

The following table presents the long-term debt
issued by the Parent in 2013.

Debt issuances
(in millions)
Senior medium-term notes:

3-month LIBOR + 23 bps senior medium term

notes due 2016

0.7% senior medium-term notes due 2016
3-month LIBOR + 44 bps senior medium term

notes due 2018

3-month LIBOR + 56 bps senior medium-term

notes due 2018

1.35% senior medium-term notes due 2018
2.1% senior medium-term notes due 2018
3-month LIBOR + 50 bps senior medium-term

notes due 2018

2.1% senior medium-term notes due 2019
3.95% senior medium-term notes due 2025

Total debt issuances

2013

300
300

300

500
600
600

100
800
400
3,900

In February 2014, we issued $500 million of senior
medium-term notes maturing in 2019 at an annual
interest rate of 2.2%, $750 million of senior medium-
term notes maturing in 2024 at an annual interest rate
of 3.65% and $200 million of senior medium-term
notes maturing in 2019 at an annual interest rate of 3
month LIBOR plus 50 basis points.

The Parent has $4.37 billion of long-term debt that
will mature in 2014 and has the option to call $300
million of subordinated debt in 2014, which it may
call and refinance if market conditions are favorable

BNY Mellon 57

Results of Operations (continued)

In 2013, we issued 500,000 depositary shares (the
“Series D depositary shares”), each representing a
1/100th ownership interest in a share of Series D
Noncumulative Perpetual Preferred Stock, with a
liquidation preference of $100,000 per share (the
“Series D preferred stock”), of The Bank of New
York Mellon Corporation. BNY Mellon will pay a
dividend on the Series D preferred stock if declared
by our board of directors, at an annual rate of 4.5%
on each June 20 and December 20, to but excluding
June 20, 2023; and a floating rate equal to three-
month LIBOR plus 2.46% on each March 20, June
20, September 20 and December 20, from and
including June 20, 2023. The proceeds of the
offering totaled $494 million, net of issuance costs, a
portion of which was used to redeem $300 million of
7.78% Trust Preferred Securities of BNY Institutional
Capital Trust A.

At Dec. 31, 2013, we had $330 million of trust
preferred securities outstanding. Under the Final
Capital Rules, these trust-preferred securities may
continue to be included in Tier 1 or Tier 2 capital up
to the following percentages: calendar year 2014 -
50%; calendar year 2015 - 25%; and calendar year
2016 and beyond - 0%. Any decision to take action
with respect to these 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 Final Capital Rules.

The double leverage ratio is the ratio of investment in
subsidiaries divided by our consolidated equity,
which includes our noncumulative perpetual
preferred stock plus trust preferred securities. Our
double leverage ratio was 109.4% at Dec. 31, 2013
and 109.9% at Dec. 31, 2012. 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 16 financial institutions matures
in March 2014. There were no borrowings against
this line in 2013. Pershing LLC has nine separate
uncommitted lines of credit amounting to $1.6 billion
in aggregate. Average daily borrowing under these
lines was $8 million, in aggregate, in 2013.

58 BNY Mellon

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

•
•

•

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

We are currently in compliance with these covenants.

Pershing Limited, an indirect 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 $62 million, in aggregate, in 2013.

Statement of cash flows

Cash used for operating activities was $642 million in
2013 compared with cash provided by operations of
$1.6 billion in 2012 and $2.2 billion in 2011. In
2013, cash flows used for operations were principally
changes in trading activities and accruals, partially
offset by earnings. In 2012, cash flows from
operations were principally the result of earnings,
partially offset by changes in trading activities. In
2011, the cash flows from operations were principally
the result of earnings.

In 2013, cash used for investing activities was $13.2
billion compared with $29.4 billion in 2012 and $80.2
billion in 2011. In 2013, purchases of securities,
changes in interest-bearing deposits with the Federal
Reserve and other central banks, loans and federal
funds sold and securities purchased under resale
agreements were a significant use of funds, partially
offset by sales, paydowns and maturities of securities
and a decrease in interest-bearing deposits with
banks. 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.

Results of Operations (continued)

In 2013, cash provided by financing activities was
$15.6 billion compared with $28.3 billion for 2012
and $78.8 billion in 2011. In 2013, an increase in
deposits, the net proceeds from the issuance of long
term debt and changes in federal funds purchased and
securities sold under repurchase agreements were
significant sources of funds, partially offset by the
repayment of long-term debt and common stock
repurchases. In 2012, increases in deposits and
payables to customers and broker dealers were
significant sources of funds. In 2011, proceeds from
issuances of long-term debt and increases in deposits
and payables to customers and broker-dealers were
significant sources of funds.

Commitments and obligations

We have contractual obligations to make fixed and
determinable payments to third parties as indicated in
the table below. The table excludes certain
obligations such as trade payables and trading
liabilities, where the obligation is short-term or
subject to valuation based on market factors. In
addition to the amounts shown in the table below, at
Dec. 31, 2013, $866 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 $203 million. At this
point, it is not possible to determine when these
amounts will be settled or resolved.

Contractual obligations at Dec. 31, 2013

(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
46,575 $
119,079

9,648
15,707
759
22,284
367
77
214,496 $

Less than
1 year
46,575 $
119,072

9,648
15,707
759
4,856
36
35
196,688 $

Payments due by period

1-3 years

3-5 years

— $
5

—
—
—
6,770
85
35
6,895 $

— $
2

—
—
—
4,568
76
7
4,653 $

Over
5 years
—
—

—
—
—
6,090
170
—
6,260

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

Other commitments at Dec. 31, 2013

(in millions)
Securities lending indemnifications (a)
Lending commitments
Standby letters of credit
Operating leases
Purchase obligations (b)
Investment commitments (c)
Commercial letters of credit
Total commitments

Amount of commitment expiration per period

Total
244,382 $
34,039
6,721
1,900
913
250
310
288,515 $

Less than
1 year
244,382 $
9,325
3,290
276
403
19
310
258,005 $

1-3 years

3-5 years

— $

9,931
2,562
507
311
8
—
13,319 $

— $

14,646
869
384
152
4
—
16,055 $

Over
5 years
—
137
—
733
47
219
—
1,136

(a) Excludes the indemnifications for securities booked at BNY Mellon beginning in late 2013 resulting from the CIBC Mellon joint venture

which totaled $60 billion at Dec. 31, 2013.

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

significant terms.

See “Liquidity and dividends” and Note 22 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.

BNY Mellon 59

Results of Operations (continued)

Off-balance sheet arrangements

Off-balance sheet arrangements discussed in this
section are limited to guarantees, retained or
contingent interests and obligations arising out of
unconsolidated variable interest entities. For BNY
Mellon, these items include certain credit guarantees
and securitizations. Guarantees include: lending-

Capital

related guarantees issued as part of our corporate
banking business and securities lending
indemnifications issued as part of our Investment
Services business. See Note 22 of the Notes to
Consolidated Financial Statements for a further
discussion of our off-balance sheet arrangements.

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

2013

2012

10.0%
9.6%
6.8%

10.1%
9.9%
6.4%

$ 37,521
$ 35,959
$ 15,958
31.48
$
13.97
$
34.94
$
$ 39,910
1,142,250

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

Full-year:
Average common equity to average assets
Cash dividends per common share
26%
Common dividend payout ratio
Common dividend yield (annualized)
2.0%
(a) See “Supplemental information - Explanation of GAAP and Non-GAAP financial measures” beginning on page 118 for a reconciliation

33% (b)
1.7%

10.2%
0.58

10.9%
0.52

of GAAP to non-GAAP.

(b) The common dividend payout ratio was 26% for 2013 after adjusting for the net impact of the U.S. Tax Court’s decisions regarding

certain foreign tax credits.

Total The Bank of New York Mellon Corporation
shareholders’ equity at Dec. 31, 2013 increased to
$37.5 billion from $36.4 billion at Dec. 31, 2012.
The increase primarily reflects earnings retention,
approximately $500 million resulting from the
exercise of stock options and awards and employee
benefit plan contributions, an increase in the value of
our pension assets and the issuance of $500 million of
noncumulative perpetual preferred stock, partially
offset by a decline in the value of our investment
securities portfolio and share repurchases.
The unrealized net of tax gain on our available-for
sale investment securities portfolio recorded in
accumulated other comprehensive income was $357
million at Dec. 31, 2013, compared with $1.3 billion
at Dec. 31, 2012. The decrease in the valuation of the
investment securities portfolio was driven by an
increase in long-term interest rates.

60 BNY Mellon

In 2013, we repurchased 35.1 million common shares
at an average price of $29.24 per common share for a
total of $1.03 billion. Under the 2013 capital plan,
we are authorized to repurchase $385 million worth
of common shares in the first quarter of 2014.
Through Feb. 27, 2014, we repurchased 10.6 million
common shares at an average price of $32.41 per
common share for a total of $345 million.

On Jan. 17, 2014, the board of directors declared a
quarterly common stock dividend of $0.15 per share.
This cash dividend was paid on Feb. 7, 2014, to
shareholders of record as of the close of business on
Jan. 31, 2014.

Capital adequacy

Regulators establish certain levels of capital for bank
holding companies and banks, including BNY Mellon
and our bank subsidiaries, in accordance with

Results of Operations (continued)

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, 2013 and Dec. 31, 2012, 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).

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

Consolidated and largest bank subsidiary capital ratios

Consolidated capital ratios:

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

Standardized Approach
Advanced Approach

Determined under Basel I-based rules (e):

Tier 1 common equity to risk-weighted assets ratio – Non-GAAP (b)
Tier 1 capital to risk-weighted assets ratio
Total capital to risk-weighted assets ratio
Leverage – guideline

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

Tier 1 capital to risk-weighted assets ratio
Total capital to risk-weighted assets ratio
Leverage

Well
capitalized

Adequately
capitalized

Dec. 31,

2013

2012

N/A
N/A

N/A
6%
10%
5%

6%
10%
5%

10.6%
11.3% (d)

N/A
9.8%

N/A
4%
(f)
8%
(f)
3% - 4% (g)

4%
8%
3% - 4% (g)

14.5%
16.2%
17.0%
5.4%

14.6%
15.1%
5.3%

13.5%

15.0%

16.3%

5.3%

14.0%
14.6%
5.4%

(a) At Dec. 31, 2013, the estimated Basel III Tier 1 common equity ratio is based on our interpretation of the Final Capital Rules released

by the Federal Reserve on July 2, 2013, on a fully phased-in basis. For periods prior to Dec. 31, 2013, these ratios were estimated
using our interpretations of the NPRs dated June 7, 2012, on a fully phased-in basis. Both the Final Capital Rules and the NPRs
require the Tier 1 common equity ratio to be the lower of the Standardized Approach or Advanced Approach. At Dec. 31, 2012, the
ratio was higher under the Standardized Approach, and therefore was presented under the Advanced Approach.
See “Supplemental Information - Explanation of GAAP and Non-GAAP financial measures” beginning on page 118 for a calculation of
these ratios.

(b)

(c) On a fully phased-in basis, we expect to satisfy a minimum Basel III Tier 1 common equity ratio of at least 7%, 4.5% attributable to a
minimum common equity Tier 1 ratio and 2.5% attributable to a capital conservation buffer (expected to rise to 8%, assuming an
additional G-SIB buffer of 1%).

(d) Changes in January 2014 to the probable loss model associated with unsecured wholesale credit exposures within our Advanced
Approach capital model will impact risk-wighted assets. The Company did not include the impact at Dec. 31, 2013. However, a
preliminary estimate of the revised methodology to the portfolio at Sept. 30, 2013 would have added approximately 6% to the risk-
weighted assets.

(e) 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 that capital measure, as calculated under the Federal Reserve’s risk-based capital rules that are based
on the 1988 Basel Accord, which is often referred to as “Basel I”. Similarly, when in this Annual Report we refer to BNY Mellon’s
“Basel III” capital measures (e.g., Basel III Tier 1 common equity), we mean that capital measure as calculated under the Final
Capital Rules released by the Federal Reserve on July 2, 2013. Includes full capital credit for certain capital instruments outstanding
at Dec. 31, 2013. A phase-out of non-qualifying instruments began on Jan. 1, 2014.
The minimum level required under current Basel I standards.

(f)
(g) The minimum leverage ratio is 3% or 4%, depending on factors specified in regulations.

Our estimated Basel III Tier 1 common equity ratio
(Non-GAAP) calculated under the Standardized
Approach, and based on our interpretation of the
Final Capital Rules, on a fully phased-in basis, was
10.6% at Dec. 31, 2013. At Dec. 31, 2012, the
estimated Basel III Tier 1 common equity ratio which

was calculated under the Advanced Approach based
on our interpretation of the NPR’s, on a fully phased-
in basis, was 9.8%. For additional information on the
Final Capital Rules, see “Recent accounting and
regulatory developments - Regulatory
developments”.

BNY Mellon 61

Results of Operations (continued)

In 2013, net Basel III Tier 1 common equity increased
$611 million. The table below presents the factors
that impacted net Basel III Tier 1 common equity in
2013.

Basel III Tier 1 common equity generation
(in millions)
Estimated Basel III Tier 1 common equity
Beginning of year balance
Net income applicable to common shareholders of
The Bank of New York Mellon Corporation – GAAP
Goodwill and intangible assets, net of related deferred
tax liabilities

Gross Basel III Tier 1 common equity generated

Capital deployed:

Dividends
Common stock repurchased
Total capital deployed

Other comprehensive income (loss):

Foreign currency translation
Unrealized (loss) on assets available-for-sale
Pension liabilities
Unrealized gain on cash flow hedges

Total other comprehensive income (loss)

Additional paid-in capital (a)
Other (deductions):

Net pension fund assets
Deferred tax assets
Cash flow hedges
Embedded goodwill
Investment in unconsolidated subsidaries
Other

Total other (deductions)

Net Basel III Tier 1 common equity generated

Estimated Basel III Tier 1 common equity -
End of year balance

2013

$14,199

2,047

435
2,482

(681)
(1,026)
(1,707)

151
(963)
554
9
(249)
517

(464)
(2)
(9)
63
(7)
(13)
(432)
611

$14,810

(a) Primarily related to employee stock options and awards and

employee benefit plan contributions.

Our Basel I Tier 1 capital ratio was 16.2% at Dec. 31,
2013 compared with 15.0% at Dec. 31, 2012. Our
Basel I Tier 1 leverage ratio was 5.4% at Dec. 31,
2013 and 5.3% at Dec. 31, 2012. The increases in
these ratios primarily reflect earnings retention and
the issuance of noncumulative perpetual preferred
stock, partially offset by share repurchases and the
redemption of trust-preferred securities. The Basel I
Tier 1 capital ratio was also impacted by an increase
in risk-weighted assets, while the Basel I Tier 1
leverage ratio was impacted by an increase in average
assets. The leverage ratio of The Bank of New York
Mellon was 5.3% at Dec. 31, 2013 compared with
5.4% at Dec. 31, 2012. The decrease in the leverage
ratio of The Bank of New York Mellon reflects an
increase in average assets.

62 BNY Mellon

The Tier 1 capital and total capital ratios for The
Bank of New York Mellon increased at Dec. 31, 2013
compared with Dec. 31, 2012. The increases in these
ratios primarily reflect earnings retention, partially
offset by an increase in risk-weighted assets.

At Dec. 31, 2013, the amounts of capital by which
BNY Mellon and our largest bank subsidiary, The
Bank of New York Mellon, exceed the Basel I “well
capitalized” thresholds are as follows.

Capital above thresholds at
Dec. 31, 2013
(in millions)
Tier 1 capital
Total capital
Leverage

Consolidated
$

11,535 $
7,896
1,495

The Bank of
New York
Mellon
8,320
4,880
688

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, 2013.

Potential impact to capital ratios as of Dec. 31, 2013

Increase or decrease of

$1 billion in
risk-weighted
$100 million assets/quarterly
average
assets (a)

in common
equity

9 bps
9
3

7 bps
8

14 bps
15
2

8 bps
9

(basis points)
Basel I:

Tier 1 capital
Total capital
Leverage
Basel III:

Estimated Tier 1 common
equity ratio:

Standardized Approach
Advanced Approach

(a) Quarterly average assets determined under Basel I

regulatory rules. For Basel III, quarterly average assets are
determined under the Final Capital Rules.

Our tangible BNY Mellon common shareholders’
equity to tangible assets of operations ratio was 6.8%
at Dec. 31, 2013 and 6.4% at Dec. 31, 2012. The
increase primarily reflects earnings retention and an
increase in the value of our pension assets, partially
offset by a decline in the value of our investment
securities portfolio and share repurchases.

Results of Operations (continued)

At Dec. 31, 2013, we had $330 million of trust
preferred securities outstanding which currently
qualify as Tier 1 capital. Any decision to take action
with respect to these 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 Final Capital Rules.

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

capitalized” and “well managed” status or capital
adequacy rules more generally, could result in
limitations on our activities and adversely affect our
business and financial condition.”

Capital ratios vary depending on the size of the
balance sheet at quarter-end and the level and types of
investments in assets. 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.

The following tables present the components of our Basel I Tier 1 and Total risk-based capital, the Basel I risk-
weighted assets as well as average assets used for leverage capital purposes at Dec. 31, 2013 and Dec. 31, 2012.

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

Dec. 31,

2013

35,959 $
1,562
330

(20,001)
891
(387)
(19)
18,335

2012

35,363
1,068
623

(20,445)
1,454
(1,350)
(19)
16,694

1
550
344
895
19,230 $
113,322 $
336,787 $

2
1,058
386
1,446
18,140
111,180
315,273

Total Tier 2 capital
Total risk-based capital
Total risk-weighted assets
Average assets for leverage capital purposes
(a) On a regulatory basis as determined under Basel I rules.
(b) Reduced by deferred tax liabilities associated with non-tax deductible identifiable intangible assets of $1,222 million at Dec. 31, 2013,

$
$
$

and $1,310 million at Dec. 31, 2012 and deferred tax liabilities associated with tax deductible goodwill of $1,302 million at Dec. 31,
2013, and $1,130 million at Dec. 31, 2012.

BNY Mellon 63

Results of Operations (continued)

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 rules.

Issuer purchases of equity securities

Share repurchases - fourth quarter of 2013

Dec. 31,

2013

2012

Balance sheet/
notional
amount

Risk-
weighted
assets

Balance sheet/
notional
amount

Risk-
weighted
assets

146,119 $

99,052
12,098
9,161
51,657
(210)
56,433
374,310 $

34,057 $
306,103
7,752
1,240,492
1,588,404 $

$
$

8,121 $
21,753
397
629
31,545
—
19,802
82,247 $

12,959 $
376
7,832
3,762
24,929 $
6,146
113,322
336,787

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

Maximum approximate
dollar value of shares that
may yet be purchased under
the publicly announced plans
or programs at Dec. 31, 2013

Total shares
repurchased as part
of a publicly
announced plan or
program
8,017
2,051
6
10,074

Total shares
repurchased
8,017
2,051
6
10,074

Average price
per share
31.71
32.41
33.59
31.85

(dollars in millions, except per share
information; common shares in thousands)
October 2013
November 2013
December 2013

83
16
16
385 (b)
(a) Includes 74 thousand shares repurchased at a purchase price of $2 million from employees, primarily in connection with the employees’

Fourth quarter of 2013 (a)

payment of taxes upon the vesting of restricted stock. The average price per share of open market purchases was $31.85.

(b) Represents the maximum value of the shares authorized to be repurchased through the first quarter of 2014, including employee benefit

plan repurchases, in connection with the Federal Reserve’s non-objection to our 2013 capital plan.

On March 13, 2012, in connection with the Federal
Reserve’s non-objection to our 2012 capital plan, the
Board of Directors authorized a stock purchase
program providing for the repurchase of an aggregate
of $1.16 billion of common stock beginning in the
second quarter of 2012 and continuing through the
first quarter of 2013. On March 14, 2013, in

connection with the Federal Reserve’s non-objection
to our 2013 capital plan, the Board of Directors
authorized a new stock purchase program providing
for the repurchase of an aggregate of $1.35 billion of
common stock beginning in the second quarter of
2013 and continuing through the first quarter of 2014.

64 BNY Mellon

Results of Operations (continued)

Trading activities and risk management

Our trading activities are focused on acting as a
market maker for our customers 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. The
calculation of our VaR used by management and
presented below assumes a one-day holding period,
utilizes a 99% confidence level, and incorporates the
non-linear characteristics of options. See Note 23 of
the Notes to Consolidated Financial Statements for
additional information on the VaR methodology.

The following tables indicate the calculated VaR
amounts for the trading portfolio for the designated
periods:

VaR (a)
(in millions)
Interest rate
Foreign exchange
Equity
Diversification
Overall portfolio

2013

Average Minimum Maximum
$

10.7 $
1.1
2.5
(3.0)
11.3

6.8 $
0.4
1.1
N/M
7.0

Dec. 31,
7.7
0.6
2.3
(2.4)
8.2

14.8 $
2.4
4.4
N/M
14.8

2012

Average Minimum Maximum
$

VaR (a)
(in millions)
Interest rate
Foreign exchange
Equity
Diversification
Overall portfolio
(a) VaR figures do not reflect the impact of credit valuation

5.0 $
0.2
0.9
N/M
5.0

16.5 $
4.8
3.4
N/M
17.0

10.6 $
1.7
1.9
(3.3)
10.9

Dec. 31,
10.7

0.7

1.8

(2.7)

10.5

adjustment (“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.

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, 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 2013, interest rate risk generated 75% of
average VaR, equity risk generated 18% of average
VaR and foreign exchange risk accounted for 7% of
average VaR. During 2013, 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. The dispersion
of trading results was wider year-over-year reflecting
fluctuations in foreign exchange revenue due mainly
to changes in market volatility impacting spreads,
changes in interest rates and the inclusion of CVA and
overnight index swap (“OIS”) curve discounting,
which began June 30, 2013.

BNY Mellon 65

Results of Operations (continued)

Distribution of trading revenues (losses) (a)

(dollar amounts
in millions)

Revenue range:
Less than $(2.5)
$(2.5) - $0
$0 - $2.5
$2.5 - $5.0
More than $5.0

Dec. 31,
2012

1
—
41
20
—

Quarter ended
June 30,
2013

March 31,
2013

Sept. 30,
2013

Number of days
—
4
24
32
1

—
1
27
24
12

—
3
30
27
4

Dec. 31,
2013

—
6
30
24
2

(a) For quarters prior to June 30, 2013, the distribution of trading
revenues (losses) does not reflect the impact of the CVA and
corresponding hedge and OIS curve discounting.

Foreign exchange and other trading

Foreign exchange and other trading revenue totaled
$674 million in 2013 and $692 million in 2012. In
2013, foreign exchange revenue totaled $608 million,
an increase of 17% compared with $520 million in
2012 driven by higher volumes and volatility. Other
trading revenue totaled $66 million in 2013 compared
with $172 million in 2012. The decrease primarily
reflects lower fixed income trading revenue due to
lower derivatives trading revenue and a loss on
inventory driven by higher interest rates. Foreign
exchange revenue and fixed income trading revenue
is reported in the Investment Services business and
the Other segment. Equity/other trading revenue is
primarily reported in the Other segment.

Trading assets include debt and equity instruments
and derivative assets, primarily interest rate and
foreign exchange contracts, not designated as hedging
instruments. Trading assets were $12 billion at Dec.
31, 2013 compared with $9 billion at Dec. 31, 2012.
The increase in trading assets primarily resulted from
a higher level of securities inventory, primarily U.S.
equity securities and Agency RMBS as we expand
our broker-dealer business.

Trading liabilities include debt and equity
instruments, and derivative liabilities, primarily
interest rate and foreign exchange contracts, not
designated as hedging instruments. Trading liabilities
were $7 billion at Dec. 31, 2013 compared with $8
billion at Dec. 31, 2012.

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,

66 BNY Mellon

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, 2013, our over-the-counter (“OTC”)
derivative assets of $4.2 billion included a CVA
deduction of $26 million. Our OTC derivative
liabilities of $5.6 billion included a debit valuation
adjustment (“DVA”) of $9 million related to our own
credit spread. Net of hedges, the CVA decreased $29
million and the DVA decreased $12 million in 2013.
The net impact of these adjustments increased foreign
exchange and other trading revenue by $17 million in
2013.

At Dec. 31, 2012, our OTC derivative assets of $5.1
billion included a CVA deduction of $103 million.
Our OTC derivative liabilities of $7.0 billion included
a 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.

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.
Significant changes in ratings classifications for our
foreign exchange and other trading activity could
result in increased risk for us. The changes year-
over-year were impacted by a decrease in aggregate
exposure across the portfolio primarily impacting
both the AAA to AA- and the BBB+ to BBB-
categories. The decreases were largely driven by
increases in swap rates over the year which caused
certain exposures to decline in value.

Results of Operations (continued)

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

Rating:
AAA to AA
A+ to A
BBB+ to BBB
Non-investment grade (BB+ and lower)

Total

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

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

Quarter ended

Dec. 31,
2012

March 31,
2013

June 30,
2013

Sept. 30,
2013

Dec. 31,
2013

38%
35
22
5
100%

37%
40
19
4
100%

41%
38
17
4
100%

35%
43
16
6
100%

32%
47
16
5
100%

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

(dollars in millions)
up 200 bps parallel rate ramp vs. baseline (a)
up 100 bps parallel rate ramp vs. baseline (a)
Long-term up 50 bps, short-term unchanged (b)
Long-term down 50 bps, short-term unchanged (b)
(a) In the parallel rate ramp, both short-term and long-term rates move in four equal quarterly increments.
(b) Long-term is equal to or greater than one year.

March 31,
2013
351
311
142
(114)

Dec. 31,
2012
607
435
128
(93)

June 30,
2013
402
324
130
(123)

Sept. 30,
2013
617
387
174
(144)

Dec. 31,
2013
677
466
44
(47)

BNY Mellon 67

Results of Operations (continued)

The 100 basis point ramp scenario assumes 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 current historically
low interest rate environment, a rise in interest rates
could lead to higher depositor withdrawals than
historically experienced.

Growth or contraction of deposits could also be
affected by the following factors:

• Monetary policy;
• Global economic uncertainty;
• Our ratings relative to other financial institutions’

ratings; and

• Money market mutual fund and other regulatory

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

Rate change:

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

Dec. 31,
2013

(4.2)%
(2.0)%

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

68 BNY Mellon

The asymmetrical accounting treatment of the impact
of a change in interest rates on our balance sheet may
create a situation in which an increase in interest rates
can adversely affect reported equity and regulatory
capital, even though economically there may be no
impact on our economic capital position. For
example, an increase in rates will result in a decline
in the value of our available-for-sale securities
portfolio, 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, 2013,
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 TCE ratio
(in basis points)
up 200 bps vs. baseline
up 100 bps vs. baseline

Dec. 31,
2013
(83)
(41)

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

To manage foreign exchange risk, we fund foreign
currency-denominated assets with liability
instruments denominated in the same currency. We
utilize various foreign exchange contracts if a liability
denominated in the same currency is not available or
desired, and to minimize the earnings impact of
translation gains or losses created by investments in
foreign markets. The foreign exchange risk related to
the interest rate spread on foreign currency-
denominated asset/liability positions is managed as
part of our trading activities. We use forward foreign
exchange contracts to protect the value of our net
investment in foreign operations. At Dec. 31, 2013,
net investments in foreign operations totaled $12
billion and were spread across 13 foreign currencies.

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:

•

ensure that appropriate risk tolerances (“limits”)
are in place to govern our risk taking activities
across all businesses and risk types;
ensure that our risk appetite principles permeate
the Company’s culture and are incorporated into
our strategic decision-making processes;

BNY Mellon 69

The following table presents the primary types of risk
typically embedded in on- and off-balance-sheet
instruments.

credit

Risks of our on- and off-balance-sheet instruments
Assets:
Interest-bearing deposits with
banks
Federal funds sold and securities
purchased under resale
agreements
Securities
Trading assets
Loans
Goodwill
Intangible assets

market, credit
market, credit
market, credit
credit
operational/business, market
operational/business, market

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
indemnifications

liquidity

liquidity
market, liquidity

liquidity
liquidity

credit, liquidity
credit, liquidity
credit, liquidity

market, credit

Risk Management (continued)

•

ensure rigorous monitoring and reporting of key
risk metrics to senior management and the Board
of Directors; and
ensure that there is an on-going, and forward-
looking, capital planning process to support our
risk taking activities.”

Primary risk types

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

Type of risk Description
Operational/
business

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.

Market

Credit

Liquidity

70 BNY Mellon

Risk Management (continued)

The following chart provides a guide to the primary
risks inherent in our businesses. Liquidity risk is
managed on a stand-alone basis at the Consolidated
and Bank levels. Management of liquidity risk is the
responsibility of the Corporate Treasury Group which
is reported in the Other segment. The percentages
below are based on the allocation of economic capital
at Dec. 31, 2013 to protect against unexpected
economic losses over a one-year period at a level
consistent with the solvency of a target debt rating.

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
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 report
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:

• 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.

• Accountability of Businesses - Business

managers are responsible for maintaining an
effective system of internal controls
commensurate with their risk profiles and in
accordance with BNY Mellon policies and
procedures.

• 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

BNY Mellon 71

Risk Management (continued)

•

continuous improvement in controls, and to
optimize capital.
IRM Group - The IRM Group is responsible for
developing policies, methods and tools for
identifying, assessing, measuring, monitoring and
governing information and technology risk for
BNY Mellon. The IRM Group partners with the
businesses 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
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
business 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. The
following activities are also addressed during
Business Risk meetings:

• Reporting of all new Monitoring Limits and

changes to existing limits; and

• Monitoring of trading exposures, VaR, market

sensitivities and stress testing results.

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 for the Company’s
VaR model.

72 BNY Mellon

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.

The requisite approvals are based upon

We manage credit risk at both the individual exposure
level as well as the portfolio level. Credit risk at the
individual exposure level is managed through our
credit approval system and involves four approval
levels up to and including the Chief Risk Officer of
the Company.
the size and relative risk of the aggregate exposure
under consideration. The Credit Risk Group is
responsible for approving the size, terms and maturity
of all credit exposures as well as the ongoing
monitoring of the creditworthiness of the
counterparty. In addition, they are responsible for
assigning and maintaining the risk ratings on each
exposure.

Credit risk management at the portfolio level is
supported by the Basel & Capital Adequacy Group,
within the Risk Management and Compliance Sector.
The Basel & Capital Adequacy Group 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 institutional lending, where
most of our credit risk is created, unfunded
commitments are assigned a usage given default
percentage. Borrowers/Counterparties are assigned
ratings by Credit Portfolio Managers (“CPMs”) and
the Chief Credit Officer (“CCO”) on an 18-grade
scale, which translate to a scaled probability of
default. Additionally, transactions are assigned loss-
given-default ratings (on a 7-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 Basel & Capital Adequacy Group is

Risk Management (continued)

called economic capital. Our economic capital model
estimates the capital required to support the overall
credit risk portfolio. Using a Monte Carlo simulation
engine and measures of correlation among borrower
defaults, the economic model examines extreme and
highly unlikely scenarios of portfolio credit loss in
order to estimate credit-related capital, and then
allocates that capital to individual borrowers and
exposures. The credit-related capital calculation
supports a second tier of policy standards and limits
by serving as an input to both profitability analysis
and concentration limits of capital at risk with any
one borrower, industry or country.

The Basel & Capital Adequacy Group 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, Basel & Capital Adequacy 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

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.

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, liquidity stress metrics and
ratios, Liquidity Coverage Ratio, Net Stable Funding
Ratio and client deposit concentration. The Treasury
Risk Committee approves and validates stress test
methodologies and assumptions.

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.

When monitoring liquidity, we evaluate multiple
metrics to ensure ample liquidity for expected and
unexpected events. Metrics include cashflow
mismatches, asset maturities, debt spreads, peer
ratios, liquid assets, unencumbered collateral, funding
sources and balance sheet liquidity ratios. We
monitor the revised Basel III liquidity coverage ratio
and continue to evaluate the U.S. banking agencies’
proposal for the Basel III LCR. Internal 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 internal
ratios exceeded our minimum guidelines at Dec. 31,
2013.

BNY Mellon 73

Risk Management (continued)

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.

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

74 BNY Mellon

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, are a key component to ensuring
that the actual level of capital is commensurate with
our risk profile and 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 Basel &
Capital Adequacy Group and are designed to be
consistent with our risk management principles. The
framework has been approved by senior management
and has been reviewed by the Risk Committee of the
Board of Directors. Due to the evolving nature of
quantification techniques, we expect to continue to
refine the methodologies used to estimate our
economic capital requirements.

The following table presents our economic capital
required at Dec. 31, 2013, on a consolidated basis.

Economic capital required at Dec. 31, 2013
(in millions)
Credit
Market
Operational
Other

Economic capital required - consolidated

Basel I Tier 1 common equity

Capital cushion

2,875
1,968
3,492
(26)
8,309

16,443

8,134

Global compliance

Our global compliance function provides leadership,
guidance, and oversight to help our businesses
identify applicable laws and regulations and
implement effective measures to meet the specific
requirements. Compliance takes a proactive
approach by anticipating evolving regulatory
standards and remaining aware of industry best
practices, legislative initiatives, competitive issues,
and public expectations and perceptions. The
function uses its global reach to disseminate
information about compliance-related matters
throughout BNY Mellon. The Chief Compliance and
Ethics Officer reports to the Chief Risk Officer, is a
member of key committees of BNY Mellon and
provides regular updates to the Risk Committee of the
Board of Directors.

Risk Management (continued)

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.

BNY Mellon 75

Supervision and Regulation

Evolving Regulatory Environment

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 globally,
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 Wall
Street Reform and Consumer Protection Act of 2010
(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 bank holding companies
(“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 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 the
Dodd-Frank Act 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. The
Dodd-Frank Act contains many major domestic
reforms that will eventually apply to BNY Mellon
and that will affect its businesses and those of its
clients not only domestically but also internationally.
In addition, other national and global reform
measures that are being considered or have been

76 BNY Mellon

adopted by various policy makers (including the U.S.
implementation of the Basel III capital and liquidity
framework) may materially impact us. Relevant
regulatory initiatives, whether national or global, are
discussed further below.

Enhanced Prudential Standards

Sections 165 and 166 of the Dodd-Frank Act direct
the Federal Reserve to enact heightened prudential
standards applicable to BHCs with total consolidated
assets of $50 billion or more, such as BNY Mellon,
and certain designated nonbank financial companies
(generally referred to as “systemically important
financial institutions” or “SIFIs”). Dodd-Frank
mandates that the requirements applicable to SIFIs 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;
liquidity requirements;

single-counterparty credit exposure limits;

stress testing of capital;

overall risk management requirements; and

remedial actions that SIFIs must take during the
early stages of financial distress if specified
trigger events occur (referred to as the “early
remediation provisions”).

The rules addressing stress testing of capital were
finalized and effective commencing with the third
quarter of 2013. In February 2014, the Federal
Reserve adopted rules (“Final SIFI Rules”) to
implement the liquidity and risk management
requirements of the Proposed SIFI Rules. Beginning
Jan. 1, 2015, the rules require BHCs with $50 billion
or more in total consolidated assets to comply with
enhanced liquidity and overall risk management
standards, including a buffer of highly liquid assets
based on projected funding needs for 30 days, and
increased involvement by boards of directors in
liquidity and overall risk management. The liquidity
buffer is in addition to the U.S. banking agencies’
proposal on minimum liquidity standards discussed
below and described by the Federal Reserve as being
“complementary” to those liquidity standards. The
Federal Reserve has not yet adopted final rules
addressing the Proposed SIFI Rules’ single

Supervision and Regulation (continued)

counterparty credit limits or early remediation
provisions.

The Final SIFI Rules do not address single
counterparty credit limits, short-term debt limits, or
early remediation provisions. The Federal Reserve
noted that it is still developing the single-counterparty
credit limit rule, taking into account the Basel
Committee’s large exposure limits.

Similar to the single-counterparty credit limits in the
Proposed SIFI Rules, the Basel Committee released a
Consultative Document in March 2013 outlining a
supervisory framework for measuring and controlling
large exposures. The framework is conceptually
analogous to the single-counterparty exposure limits
in the proposed SIFI rules; however, it differs from
the U.S. proposal in multiple ways, including
exposure measurement methodologies and the base
denominator for calculating credit exposure limits.

The Basel’s Committee’s large exposures proposal
includes specific proposals for the treatment of
securities finance transactions, including securities
lending transactions. As proposed, the framework
eschews credit exposure measurement methodologies
for securities finance transactions that firms have
developed to comply with previous risk-based capital
rules. Instead, the proposal includes a risk-insensitive
measurement methodology that relies on static
collateral haircuts.

Capital Planning and Stress Testing

Payment of Dividends, Stock Repurchases and Other
Capital Distributions

The Parent is a legal entity separate and distinct from
its bank subsidiaries and other subsidiaries.
Dividends and interest from its subsidiaries are the
Parent’s 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 the Parent 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 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 its 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 CCAR,
implementing its capital plan rules. These rules
require BHCs having $50 billion or more in total
consolidated assets (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

BNY Mellon 77

Supervision and Regulation (continued)

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, for each quarter
throughout the nine-quarter planning horizon covered
by the capital plan, all minimum regulatory capital
ratios under applicable capital rules as in effect for
that quarter as well as all minimum regulatory capital
ratios and maintain a Tier 1 common to risk-weighted
assets ratio of at least 5% calculated under existing
general risk-based capital rules as currently in effect,
in each case on a pro forma basis under the base case
and stressful scenarios (including a severely adverse
scenario provided by the Federal Reserve). 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 Tier
1 common to risk-weighted assets ratio of at least 5%.

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 33% in 2013, or 26% after adjusting
for the net impact of the U.S. Tax Court’s decisions
regarding certain foreign tax credits.

We submitted our 2014 capital plan to the Federal
Reserve on Jan. 6, 2014. 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, on March 26, 2014. We anticipate
announcing our 2014 capital plan shortly thereafter.

Regulatory Stress-Testing Requirements

In addition to the CCAR stress testing requirements,
Federal Reserve regulations also include the new
Dodd-Frank Act stress tests (“DFAST”), which were
adopted in final form in October 2012. The CCAR
and Dodd-Frank stress testing requirements
substantially overlap, and the Federal Reserve
implements them at the BHC level on a coordinated
basis.

78 BNY Mellon

Under these DFAST 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, The Bank
of New York Mellon is required to conduct its own
annual internal stress test (although this bank is
permitted to combine certain reporting and disclosure
of its 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 are reported to the appropriate
regulators and published. We published the results of
our company-run stress test on March 14, 2013, and
the results of our company-run mid-year stress test on
Sept. 16, 2013.

Capital Requirements - 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.

The U.S. banking agencies’ capital rules have been
based on three main components:

• Risk-based capital rules applicable to all banking

organizations based on the Basel Committee on
Banking Supervision’s 1988 agreement,
International Convergence of Capital and
Measurement Standards (“Basel I”). The banking
agencies refer to these rules as the “general risk-
based capital rules”.

• Risk-based capital rules applicable to banking

organizations having $250 billion or more in total
consolidated assets or $10 billion or more in
foreign exposures (including BNY Mellon),
based upon the advanced internal ratings-based
approach for credit risk and the advanced

Supervision and Regulation (continued)

measurement approach for operational risk within
the Basel Committee on Banking Supervision’s
comprehensive June 2006 release, International
Convergence of Capital Measurement and
Capital Standards: A Revised Framework (“Basel
II”). The agencies refer to these rules as the
“Advanced Approaches” risk-based capital rules.

• A Tier 1 leverage ratio that measures Tier 1

capital to total assets.

In addition, the risk-based capital rules 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
rules 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. Effective
Jan. 1, 2013, the U.S. banking agencies made
substantial amendments to their market risk rules
implementing revisions, commonly known as “Basel
II.5”, that the Basel Committee had made to the Basel
framework’s market risk provisions.

General Risk-Based Capital Rules

Under the agencies’ general risk-based capital rules
based on Basel I, the risk-based capital ratio is
determined by dividing the sum of the capital
components (Tier 1 and Tier 2 capital) by risk-
weighted assets (including certain off-balance sheet
items, such as standby letters of credit). The required
minimum ratio of total capital (the sum of Tier 1 and
Tier 2 capital) to risk-adjusted assets is 8.0%. The
required minimum ratio of Tier 1 capital to risk-
adjusted assets is 4.0%.

The general risk-based capital rules provide that
voting common stockholders’ equity should be the
predominant element within Tier 1 capital and that
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. 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,
2013, BNY Mellon’s Tier 1 capital to risk-adjusted

assets and Total capital to risk-adjusted assets ratios
were 16.2% and 17.0%, respectively.

Advanced Approaches Risk-Based Capital Rules

The U.S. banking agencies’ Advanced Approaches
risk-based capital rules are based on Basel II’s
Advanced Approaches. On Feb. 21, 2014, the
Federal Reserve announced that BNY Mellon had
been approved to exit parallel run reporting for U.S.
regulatory capital purposes, and will transition from
the general risk-based capital rules to the Final
Capital Rules’ Advanced Approaches, effective
starting in the second quarter of 2014, subject to
ongoing qualification. We will be required to comply
with advanced approaches reporting and public
disclosures commencing on June 30, 2014. This
means, among other things, for purposes of
determining whether we meet minimum risk-based
capital requirements, starting with the second quarter
of 2014 our common equity Tier 1 capital ratio, Tier 1
capital ratio, and total capital ratio will be the lower
of that calculated under the general risk-based capital
rules (during 2014 these ratios are determined using a
Basel III numerator and Basel I risk-weightings) and
under the Advanced Approaches rule.

Capital Requirements - Basel III Final Capital
Rules and Proposals

In July 2013, the U.S. banking agencies approved the
Final Capital Rules. The Final Capital Rules are
largely based on the Basel Committee’s December
2010 final capital framework for strengthening
international capital standards, now officially
identified by the Basel Committee as “Basel III”, and
also implement, through the new “Standardized
Approach” discussed below, a revised calculation of
risk-weighted assets that, effective Jan. 1, 2015, will
replace the calculation of risk-weighted assets under
the existing general risk-based capital rules. The
Final Capital Rules:

• Redefine the components of capital in the

•

numerator of regulatory capital ratios in a more
narrow way than existing standards;
Increase the minimum risk-based capital ratios
under the general risk-based capital rules and the
Advanced Approaches;

• Change the measure of risk-weighted assets in the
denominator of the general risk-based capital
rules according to the “Standardized Approach,”

BNY Mellon 79

Supervision and Regulation (continued)

so that the Standardized Approach is the new
“general risk-based capital” standard;

• Change the measure of risk-weighted assets in the
denominator of the risk-based capital ratios in the
agencies’ Advanced Approaches rules;
• Establishes a capital conservation buffer;
•

Introduces a countercyclical capital buffer for
advanced approaches banking organizations; and

• Establishes a supplementary leverage ratio for

advanced approaches banking organizations.

The Final Capital Rules allow a graduated
implementation schedule that began on Jan. 1, 2014
for Advanced Approaches banking organizations,
including BNY Mellon and will be substantially
phased-in by 2019. The applicable transition periods
for the revised minimum regulatory capital ratios,
definitions of regulatory capital, and regulatory
capital adjustments and deductions also began on Jan.
1, 2014. In addition, BNY Mellon must begin using
the new Standardized Approach risk-weightings on
Jan. 1, 2015 (during 2014 Basel III looks to Basel I’s
risk-weightings in lieu of its Standardized Approach);
meet the minimum ratios for the capital conservation
buffer and countercyclical capital buffer during the
transition period beginning on Jan. 1, 2016; and begin
compliance with the new Basel III-based
supplementary leverage ratio on Jan. 1, 2018.

The Final Capital Rules do not address certain
matters concerning financial institution capital,
liquidity and related matters expected to be the
subject of regulation in the near term. These items
include U.S. implementation of capital surcharges for
global systemically important banks (“G-SIBs”) (for
which BNY Mellon was originally provisionally
assigned a 1.5% surcharge, but which has been
reduced to 1.0% at the international level), Basel III’s
liquidity standards, loss absorbency standards
designed to facilitate a holding company “single point
of entry” resolution under Title II of the Dodd-Frank
Act, and capital charges designed to discourage
overreliance on short-term wholesale funding
practices.

New Minimum Capital Ratios and Capital Buffers

Consistent with the terms of the Basel III Framework
and the Dodd-Frank Act, the Final Capital Rules
require Advanced Approaches banking institutions to
satisfy three minimum risk-based capital ratios using
both the new Standardized Approach risk-weightings
on Jan. 1, 2015 (during 2014 Basel III looks to Basel

80 BNY Mellon

I’s risk weightings in lieu of the Standardized
Approach) and the Advanced Approach (for BNY
Mellon, commencing with the second quarter of
2014):

•

a common equity Tier 1 (“CET1”) ratio of 4.0%
as of Jan. 1, 2014, increasing to 4.5% beginning
Jan. 1, 2015;
a Tier 1 capital ratio of 5.5% on Jan. 1, 2014,
increasing to 6.0% beginning Jan. 1, 2015; and
a total capital ratio of 8.0% (unchanged from the
existing general risk-based capital rules).

In addition, these minimum ratios will be
supplemented by a new capital conservation buffer
that phases in, beginning on Jan. 1, 2016, in
increments of 0.625% per year until it reaches 2.5%
on Jan. 1, 2019. BNY Mellon expects the 2.5%
capital conservation buffer, as applied to it, to
increase by an assumed additional G-SIB buffer
applicable to BNY Mellon of 1%, noted above.

The capital conservation buffer is designed to absorb
losses during periods of economic stress and applies
to all banking organizations. Banking organizations
with a ratio of common equity Tier 1 capital 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.

During periods of excessive growth the capital
conservation buffer may be expanded up to an
additional 2.5% through the imposition of a
countercyclical capital buffer. The countercyclical
capital buffer, when applicable, applies only to
advanced approaches banking organizations. The
countercyclical capital buffer is initially set to zero,
but it could increase if the banking agencies
determine that there is excessive credit in the markets
that could lead to wide-spread market failure.

At Dec. 31, 2013, our estimated Basel III common
equity Tier 1 ratio was 11.3% under the Advanced
Approaches and 10.6% under the Standardized
Approach, both on a fully phased-in basis based on
our understanding of the Final Capital Rules and the
final market risk rules.

Supervision and Regulation (continued)

New Measure of Capital

The Final Capital Rules, like Basel III, provide for a
number of new deductions from and adjustments to
common equity Tier 1 capital. These include, for
example, providing that unrealized gains and losses
on all available for sale debt securities may not be
filtered out for regulatory capital purposes, and the
requirement that mortgage servicing rights, deferred
tax assets dependent upon future taxable income 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
common equity Tier 1 or all such categories in the
aggregate exceed 15% of common equity Tier 1.

The Final Capital Rules 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. Non-qualifying
capital instruments, such as trust preferred securities,
that were issued and included in Tier 1 or Tier 2
capital prior to May 19, 2010 (and that are also
outstanding on the effective date of the final rule)
may continue to be included in Tier 1 or Tier 2 capital
up to the following percentages: calendar year 2014:
50%; calendar year 2015: 25%; and calendar year
2016 and later dates: 0%. Certain non-qualifying
instruments no longer eligible for inclusion in Tier 1
capital may still be included in Tier 2 capital over a
gradual phase-out schedule terminating in 2022. At
Dec. 31, 2013, BNY Mellon had $330 million of
outstanding trust preferred securities.

New General Risk-Based Capital Rules:
Standardized Approach

The Final Capital Rules amend the agencies’ general
risk-based capital rules, replacing the risk-weight
categories 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, known as the “Standardized
Approach.” The new risk-weights for the
Standardized Approach range from 0% to 1,250%
compared with the risk-weights of 0% to 100%, in
general, in the Basel I risk-based capital rules.
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 over-the-counter
derivatives. Compared with Basel I, the risk-

weighting changes likely to have significance for
BNY Mellon are the application of the collateral
haircut approach to securities lending, the
replacement of the 20% risk-weight for banks with
OECD country risk classification ratings, the
increased risk-weights for securitizations, the removal
of the 50% risk-weight cap on derivative transactions,
application of 1,250% risk-weight to default fund
contribution and the elimination of the 0% risk-
weight for commitments of less than one year.

Concerning securities finance transactions, including
transactions in which we serve as agent and provide
securities replacement indemnification to a securities
lender, the Final Capital Rules do not permit a
banking organization to use a simple VaR approach to
calculate exposure amounts for repo-style
transactions or to use internal models to calculate the
exposure amount for the counterparty credit exposure
for repo-style transactions under the Standardized
Approach (although these methodologies are included
in the Advanced Approaches). Under the
Standardized Approach, a banking organization may
use a collateral haircut approach to recognize the
credit risk mitigation benefits of financial collateral
that secures a repo-style transaction, including an
agented securities lending transaction, among other
transactions. To apply the collateral haircut approach,
a banking organization must determine the exposure
amount and the relevant risk weight for the
counterparty or guarantor. Banking organizations
may calculate market price volatility and foreign
exchange volatility using their own internal estimates
with prior written approval of their primary Federal
supervisor.

Tier 1 and Supplementary Leverage Ratios

As noted above, the U.S. banking agencies
historically have required banks to meet a minimum
Tier 1 leverage ratio. The Final Capital Rules retain
this Tier 1 leverage ratio but now require a minimum
4% ratio for all banking organizations (eliminating
the existing exception for certain banking
organization to maintain only a 3% minimum). On
Dec. 31, 2013, the Tier 1 leverage ratio for The Bank
of New York Mellon Corporation was 5.4% and our
primary banking subsidiary, The Bank of New York
Mellon, was 5.3%.

The Final Capital Rules also implement a new 3%
Basel III-based supplementary leverage ratio for
Advanced Approaches banking organizations,

BNY Mellon 81

Supervision and Regulation (continued)

including BNY Mellon, to become effective Jan. 1,
2018. Unlike the Tier 1 leverage ratio, the
supplementary leverage ratio includes certain off-
balance sheet exposures in the denominator, including
the potential future credit exposure of derivative
contracts and 10% of the notional amount of
unconditionally cancellable commitments.

Subsequent to the U.S. banking agencies’ adoption of
the Final Capital Rules:

• The Basel Committee finalized (in Jan. 2014)
modifications to the Basel III supplementary
leverage ratio. Those modifications would adjust
the supplementary leverage ratio’s denominator
(referred to as the “exposure amount”) by making
changes to the calculation of the exposure amount
attributable to certain derivatives exposures and
certain securities financing transactions but
would retain the minimum Tier 1 supplementary
leverage ratio requirement of 3%.

• The U.S. banking agencies proposed to increase
the minimum supplementary leverage ratio
requirement for the largest U.S. banks (those
deemed to be G-SIBs). The agencies’ proposal
would require BNY Mellon and other bank
holding companies that are G-SIBs to maintain a
5% supplementary Tier 1 leverage ratio
(comprised of the current minimum requirement
of 3% plus a 2% buffer) and require bank
subsidiaries of those bank holding companies, in
order to qualify as “well capitalized” under the
prompt corrective action regulations discussed
below, to maintain a 6% supplementary Tier 1
leverage ratio. The agencies have not yet acted
upon these proposals.

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.” The FDI Act
imposes progressively more restrictive constraints on
operations, management and capital distributions the
less capital the institution holds.

82 BNY Mellon

A depository institution is deemed to be “well
capitalized” if the depository institution has a total
risk-based capital ratio of at least 10.0%; Tier 1 risk-
based capital ratio of at least 6.0%; and Tier 1
leverage ratio of at least 5.0%. FDICIA’s prompt
corrective action provisions only apply to depository
institutions and not to BHCs. The Federal Reserve’s
regulations applicable to BHCs do include a concept
of a “well capitalized” BHC, defined as one
maintaining a total risk-based capital ratio of at least
10.0% and a Tier 1 risk-based capital ratio of at least
6.0% (but not a leverage measure). A bank holding
company that is not well capitalized under that
definition (or whose bank subsidiaries are not well
capitalized and well managed under applicable
prompt corrective action standards) may not become
a financial holding company and, if it is a financial
holding company but then falls out of well-
capitalized status, may be restricted in certain of its
activities and ultimately may lose financial holding
company status.

The Final Capital Rules establish revised “well
capitalized” thresholds for insured depository
institutions under the federal banking agencies’
prompt corrective action framework. Under the Final
Capital Rules, an insured depository institution is
deemed to be “well capitalized” if it has:

• a Tier 1 common equity ratio of at least 6.5%;
• a Tier 1 capital ratio of at least 8%;
• a total capital ratio of at least 10%; and
• a Tier 1 leverage ratio of at least 5%.

Effective January 2018, the Final Capital Rules also
require an Advanced Approaches institution to
maintain a supplementary leverage ratio of at least
3% to qualify for the “adequately capitalized” status
but does not have a minimum supplementary leverage
ratio requirement to meet “well capitalized” status.
However, as noted above, the U.S. banking agencies
proposed revisions to the supplementary leverage
ratio that would establish a supplementary leverage
ratio “well capitalized” threshold of 6% for covered
insured depository institutions, including The Bank of
New York Mellon.

At Dec. 31, 2013, BNY Mellon and all of its bank
subsidiaries were “well capitalized” based on the
ratios and rules applicable to them 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

Supervision and Regulation (continued)

representation of the bank’s overall financial
condition or prospects.

Liquidity Standards - Basel III and U.S.
Proposals

Historically, regulation and monitoring of bank and
BHC liquidity principally have been addressed as a
supervisory matter, both in the U.S. and
internationally, without required formulaic measures.
The Basel III 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, will be
required by regulation. One test, referred to as 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 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 Committee issued the final LCR
document in January 2013 and proposed revisions to
the NSFR in January 2014. 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 Federal Reserve expects to issue a proposal
regarding implementation of this one-year measure
after completion of the Basel Committee’s work, and
in advance of the NSFR’s effective date of January
2018.

In October 2013, the Federal Reserve, OCC, and
FDIC issued an NPR to implement the Basel III
liquidity coverage ratio in the U.S. (“Proposed LCR
Rule”). The agencies indicated that the Proposed
LCR Rule is more stringent than the Basel III LCR in
certain elements, including the eligibility of high-
quality liquid assets and an accelerated
implementation timeline. Starting on Jan. 1, 2015,
covered companies would be required to meet a

liquidity coverage ratio of 80% percent, increasing
annually by 10% increments until Jan. 1, 2017, at
which time covered companies would be required to
meet a liquidity coverage ratio of 100%. This
proposal was open for comment until Jan. 31, 2014.

Separately, the Final SIFI Rules address liquidity
requirements for BHCs with $50 billion or more in
total assets, including BNY Mellon. These enhanced
liquidity requirements include an independent review
of liquidity risk management; establishment of cash
flow projections, a contingency funding plan, and
liquidity risk limits; liquidity stress testing under
multiple stress scenarios and time horizons tailored to
the specific products and profile of the company; and
maintenance of a liquidity buffer of unencumbered
highly liquid assets sufficient to meet projected net
cash outflows over 30 days under a range of stress
scenarios. In the release accompanying those rules,
the Federal Reserve states that these enhanced
liquidity requirements are designed to complement
the LCR. The LCR would provide a standardized
measure to allow comparison across BHCs, while the
Final SIFI Rules’ internal stress test requirements
provide a view of the BHC under various scenarios,
time horizons, and tailored to the profile of the
company.

Volcker Rule and Related European Initiatives

The Dodd-Frank Act 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”.

On Dec. 10, 2013, final rules to implement the
Volcker Rule were adopted. Banks, including BNY
Mellon, and affiliates must conform their covered
activities and investments with the final Volcker Rule
regulations by July 21, 2015, and 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 this
conformance period. The final Volcker Rule will also
require us to develop an extensive compliance
program, subject to CEO attestation, addressing
proprietary trading and covered fund activities.

The Volcker Rule prohibits covered companies,
including BNY Mellon, from engaging in proprietary
trading and conditionally allows us to sponsor certain

BNY Mellon 83

Supervision and Regulation (continued)

U.S. and foreign private equity and hedge funds
(“covered funds”). The designation of covered funds
is expected to affect our ability to own or provide
seed 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) will be affected. In
general, the conditions limit us from owning interests
in covered funds, prohibit the funds from sharing the
same or similar name with a BNY Mellon affiliate,
and restrict the way BNY Mellon can transact and
service these funds. The restrictions concerning
proprietary trading do not contain a broad exemption
for asset-liability management functions, but contain
more limited exceptions for, among other things,
bona fide liquidity risk management and risk-
mitigating hedging activities, as well as certain
classes of exempted instruments, including
government securities. Ownership interests in
covered funds that banking organizations organize
and offer will be limited to 3% of the total
outstanding ownership interests of any individual
fund at any time more than one year after the date of
its establishment, and with respect to the aggregate
value of all such ownership interests in covered
funds, 3% of the banking organization’s Tier 1
capital. Moreover, beginning in the third quarter of
2015, a banking entity relying on the final Volcker
Rule’s exemption for sponsoring covered funds will
need to deduct from its Tier 1 capital, the value of
related ownership interests, calculated in accordance
with the final rule. The final Volcker Rule is highly
complex, and its full impact will not be known until
market practices and structures are fully developed.
BNY Mellon has until July 2015 to bring its covered
activities and transactions into compliance, absent
further extensions by the regulators.

On Jan. 29, 2014, the European Commission (“EC”)
announced proposals concerning structural measures
to improve the resilience of EU credit institutions,
which will be similar in effect to the Volcker Rule, for
the stated purpose of regulating the proprietary
trading activities of large and complex banks. The
new rules would also give supervisors the power to
require such banks to separate certain trading
activities from their deposit-taking business. We are
in the process of monitoring the evolution of these
proposals to evaluate their impact on our European
operations.

84 BNY Mellon

Derivatives

U.S. and EU 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 and the European Market
Infrastructure Regulation (“EMIR”) each require or
impose a large number of requirements in this area,
many of which are not yet final. Once these rules are
finalized, including with respect to how Dodd-Frank
and EMIR complement each other in relation to
cross-border activities, they could affect the way
various BNY Mellon subsidiaries operate, including
where and with whom they transact, and changes to
the markets and participants will impact business
models and profitability of certain BNY Mellon
subsidiaries.

Money Market Fund Reforms

Regulators have focused on risks that money market
funds (“MMFs”) 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.

In June 2013, the SEC issued proposed rules for
institutional prime MMFs. The proposal sets forth
two potential requirements, which could be adopted
independently or combined. First, the SEC proposed
to require institutional prime funds to float their net
asset values. Second, the SEC proposed to limit
redemptions during times of stress. Under this
alternative, non-government MMFs would be
required to impose a 2% liquidity fee and 30-day
redemption gate if the fund’s level of weekly liquid
assets fell below 15% of its total assets, unless the
fund’s board determined that it was not in the best
interest of the fund. That determination would be
subject to the board’s fiduciary duty.

Supervision and Regulation (continued)

Beyond these primary reform proposals, the SEC
release proposed other potential changes, including
tightening diversification requirements, enhancing
disclosure requirements, strengthening stress testing
and new reporting requirements for both MMFs and
unregistered liquidity funds (these funds could serve
as alternatives to money market funds for some
investors).

Meanwhile, EU legislation on MMFs proposed by the
EC, which has been under consideration in the
European Parliament, include: (i) requirements for
“constant value” (“CNAV”) MMFs, including a 3%
capital buffer; (ii) a requirement to perform internal
credit ratings; (iii) restrictions on the types of assets
in which MMFs can invest, including with respect to
asset-backed commercial paper; (iv) diversification
restrictions, including on collateral received on
reverse repurchase agreements; (v) a prohibition or
restriction of use of amortized cost accounting in
“variable” NAV funds; (vi) a possible ban on MMF-
level ratings, and (vii) stricter disclosure
requirements. The final regulation is expected to be
adopted later in 2014, with subsequent transition
period before taking full effect.

Tri-Party Repo Reform

BNY Mellon offers tri-party collateral agency
services to dealers and cash investors active in the tri
party repurchase, or repo, market. As agent, we
facilitate settlement between dealers (cash borrowers)
and investors (cash lenders). Our involvement in a
transaction commences after a dealer and investor
agree to a tri-party repo trade and send instructions to
us. We settle the trade, maintain custody of the
collateral (the subject securities of the repo), monitor
the eligibility and sufficiency of the collateral, and
execute the payment and delivery instructions agreed
to and provided by the principles.

Regulatory agencies worldwide have begun to re
examine systemic risks in various financial markets,
including the tri-party repo market. 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 continues to work to significantly
reduce the risk associated with the secured intraday
credit it provides to dealers with respect to their tri
party repo trades. BNY Mellon has implemented
several important measures in that regard,
including reducing the amount of time during which
we extend intraday credit, implementing three-way
trade confirmations, reducing the amount of credit
provided in connection with processing collateral
substitutions, introducing a functionality that enables
us to “roll” maturing trades into new trades without
extending credit, and requiring dealers to prefund
their repayment obligations in connection with trades
collateralized by DTC sourced securities.
Additionally, in 2013, we limited the collateral
eligible to secure intraday credit to certain more
liquid asset classes, resulting in a reduction of
exposures secured by less liquid forms of collateral.
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 (defined as a
90% reduction) of intraday credit related to tri-party
repo processing 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/banking/tpr_infr_reform.html.

Resolution Planning

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
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 resolution plan in conformity with
both rules. The public portions of our resolution plan

BNY Mellon 85

Supervision and Regulation (continued)

are available on the FDIC’s website. We are required
to submit updated resolution plans annually.

Resolution planning efforts might also become
required in foreign jurisdictions where we have
operations. We submitted the first phase of our UK
resolution plan to the Financial Services Authority
(“FSA”) in June 2012.

In the EU, recent legislation on bank structural
reform proposed by the EC has focused on addressing
transparency of any collateral movements where legal
title passes in relation to securities financing
transactions (“SFTs”), which include repos and
securities lending arrangements. Accordingly,
information requirements are proposed for imposition
on market participants engaging in SFTs, including
the composition of the underlying collateral, if the
underlying collateral is available for use or has been
used, and the haircuts applied. It is proposed that
reporting requirements would be leveraged off of pre
existing infrastructures and processes, e.g., the
reporting of derivative contracts to a trade repository
as required under EMIR.

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;

• Enforce the terms of the depository institution’s

contracts pursuant to their terms without regard to
any provisions triggered by the appointment of
the FDIC in that capacity; or

• Repudiate or disaffirm any contract or lease to
which the depository institution is a party, the
performance of which is determined by the FDIC
to be burdensome and the disaffirmance or
repudiation of which is determined by the FDIC
to promote the orderly administration of the
depository institution.

In addition, under federal law, the claims of holders
of domestic deposit liabilities and certain claims for
administrative expenses against an insured depository

86 BNY Mellon

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

Supervision and Regulation (continued)

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.

In December 2013, the FDIC released a notice
outlining the single point of entry (“SPOE”) strategy
and soliciting comments on how a SPOE resolution
approach would be implemented in the U.S. A SPOE
approach would replace a distressed BHC with a
bridge holding company, which could then continue
subsidiary bank operations. The agencies may
require minimum amounts of equity and unsecured
debt at the holding company level to assist in
implementing the SPOE strategy.

It is expected that EU legislation will differ
significantly from the U.S. SPOE approach, which is
addressed more specifically below in the “Operations
and Regulations Outside of the United States”
discussion.

Depositor Preference

Under federal law, depositors and certain claims for
administrative expenses and employee compensation
against an insured depository institution are afforded
a 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 UK
Prudential Regulatory Authority (“PRA”) (formerly
the Financial Services Authority) published a
consultation paper in September 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 PRA 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 PRA 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 PRA has not taken
further action on its proposal.

As a result of this proposal, U.S. banks may change
their deposit agreements to make UK branch deposits
payable in the U.S. to provide depositor preference to
UK branch deposits. The FDIC issued a final rule in
September 2013 clarifying that these UK branch
deposits payable in the U.S. are not FDIC insured.

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
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.

BNY Mellon 87

Supervision and Regulation (continued)

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. 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 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

88 BNY Mellon

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

Supervision and Regulation (continued)

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
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
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

BNY Mellon 89

Supervision and Regulation (continued)

Rulemaking Board. The SEC issued its final
Municipal Advisors Rule in September 2013 to
require municipal advisors to register with the SEC if
they provide advice to municipal entities or certain
other persons on the issuance of municipal securities,
or about certain investment strategies or municipal
derivatives. The Municipal Advisors Rule becomes
effective on July 1, 2014.

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

90 BNY Mellon

their practices, which could adversely affect results of
such businesses.

Operations and Regulations Outside of the United
States

In Europe, branches of The Bank of New York
Mellon are subject to regulation in the countries in
which they are established, in addition to being
subject to oversight by the US regulators referred to
above. The Bank of New York Mellon SA/NV
(“BNY Mellon SA/NV”) is a public limited liability
company incorporated under the laws of Belgium.
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 Feb. 1, 2013, this branch carries on the
business activity in Ireland that was previously
conducted by the Irish Bank.

Certain of our financial services operations in the UK
are subject to regulation and supervision by the
Financial Conduct Authority (“FCA”) and the
Prudential Regulation Authority (“PRA”), whose
functions were transferred to them from the previous
Financial Services Authority effective April 1, 2013.
The PRA is responsible for the authorization and
prudential regulation of firms that carry on PRA-
regulated activities, including banks. PRA-
authorized firms are also subject to regulation by the
FCA for conduct purposes. In contrast, FCA-
authorized firms (such as investment management
firms) have the FCA as their sole regulator for both
prudential and conduct purposes although subject to
the residual overarching jurisdiction of the PRA, if
matters of systemic significance are in issue. As a
result, FCA-authorized firms must comply with FCA
prudential and conduct rules and the FCA’s Principles
for Businesses, while dual-regulated firms must
comply with the FCA conduct rules and FCA
Principles, as well as the applicable PRA prudential
rules and the PRA’s Principles for Businesses.

Supervision and Regulation (continued)

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

Since the financial crisis, the European Union and its
Member States have, in the same way as their US
counterparts, engaged in a significant overhaul of
bank regulation and supervision. To increase the
resilience of banks and to reduce the impact of
potential bank failures, new rules on capital
requirements for banks and bank recovery and
resolution have been adopted. The EU’s Banking
Union (described further below) has been launched.
Further measures are under way, including providing
for a structural separation of the risks associated with
certain banks’ trading activities from their deposit-
taking function.

Proposed legislation for a Bank Recovery and
Resolution Directive, which contemplates a recovery
and resolution framework for the EU, moved from
the European Parliament to the European Council for
consideration in December 2013. This directive
would provide for resolution planning and a set of
harmonized powers to resolve or implement recovery
of relevant institutions, including branches of non-
European Economic Area (“EEA”) banks operating
within the EEA. The directive includes the
preparation of recovery and resolution plans, giving
relevant EEA regulators powers to impose
requirements on an institution before resolution
actions become necessary; 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 (including certain deposit obligations); and
the power to require a firm to change its structure to
remove impediments to resolvability. Unlike in the
United States, where an SPOE approach is expected
to be implemented, it provides for a “multiple points
of entry” approach coupled with intra-group bail-in
requirements.

Aspects of the Banking Union will enter into force
Nov. 4, 2014. The key components of the Banking

Union include a single resolution mechanism
(“SRM”) and a single supervisory mechanism
(“SSM”).

In December 2013, the European Council set out its
general approach on the SRM. This approach
endorses the bail-in rules established in the Bank
Recovery and Resolution Directive. It provides for a
Resolution Fund, which is to be funded by the
banking industry. It also provides for a single
resolution board with broad powers in case of bank
resolution. Finally, it provides for EU Member States
entering into cooperation agreements with non-EEA
countries with the caveat that in certain circumstances
they can refuse to recognize proceedings. This SRM
approach has not been adopted yet, and the EU
Parliament is expected to continue negotiations in
early 2014. 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. In the EU Member
States, the CRD IV introduces substantive parts of the
new European supervisory architecture, including the
development of the Single Rule Book for financial
services. A “Single Rule Book” is to replace existing
separately implemented rules within EU Member
States, with a harmonized approach to
implementation across the EU. Elements of CRD IV
will apply not only to BNY Mellon banking branches
and subsidiaries but also to investment management
and brokerage entities. The CRD IV became
effective on Jan. 1, 2014, with certain provisions
phased in from 2014 to 2019.

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 Managers Directive, the Directive
on Undertakings for Collective Investments in
Transferable Securities, the Central Securities

BNY Mellon 91

Supervision and Regulation (continued)

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, 2013, each of BNY Mellon’s
non-U.S. banking subsidiaries had capital ratios
above their specified minimum requirements.

European Central Bank SSM and Comprehensive
Assessments

In October 2013, the European Council adopted
regulations creating an SSM to oversee banks and
other credit institutions. The SSM will be composed
of the European Central Bank (the “ECB”) and the
supervisory authorities of the member states. It will
cover the prudential supervision of all major banks in
the 18 countries comprising the Eurozone and non-
Eurozone countries that choose to participate through
close cooperation agreements. The ECB will have

direct oversight of Eurozone banks, although the
extent of its oversight will be differentiated and made
in close cooperation with national supervisors. The
ECB will assume its supervisory tasks in November
2014.

In advance of the SSM, the ECB began in November
2013 a comprehensive assessment of certain credit
institutions, which due to their size and systemic
characteristics, fall under direct supervision by the
ECB. The assessment consists of a supervisory risk
assessment of key risks, an asset quality review to
enhance transparency of bank assets, and a stress test
to review the resiliency of bank balance sheets, which
will be conducted in conjunction with the European
Banking Authority. This assessment is expected to
continue until November 2014. The Bank of New
York Mellon SA/NV, our Belgian banking subsidiary,
is included in this exercise.

On Jan. 29, 2014, in addition to the proposed new
rules on structural reform of the European Union
banking sector referred to above, the EC adopted
accompanying measures aimed at increasing
transparency of certain transactions in the “shadow
banking” sector, including for providing for enhanced
transparency and reporting of SFTs (securities
financing transactions). The proposal on structural
reform of European Union banks is intended to apply
only to the largest and most complex European Union
banks with significant trading activities.

92 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 and have been impacted by a
significant amount of rulemaking as a result of the
2008 financial crisis. Failure to comply with these
regulations 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, including oversight by
governmental agencies both in the U.S. and outside
the U.S. In light of the 2008 financial crisis,
domestic and international policy makers are
increasing their focus on the financial services
industry. New or modified regulations and related
regulatory guidance are significantly altering the
regulatory framework in which we operate and may
have unforeseen or unintended adverse effects on us
or the financial services industry more generally.

The regulatory and supervisory focus of U.S. banking
agencies is primarily intended to protect the safety
and soundness of the banking system and federally
insured deposits, and not to protect our shareholders
or creditors. Additionally, banking regulators have
wide discretion in the ongoing examination and the
enforcement of applicable banking statutes,
regulations, and guidelines, and may restrict our
ability to engage in certain activities or acquisitions,
or may require us to maintain more capital.

In common with their U.S. counterparts, European
policy makers and regulators have also increased
their focus on financial services providers and our
European operations are being directly affected and
will continue to be affected by the changes to the
regulatory environment that those regulators are
driving.

Other provisions in recent legislative and regulatory
changes or proposals impact or are likely to impact
BNY Mellon, including:

• Leverage and Risk-Based Capital Standards. The
Final Capital Rules issued by the U.S. banking
agencies in July 2013 revise the capital
framework applicable to U.S. bank holding
companies and banks, including by redefining the
components of capital, establishing higher
minimum percentages for applicable capital
ratios, revising the general risk-based capital
rules, and introducing a supplementary leverage
ratio. The Final Capital Rules subject U.S. bank
holding companies and banks, including BNY
Mellon and its banking subsidiaries, to more
stringent capital requirements, which could
restrict growth, activities or operations, or trigger
divestiture of assets or operations. We must also
separately obtain final approval from the agencies
for the use of certain models used to calculate
risk-weighted assets under Basel III’s Advanced
Approaches. While the U.S. agencies have not
yet finalized a capital surcharge for U.S. G-SIBs,
we currently expect to be subject to a surcharge
of 1.0%. Impacts could include, but are not
limited to, potential dilution of existing
stockholders, and competitive disadvantage
compared to financial institutions not under the
same regulatory framework;

• Additional Supplementary Leverage Ratio

Proposals. In addition to the Final Capital Rules,
the U.S. banking agencies in July 2013 proposed
a buffer to the supplementary leverage ratio for
the largest U.S. bank holding companies and
banks, including BNY Mellon and its principal
banking subsidiaries, to become effective Jan. 1,
2018. The Basel Committee also proposed to
revise exposure measurement methodologies in
June of 2013 and finalized the revisions, with
changes, in January of 2014. The supplementary
leverage ratio is expected to subject BNY Mellon
to a more stringent leverage requirement, which

BNY Mellon 93

Risk Factors (continued)

includes certain off-balance sheet items, which
could restrict growth, activities or operations;

• The Volcker Rule. On Dec. 10, 2013, the final
rules to implement the Volcker Rule were
adopted. The Volcker Rule prohibits us from
engaging in proprietary trading and conditionally
allows us to sponsor certain U.S. and foreign
private equity and hedge funds (“covered funds”).
The conditions limit us from owning interests in
covered funds, prohibit the funds from sharing
the same or similar name with a BNY Mellon
affiliate, and restrict the way BNY Mellon can
transact and service these funds. BNY Mellon
has until July 2015 to bring its proprietary trading
and covered fund activities and transactions into
compliance, absent further extensions by the
regulators. Should regulators not exercise their
authority to permit organizations to retain certain
investments, including certain illiquid
investments, beyond the conformance period, we
could incur losses when disposing of such
investments. We could be forced to sell such
investments at a discount in the secondary market
as a result of both the constrained timing of such
sales and the possibility that other financial
institutions are likewise liquidating investments
at the same time. Resolving the name prohibition
may involve significant legal, marketing and
compliance costs that are not quantifiable at this
time and could vary based on how the prohibition
is implemented by the regulators. The servicing
restrictions could impact BNY Mellon’s ability to
provide certain ancillary lending functions to
covered funds that we custody, which could
constrain our ability to perform this function or
act as custodian. Our ownership interest in
covered funds that we organize and offer will be
limited to 3% of the total outstanding ownership
interests of any individual fund at any time more
than one year after the date of its establishment,
and with respect to the aggregate value of all such
ownership interests in covered funds, 3% of our
Tier 1 capital. Moreover, beginning in the third
quarter of 2015, we expect to be required to
deduct from Tier 1 capital the value of our
ownership interests in such covered funds,
calculated in accordance with the final rule. The
Volcker Rule also contains extensive compliance
and recordkeeping requirements, which could
increase the costs of operations;

94 BNY Mellon

• Liquidity Risk Management. Basel III established

two minimum liquidity risk measures. The
liquidity coverage ratio (“LCR”) measures the
amount of unencumbered, high-quality, liquid
assets relative to net cash outflows an institution
could encounter under a significant 30-day stress
scenario, and is designed to allow an institution to
withstand such liquidity stress. The net stable
funding ratio (“NSFR”) is designed to address
longer-term liquidity mismatch concerns, by
requiring firms to hold stable sources of long
term funding over a one-year period. Depending
upon the final contours of the LCR and NSFR as
ultimately implemented in the U.S., these
requirements could require BNY Mellon to
increase its holdings of high-quality, and
potentially lower-yielding, liquid assets, and to
reevaluate the composition of its liabilities
structure to include more longer-dated debt;

• Orderly Liquidation Authority “Single Point of

Entry”. A “single point of entry” approach would
replace a distressed bank holding company with a
bridge holding company, which could continue
subsidiary bank operations. The FDIC recently
released a notice describing a potential single
point of entry strategy, outlining its perspectives
and soliciting comments on how a single point of
entry resolution approach could be implemented
in the U.S. The agencies may set minimum
amounts of equity and unsecured debt at the
holding company level to assist in implementing
the single point of entry strategy;

• Money Market Mutual Fund Reform. In June

2013, the SEC issued a series of policy proposals
designed to enhance money market fund
regulation, including limitations on redemptions,
liquidity fees, and requiring money market funds
to float their net asset value. The European
Union has proposed similar initiatives affecting
our European money market funds business. If
these reforms cause the money market mutual
fund market to contract, our business as a servicer
and manager of such funds could be impacted;

• Tri-Party Repo Reform. The Task Force on Tri-

Party Repo Infrastructure Reform’s review of the
risks in the tri-party repo market, and associated
recommendations, may increase our compliance
costs and has required us to implement several
measures to change how tri-party repo
transactions are conducted;

Risk Factors (continued)

• Resolution Planning. Large BHCs must develop
and submit to the FDIC and the Federal Reserve
for review resolution plans for their rapid and
orderly resolution in the event of material
financial distress or failure. If the FDIC and the
Federal Reserve jointly determine that our plan is
not credible and we fail to address the
deficiencies in a timely manner, the FDIC and the
Federal Reserve may jointly impose more
stringent capital, leverage or liquidity
requirements or restrictions on our growth,
activities or operations. Ultimately, we could be
required to divest assets or operations that the
regulators determine necessary to facilitate our
orderly resolution if we fail to adequately remedy
any deficiencies identified in our plan within two
years;

• Enhanced Prudential Standards/Single

Counterparty Credit Limits. Under the Dodd-
Frank Act, we are considered to be a systemically
important financial institution and are subject to
heightened prudential standards and supervision.
Final enhanced prudential standards issued by the
Federal Reserve could increase our operational,
compliance and risk management costs. Other
proposed enhanced prudential standards
applicable to SIFIs under the Dodd-Frank Act,
and similar Basel Committee initiatives, could
limit single counterparty credit exposures, and
could result in our needing to limit certain
business volumes to be able to comply with such
limits;

• European Resolution and Structural Reform

Proposals. European legislators have initiated
proposals to establish European bank resolution
mechanisms to operate across the Eurozone. In
December 2013, the EU Council set out its
general approach on the resolution mechanism to
be applied to Europe. Their approach endorses
the bail-in rules established in the European Bank
Recovery and Resolution Directive. It provides
for a “Resolution Fund”, which is to be funded by
the banking industry. It also provides for a single
resolution board with broad powers in case of
bank resolution. Finally, it provides for EU
Member States entering into cooperation
agreements with non-EEA countries with the
caveat that in certain circumstances they can
refuse to recognize proceedings. This approach
has not been adopted yet, and the EU Parliament
is expected to continue negotiations in early

2014. Unlike in the United States, it provides for
a “multiple points of entry” approach coupled
with intra-group bail-in requirements. Various
BNY Mellon subsidiaries and branches are
expected to fall within the scope of this Directive.
With regard to other structural reforms, on Jan.
29, 2014, the EC proposed new rules on
structural reform of the EU banking sector for the
stated purpose of regulating the proprietary
trading activities of large and complex banks. The
new rules would also give supervisors the power
to require such banks to separate certain trading
activities from their deposit-taking business. The
proposal on structural reform of EU banks is
intended to apply only to the largest and most
complex EU banks with significant trading
activities. Various BNY Mellon subsidiaries and
branches are expected to fall within the scope of
this Directive and the effects on our European
businesses could be similar to the effect of
various Volcker Rule proposals; and

•

Investment Services in Europe. The Alternative
Investment Fund Managers Directive
(“AIFMD”), which is coming into force
progressively in 2014, is having a direct effect on
our alternative fund manager clients and our
depository business and other products offered
across Europe. AIFMD imposes heightened
depository obligations, which have both
operational and, potentially, capital effects. Our
businesses servicing regulated funds in Europe
will be affected similarly by the revised directive
governing undertakings for collective investment
in transferable securities, known as UCITS IV,
anticipated to be formally adopted in the third
quarter of 2014 and to take effect two years after
that.

In addition, U.S. regulatory agencies - banking,
securities and commodities - continue to publish
notices of proposed regulations required by the Dodd-
Frank Act, and new bodies created by the Dodd-
Frank Act (including the Financial Stability Oversight
Council and the Consumer Finance Protection
Bureau) have commenced 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. These

BNY Mellon 95

Risk Factors (continued)

changes will continue to 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 regulatory
environment on our business.

Failure to comply with these regulations, as well as
other 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.

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

Like many major financial institutions, we are 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 22 of the Notes to
Consolidated Financial Statements in this Annual
Report for a discussion of material legal and
regulatory proceedings in which we are involved.
With regard to many firms in the financial services
industry, the number of these investigations and
proceedings, as well as the amount of penalties and
fines sought, has increased substantially in recent
years. Further, we may become subject to regulatory
scrutiny, inquiries or investigations, and potentially
client-related inquiries or claims, relating to broad,
industry-wide concerns that could lead to increased
expenses or reputational damage. For example, many

96 BNY Mellon

participants in the foreign exchange industry are
currently receiving heightened regulatory scrutiny
concerning alleged potential manipulation with
respect to published foreign exchange benchmarks
and we, like a number of others, have received
inquiries from government authorities seeking
information. Responding to inquiries, investigations,
lawsuits and proceedings, regardless of the ultimate
outcome of the matter, is time-consuming and
expensive and can divert the attention of our senior
management from our business. The outcome of such
proceedings may be difficult to predict or estimate
until late in the proceedings, which may last a number
of years.

Our businesses involve the risk that clients or others
may sue us, claiming that we have failed to perform
under a contract or otherwise failed to carry out a
duty perceived to be owed to them. This risk may be
heightened during periods when credit, equity or
other financial markets are deteriorating in value or
are particularly volatile, or when clients or investors
are experiencing losses. In addition, as a publicly
held company, we are subject to the risk of claims
under the federal securities laws, and volatility in our
stock price increases this risk.

Actions brought against us may result in lawsuits,
enforcement actions, injunctions, settlements,
damages, fines or penalties, which could have a
material adverse effect on our financial condition or
results of operations or require changes to our
business. Claims for significant monetary damages
are asserted in many of these legal actions, while
claims for disgorgement, penalties and/or other
remedial sanctions may be sought in regulatory
matters. Although we establish accruals for our
litigation and regulatory matters in accordance with
applicable accounting guidance 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
material 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 governmental scrutiny
and legal proceedings can also adversely impact the
morale and performance of our employees.

Adverse publicity with respect to us, other well-
known companies and the financial services
industry generally could materially adversely affect

Risk Factors (continued)

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,
heightened regulatory scrutiny 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 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.

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 22 of the Notes to
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. See
“Fee and other revenue - 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 rules more generally, could result
in limitations on our activities and adversely affect
our business and financial condition.

Under regulatory capital adequacy rules and other
regulatory requirements, BNY Mellon and our
subsidiary banks must meet thresholds that include
quantitative measures of assets, liabilities and certain
off-balance sheet items, subject to qualitative
judgments by regulators about components, risk
weightings and other factors. As discussed 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, 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.

BNY Mellon 97

Risk Factors (continued)

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.”

The Federal Reserve has set a minimum leverage
ratio of at least 3% or 4% for BHCs (depending on
factors specified in regulations), including BNY
Mellon, and requires The Bank of New York Mellon
to maintain a leverage ratio of at least 5% to maintain
its “well capitalized” status. The leverage ratio
measures the ratio of Basel I Tier 1 capital to
quarterly average assets, as defined under Basel I
regulatory guidelines.

As part of the Final Capital Rules, BNY Mellon will
be required to maintain a minimum leverage ratio of
4%, and The Bank of New York Mellon will be
required to maintain a leverage ratio of 5% to
maintain its “well capitalized” status. In addition to
this traditional total leverage constraint, the Final
Capital Rules will require an additional
supplementary leverage ratio with a minimum of 3%,
to become effective Jan. 1, 2018. The supplementary
leverage ratio measures Tier 1 capital against an
organization’s total leverage exposure, which
includes not only a firm’s total assets but also many
off-balance sheet exposures. On July 9, 2013, the
U.S. banking agencies proposed revisions to the
supplementary leverage ratio under a notice of
proposed rulemaking that would only apply to the
largest U.S. BHCs and banks, including BNY Mellon.
The July 9 proposal would increase the
supplementary leverage requirement for affected
holding companies to 5%. In addition, this proposal
would establish a supplementary leverage ratio “well
capitalized” threshold of 6% for affected insured
depository institutions under the U.S. banking
agencies’ prompt corrective action framework,
including our largest banking subsidiary, The Bank of
New York Mellon. Separately, in January of 2014 the
Basel Committee adopted amendments to its
supplementary leverage ratio’s exposure measure

98 BNY Mellon

principally concerning securities financing
transactions, off-balance sheet credit conversion
factors, the treatment of cash variation margin, central
clearing, and written credit derivatives.

If our company or our subsidiary banks failed to meet
these minimum capital rules 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. If we are not able to meet the Final Capital
Rules’ additional, more stringent, capital adequacy
standards, we may not remain “well capitalized.” 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.

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 in our
Investment Services and Investment Management
businesses. 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; unsuccessful or difficult
implementation of computer systems upgrades;
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 and could result in
the imposition of fines or civil money penalties or the
payment of damages. Further, national regulators in
the UK and Ireland continue to focus on rules around
the protection of client assets, with consultative
exercises being conducted by the FCA in the UK with
regard to the UK CASS regime and by the Irish
Central Bank with regard to implementation of a new
regime in Ireland. We continue to assess our
operational models and risks in light of these
regulatory priorities.

Risk Factors (continued)

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

We use various risk models in analyzing and
monitoring many risk categories. However, these
models, processes and strategies are inherently
limited because they involve techniques, including
the use of historical data in some circumstances, and
judgments that cannot anticipate every economic and
financial outcome in the markets in which we
operate, nor can they anticipate the specifics and
timing of such outcomes.

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, despite our efforts to assess and monitor
operational risk, our risk management program may
not be effective in all cases. 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.
When we record balance sheet reserves for probable
and estimable loss contingencies related to
operational losses (or when we disclose a range of

reasonably possible loss for reasonably possible and
estimable loss contingencies), our estimated exposure
may not be sufficient to cover our actual exposure,
which could have a material adverse effect on our
consolidated results of operations in the period in
which such actions or matters are resolved. For a
discussion of operational risk see “Risk Management
- Operational/business risk” and “Business
Continuity” in the MD&A section in this Annual
Report.

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 other expensive
and time-consuming remedial measures and could
lose investor confidence in the accuracy and
completeness of our financial reports. In addition,
there are risks that individuals, either employees or
contractors, consciously circumvent established
control mechanisms by, for example, exceeding
trading or investment management limitations, or
committing fraud.

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, including our Investment
Services business, are particularly vulnerable to
security breaches and technology disruptions. While
our information systems have been subjected to cyber

BNY Mellon 99

Risk Factors (continued)

threats, including hacker attacks, computer viruses or
other malicious code, denial of service efforts, limited
unavailability of service, phishing attacks, and
unauthorized access attempts, we deploy a broad
range of sophisticated defenses and we have avoided
a material breach, but notwithstanding these efforts, it
is possible we could suffer a material breach or
disruption in the future. 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, or damage to our computers or
systems and those of our customers and
counterparties, 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 which may not be covered by
insurance, 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

100 BNY Mellon

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 section in this Annual Report.

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, together with competitive
pressures, 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. 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.

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

Risk Factors (continued)

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. Additionally, failure
to ensure adequate review and consideration of
critical business changes prior to and during
introduction and deployment of key technological
systems or failure to adequately align evolving client
commitments and expectations with operational
capabilities can have a negative impact on our
operations.

We rely on a variety of measures to protect our
intellectual property and proprietary information,
including copyrights, trademarks, patents and
controls on access and distribution. These measures
may not prevent misappropriation or infringement of
our intellectual property or proprietary information
and a resulting loss of competitive advantage.
Furthermore, if a third party were to assert a claim of
infringement or misappropriation of its proprietary
rights, obtained through patents or otherwise, against
us 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
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 influence
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. For example, the Federal Reserve’s
low interest rate policies have resulted in, and could
continue to result in, some reduction in our spread-
based income and net interest revenue. 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.

Our business and earnings may also be adversely
affected by the monetary, tax and other governmental
policies that are adopted by various regulatory
authorities, governments and international agencies.
As a result of the 2008 financial crisis, there have
been significant changes in these policies, which have
imposed additional compliance, legal, review and
response costs that have impacted our profitability.
Changes in monetary, tax and other governmental
policies are beyond our control and can be difficult to
predict and we cannot determine the ultimate effect
that any such changes would have upon our business,
financial condition or results of operations.

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,
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.

Furthermore, pricing pressures, as a result of the
willingness of competitors to offer comparable or
improved products or services at a lower price, may
result in a reduction in the price we can charge for our
products and services, which could negatively affect
our ability to maintain or increase our profitability.

Recently implemented and proposed regulations may
impact our ability to conduct certain of our businesses
in a cost-effective manner or at all. See “Supervision
and Regulation” in this Annual Report. These
regulations may not apply to all of our competitors,
which could adversely impact our ability to compete
effectively. A decline in our competitive position

BNY Mellon 101

Risk Factors (continued)

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 launch 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. Our
revenues and costs may fluctuate because generally
new businesses or products and services require start
up costs while revenues may take time to develop,
which may adversely impact our results of operations.

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 talented and diverse 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 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, may not apply to some of our
competitors and to other institutions with which we
compete for talent. Our ability to recruit and retain

102 BNY Mellon

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 banks, expropriation,
nationalization, confiscation of assets, price controls,
capital controls, exchange controls, unfavorable tax
rates and tax court rulings and changes in laws and
regulations. Our international clients accounted for
37% of our revenue in 2013. Our non-U.S.
businesses are subject to extensive regulation by
various non-U.S. regulators, including governments,
securities exchanges, central banks and other
regulatory bodies, in the jurisdictions in which those
businesses operate. In many countries, the laws and
regulations applicable to the financial services
industry are uncertain and evolving, and may be
applied with extra scrutiny to non-domestic
companies, and it may be difficult for us to determine
the exact requirements of local laws in every market
or manage our relationships with multiple regulators
in various jurisdictions. Our inability to remain in
compliance with local laws in a particular market and
manage our relationships with regulators could have
an adverse effect not only on our businesses in that
market but also on our reputation generally.

The failure to properly mitigate such risks, or the
failure of our operating infrastructure to support such
international activities could result in operational
failures and regulatory fines or sanctions, which
could adversely affect our business and results of
operations.

In addition, we are subject in our global operations to
rules and regulations relating to corrupt and illegal
payments and money laundering, as well as laws
relating to doing business with certain individuals,
groups and countries, such as the U.S. Foreign

Risk Factors (continued)

Corrupt Practices Act, the USA PATRIOT Act, the
Iran Threat Reduction and Syria Human Rights Act of
2012 and the UK Bribery Act. While we have
invested and continue to invest significant resources
in training and in compliance monitoring, the
geographical diversity of our operations, employees,
clients and customers, as well as the vendors and
other third parties that we deal with, presents the risk
that we may be found in violation of such rules,
regulations or laws and any such violation could
subject us to significant penalties or adversely affect
our reputation.

Further, our businesses and operations from time to
time enter into new regions throughout the world,
including emerging and frontier markets. Various
emerging and frontier 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 and frontier 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
results of operations.

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
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. In addition, 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 strategic acquisitions, including our ability to
successfully integrate acquired businesses and
potential liabilities from legacy claims against the
acquired businesses, present risks and uncertainties
and 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 legacy technology systems until we
are able to convert the acquired business to desired
technology systems. In the event that such
technology conversion takes longer than anticipated,
we may incur significant costs for the continued
usage of legacy technology, operational and cost
inefficiencies and client dissatisfaction resulting from
the use of multiple technology systems. If we fail to
successfully integrate strategic acquisitions, including
doing so in a timely and cost-effective manner, we
may not realize the expected benefits regarding such
acquisitions, which could have an adverse impact on
our business, financial condition and results of
operations. In addition, we may incur expenses,
costs, losses, and other liabilities in connection with

BNY Mellon 103

Risk Factors (continued)

the defense and/or settlement of legal and regulatory
claims, investigations and proceedings related to
actions or omissions of the acquired businesses prior
to the date of our ownership. 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 or the purchaser must seek
regulatory approvals, which can delay or disrupt such
acquisitions or dispositions.

Market Risk

Ongoing concerns about the financial stability of
several countries in Europe, 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.

Despite improved financial market conditions, there
remain ongoing concerns 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. 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. Yields on
government bonds of certain Eurozone countries,
including Greece, Ireland, Italy, Portugal and Spain,
have stabilized; however, it remains to be seen
whether this stability is sustainable. 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. In addition, while the
finance ministers of the Eurozone countries agreed to
a common bank resolution regime and fund for
failing banks in December 2013, the proposal must be
approved, and could be amended, by the European
Parliament, and certain details of the proposal have
not been determined. 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

104 BNY Mellon

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.

Risk Factors (continued)

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. While
global economies and financial markets have shown
signs of stabilizing over the past few years, a variety
of factors raise concern over the course and strength
of the economic recovery, including instability of
certain emerging markets, 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 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:

• 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, 2013,
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 $0.02 to $0.04.

• Continuing run-off of high margin structured debt
securitizations could reduce our total annual
revenue if the structured debt markets do not
recover.

• 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.

• 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.

• Low interest rates may result in the voluntary

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.

• 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.

BNY Mellon 105

Risk Factors (continued)

Low or volatile interest rates could have a material
adverse effect on our profitability.

Our net interest revenue and cash flows are sensitive
to changes in short-term interest rates 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.

The global market crisis triggered a series of cuts in
interest rates and the tentative recovery has kept U.S.
short-term rates low, although long-term rates have
started to rise. A continuing low short-term rate
environment will further compress our net interest
spreads, reduce our spread-based revenues and result
in continued 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 from becoming uneconomic, which has an
adverse impact on our revenue and results of
operations.

In addition, while a rise in long-term rates can
improve investment yields as we deploy assets, our
largely fixed-income securities portfolio is sensitive
to a rise in long-term rates, which would reduce other
comprehensive income in our shareholders’ equity,
thereby affecting our tangible common equity. For
example, the rise in long-term interest rates in the
second half of 2013 triggered a decline in the
valuation of our securities portfolio and a reduction in
the related unrealized gain of our investment
securities.

Changes in interest rates could trigger one or more of
the following, which could impact our business,
results of operations and financial condition,
including:

•

net interest revenue, depending on our balance
sheet position at the time of change. See the
discussion under “Asset/liability management” in
the MD&A - Results of Operations section in this
Annual Report;

increased number of delinquencies, bankruptcies
or defaults and more nonperforming assets and
net charge-offs;

106 BNY Mellon

•

changes in deposit levels; and

funding costs.

A more detailed discussion of the interest rate and
market risks we face is contained under “Risk
Management” in the MD&A section in this Annual
Report.

Market volatility may adversely impact our business,
financial condition and results of operations and
our ability to manage risk.

As a financial institution, we are particularly sensitive
to the capital and credit markets. When these markets
are volatile or disruptive, we could experience a
decline in our marked-to-market assets, including our
securities portfolio, trading book and equity
investments. A market downturn could also cause a
decline in the value of the assets that we manage,
hold in custody or administer, adversely impacting
fee revenue and certain of our capital ratios. In
addition, market volatility could produce downward
pressure on our stock price and credit availability
without regard to our underlying financial strength.
If the market price of our common stock were to
decline, we could be required to perform 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. A significant market downturn could
materially adversely impact our business, financial
condition, results of operations and ability to manage
risk. For a discussion of our management of market
risk, see “Risk Management-Market risk” in the
MD&A 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.

Risk Factors (continued)

Agency RMBS, U.S. Treasuries, 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, state and political subdivisions,
foreign covered bonds, corporate bonds,
collateralized loan obligations, U.S. government
agency debt, consumer asset-backed securities and
other securities, the values of which are subject to
market price volatility to the extent unhedged. Our
investment securities portfolio represented
approximately 26% of our consolidated total assets as
of Dec. 31, 2013. As such, our capital levels and
consolidated results of operations and financial
condition are materially exposed to the risks
associated with our investment portfolio. 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
information regarding the sensitivity of and risks
associated with the market value of portfolio
investments and interest rates, refer to the “Critical
accounting estimates - Fair value - Securities” and “
Other-than-temporary impairment” sections both of
which are in the MD&A - Results of Operations
section in this Annual Report and Note 4 of the Notes
to 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.

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.

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 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, our foreign
exchange revenue benefits from currency volatility
and is likely to decrease during times of decreased
currency volatility. However, increased volatility in

BNY Mellon 107

Risk Factors (continued)

foreign exchange rates tends to increase our market
risk, which particularly impacts our exposures that
are marked-to-market, such as the securities portfolio,
trading book, and equity investments.

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

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
and on the value of the securities we issue.

Our debt, preferred stock 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, 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 requirements employed in
their models for maintenance of rating levels. For
example, on Nov. 14, 2013, Moody’s concluded its

108 BNY Mellon

previously announced reviews of the three large U.S.
trust and custody banks’ long-term ratings. As a
result of these reviews, which included both U.S.
government support ratings, and stand-alone ratings,
Moody’s downgraded our ratings and those of The
Bank of New York Mellon and BNY Mellon, N.A. by
one notch. Our short-term ratings and those of The
Bank of New York Mellon and BNY Mellon, N.A.
were unchanged. The ratings of the other two large
U.S. trust and custody banks were also downgraded.

Moreover, in June 2013, S&P indicated that it is
reconsidering its inclusion of assumed government
support in the ratings of eight U.S. bank holding
companies that they view as having high systemic
importance, including us. Currently, as a result of
these government support assumptions, our ratings
and those of The Bank of New York Mellon and BNY
Mellon, N.A. benefit from one notch of “lift” from
S&P and The Bank of New York Mellon and BNY
Mellon, N.A. benefit from two notches of “lift” from
Moody’s. S&P 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. 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
credit ratings downgrade below certain ratings levels.
The requirement to provide additional collateral or
terminate 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. If a rating agency
downgrade were to occur during broader market
instability, our options for responding to events may
be more limited and more expensive. An increase in
the costs of our funding and borrowing, or an
impairment of our liquidity, could have a material
adverse effect on our results of operations and
financial condition. A material reduction in our credit

Risk Factors (continued)

ratings also could decrease the number of investors
and counterparties willing or permitted to do business
with or lend to us and adversely affect the value of
the securities we have issued or may issue in the
future.

We cannot predict what actions rating agencies may
take, or what actions we may elect or be required to
take in response thereto, which may adversely affect
us. For further discussion on the impact of a credit
rating downgrade, see “Disclosure of contingent
features in over-the-counter (“OTC”) derivative
instruments” in Note 23 of the Notes to 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 sovereign entities, 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 institutions are interrelated as a result of
trading, clearing, counterparty or other relationships.
We have exposure to many different industries and
counterparties, particularly 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
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 institutions in recent years and the failures
of other financial institutions have increased the
concentration of our counterparty risk. Under
evolving regulatory restrictions on credit exposure,
which are anticipated to include a broadening of the

measure of credit exposure, we may be required to
limit our exposures to specific counterparties or
groups, including financial institutions and sovereign
entities, to levels that we may currently exceed. The
credit exposure restrictions under such evolving
regulations may adversely affect our businesses and
may require that we modify our operating models or
our balance sheet management policies and practices.

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 lender’s agent in securities lending
transactions between our customers, acting as lenders,
and financial counterparties, including broker-dealers,
acting as borrowers, wherein securities are lent by our
customers and the loans are secured by a pledge of
cash or securities posted by such financial
counterparties. Typically, in the case of cash
collateral, we invest the cash collateral pursuant to
each customer’s investment guidelines and
instructions. In certain cases, we agree to indemnify
our customers against a default by the borrower under
a securities lending transaction and, therefore, may

BNY Mellon 109

Risk Factors (continued)

have to buy-in the loaned securities with the cash
collateral or the proceeds from the liquidation of the
non-cash 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 businesses 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.

We have credit, regulatory and reputation risks as a
result of our tri-party repo collateral agency
services, which could adversely affect our business
and results of operations.

BNY Mellon offers tri-party collateral agency
services to dealers and cash investors active in the
repurchase transaction, or repo, market. BNY Mellon
currently has approximately 84% of the market share
of the U.S. tri-party repo market. As agent, we
facilitate settlement between dealers (cash borrowers)
and investors (cash lenders). Our involvement in a
transaction commences after a dealer and investor
agree to a tri-party repo trade and send instructions to
us. We settle the trade, maintain custody of the
collateral (the subject securities of the repo), monitor
the eligibility and sufficiency of the collateral, and
execute the payment and delivery instructions agreed
to and provided by the principals.

Providing tri-party repo agent services to repo
counterparties exposes BNY Mellon to credit risk at
certain points in time. To facilitate trade settlement
and collateral substitutions, we extend secured
intraday credit to repo sellers (cash borrowers). In
the event of a default by a repo seller 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 for any shortfall in value
after the liquidation of such collateral, which could
adversely affect our results of operations.

BNY Mellon continues to work to significantly
reduce the risk associated with the secured intraday
credit it provides to dealers with respect to tri-party
repo trades. We have implemented several important
measures in that regard, including reducing the

110 BNY Mellon

amount of time during which we extend intraday
credit, implementing three-way trade confirmations,
reducing the amount of credit provided in connection
with processing collateral substitutions, introducing a
functionality that enables us to “roll” maturing trades
into new trades without extending credit, and
requiring dealers to prefund their repayment
obligations in connection with trades collateralized by
DTC sourced securities. Additionally in 2013, we
have limited the collateral eligible for intraday credit
to certain more liquid asset classes, resulting in a
reduction of exposures secured by less liquid forms of
collateral. These efforts are consistent with the
recommendations by the Tri-Party Repo
Infrastructure Reform Task Force (the “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 business in the near term, and together with
technology enhancements currently in development,
will achieve the practical elimination (defined as a
90% reduction) of intraday credit related to tri-party
repo processing by the end of 2014.

We believe the steps we are taking are responsive to
concerns voiced publicly by regulators that financial
services companies should reduce reliance on
intraday credit provided by their tri-party repo agent
banks and make risk management practices more
resilient to stress events. Nevertheless, if a BNY
Mellon client that is party to a repurchase transaction
cleared by BNY Mellon becomes bankrupt or
insolvent, BNY Mellon may become involved in
disputes and litigation with the client’s bankruptcy
estate and other creditors, or involved in regulatory
investigations, all of which can increase BNY
Mellon’s operational and litigation costs and may
result in losses if the securities in the repurchase
transaction decline in value.

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
repo market. Failure to meet regulatory expectations
could result in regulatory and reputation risk and
additional costs.

Risk Factors (continued)

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 attract client deposits through a
variety of investment management and investment
servicing businesses and we rely on those deposits as
a low-cost and stable source of funding. Our ability
to continue to attract those deposits, and other short-
term funding sources, is subject to variability based
on a number of factors, including volume and
volatility in the global securities markets, the relative
interest rates that we are prepared to pay for those
deposits and the perception of safety of those deposits
or short-term obligations relative to alternative short-
term investments available to our clients. We could
lose deposits if we suffer a significant decline in the
level of our business activity, our credit ratings are
materially downgraded or we are subject to
significant negative press or significant regulatory
action or litigation, among other reasons. If we were
to lose a significant amount of deposits we may need
to replace such funding with more expensive funding
and/or reduce assets, which would reduce our net
interest revenue. 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 securities
purchasers or counterparties in us or in the funds
markets, could limit our access to capital markets,
increase our cost of borrowing, adversely affect our
liquidity, or impair our ability to execute our business
plan. We also rely on dividends from our subsidiaries
for funding. However, there are regulatory
limitations on the extent to which our bank
subsidiaries can supply funds to the Parent. If we are
not able to obtain funds from our subsidiaries, we
could be required to replace such funds through more
expensive means and/or reduce assets. If we are
unable to raise funds using the methods described
above, we would likely need to finance or liquidate
unencumbered assets, such as our investment
portfolio, central bank deposits and bank placements,
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. Further, our ability to sell assets may be
impaired if other market participants are seeking to

sell similar assets at the same time, which could occur
in a liquidity or other market crisis. Additionally, if
we experience cash flow mismatches, deposit run-off
or market constraints resulting from our inability to
convert assets to cash or raise cash in the markets, our
liquidity could be severely impacted. During periods
of market uncertainty, our level of client deposits has
in recent years tended to increase; however since such
deposits have a foreseeable potential not to be
permanent, we have historically deposited these so-
called excess deposits with central banks and in other
highly liquid and low-yielding instruments. These
levels of excess client deposits, as a consequence,
have increased our net interest revenue but have
adversely affected our net interest margin. 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 seven classes of financing receivables:
financial institutions, commercial, commercial real
estate, lease financings, wealth management loans
and mortgages, overdrafts, 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, to determine the allowance
for credit losses. This process requires us to make
numerous complex and subjective estimates and
assumptions relating to amounts which are inherently
uncertain. As is the case with any such assessments,
there is always the chance that we will fail to identify

BNY Mellon 111

Risk Factors (continued)

the proper factors or that we will fail to accurately
estimate the impact of factors that we do identify. We
cannot provide any assurance as to whether charge-
offs related to our credit exposure may occur in the
future. Current and future market and economic
developments may increase default and 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.

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, new tax laws or changes in existing tax laws
or the interpretation of those laws worldwide could
have a material impact on our net income. See Note
12 to Consolidated Financial Statements in this
Annual Report for further information.

Changes in accounting standards governing the
preparation of our financial statements and events
occurring subsequent to the financial statements
could have a material impact on our reported
financial condition, results of operations and other
financial data.

From time to time, the FASB, the IASB, the SEC and
bank regulators change the financial accounting and
reporting standards governing the preparation of our
financial statements or the interpretation of those

112 BNY Mellon

standards. In some cases, we could be required to
apply a new or revised standard retroactively,
resulting in our booking retroactive adjustments or
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.

Additionally, our accounting policies and methods are
fundamental to how we record and report our
financial condition and results of operations. Some
of these policies and methods require use of estimates
and assumptions that may affect the reported value of
our assets or liabilities and results of operations and
are critical because they require management to make
difficult, subjective and complex judgments about
matters that are inherently uncertain. If subsequent
events occur that are materially different than the
assumptions and estimates we used, we could be
required to correct and restate prior period financial
statements.

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 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 bank
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. At
the same time, Federal Reserve rules provide that a
bank holding company is expected to serve as a
source of financial strength to its bank subsidiaries
and to commit resources to support such banks if
necessary.

There are various legal limitations on the extent to
which our bank and other subsidiaries can finance or

Risk Factors (continued)

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. Our bank subsidiaries
are also subject to restrictions on their ability to lend
to 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 bank 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
“MD&A - Supervision and Regulation,” “MD&A -
Results of Operations - Liquidity and dividends” and
Note 19 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.

Our ability to return capital to shareholders 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 or other distributions of
capital as our Board of Directors may declare out of
funds legally available for such payments. Although
we have historically declared cash dividends on our

common stock, we are not required to do so. In
addition to the Board of Directors’ approval, our
ability to take certain actions, including our ability to
make acquisitions, declare dividends or repurchase
our common stock, is dependent in part upon Federal
Reserve non-objection under the annual regulatory
review of the results of the CCAR process required
by the Federal Reserve and the supervisory stress
tests required under the Dodd-Frank Act. These
evaluations, in turn, are dependent on, among other
things, our successful demonstration that such actions
would not adversely affect our regulatory capital
position in the event of a stressed market
environment. The Federal Reserve’s current guidance
provides that, for large BHCs like us, common stock
dividend payout ratios exceeding 30% of after-tax net
income will receive particularly close scrutiny. 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
exceptions, in the event that we do not declare and
pay in full dividends for the then current dividend
period of our Series A preferred stock or the last
preceding dividend period of our Series C and Series
D preferred stock.

In July 2013, the federal banking agencies finalized
rules implementing the Basel III capital standards and
certain related provisions of Dodd-Frank applicable
to U.S. bank holding companies and banks. Portions
of these rules are subject to interpretation and the
rules will not be substantially phased in until 2019.
However, these rules, together with our designation
as a SIFI and a G-SIB, will result in increases in the
minimum levels of regulatory capital that we and our
subsidiary banks will be required to maintain, as well
as changes in the manner in which our regulatory
capital ratios are calculated. The requirement to
maintain higher levels of capital and liquidity may
constrain our ability to return capital to shareholders
either in the form of common stock dividends or
share repurchases.

BNY Mellon 113

Recent Accounting Developments

Recently Issued Accounting Standards

ASU - 2014-01 - Accounting for Investments in
Qualified Affordable Housing Projects - a Consensus
of the FASB Emerging Issues Task Force

In January 2014, the Financial Accounting Standards
Board (“FASB”) issued Accounting Standards Update
(“ASU”) 2014-01, “Accounting for Investments in
Qualified Affordable Housing Projects - a Consensus
of the FASB Emerging Issues Task Force.” This ASU
permits entities that invest in a qualified affordable
housing project through a limited liability entity to
elect to account for the income statement effects of
such investments using the proportional amortization
method if certain conditions are met. The impact to
the income statement would be recorded in income
tax expense. For those investments in qualified
affordable housing projects not accounted for using
the proportional amortization method, the investment
would be accounted for as an equity method
investment or cost method investment. This ASU is
effective for periods beginning on or after Dec. 15,
2014. Early adoption is permitted. BNY Mellon has
not yet quantified the impact of the new standard.

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 International Accounting Standards
Board (“IASB”) to clarify the principles for
recognizing revenue and develop a common standard
for U.S. GAAP and International Financial Reporting
Standards (“IFRS”). This proposed ASU would
establish a broad principle that would require an
entity to identify the contract with a customer,
identify the separate performance obligations in the
contract, determine the transaction price, allocate the
transaction price to the separate performance
obligations and recognize revenue when each
separate performance obligation is satisfied. In 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.

114 BNY Mellon

In November 2011, the FASB re-exposed the
proposed ASU. A final standard is expected to be
issued during the first half of 2014. 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 deconsolidate a 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 has recently begun redeliberating the
proposed ASU. A final ASU is expected to be issued
during the second half of 2014.

Proposed ASU - Leases

In May 2013, the FASB and IASB issued a revised
proposed ASU on leases. The proposed ASU
introduces new accounting models for both lessees
and lessors, primarily to address concerns related to
off-balance-sheet financing arrangements available to
lessees under current guidance. The proposal would
require lessees to account for all leases on the balance

Recent Accounting Developments (continued)

sheet, except for certain short-term leases that have a
maximum possible lease term of 12 months or less,
including any options to renew. A lessee would
recognize on its balance sheet (1) an asset for its right
to use the underlying asset over the lease term and (2)
a liability representing its obligation to make lease
payments over the lease term. The income statement
impact for lessees would depend on the nature of the
underlying asset - that is, whether the underlying
asset is property or an asset other than property - and
the terms and conditions of the lease. The proposed
ASU also introduces new accounting guidance for
lessors. Lessors would account for leases under
either the new receivable-and-residual approach or an
approach similar to current operating-lease
accounting. The appropriate approach to use would
depend on the nature of the underlying asset - that is,
whether the underlying asset is property or an asset
other than property - and the terms and conditions of
the lease. If finalized, the proposed ASU would
converge the most significant aspects of the FASB’s
and IASB’s accounting for lease contracts.
Comments on this proposed ASU were due in
September 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 a current
estimate of the expected contractual cash flows an
entity does not expect to collect on financial assets
that are not measured at fair value through the income
statement. The proposal would also change current
practice for recognizing OTTI 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. The Board has tentatively decided
to continue to refine the current expected credit loss
model.

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. The
proposed ASU would be effective for annual and
interim periods beginning after Dec. 15, 2014.

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 shareholders’ equity, share-based
arrangements, pension plans, leases, guarantees and
derivative instruments accounted under ASC 815,
Derivatives and Hedging. 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. In January 2014, the FASB
tentatively decided not to continue to pursue the
business model assessment approach for
classification and measurement of financial assets.
The Board is considering whether it should align, or

BNY Mellon 115

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. It is not known
when the SEC will make a final decision on the
adoption of IFRS in the United States.

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 filed in those
countries. Such countries include Belgium, Brazil,
the Netherlands, Australia, Hong Kong, Canada and
South Korea.

Update to Internal Controls - Integrated Framework

On May 14, 2013, The Committee of Sponsoring
Organizations of the Treadway Commission
(“COSO”) issued an updated version of its Internal
Control - Integrated Framework (the “2013
Framework”). Originally issued in 1992, the
framework helps organizations design, implement
and evaluate the effectiveness of internal controls.
Updates to the framework were intended to clarify
internal control concepts and simplify their use and
application. The 1992 framework will remain
available during the transition period, which extends
to Dec. 15, 2014, after which time COSO will
consider it as superseded by the 2013 Framework.
Concurrent with the 2013 Framework release, COSO
indicated that organizations reporting externally
should clearly disclose whether the original
Framework or the updated Framework was utilized.

Recent Accounting Developments (continued)

keep separate, the recognition and measurement
accounting models for debt securities and loans.

Proposed ASU - Reporting Discontinued Operations

In April 2013, the FASB issued a proposed ASU,
“Reporting Discontinued Operations.” This proposed
ASU would change the criteria and enhance the
reporting for discontinued operations. The proposal
would also enhance disclosure requirements and add
new disclosures for individually material dispositions
that do not qualify as discontinued operations. Under
the proposal, a discontinued operation is a component
of an entity, or group of components of an entity, that
either has been disposed of, or is classified as held for
sale and (1) is part of a single coordinated plan to
dispose of a separate major line of business or
separate major geographical area of operations, or (2)
is a business that, on acquisition, meets the criteria
for classification as held for sale. The proposal no
longer precludes the presentation of a discontinued
operation if there is significant continuing
involvement with the component after the disposal or
if there are ongoing operations or cash flows. Under
the proposal, for disposals that are material but do not
qualify as discontinued operations, disclosures of pre
tax income or losses of the disposed component and a
reconciliation of the major classes of assets and
liabilities held for sale to the amounts presented
separately on the balance sheet would be required. A
final standard is expected to be issued during the first
half of 2014.

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

IFRS are a set of standards and interpretations
adopted by the IASB. Commencing with the
issuance of the “roadmap” in November 2008, the
SEC has considered potential methods of
incorporation of IFRS in the United States. The use
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.

116 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 13,100 employees on a global basis
of which over 7,100 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.

BNY Mellon 117

Supplemental Information (unaudited)

Supplemental information - Explanation of
GAAP and Non-GAAP financial measures

BNY Mellon has included in this Annual Report
certain Non-GAAP financial measures based upon
Tier 1 common equity and 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 and trust preferred securities from the
numerator of the ratio. 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 that
are productive in generating income. BNY Mellon
has provided a measure of tangible book value per
share, which it believes provides additional useful
information as to the level of such assets in relation to
shares of common stock outstanding. BNY Mellon
has presented its estimated Basel III Tier 1 common
equity ratio based on its interpretation, expectations
and understanding of the final Basel III rules released
by the Federal Reserve on July 2, 2013, on a fully
phased-in basis and on the application of such rules to
BNY Mellon’s businesses as currently conducted.
The estimated Basel III Tier 1 common equity ratio is
necessarily subject to, among other things, BNY
Mellon’s further review and implementation of the
final Basel III rules, anticipated compliance with all
necessary enhancements to model calibration, and
other refinements, further implementation guidance
from regulators and any changes BNY Mellon may
make to its businesses. Consequently, BNY Mellon’s
estimated Basel III Tier 1 common equity ratio may

118 BNY Mellon

change based on these factors. Management views
the estimated Basel III Tier 1 common equity ratio as
a key measure in monitoring BNY Mellon’s capital
position and progress against future regulatory capital
standards. Additionally, the presentation of the
estimated Basel III Tier 1 common equity ratio is
intended to allow investors to compare BNY Mellon’s
estimated Basel III Tier 1 common equity ratio with
estimates presented by other companies.

BNY Mellon has presented revenue measures that
exclude the effect of net securities gains (losses) and
noncontrolling interests related to consolidated
investment management funds; and expense measures
which exclude M&I expenses, litigation charges,
restructuring charges, asset-based taxes and
amortization of intangible assets; and measures which
utilize net income excluding tax items such as the net
charge related to the disallowance of certain foreign
tax credits and 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. Return on equity measures
also exclude the net charge related to the
disallowance of certain foreign tax credits. BNY
Mellon believes 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 acquisitions of Global
Investment Servicing on July 1, 2010 and BHF Asset
Servicing GmbH on Aug. 2, 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 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 with 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

Supplemental Information (unaudited) (continued)

permits investors to view expenses on a basis
consistent with how management views the business.

The presentation of income from consolidated
investment management funds, net of net income
attributable to noncontrolling interest related to the
consolidation of certain investment management
funds permits investors to view revenue on a basis
consistent with how management views the business.
BNY Mellon believes these presentations, as a
supplement to GAAP information, give investors a
clearer picture of the results of its primary businesses.

In this Annual Report, the net interest margin is
presented on an FTE basis. We believe 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.

The following table presents a reconciliation of net income and diluted earnings per common share.

(in millions, except per share amounts)
Net income applicable to common shareholders of The Bank of New York Mellon Corporation – GAAP
Net charge related to the U.S. Tax Court’s decisions disallowing certain foreign tax credits (after-tax)

Net income applicable to common shareholders of The Bank of New York Mellon Corporation – Non-GAAP

2013

Net Diluted
EPS
1.74
0.50
2.24

income
$ 2,047 $
593
$ 2,640 $

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

Reconciliation of income before income taxes – pre-tax operating margin
(dollars in millions)
Income (loss) before income taxes – GAAP
Less: Net securities gains (losses)

2013

$ 3,712

N/A

2012

2011

2009
$ 3,302 $ 3,617 $ 3,694 $ (2,208)
(5,369)

2010

N/A

Net income attributable to noncontrolling interests of consolidated

investment management funds
Add: M&I, litigation and restructuring charges

Asset-based taxes
Amortization of intangible assets

80
70
—
342

76
559
—
384

50
390
—
428

59
384
—
421

—
417
20
426

Income before income taxes excluding net securities gains (losses), net

income attributable to noncontrolling interests of consolidated
investment management funds, M&I, litigation and restructuring
charges, asset-based taxes and amortization of intangible assets –
Non-GAAP

Fee and other revenue – GAAP
Income from consolidated investment management funds – GAAP
Net interest revenue – GAAP

Total revenue – GAAP

Less: Net securities gains (losses)

Net income attributable to noncontrolling interests of consolidated

investment management funds

$ 4,044
$ 11,791
183
3,009
14,983

N/A

$ 4,169 $ 4,385 $ 4,413 $ 4,024
$ 11,393 $ 11,546 $ 10,724 $ 4,739
—
2,915
7,654
(5,369)

226
2,925
13,875
27

200
2,984
14,730

189
2,973
14,555

N/A

—

Total revenue excluding net income attributable to noncontrolling

interests of consolidated investment management funds – Non-GAAP $ 14,903

$ 14,479 $ 14,680 $ 13,789 $ 13,023

Pre-tax operating margin (a)
Pre-tax operating margin, excluding net income attributable to noncontrolling
interests of consolidated investment management funds, M&I, litigation
and restructuring charges, asset-based taxes and amortization of intangible
assets – Non-GAAP (a)

(a) Income before taxes divided by total revenue.

25%

23%

25%

27%

N/M

27%

29%

30%

32%

31%

BNY Mellon 119

Supplemental Information (unaudited) (continued)

The following table presents the calculation of the effective tax rate.

Effective tax rate
(dollars in millions)
Provision for income taxes – GAAP
Less: Net charge related to the U.S. Tax Court’s decisions disallowing certain foreign tax credits (after-tax)

Provision for income taxes – Non-GAAP

Income before taxes – GAAP

Effective tax rate – GAAP
Effective tax rate – Operating basis – Non-GAAP

2013

1,520
593
927

3,712

40.9%
25.0%

The following table presents the calculation of the returns on common equity and tangible common equity.

Return on common equity and tangible common equity
(dollars in millions)
Net income applicable to common shareholders of The Bank of New York

Mellon Corporation – GAAP

Less: Net income (loss) from discontinued operations
Net income (loss) from continuing operations applicable to common
shareholders of The Bank of New York Mellon Corporation
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 excluding
amortization of intangible assets – Non-GAAP

Less: Net securities gains (losses)
Add: M&I, litigation and restructuring charges

Net charge related to the disallowance of certain foreign tax credits
Discrete tax benefits and the benefit of tax settlements

Net income applicable to common shareholders of The Bank of New

York Mellon Corporation excluding amortization of intangible assets,
net securities gains (losses), M&I, litigation and restructuring charges,
the net charge related to the disallowance of certain foreign tax credits
and discrete tax benefits and the benefit of tax settlements – Non-
GAAP

Average common shareholders’ equity
Less: Average goodwill

Average intangible assets

Add: Deferred tax liability – tax deductible goodwill

Deferred tax liability – non-tax deductible intangible assets
Average tangible common shareholders’ equity – Non-GAAP

Return on common equity – GAAP
Return on common equity excluding amortization of intangible assets, net

securities gains (losses), M&I, litigation and restructuring charges, the net
charge related to the disallowance of certain foreign tax credits and
discrete tax benefits and the benefit of tax settlements – Non-GAAP

Return on tangible common equity – Non-GAAP
Return on tangible common equity excluding amortization of intangible
assets, net securities gains (losses), M&I, litigation and restructuring
charges, the net charge related to the disallowance of certain foreign tax
credits and discrete tax benefits and the benefit of tax settlements – Non-
GAAP

2013

2012

2011

2010

2009

$ 2,047
—

$ 2,427 $ 2,516 $ 2,518 $

—

(66)

2,047
220

2,427
247

2,516
269

2,267

2,674

2,785

N/A
45
593
—

N/A
339
—
—

N/A
240
—
—

2,584
264

2,848
17
240
—
—

(1,367)
(270)

(1,097)
265

(832)
(3,360)
259
—
(267)

$ 2,905

$ 3,013 $ 3,025 $ 3,071 $

2,520

$ 34,832
17,988
4,619
1,302
1,222
$ 14,749

$ 34,333
17,967
4,982
1,130
1,310
$ 13,824

$ 33,519
18,129
5,498
967
1,459
$ 12,318

$ 31,100
17,029
5,664
816
1,625
$ 10,848

27,198
16,042
5,654
720
1,680
7,902

5.9%

7.1%

7.5%

8.3%

N/M

8.3%
15.4%

8.8%
19.3%

9.0%
22.6%

9.9%
26.3%

9.3%
N/M

19.7%

21.8%

24.6%

28.3%

31.9%

120 BNY Mellon

Supplemental Information (unaudited) (continued)

The following table presents income from consolidated investment management funds, net of noncontrolling
interests.

Income from consolidated investment management funds, net of

noncontrolling interests

(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

2013
183 $

2012
189 $

2011
200 $

2010
226

80
103 $

76
113 $

50
150 $

59
167

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

(in millions)
Investment management fees
Other (Investment income)

Income from consolidated investment management funds, net of noncontrolling interests

2013

2012

80 $
23
103 $

81 $
32
113 $

2011
107 $
43
150 $

2010
125

167

The following table presents the calculation of the equity to assets ratio and book value per common share.

Equity to assets and book value per common share

Dec. 31,

BNY Mellon common shareholders’ equity at period end – GAAP

(dollars in millions, unless otherwise noted)
BNY Mellon shareholders’ equity at period end – GAAP
Less: Preferred stock

$ 37,521
1,562
35,959
18,073
4,452
1,302
1,222
Tangible BNY Mellon shareholders’ equity at period end – Non-GAAP $ 15,958

Deferred tax liability – non-tax deductible intangible assets

Add: Deferred tax liability – tax deductible goodwill

Intangible assets

Less: Goodwill

2013

2011

2010

2012

2009

$ 36,431 $ 33,417 $ 32,354 $ 28,977

—

28,977
16,249
5,588
720
1,680
9,540

—
33,417
17,904
5,152
967
1,459
$ 14,919 $ 12,787 $ 11,057 $

—
32,354
18,042
5,696
816
1,625

1,068
35,363
18,075
4,809
1,130
1,310

Total assets at period end – GAAP
Less: Assets of consolidated investment management funds

Subtotal assets of operations – Non-GAAP

Less: Goodwill

Intangible assets
Cash on deposit with the Federal Reserve and other central
banks (a)

Tangible total assets of operations at period end – Non-GAAP

$ 374,310
11,272
363,038
18,073
4,452

$ 358,990 $ 325,266 $ 247,259 $ 212,224
—
212,224
16,249
5,588

11,481
347,509
18,075
4,809

11,347
313,919
17,904
5,152

14,766
232,493
18,042
5,696

105,384
$ 235,129

90,040
$ 234,585

90,230
$ 200,633

18,566
$ 190,189

7,375
$ 183,012

BNY Mellon shareholders’ equity to total assets – GAAP
BNY Mellon common shareholders’ equity to total assets – GAAP
Tangible BNY Mellon common shareholders’ equity to tangible assets
of operations – Non-GAAP

10.0%
9.6%

10.1%
9.9%

10.3%
10.3%

13.1%
13.1%

13.7%
13.7%

6.8%

6.4%

5.8%

5.2%

Period end common shares outstanding (in thousands)

1,142,250

1,163,490

1,209,675

1,241,530

1,207,835

Book value per common share
Tangible book value per common share – Non-GAAP
(a) Assigned a zero percentage risk-weighting by the regulators.

$
$

31.48
13.97

$
$

30.39 $
12.82 $

27.62 $
10.57 $

26.06 $
8.91 $

23.99
7.90

BNY Mellon 121

Supplemental Information (unaudited) (continued)

The following table presents the calculation of our Basel I Tier 1 common equity ratio.

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

2013

$ 18,335
330
1,562
$ 16,443

Dec. 31,

2012

2011

2010

2009
$ 16,694 $ 15,389 $ 13,597 $ 12,883
1,686
—
$ 15,003 $ 13,730 $ 11,921 $ 11,197

623
1,068

1,676
—

1,659
—

Total risk-weighted assets – Basel I

$ 113,322

$ 111,180 $ 102,255 $ 101,407 $ 106,328

Basel I Tier 1 common equity to risk-weighted assets ratio – Non-GAAP
(a) Determined under Basel I regulatory rules. The periods ended Dec. 31, 2010 and Dec. 31, 2009 include discontinued operations.

11.8%

13.4%

13.5%

14.5%

10.5%

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
Adjustment to determine Basel III Tier 1 common equity:

Deferred tax liability – tax deductible intangible assets
Preferred stock
Trust preferred securities
Other comprehensive income (loss):
Securities available-for-sale
Pension liabilities
Net pension fund assets

Total other comprehensive income (loss) and net pension fund assets

Equity method investments
Deferred tax assets
Other

Total estimated Basel III Tier 1 common equity

Dec. 31,

2013

18,335

2012
16,694 $

2011

15,389

70
(1,562)
(330)

387
(900)
(713)
(1,226)
(445)
(49)
17
14,810

78
(1,068)
(623)

1,350
(1,453)
(249)
(352)
(501)
(47)
18
14,199 $

N/A
—
(1,659)

450
(1,425)
(90)
(1,065)
(555)
—
34
12,144

Under the Standardized Approach:
Total risk-weighted assets – Basel I
Add: Adjustments (b)

Total estimated Basel III risk-weighted assets

Estimated Basel III Tier 1 common equity ratio – Non-GAAP calculated under the

Standardized Approach

Under the Advanced Approach:
Total risk-weighted assets – Basel I
Add: Adjustments (b)

Total estimated Basel III risk-weighted assets

$ 113,322
26,543
$ 139,865

10.6%

N/A
N/A
N/A

N/A

N/A
N/A
N/A

N/A

$ 113,322
17,527
$ 130,849

$ 111,180 $ 102,255
67,813
$ 144,284 $ 170,068

33,104

Estimated Basel III Tier 1 common equity ratio – Non-GAAP calculated under the

Advanced Approach

11.3%

9.8%

7.1%

(a) At Dec. 31, 2013, the estimated Basel III Tier 1 common equity ratio is based on our interpretation of the Final Capital Rules released

by the Federal Reserve on July 2, 2013, on a fully phased-in basis. For periods prior to Dec. 31, 2013, these ratios were estimated using
our interpretation of the NPRs dated June 7, 2012, on a fully phased-in basis.

(b) Following are the primary differences between risk-weighted assets determined under Basel I and Basel III. Credit risk is determined

under Basel I using predetermined risk-weights and asset classes and relies in part on the use of external credit ratings. Under Basel III
both the Standardized and Advanced Approaches use a broader range of predetermined risk-weights and asset classes and certain
alternatives to external credit ratings. Securitization exposure receives a higher risk-weighting under Basel III than Basel I, and Basel
III includes additional adjustments for market risk, counterparty credit risk and equity exposures. Additionally, the Standardized
Approach eliminates the use of the VaR approach for determining risk-weighted assets on certain repo-style transactions. Risk-weighted
assets calculated under the Advanced Approach also include the use of internal credit models and parameters as well as an adjustment
for operational risk.

(c) Changes in January 2014 to the probable loss model associated with unsecured wholesale credit exposures within our Advanced
Approach capital model will impact risk-weighted assets. The Company did not include the impact at Dec. 31, 2013. However, a
preliminary estimate of the revised methodology to the portfolio at Sept. 30, 2013 would have added approximately 6% to the risk-
weighted assets.

122 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

2013 over (under) 2012

2012 over (under) 2011

Due to change in
Average
balance

Average
rate

Net
change

Due to change in
Average
balance

Average
rate

Net
change

22 $
7
17
14

(131) $
(9)
(5)
(22)

(109)
(2)
12
(8)

(163) $
46
4
45

8 $

(42)
3
(6)

(21)
20
21
20

(11)
(197)
(30)

(155)
4
7
39

(20)
(17)
27
(10)

33
192
75

1
(37)
6
(30)

44
389
105

5
11
16
24
578
480 $

(144)
(132)
(276)
(2)
(516)
(533) $

(139)
(121)
(260)
22
62
(53)

8 $
(1)
—
7

(9) $
—
1
(8)

—
11
11
18
—
(6)

(4)
(93)
(97)
(105)
(2)
(2)

(1)
(1)
1
(1)

(4)
(82)
(86)
(87)
(2)
(8)

(8)
3
(5)
2
1
29
(70)
17

10
33
32
75

(12)
124
35

(15)
(10)
(47)
(72)

37
(82)
(11)

(5)
23
(15)
3

25
42
24

4
(10)
(6)
58
199
334 $

(33)
(157)
(190)
4
(242)
(481) $

(29)
(167)
(196)
62
(43)
(147)

— $
—
5
5

(1) $
1
(16)
(16)

(4)
6
2
7
—
17

(12)
(28)
(40)
(56)
(16)
(3)

(1)
1
(11)
(11)

(16)
(22)
(38)
(49)
(16)
14

$
$

(2)
—
(2)
—
1
(12)
11 $
323 $

(2)
(5)
(7)
(2)
(1)
(117)
(202) $
(279) $

(4)
(5)
(9)
(2)
—
(129)
(191)
44

$
$

(8)
(1)
(9)
2
1
29
35 $
445 $

—
4
4
—
—
—
(105) $
(428) $

(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 123

Selected Quarterly Data (unaudited)

(dollar amounts in millions,

except per share amounts)

Consolidated income statement

Total fee and other revenue

Income from consolidated investment

management funds
Net interest revenue

Total revenue

Provision for credit losses

Noninterest expense

Income before taxes

Provision (benefit) for income taxes

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 Bank of New York
Mellon Corporation

Basic earnings (loss) per common share

Diluted earnings (loss) per common share
Average balances

2013

2012

Quarter ended

Dec. 31

Sept. 30

June 30 March 31

Dec. 31

Sept. 30

June 30 March 31

2,797

2,963

3,187

2,844

2,850 $

2,879 $

2,826 $

2,838

761

772

3,594

3,767

757

4,009

(19)

2,822

1,206

321

885

719

3,613

(24)

2,828

809

1,046

(237)

725

3,617

(61)

2,825

853

207

646

749

3,675

(5)

2,705

975

225

750

734

3,617

(19)

3,047

589

496

765

3,646

2,756

885

254

631

2,779

986

(2)

988

(8)

(40)

(16)

(11)

(25)

(30)

(12)

980

(13)

845

(12)

(253)

(13)

635

(13)

725

(5)

466

—

2,877

711

155

556

(17)

539

(26)

513

0.44

967

0.83

0.82

833

0.71

(266)

(0.23)

622

720

466

0.53 $

0.61 $

0.39 $

0.53

0.61

0.39

619

—

619

0.52

Interest-bearing deposits with banks

$ 122,795

$ 107,301

$ 98,683

$ 104,207

$ 112,812 $ 103,050 $ 96,378 $ 98,621

Securities

Trading assets

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

Cash dividends per common share
Market capitalization (b)

96,640

101,206

107,138

101,912

102,512

100,004

6,173

50,768

285,779

344,629

356,135

237,019

19,501

1,562

5,523

48,256

271,150

329,887

341,750

225,622

19,025

1,562

6,869

47,913

268,481

325,931

337,455

221,867

19,002

1,350

5,878

46,279

265,754

322,161

333,664

218,065

18,878

1,068

5,294

43,613

270,215

324,601

335,995

222,706

19,259

1,066

4,431

42,428

255,228

307,919

318,914

208,490

19,535

611

91,859

3,033

42,992

239,755

293,718

305,002

193,342

20,084

86,808

2,519

43,209

236,331

289,900

301,344

192,051

20,538

—

35,698

34,264

34,467

34,898

34,962

34,522

34,123

33,718

1.09%

5.7%

20%

1.16%

11.2%

26%

1.15%

1.11%

1.09%

1.20%

1.25%

1.32%

9.7%

30%

N/M

22%

7.1%

24%

8.3%

27%

5.5%

16%

7.4%

24%

34.99

32.36

30.85

29.13

26.25 $

24.95 $

24.72 $

24.70

29.55

32.56

34.94

0.15

28.01

30.67

30.19

0.15

26.64

28.72

28.05

0.15

25.62

27.55

27.99

0.13

22.63

24.33

25.70

0.13

20.13

22.20

22.62

0.13

19.30

21.92

21.95

0.13

19.74

22.01

24.13

0.13

39,910

34,674

32,271

32,487

29,902

26,434

25,929

28,780

(a) At Dec. 31, 2013, there were 29,231 shareholders registered with our stock transfer agent, compared with 31,486 at Dec. 31, 2012 and 33,222 at Dec. 31,
2011. In addition, there were 47,223 of BNY Mellon’s current and former employees at Dec. 31, 2013 who participate in BNY Mellon’s 401(k) Retirement
Savings Plan. All shares of BNY Mellon’s common stock held by the Plan for its participants are registered in the name of The Bank of New York Mellon
Corporation, as trustee.

(b) At period end.

124 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. In addition, these forward-looking
statements relate to expectations regarding: Basel III
and our estimated Basel III Tier 1 common equity
ratio; the estimated effect of regulatory changes made
in January 2014 on risk-weighted assets; proposed
rulemaking concerning a liquidity coverage ratio; the
potential impact of supplementary leverage ratio
proposals; the announcement of our 2014 capital
plan; the impact of the continued run-off of high
margin structured debt securitizations on our total
annual revenue; our foreign exchange revenues;
increasing expenses relating to investments in our
compliance, risk and other control functions in light
of increasing regulatory requirements; elevated levels
of legal and litigation costs; operational excellence
initiatives, including program savings since program
inception in 2011; future savings facilitated by the
relocation of our New York-based treasury and
trading operations from leased space to an owned
building; our effective tax rate; the impact of
seasonality on our businesses; estimations of the
impact of market value changes on our fee revenue
and earnings per share; estimated new business wins
in assets under custody and/or administration; the
impact of globalization and a changing regulatory
environment on the demand for our products and
services; our tri-party repo business; our appearance
as the named plaintiff in legal actions brought by
servicers in foreclosure and other related proceedings;
overdraft exposure with respect to Irish-domiciled
investment funds; the impact of an update to our
methodologies utilized in our probable loss model;
the impact on our allowance for loan losses of
changes in assigned credit ratings; assumptions with
respect to residential mortgage-backed securities; the
expected impact of actions on our investment
securities portfolio in the event of a rise in interest
rates; effects of changes in projected loss severities
and default rates on impairment charges; net pension
expense; the impact of significant changes in ratings
classifications for our investment securities portfolio;
the expected impact of certain of our recent actions in
the event of a rise in interest rates; goals with respect
to our commercial portfolio; our credit strategies; our
maintenance of a sizable allowance for loan losses;
the potential for an adverse ruling in the ongoing
Sentinel litigation; our quarterly provision for credit
losses in 2014; our goals with respect to our liquidity
cushion, diversity of funding sources, liquidity ratios,

a liquid asset buffer, and the levels and sources of
wholesale funds; the potential uses of liquidity; the
impact of a reduction in our Investment Services
businesses; our liquidity policy; our 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 possible
redemptions or other actions with regard to
outstanding securities; the effects of changes in risk-
weighted assets/quarterly average assets or changes in
common equity levels on capital ratios; the
capitalization status of BNY Mellon and its bank
subsidiaries; the effects of customer behavior and
market volatility or stress on our balance sheet size
and client deposit levels; our share repurchase
program; our foreign exchange and other trading
counterparty risk rating profile; our earnings
simulation model; estimations and assumptions on net
interest revenue and net interest rate sensitivities;
impact of certain events on the growth or contraction
of deposits, our assumptions about depositor
behavior, our balance sheet and net interest revenue;
the estimated impact on our Economic Value of
Equity and on our tangible common equity ratio of a
change in interest rates; the timing and effects of
pending and proposed legislation, regulation and
accounting standards, including: U.S.
implementation of the Basel III capital and liquidity
framework, new and proposed risk-based and
leverage regulatory capital rules, supplementary
leverage ratio proposals, proposed rulemaking
concerning implementation of minimum liquidity
standards, implementation of the Volcker Rule in the
U.S. and proposals similar to the Volcker Rule from
the European Commission, proposed U.S. and
European regulations concerning the derivatives
markets and the regulation of money market funds,
the FDIC notice regarding implementation of a single
point of entry resolution approach, proposed U.K.
rules regarding depositor preference, and European
Central Bank comprehensive assessments; the
practical elimination of intraday credit related to tri
party repo processing; the timing and effects of
pending and proposed accounting standards,
including: accounting for investments in qualified
affordable housing projects, revenue from contracts
with customers, principal versus agent analysis,
leases, financial instruments - credit losses, effective
control for transfers with forward agreements to
repurchase assets and accounting for repurchase
financings, recognition and measurement of financial
assets and financial liabilities, and reporting

BNY Mellon 125

Forward-looking Statements (continued)

discontinued operations; business continuity
planning; our anticipated actions with respect to legal
or regulatory proceedings; future litigation costs; the
expected outcome and the impact of judgments and
settlements, if any, arising from pending or potential
legal or regulatory proceedings; and our 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,” “target,” “expect,”
“intend,” “continue,” “seek,” “believe,” “plan,”
“goal,” “could,” “should,” “would,” “may,” “will,”
“strategy,” “synergies,” “opportunities,” “trends” and
words of similar meaning, may signify forward-
looking statements.

Forward-looking statements, including discussions
and projections of future results of operations and
discussions of future plans contained in the
Management’s Discussion and Analysis of Financial
Condition and Results of Operations, 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, such as:
government regulation and supervision, and recent
legislative and regulatory actions; regulatory actions
or litigation; adverse publicity with respect to us,
other well-known companies and the financial
services industry generally; continued litigation and
regulatory investigations and proceedings involving
our foreign exchange standing instruction program;
failure to satisfy regulatory standards, including
capital adequacy guidelines; operational risk; failure
or circumvention of our controls and procedures;
disruption or breach in security of our information
systems that results in a loss of confidential client
information or impacts our ability to provide services
to our clients; failure to update our technology;
change or uncertainty in monetary, tax and other
governmental policies; intense competition in all
aspects of our business; the risks relating to new lines
of business or new products and services, and the
failure to grow our existing businesses; failure to

126 BNY Mellon

attract and retain employees; political, economic,
legal, operational and other risks inherent in operating
globally; acts of terrorism, natural disasters,
pandemics and global conflicts; our strategic
acquisitions, including our ability to successfully
integrate acquired businesses and potential liabilities
from legacy claims against the acquired businesses;
ongoing concerns about the financial stability of
several countries in Europe, the failure or instability
of any of our significant counterparties in Europe, or
a breakup of the European Monetary Union;
continuing uncertainty in financial markets and
weakness in the economy generally; low or volatile
interest rates; market volatility; further write-downs
of financial instruments that we own and other losses
related to volatile and illiquid market conditions; our
dependence on fee-based business for a substantial
majority of our revenue and the potential adverse
effects of a slowing in capital market activity, weak
financial markets or negative trends in savings rates
or in individual investment preferences; the impact of
a stable exchange-rate environment or decreased
cross-border investing activity on our foreign
exchange revenues; any material reduction in our
credit ratings or the credit ratings of certain of our
subsidiaries; the failure or instability of any of our
significant counterparties, and our assumption of
credit and counterparty risk; credit, regulatory and
reputation risks as a result of our tri-party repo agent
services; the impact of not effectively managing our
liquidity; inadequate reserves for credit losses,
including loan reserves; tax law changes or
challenges to our tax positions; changes in accounting
standards; risks associated with being a holding
company, including our dependence on dividends
from our subsidiary banks; and the impact of
provisions of Delaware law and the Federal Reserve
on our ability to return capital to shareholders.
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.

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.

Asset-backed security (“ABS”) - A financial
security backed by a loan, lease or receivables against
assets other than real estate and mortgage-backed
securities.

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. 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.

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.

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.

Common Equity Tier 1 capital (“CET1”) - the sum
of surplus (net of treasury stock), retained earnings,
accumulated other comprehensive income (loss), and
common equity Tier 1 minority interest subject to
certain limitations, minus certain regulatory
adjustments and deductions.

Counterparty risk (default risk) - The risk that a
counterparty will not pay as obligated on a contract,
trade or transaction.

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.

BNY Mellon 127

Glossary (continued)

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.

Derivative - A contract or agreement whose value is
derived from changes in interest rates, foreign
exchange rates, prices of securities or commodities,
credit worthiness for credit default swaps or financial
or commodity indices.

Discontinued operations - The operating results of a
component of an entity, as defined by ASC 205, that
are removed from continuing operations when that
component has been disposed of or it is
management’s intention to sell the component.

Dodd-Frank Wall Street Reform and Consumer
Protection Act (the “Dodd-Frank Act”) -
Regulatory reform legislation signed into law on July
21, 2010. This 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.

128 BNY Mellon

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 18
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, Slovakia and Latvia.

eXtensible Business Reporting Language
(“XBRL”) - A language for the electronic
communication of business and financial data.

FASB - Financial Accounting Standards Board.

FDIC - Federal Deposit Insurance Corporation.

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.

Glossary (continued)

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.

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 rules) - 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.

BNY Mellon 129

Glossary (continued)

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.

Overnight indexed swap (“OIS”) - The standard
discounting rate for financial institutions due to the
liquidity risk and inherent credit risk associated with
dealing with other (LIBOR based) financial
institutions. OIS is based on an overnight rate index
rate set by a central bank; in the U.S., the index is Fed
Funds. Discounting cash flows using the OIS rate is
applied to transactions involving exchanges of
collateral, and conceptually incorporates the cost of
funding the collateral required by these transactions.

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.

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.

130 BNY Mellon

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 - Net income applicable to common
shareholders divided by average assets.

Return on common equity - Net income applicable
to common shareholders divided by average common
shareholders’ equity.

Return on tangible common equity - Net income
applicable to common shareholders, 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.

Glossary (continued)

Tangible common shareholders’ equity - Common
equity less goodwill and intangible assets adjusted for
deferred tax liabilities associated with non-tax
deductible intangible assets and tax deductible
goodwill.

Tier 1 and total capital (Basel I rules) - 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.

Volcker rule - The Volcker Rule generally prohibits
covered companies from engaging in proprietary
trading and conditionally allows companies to
sponsor certain U.S. and foreign private equity and
hedge funds.

BNY Mellon 131

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.

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,
2013. 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 (1992).
Based upon such assessment, management believes
that, as of December 31, 2013, BNY Mellon’s
internal control over financial reporting is effective
based upon those criteria.

KPMG LLP, the independent registered public
accounting firm that audited BNY Mellon’s 2013
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 133.

132 BNY Mellon

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders
The Bank of New York Mellon Corporation:

We have audited The Bank of New York Mellon Corporation’s (“BNY Mellon”) internal control over financial
reporting as of December 31, 2013, based on criteria established in Internal Control - Integrated Framework (1992)
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, 2013, based on criteria established in Internal Control - Integrated Framework (1992) 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, 2013 and 2012, 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, 2013, and our report dated February 28, 2014 expressed an unqualified
opinion on those consolidated financial statements.

New York, New York
February 28, 2014

BNY Mellon 133

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

Consolidated Income Statement

(in millions)
Fee and other revenue
Investment services fees:

Asset servicing
Clearing services
Issuer 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 other comprehensive income)

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 before income taxes
Provision for income taxes

Net income

Year ended Dec. 31,

2013

2012

2011

3,905 $
1,264
1,090
554
6,813
3,395
674
180
172
416
11,650
146

3,780 $
1,193
1,052
549
6,574
3,174
692
192
172
427
11,231
242

5
141
11,791

80
162
11,393

548
365
183

3,352
343
3,009
(35)
3,044

6,019
1,252
629
596
435
337
317
280
1,029
342
70
11,306

3,712
1,520
2,192

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

3,697
1,159
1,445
535
6,836
3,002
848
187
170
455
11,498
(86)

(134)
48
11,546

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

(53)
2,516
—
2,516

Net (income) attributable to noncontrolling interests (includes $(80), $(76) and $(50) related to
consolidated investment management funds, respectively)

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

(81)
2,111
(64)
2,047 $

(78)
2,445
(18)
2,427 $

134 BNY Mellon

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

Consolidated Income Statement (continued)

Net income applicable to common shareholders of The Bank of New York Mellon

Corporation used for the earnings per share calculation

(in millions)
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

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
Diluted

ar en

Ye
2013
2,047 $
37
1

ded Dec. 31,
2012
2,427 $
35
(5)

2011
2,516
27
9

2,009 $

2,397 $

2,480

Year ended Dec. 31,

2013
1,150,689
16,874
(13,122)
1,154,441

2012
1,176,485
10,970
(9,025)
1,178,430

2011
1,220,804
8,425
(6,203)
1,223,026

75,847

91,347

86,270

Year ended Dec. 31,

2013
1.75 $
1.74 $

2012
2.04 $
2.03 $

$
$

2011
2.03
2.03

(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.

BNY Mellon 135

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
Unrealized gain (loss) on assets available-for-sale:
Unrealized gain (loss) arising during the period
Reclassification adjustment

Total unrealized gain (loss) on assets available-for-sale

Defined benefit plans:

Prior service cost arising during the period
Net gain (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 on cash flow hedges

Total other comprehensive income (loss), net of tax (a)
Net (income) attributable to noncontrolling interests
Other comprehensive (income) loss attributable to noncontrolling interests
Net comprehensive income

Year ended Dec. 31,

2013
2,192 $

2012
2,523 $

2011
2,569

192

130

(195)

(889)
(74)
(963)

(1)
429
—

1,007
(106)
901

57
(190)
—

126
554
9
(208)
(81)
(41)
1,862 $

104
(29)
1
1,003
(78)
(19)
3,429 $

306
(26)
280

—
(443)
(3)

69
(377)
3
(289)
(53)
17
2,244

(a) Other comprehensive income (loss) attributable to The Bank of New York Mellon Corporation shareholders was $(249) million for the

year ended Dec. 31, 2013, $984 million for the year ended Dec. 31, 2012 and $(272) million for the year ended Dec. 31, 2011.

See accompanying Notes to Consolidated Financial Statements.

136 BNY Mellon

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

Consolidated Balance Sheet

(dollars 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 $19,443 and $8,389)
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 $1,728 and $1,321, 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 $134 and $121, also includes $503 and $704, at fair

value)

Long-term debt (includes $321 and $345, 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 shares; issued 15,826 and 10,826 shares
Common stock – par value $0.01 per share; authorized 3,500,000,000 shares; issued 1,268,036,220 and 1,254,182,209 shares
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss, net of tax
Less: Treasury stock of 125,786,430 and 90,691,868 common shares, at cost

Total The Bank of New York Mellon Corporation shareholders’ equity

Nonredeemable noncontrolling interests of consolidated investment management funds

Total permanent equity
Total liabilities, temporary equity and permanent equity

See accompanying Notes to Consolidated Financial Statements.

Dec. 31,

2013

2012

6,460
104,359
35,300
9,161

4,727
90,110
43,910
6,593

19,743
79,309
99,052
12,098
51,657
(210)
51,447
1,655
621
18,073
4,452
20,360
363,038

8,205
92,619
100,824
9,378
46,629
(266)
46,363
1,659
593
18,075
4,809
20,468
347,509

10,397
875
11,272
$ 374,310

10,961
520
11,481
$ 358,990

$ 95,475
56,640
109,014
261,129
9,648
6,945
15,707
96
663
6,985

4,608

19,864
325,645

10,085
46
10,131
335,776

$ 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

230

178

1,562
13
24,002
15,976
(892)
(3,140)
37,521
783
38,304
$ 374,310

1,068
13
23,485
14,622
(643)
(2,114)
36,431
833
37,264
$ 358,990

BNY Mellon 137

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

Consolidated Statement of Cash Flows

(in millions)
Operating activities

Year ended Dec. 31,

2013

2012

2011

Net income
Net (income) attributable to noncontrolling interests
Net income applicable to shareholders of The Bank of New York Mellon Corporation
Adjustments to reconcile net income to net cash (used for) provided by operating activities:

2,192
(81)
2,111

2,523
(78)
2,445

Provision for credit losses
Pension plan contributions
Depreciation and amortization
Deferred tax expense
Net securities (gains) and venture capital (income)

Change in trading activities
Change in accruals and other, net

Net cash (used for) 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 of cash
Dispositions, net cash
Other, net

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.

138 BNY Mellon

(35)
(68)
1,389
533
(147)
(3,946)
(479)
(642)

10,667
(14,249)
(6,740)
1,545
43
(28,622)
19,455
9,621
3,911
(5,092)
104
(2,568)
(171)
(609)
—
(19)
84
(560)
(13,200)

13,960
2,221
(388)
(672)
(242)
3,892
(2,035)
263
25
494
(1,026)
(680)
(64)
(127)
15,621
(46)

1,733
4,727
6,460

347
400
29

(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

552
4,175
4,727

561
709
51

2,569
(53)
2,516

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)

500
3,675
4,175

586
640
136

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

Accumulated
other
comprehensive

Preferred Common
stock

stock

paid-in Retained
capital earnings

(loss), Treasury
stock

net of tax

Non
redeemable
noncontrolling
interests of
consolidated
investment

Total
management permanent
equity

funds

Redeemable
non-
controlling
interests/
temporary
equity

$ 1,068 $

13 $ 23,485 $ 14,622 $

(643) $ (2,114) $

833 $ 37,264 (a) $

—

—
—

—

494

—

—
—

—

—
—

—

451

—

2,111

—

(12)

(249)

(681)

(64)
—

—

—
—

—

—
(1,026)

—

(161)

—

—
—

—

(140)

2,191

(230)

(681)

(64)
(1,026)

494

451

(in millions, except per
share amounts)

Balance at Dec. 31, 2012
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

(loss)

Dividends:

Common stock at $0.58 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, 2013

$ 1,562 $

13 $ 24,002 $ 15,976 $

(892) $ (3,140) $

783 $ 38,304 (a) $

(a)

Includes total The Bank of New York Mellon Corporation common shareholders’ equity of $35,363 million at Dec. 31, 2012 and $35,959 million at Dec.
31, 2013.

The Bank of New York Mellon Corporation shareholders

Preferred Common
stock

stock

paid-in Retained
capital earnings

Additional

Accumulated
other
comprehensive
income (loss), Treasury
stock

net of tax

Non
redeemable
noncontrolling
interests of
consolidated
investment

Total
management permanent
equity

funds

Redeemable
non-
controlling
interests/
temporary
equity

— $

12 $ 23,185 $ 12,812 $

(1,627) $

(965) $

670 $ 34,087 (a) $

—

—
—

—

—
—

—

1,068

—

—
—

—

—
—

—

(2)

—
—

—

—
—

—

255

—

2,445
—

(623)

(18)
—

—

—
984

—

—
—

—

—
—

—

—
(1,148)

—

(1)

—

76
15

—

—
—

—

2,521
999

(623)

(18)
(1,148)

1,068

255

(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

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

$ 1,068 $

13 $ 23,485 $ 14,622 $

(643) $ (2,114) $

833 $ 37,264 (a) $

(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.

BNY Mellon 139

178

(81)

—

—
—

—

230

114

(10)

2
4

—

—
—

—

178

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

Additional

Common
stock

paid-in Retained
capital earnings

Non-
Accumulated
redeemable
other
non-
comprehensive
income (loss), Treasury controlling
interest

net of tax

stock

Non
redeemable
noncontrolling
interests of
consolidated
investment

Total
management permanent
equity

funds

Redeemable
non-
controlling
interests/
temporary
equity

12 $ 22,885 $ 10,898 $

(1,355) $

(86) $

12 $

699 $ 33,065 (a) $

—

—
—

—

—
—

—

(9)

2,516
—

(593)

—

231

(1)

—

—
(272)

—

—
—

—

(873)

—

(9)

—

(12)

—
—

—

—
—
12 $ 23,185 $ 12,812 $

—
(1,627) $

—
(965) $

—
— $

—

(63)

50
(16)

—

(67)

2,566
(288)

(593)

(873)

221

670 $ 34,087 (a) $

(19)

(2)

3
(1)

—

—
114

(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

dividend reinvestment plan

Stock awards and options

exercised

Other
Balance at Dec. 31, 2011

(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.

140 BNY Mellon

Notes to Consolidated Financial Statements

Note 1 - Summary of significant accounting
and reporting policies

Basis of presentation

The accounting and financial reporting policies of
BNY Mellon, a global financial services company,
conform to U.S. generally accepted accounting
principles (“GAAP”) and prevailing industry
practices.

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 presented have been made. These financial
statements should be read in conjunction with BNY
Mellon’s Annual Report on Form 10-K for the year
ended Dec. 31, 2013. Certain immaterial
reclassifications have been made to prior periods 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.

Equity method investments

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, investment management and
performance fees or investment and other income, as
appropriate, in the period earned.

A loss in value of an equity investment that is
determined to be other-than-temporary, is recognized
by reducing the carrying value of the equity
investment down to its fair value.

Our most significant equity method investments are:

Equity method investments at Dec. 31, 2013
Percentage
ownership Book value
576
535
278
133 (a)

(dollars in millions)
CIBC Mellon
Wing Hang
Siguler Guff
ConvergEx
(a) In addition to the common ownership interest noted, BNY

50.0%
20.8%
20.0%
33.9%

$
$
$
$

Mellon also holds an interest in ConvergEx nonvoting Series
B preferred units. The book value at Dec. 31, 2013 is
reflective of our combined common and preferred interests in
ConvergEx.

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 19 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

BNY Mellon 141

Notes to Consolidated Financial Statements (continued)

VIEs are defined as certain entities in which the
equity investors:

• 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:
• 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).

• The direct or indirect ability to make decisions
about the entity’s activities through voting
rights or similar rights (ASC 810 model).

• The obligation to absorb the expected losses of

the entity.

• 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.

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.

Nature of operations

BNY Mellon is a global leader in providing a broad
range of financial products and services in domestic
and international markets. Through our two principal
businesses, Investment Management and Investment
Services, we serve the following major classes of
customers - institutions, corporations, and high net
worth individuals. For institutions and corporations,
we provide the following services:

•
•
•
•
•
•
•
•
•
•
•

investment management;
trust and custody;
foreign exchange;
fund administration;
global collateral services;
securities lending;
depositary receipts;
corporate trust;
global payment/cash management;
banking services; and
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.

142 BNY Mellon

Notes to Consolidated Financial Statements (continued)

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.

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 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 the securities. 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:

• The length of time and the extent to which the
fair value has been less than the amortized cost
basis;

• Whether management has an intent to sell the

security;

• Whether the decline in fair value is attributable to
specific adverse conditions affecting a particular
investment;

• Whether the decline in fair value is attributable to
specific conditions, such as conditions in an
industry or in a geographic area;

• Whether a debt security has been downgraded by

a rating agency;

• Whether a debt security exhibits cash flow

deterioration; and

• 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.

BNY Mellon 143

Notes to Consolidated Financial Statements (continued)

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
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 4 of the Notes to
Consolidated Financial Statements for these
disclosures.

Loans and leases

Loans are reported net of any unearned discount.
Certain 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.

144 BNY Mellon

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 and remain current for a
specified period.

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

Notes to Consolidated Financial Statements (continued)

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
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:

•

an allowance for impaired credits of $1 million
or greater;
an allowance for higher risk-rated credits and
pass-rated credits; and
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 and 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 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 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

BNY Mellon 145

Notes to Consolidated Financial Statements (continued)

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:

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

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

Environmental risk factors:

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

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

146 BNY Mellon

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.

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

Premises and equipment

Premises and equipment are carried at cost less
accumulated depreciation and amortization.
Depreciation and amortization is computed using the
straight-line method over the estimated useful life of
the owned asset and, for leasehold improvements,
over the lesser of the remaining term of the leased
facility or the estimated economic life of the
improvement. For owned and capitalized assets,
estimated useful lives range from 2 to 40 years.
Maintenance and repairs are charged to expense as
incurred, while major improvements are capitalized
and amortized to operating expense over their
identified useful lives.

Software

BNY Mellon capitalizes costs relating to acquired
software and internal-use software development
projects that provide new or significantly improved
functionality. We capitalize projects that are expected
to result in longer-term operational benefits, such as
replacement systems or new applications that result in
significantly increased operational efficiencies or
functionality. All other costs incurred in connection
with an internal-use software project are expensed as
incurred. Capitalized software is recorded in other
assets.

Notes to Consolidated Financial Statements (continued)

Identified intangible assets and goodwill

Identified intangible assets with estimable lives are
amortized in a pattern consistent with the assets’
identifiable cash flows or using a straight-line method
over their remaining estimated benefit periods if the
pattern of cash flows is not estimable. Intangible
assets with estimable lives are reviewed for possible
impairment when events or changed circumstances
may affect the underlying basis of the asset.
Goodwill and intangibles with indefinite lives are not
amortized, but are assessed 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 6 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.

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.

Fee revenue

Foreign currency translation

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.

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

BNY Mellon 147

Notes to Consolidated Financial Statements (continued)

translated at the applicable daily rate or the weighted
average monthly exchange rate when applying the
daily rate is not practical.

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% of the greater of the projected
benefit obligation or the market-related value of plan
assets, the excess is recognized over the future
service periods of active employees.

The market-related value utilized to determine the
expected return on plan assets is based on the fair
value of plan assets adjusted for the difference
between expected returns and actual performance of
plan assets. The difference between actual experience
and expected returns on plan assets is included as an
adjustment in the market-related value over a five-
year period.

148 BNY Mellon

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 18
of the Notes to Consolidated Financial Statements for
additional disclosures related to pensions.

Severance

BNY Mellon provides separation benefits for U.S.
based employees through The Bank of New York
Mellon Corporation Supplemental Unemployment
Benefit Plan. 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

Notes to Consolidated Financial Statements (continued)

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
requires us to make numerous assumptions based on
the available market data. See Note 23 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-based compensation

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 2011-11 - Disclosures about Offsetting Assets
and Liabilities

In December 2011, the FASB issued 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. The scope includes derivatives, sale
and repurchase agreements and reverse sale and
repurchase agreements, and securities borrowing and
securities lending arrangements. See Note 23
“Derivative instruments” of the Notes to

BNY Mellon 149

Notes to Consolidated Financial Statements (continued)

Consolidated Financial Statements for the related
disclosure.

described below did not have a material impact on
BNY Mellon’s results of operations.

ASU 2012-02 - Testing Indefinite-Lived Intangible
Assets for Impairment

Dispositions in 2013

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.

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. See Note 16 “Other comprehensive income
(loss)” of the Notes to Consolidated Financial
Statements for the related disclosure.

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
recorded 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
are recorded through the income statement.
Contingent payments totaled $19 million in 2013.

At Dec. 31, 2013, 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 amount to $6 million over the next
six months. The acquisitions and dispositions

150 BNY Mellon

On May 31, 2013, BNY Mellon sold SourceNet
Solutions, our accounts payable outsourcing support
services provider that was part of our Investment
Services business, for $11 million. As a result of this
sale, we recorded a pre-tax gain of $2 million and an
after-tax gain of $10 million.

On Sept. 27, 2013, Newton Management Limited,
together with Newton Investment Management
Limited, an investment boutique of BNY Mellon,
sold Newton’s private client business, for $120
million. As a result of this sale, we recorded a pre-tax
gain of $27 million and an after-tax gain of $5
million. In addition, goodwill of $69 million and
customer relationship intangible assets of $7 million
were removed from the balance sheet as a result of
this sale.

Acquisition 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,
plus a contingent payment of $13 million which was
paid in August 2013. We later renamed the unit
Meriten Investment Management GmbH. Goodwill
related to this acquisition 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 eight years, and
totaled $23 million at acquisition.

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

Notes to Consolidated Financial Statements (continued)

included in our Investment Management business,
with a life of 20 years, and totaled $6 million at
acquisition.

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 at acquisition.

Disposition in 2011

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.

Note 4 - Securities

The following tables present the amortized cost, the
gross unrealized gains and losses and the fair value of
securities at Dec. 31, 2013, 2012 and 2011.

Securities at
Dec. 31, 2013

(in millions)
Available-for-sale:
U.S. Treasury
U.S. Government

agencies

State and political
subdivisions
Agency RMBS
Non-agency RMBS
Other RMBS
Commercial MBS
Agency commercial

MBS

Asset-backed CLOs
Other asset-backed

securities

Foreign covered bonds
Corporate bonds
Other debt securities
Equity securities
Money market funds
Non-agency RMBS (b)

Total securities

available-for-sale

Held-to-maturity:
U.S. Treasury
U.S. Government

agencies

State and political
subdivisions
Agency RMBS
Non-agency RMBS
Other RMBS
Commercial MBS
Other securities

Total securities held-to

maturity
Total securities

Amortized

Gross
unrealized

cost Gains Losses

Fair
value

$ 13,363 $

94 $ 605 $ 12,852

937

948

6,706

25,564
1,148
2,299
2,324

1,822

1,551

2,894

2,798
1,808
13,077
18
938
2,131

307
44
43
60

73
32
91
1
—
567

550
50
57
27

—

—
25
18
—
—
3

6,674

25,321
1,142
2,285
2,357

1,789

1,562

2,891

2,871
1,815
13,150 (a)
19
938
2,695

79,378

1,406

1,475

79,309

3,324

419

14,568
186
466
16
720

19,743

—

20
10
3
1
—

—

236
3
20
—
6

3,268

406

14,352
193
449
17
714

362

19,443

$ 99,121 $1,468 $1,837 $ 98,752

(a)

Includes $11.4 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.

BNY Mellon 151

Notes to Consolidated Financial Statements (continued)

Securities at
Dec. 31, 2012

(in millions)
Available-for-sale:
U.S. Treasury
U.S. Government

agencies

State and political
subdivisions
Agency RMBS
Non-agency 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
Non-agency RMBS (b)

Total securities

available-for-sale

Held-to-maturity:
U.S. Treasury
State and political
subdivisions
Agency RMBS
Non-agency RMBS
Other RMBS
Commercial MBS
Other securities

Amortized

Gross
unrealized

cost Gains Losses

Fair
value

$ 17,539 $ 467 $

3 $ 18,003

1,044

—

1,074

6,039

33,355
1,491
2,850
3,031
1,285

2,123

3,596
1,525
11,516
23
2,190
2,520

112

846
55
53
153
7

122
63
276
4
—
594

8
87
109
45
10

—
3
—
—
—
4

6,122

34,193
1,459
2,794
3,139
1,282

2,131

3,718
1,585

11,792 (a)
27
2,190
3,110

90,127

2,793

301

92,619

1,011

5,879
236
983
26
3

139
10
36
—
—

—

1
8
52
1
—

1,070

6,017
238
967
25
3

8,389

Total securities held-to-

maturity

8,205

246

Securities at
Dec. 31, 2011

(in millions)
Available-for-sale:
U.S. Treasury
U.S. Government

agencies

State and political
subdivisions
Agency RMBS
Non-agency 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
Non-agency RMBS (b)

Total securities

available-for-sale

Held-to-maturity:
U.S. Treasury
State and political

subdivisions
Agency RMBS
Non-agency RMBS
Other RMBS
Commercial MBS
Other securities

Total securities held-to

maturity

Amortized

Gross

unrealized

cost Gains Losses

Fair

value

$ 16,814 $ 514 $

2 $ 17,326

932

—

958

2,724

26,232
1,828
1,133
3,327
1,480

527

2,410
1,696
14,320
26
973
3,002

575
12
—
89
1

18
47
292
4
—
269

11
334
230
77
37

3
5
33
—
—
92

2,739

26,796

1,506

903

3,339

1,444

532

2,425
1,738

14,579 (a)
30
973
3,179

77,424

1,917

874

78,467

813

100

658
302
1,617
28
3

39
4
47
—
—

—

—
32
93
2
—

866

103

697

274

1,571

3,521

146

127

3,540

Total securities

$ 98,332 $3,039 $ 363 $101,008

Total securities

$ 80,945 $2,063 $1,001 $ 82,007

(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.

(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.

Net securities gains (losses)

(in millions)
Realized gross gains
Realized gross losses
Recognized gross impairments

Total net securities gains

2013

2012

2011

$ 186 $ 296 $ 183

(56)

(79)

$ 141 $ 162 $

(10)
(124)

(10)
(35)

At Dec. 31, 2013, the book value and the fair value of
UK sovereign debt of $4.5 billion and $4.6 billion
respectively, exceeded 10% of BNY Mellon’s
shareholders’ equity. In 2013, Agency RMBS
securities with an amortized cost of $7.3 billion and
fair value of $7.0 billion were transferred from
available-for-sale securities to held-to-maturity
securities. This action, in addition to realizing gains
on the sales of securities, is expected to mute the
impact to our accumulated other comprehensive
income in the event of a rise in interest rates.

152 BNY Mellon

Notes to Consolidated Financial Statements (continued)

Temporarily impaired securities

At Dec. 31, 2013, substantially all of the unrealized
losses on the investment securities portfolio were
attributable to an increase in interest rates and credit
spreads widening since purchase. We do not intend to
sell these securities and it is not more likely than not
that we will have to sell these securities.

The following tables show the aggregate related fair
value of investments with a continuous unrealized
loss position for less than 12 months and those that
have been in a continuous unrealized loss position for
12 months or more.

Temporarily impaired securities at Dec. 31, 2013

Less than 12 months

12 months or more

Total

Fair
value

Unrealized
losses

Fair
value

Unrealized
losses

Fair
value

Unrealized
losses

(in millions)
Available-for-sale:

U.S. Treasury
U.S. Government agencies
State and political subdivisions
Agency RMBS
Non-agency RMBS
Other RMBS
Commercial MBS
Agency commercial MBS
Other asset-backed securities
Corporate bonds
Other debt securities
Non-agency RMBS (a)

Total securities available-for-sale

7,719 $
97
2,374
12,011
102
93
517
1,390
1,529
612
2,976
59
29,479 $

605 $
5
55
226
7
14
21
34
9
25
18
1
1,020 $

Held-to-maturity:
U.S. Treasury
U.S. Government agencies
Agency RMBS
Non-agency RMBS
Other RMBS
Other securities

84 $
13
236
—
—
6
339 $
1,359 $
(a) Previously included in the Grantor Trust. The Grantor Trust was dissolved in 2011.

2,278 $
406
12,639
10
—
641
15,974 $
45,453 $

Total securities held-to-maturity
Total temporarily impaired securities

$
$

— $
—
222
83
592
614
174
—
38
—
—
22
1,745 $

— $
—
—
65
261
—
326 $
2,071 $

—
—
37
324
43
43
6
—
—
—
—
2
455

—
—
—
3
20
—
23
478

$
$

7,719 $
97
2,596
12,094
694
707
691
1,390
1,567
612
2,976
81
31,224 $

2,278 $
406
12,639
75
261
641
16,300 $
47,524 $

605
5
92
550
50
57
27
34
9
25
18
3
1,475

84
13
236
3
20
6
362
1,837

Temporarily impaired securities at Dec. 31, 2012

Less than 12 months

12 months or more

Total

Fair
value

Unrealized
losses

Fair
value

Unrealized
losses

Fair
value

Unrealized
losses

(in millions)
Available-for-sale:

U.S. Treasury
State and political subdivisions
Agency RMBS
Non-agency RMBS
Other RMBS
Commercial MBS
Asset-backed CLOs
Other asset-backed securities
Corporate bonds
Non-agency RMBS (a)

Total securities available-for-sale

956 $

1,139
1,336
154
64
131
314
779
178
22
5,073 $

234 $
38
413
—
685 $
5,758 $

3 $
7
8
18
19
1
1
2
3
—
62 $

1 $

— $

173
96
689
670
310
321
7
—
30
2,296 $

— $
104
373
25
502 $
2,798 $

—
22
—
69
90
44
9
1
—
4
239

—
8
52
1
61
300

$
$

956 $

1,312
1,432
843
734
441
635
786
178
52
7,369 $

234 $
142
786
25
1,187 $
8,556 $

3
29
8
87
109
45
10
3
3
4
301

1
8
52
1
62
363

BNY Mellon 153

Held-to-maturity:
Agency RMBS
Non-agency RMBS
Other RMBS
Commercial MBS

—
—
—
1 $
63 $
(a) Previously included in the Grantor Trust. The Grantor Trust was dissolved in 2011.

Total securities held-to-maturity
Total temporarily impaired securities

$
$

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, 2013.

Maturity distribution and yield
on investment securities at
Dec. 31, 2013

U.S.
Treasury

U.S.
Government
agencies

State and
political
subdivisions

Other bonds,
notes and
debentures

Mortgage/
asset-backed and
equity
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)

Total

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

Total

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

Total

365
7,567
1,303
3,617
—
—
—
$ 12,852

$ —
2,379
945
—
—
$ 3,324

0.62% $
0.65
2.86
3.12
—
—
—

1.57% $

288
532
128
—
—
—
—
948

1.46% $
1.91
1.63
—
—
—
—

504
3,170
2,668
332
—
—
—
1.74% $ 6,674

1.21
2.22
—
—

—% $ —
308
111
—
—
419

1.49% $

1.18
1.61
—
—

—% $ —
—
20
24
—
44

1.29% $

1.04% $ 4,194
11,220
1.90
2,417
3.38
5
4.09
—
—
—
—
—
—
2.54% $ 17,836

—% $
—
6.79
2.65
—

4.53% $

3
717
—
—
—
720

1.07% $ —
—
1.13
—
2.60
—
2.82
35,589
—
4,453
—
957
—
1.32% $ 40,999

0.11% $ —
—
0.54
—
—
—
—
15,236
—
0.54% $ 15,236

—% $ 5,351
22,489
—
6,516
—
3,954
—
35,589
2.50
4,453
1.15
957
—
2.30% $ 79,309

3
—% $
3,404
—
1,076
—
24
—
15,236
2.68
2.68% $ 19,743

(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 RMBS are:

• 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

• 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. In
determining estimated default rate and severity
assumptions, we review the performance of the
underlying securities, industry studies, market
forecasts, as well as our view of the economic

154 BNY Mellon

outlook affecting collateral. We also evaluate the
current credit enhancement 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.

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 that we
established in connection with the restructuring of our
investment securities portfolio in 2009, at Dec. 31,
2013 and Dec. 31, 2012.

Projected weighted-average default rates and loss severities

Dec. 31, 2013

Dec. 31, 2012

Default rate Severity Default rate Severity

Alt-A
Subprime
Prime

40%
58%
22%

57%
71%
42%

43%
61%
24%

57%
72%
43%

Notes to Consolidated Financial Statements (continued)

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

Note 5 - Loans and asset quality

Loans

Net securities gains (losses)

(in millions)
U.S. Treasury
Commercial MBS
State and political subdivisions
European floating rate notes
Foreign covered bonds
Corporate bonds
Sovereign debt
Non-agency RMBS
Other

2013

2012

60 $
16
13
8
8
4
2
(1)
31

83 $
11
—
(34)
7
29
96
(68)
38

Total net securities gains

$ 141 $ 162 $

2011

77
—
(3)
(39)
—
—
36
(58)
35
48

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 for which 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

2013 2012
$ 288 $ 253
73
50
88
$ 119 $ 288

23
12
204

Pledged assets

At Dec. 31, 2013, assets amounting to $81 billion
were pledged primarily for potential borrowing at the
Federal Reserve Discount Window. The significant
components of pledged assets were as follows: $70
billion of securities, $5 billion of loans, $5 billion of
trading assets and $1 billion of interest-bearing
deposits with banks. We obtain securities under
resale, securities borrowed, derivative contracts and
custody agreements on terms which permit us to
repledge or resell the securities to others. As of Dec.
31, 2013, 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, 2013, the market value of
collateral sold or repledged was $13 billion.

The table below provides the details of our loan
portfolio and industry concentrations of credit risk at
Dec. 31, 2013 and 2012.

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)

Dec. 31,

2013

4,511 $
1,534

2012

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

9,743
2,001
1,322
1,385
1,314
768
15,652
38,230

9,848
113

75
9
945
2,437
13,427
51,657 $

Total foreign
Total loans

(a) Net of unearned income on domestic and foreign lease

financings of $1,020 million at Dec. 31, 2013 and $1,135
million at Dec. 31, 2012.

In the ordinary course of business, we and our
banking subsidiaries have made loans at prevailing
interest rates and terms to our directors and executive
officers and to entities in which certain of our
directors have an ownership interest or direct or
indirect subsidiaries of such entities. The aggregate
amount of these loans was $3 million at Dec. 31,
2013, $5 million at Dec. 31, 2012 and $3 million at
Dec. 31, 2011. 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

BNY Mellon 155

Notes to Consolidated Financial Statements (continued)

presented for each class of financing receivable, and
provide additional information about our credit risks
and the adequacy of our allowance for credit losses.

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, 2013

Commercial

Other
residential
Lease
real estate institutions financings mortgages mortgages

Financial

Wealth
management
loans and

Commercial

All
Other

Foreign

Total

104 $
(4)
1
(3)
(18)
83 $

21 $
62

30 $
(1)
—
(1)
12
41 $

21 $
20

36 $
—
4
4
9
49 $

10 $
39

49 $
—
—
—
(12)
37 $

37 $
—

30 $
(1)
—
(1)
(5)
24 $

19 $
5

2
88 $
—
(8)
—
4
—
(4)
(30)
(2)
54 $ —

54 $ —
—
—

15 $
2

3 $
1

— $
—

12 $
3

— $ —
—
—

48 $
(3)
—
(3)
11
56 $

387
(17)
9
(8)
(35)
344

48 $
8

210
134

6 $
1

36
7

1,519 $
19

1,998 $
20

4,511 $
10

1,322 $
37

9,731 $
16

1,385 $ 17,734 (a) $ 13,421 $ 51,621
203

—

(a)

Includes $1,314 million of domestic overdrafts, $15,652 million of margin loans and $768 million of other loans at Dec. 31, 2013.

Allowance for credit losses activity for the year ended Dec. 31, 2012

Commercial

Other
residential
Lease
real estate institutions financings mortgages mortgages

Financial

Wealth
management
loans and

Commercial

All
Other

Foreign

Total

91 $
(2)
2
—
13
104 $

30 $
74

34 $
—
—
—
(4)
30 $

20 $
10

63 $
(13)
—
(13)
(14)
36 $

12 $
24

66 $
—
—
—
(17)
49 $

49 $
—

29 $
(1)
—
(1)
2
30 $

26 $
4

156 $ —
—
(22)
—
6
—
(16)
2
(52)
2
88 $

88 $
—

2
—

57 $
12

17 $
1

3 $
—

— $
—

31 $
7

— $ —
—
—

58 $
—
—
—
(10)
48 $

497
(38)
8
(30)
(80)
387

39 $
9

266
121

9 $
4

117
24

1,249 $
18

1,660 $
19

5,452 $
12

1,329 $
49

8,765 $
19

1,632 $ 16,264 (a) $ 10,161 $ 46,512
242

(in millions)

Beginning balance

Charge-offs
Recoveries

Net (charge-offs) recoveries

Provision
Ending balance
Allowance for:
Loan losses
Lending-related 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:
Loan losses
Lending-related commitments

Individually evaluated for

impairment:

Loan balance
Allowance for loan losses

Collectively evaluated for

impairment:

Loan balance
Allowance for loan losses

(a)

Includes $2,228 million of domestic overdrafts, $13,397 million of margin loans and $639 million of other loans at Dec. 31, 2012.

156 BNY Mellon

Notes to Consolidated Financial Statements (continued)

Allowance for credit losses activity for the year ended Dec. 31, 2011

Commercial

Other
residential
Lease
real estate institutions financings mortgages mortgages

Financial

Wealth
management
loans and

Commercial

All
Other

Foreign

Total

(in millions)

Beginning balance

Charge-offs
Recoveries

Net (charge-offs)

Provision
Ending balance
Allowance for:
Loan losses
Lending-related commitments

Individually evaluated for

impairment:

Loan balance
Allowance for loan losses

Collectively evaluated for

impairment:

Loan balance
Allowance for loan losses

93 $
(6)
3
(3)
1
91 $

33 $
58

26 $
9

40 $
(4)
—
(4)
(2)
34 $

24 $
10

11 $
(8)
2
(6)
58
63 $

41 $
22

90 $
—
—
—
(24)
66 $

66 $
—

41 $
(1)
—
(1)
(11)
29 $

1
235 $
—
(56)
—
3
—
(53)
(26)
(1)
156 $ —

23 $
6

156 $ —
—

—

38 $
7

24 $
7

— $
—

30 $
5

— $ —
—
—

60 $
(8)
—
(8)
6
58 $

571
(83)
8
(75)
1
497

51 $
7

394
103

10 $
4

128
32

726 $
24

1,411 $
17

4,582 $
34

1,558 $
66

7,312 $
18

1,923 $ 16,341 (a) $ 9,998 $ 43,851
362

156

—

(a)

Includes $2,958 million of domestic overdrafts, $12,760 million of margin loans and $623 million of other loans at Dec. 31, 2011.

Nonperforming assets

The table below presents the distribution of our
nonperforming assets.

At Dec. 31, 2013, undrawn commitments to
borrowers whose loans were classified as nonaccrual
or reduced rate were not material.

Nonperforming assets
(in millions)
Nonperforming loans:
Domestic:

Dec. 31,

2013

2012

Foreign loans

Total domestic

Other assets owned

Total nonperforming loans

117 $
15
11
4
—
147
6
153
3
156 $

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

158
27
30
18
3
236
9
245
4
249
(a) Loans of consolidated investment management funds are not
part of BNY Mellon’s loan portfolio. Included in the loans of
consolidated investment management funds are
nonperforming loans of $16 million at Dec. 31, 2013 and
$174 million at Dec. 31, 2012. 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.

Total nonperforming assets (a)

Lost interest

Lost interest
(in millions)
Amount by which interest income
recognized on nonperforming loans
exceeded reversals:

Total
Foreign

Amount by which interest income would
have increased if nonperforming loans at
year-end had been performing for the
entire year:
Total
Foreign

2013 2012 2011

5 $

2 $
— —

2
—

9 $ 15 $ 17
— —
—

BNY Mellon 157

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

(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)
Total impaired loans

2013

2012

2011

Average
recorded
investment

Interest
income
recognized

Average
recorded
investment

Interest
income
recognized

Average
recorded
investment

Interest
income
recognized

37 $

5
1
17
8
68

2
6
1
3
12
80 $

1 $
—
—
—
—
1

—
—
—
—
—
1 $

54 $
27
7
28
10
126

—
3
2
4
9
135 $

4 $

—
—
—
—
4

—
—
—
—
—
4 $

27 $
22
9
37
10
105

1
13
—
2
16
121 $

1
—
—
1
—
2

—
—
—
—
—
2

(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)
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)

Dec. 31, 2013
Unpaid
principal
balance

Recorded
investment

Related
allowance (a)

Recorded
investment

Dec. 31, 2012
Unpaid
principal
balance

Related
allowance (a)

15 $
2
—
9
6
32

1
—
3

20 $
4
—
9
17
50

1
—
3

4
36 $

4
54 $

2 $
1
—
3
1
7

N/A
N/A
N/A

N/A

7 $

57 $
15
1
28
9
110

2
1
4

61 $
16
1
28
17
123

2
8
4

7
117 $

14
137 $

12
1
—
7
4
24

N/A
N/A
N/A

N/A
24

(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 $1 million and $2 million of impaired loans in amounts individually less than $1 million at Dec. 31, 2013 and
Dec. 31, 2012, respectively. The allowance for loan loss associated with these loans totaled less than $1 million at both Dec. 31, 2013
and Dec. 31, 2012.

158 BNY Mellon

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

(in millions)
Domestic:

Dec. 31, 2013

Days past due

30-59

60-89

>90

Total
past due

Dec. 31, 2012

Days past due

30-59

60-89

>90

Total
past due

Wealth management loans and mortgages
Other residential mortgages
Financial institutions
Commercial real estate
Commercial
Total domestic

Foreign

Total past due loans

45 $
32
37
22
—
136
—
136 $

3 $
6
—
2
—
11
—
11 $

1 $
6
—
—
—
7
—

7 $

49 $
44
37
24
—
154
—
154 $

33 $
50
—
44
—
127
—
127 $

7 $
9
—
—
60
76
—
76 $

1 $
5
—
—
—
6
—

6 $

41
64
—
44
60
209
—
209

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 2013 and 2012.

TDRs

(dollars in millions)
Other residential mortgages
Commercial
Commercial real estate
Wealth management loans and mortgages
Foreign

Total TDRs

2013

Outstanding
recorded investment

Number of

Pre-

Post-
contracts modification modification
30
—
—
—
—
30

123
—
—
—
—
123

24
—
—
—
—
24

2012

Outstanding
recorded investment
Post

Pre-

Number of

contracts modification modification
49
37
12
3
3
104

166
3
2
6
1
178

44
42
11
3
3
103

Other residential mortgages

The modifications of the other residential mortgage
loans in 2013 and 2012 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.

Commercial

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
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.

Commercial real estate

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

BNY Mellon 159

Notes to Consolidated Financial Statements (continued)

estimated fair value of the collateral is included in the
allowance for credit losses.

TDRs that subsequently defaulted

Wealth management loans and mortgages

The modifications of the wealth management loans
and mortgages in 2012 consisted of changes in
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.

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.

There were 35 residential mortgage loans that had
been restructured in a TDR during the previous 12
months and have subsequently defaulted in 2013.
The total recorded investment of these loans was $8
million.

Credit quality indicators

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 credit rating which is
mapped to an external rating agency grade equivalent
based upon a number of dimensions which are
continually evaluated and may change over time.

The following tables set forth information about credit quality indicators.

Commercial loan portfolio

Commercial loan portfolio – Credit risk profile by creditworthiness category

Commercial

Commercial real estate

(in millions)
Investment grade
Noninvestment grade

Total

Dec. 31,
2013
1,323 $
324
1,647 $

Dec. 31,
2012
1,064 $
353
1,417 $

Dec. 31,
2013
1,444 $
566
2,010 $

Financial institutions
Dec. 31,
2013

Dec. 31,
2012
1,289 $ 12,598 $

Dec. 31,
2012
9,935
1,761
1,353
1,740 $ 14,359 $ 11,288

451

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 credit
rating. These internal credit ratings 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.

160 BNY Mellon

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,
2013

Dec. 31,
2012

4,920 $
64
4,834
9,818 $

4,597
125
4,142
8,864

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

Notes to Consolidated Financial Statements (continued)

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
primarily by residential property. These loans are
primarily interest-only adjustable rate mortgages with
an average loan-to-value ratio of 64% at origination.
In the wealth management portfolio, 1% of the
mortgages were past due at Dec. 31, 2013.

At Dec. 31, 2013, the private wealth mortgage
portfolio was comprised of the following geographic
concentrations: New York - 21%; California - 21%;
Massachusetts - 16%; Florida - 8%; and other - 34%.

Other residential mortgages

The other residential mortgage portfolio primarily
consists of 1-4 family residential mortgage loans and
totaled $1,385 million at Dec. 31, 2013 and $1,632
million at Dec. 31, 2012. These loans are not
typically correlated to external ratings. Included in
this portfolio at Dec. 31, 2013 are $411 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, 2013, the purchased loans in this
portfolio had a weighted-average loan-to-value ratio
of 76% at origination and 20% of the serviced loan
balance was at least 60 days delinquent. The
properties securing the prime and Alt-A mortgage
loans were located (in order of concentration) in
California, Florida, Virginia, the tri-state area (New
York, New Jersey and Connecticut) and Maryland.

Overdrafts

Overdrafts primarily relate to custody and securities
clearance clients and totaled $3,715 million at Dec.
31, 2013 and $5,298 million at Dec. 31, 2012.
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 $15,652 million of secured margin loans on
our balance sheet at Dec. 31, 2013 compared with
$13,397 million at Dec. 31, 2012. 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.

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.

Matter related to Sentinel

In August 2007, BNY Mellon loaned $312 million to
an asset manager, Sentinel Management Group, Inc.
(“Sentinel”), secured by securities and cash. Sentinel
filed for bankruptcy in 2007, and BNY Mellon’s
status as a secured lender is the subject of continuing
litigation. In 2010, the district court ruled in favor of
BNY Mellon, and the loan was repaid. An appellate
court reversed the district court’s ruling on Aug. 26,
2013, and remanded to the district court for further
proceedings. BNY Mellon held no loans to Sentinel
at Dec. 31, 2013. On Jan. 22, 2014, the Bankruptcy
Court, ordered that the funds distributed to BNY
Mellon after the district court’s favorable decision be
returned to the bankruptcy estate and held in a reserve
earmarked for purposes of BNY Mellon’s claim until
the district court issues its decision on the merits of
the challenges to BNY Mellon’s lien. Accordingly,
the loan was reestablished as a fully collateralized
performing loan in the first quarter of 2014. The
ongoing litigation could result in a ruling adverse to
BNY Mellon at some point in the future. For
additional information on our legal proceedings
related to this matter, see Note 22 of the Notes to
Consolidated Financial Statements.

BNY Mellon 161

Notes to Consolidated Financial Statements (continued)

Note 6 - 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.

loss would be recorded to the extent that the carrying
amount of goodwill exceeds its implied fair value.

BNY Mellon conducted its annual goodwill
impairment test on a quantitative basis on all seven
reporting units in the second quarter of 2013. The
estimated fair value of the Company’s seven
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

Total goodwill decreased in 2013 compared with
2012 resulting from the sale of Newton’s private
client business primarily offset by the impact of
foreign exchange translation on non-U.S. dollar
denominated goodwill. The table below provides a
breakdown of goodwill by business.

Goodwill by business
(in millions)
Balance at Dec. 31, 2011
Acquisition
Foreign exchange translation
Other (a)

Balance at Dec. 31, 2012

Disposition
Foreign exchange translation
Other (a)

Balance at Dec. 31, 2013

Investment
Management

Investment
Services

Other

9,373 $
70
63
2
9,508 $
(69)
17
17
9,473 $

8,491 $
—
38
(12)
8,517 $
—
33
—
8,550 $

40 $
—
—
10
50 $
—
—
—
50 $

Consolidated
17,904
70
101
—
18,075
(69)
50
17
18,073

(a) Other changes in goodwill include purchase price adjustments and certain other reclassifications.

Intangible assets

The decrease in intangible assets in 2013 compared
with 2012 primarily resulted from amortization of
intangible assets. Amortization of intangible assets
was $342 million in 2013, $384 million in 2012 and
$428 million in 2011. In 2013, we recorded an $8

million impairment charge related to the write-down
of the value of a customer contract intangible in the
Investment Services business to its fair value. The
table below provide a breakdown of intangible assets
by business.

162 BNY Mellon

Notes to Consolidated Financial Statements (continued)

Intangible assets – net carrying amount by business
(in millions)
Balance at Dec. 31, 2011
Acquisition
Amortization
Foreign exchange translation
Other (a)

Balance at Dec. 31, 2012

Disposition
Amortization
Foreign exchange translation
Other (a)

Balance at Dec. 31, 2013

Investment
Management

2,382 $
23
(192)
15
—
2,228 $
(7)
(148)
6
(14)
2,065 $

Investment
Services
1,922
—
(192)
3
(1)
1,732
(1)
(194) (b)
2
(1)
1,538

Other

848 $
—
—
—
1
849 $

—
—
—
—
849 $

Consolidated
5,152
23
(384)
18
—
4,809
(8)
(342)
8
(15)
4,452

(a) Other changes in intangible assets include purchase price adjustments and certain other reclassifications.
(b) Includes an $8 million intangible asset impairment recorded in 2013.

The table below provides a breakdown of intangible assets by type.

Intangible assets

Dec. 31, 2013

Dec. 31, 2012

(in millions)
Subject to amortization:

Remaining
weighted-
average
carrying Accumulated carrying amortization
period
amount amortization

amount

Gross

Net

Gross

Net
carrying Accumulated carrying
amount
amount 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

2,043 $
2,352
76
4,471

1,369
1,323
2,692
7,163 $

(1,449) $
(1,202)
(60)
(2,711)

N/A
N/A
N/A
(2,711) $

594
1,150
16
1,760

1,369
1,323
2,692
4,452

12 years $
12 years
5 years
12 years

N/A
N/A
N/A
N/A $

2,114 $
2,353
125
4,592

1,368
1,320
2,688
7,280 $

(1,353) $
(1,018)
(100)
(2,471)

761
1,335
25
2,121

N/A
N/A
N/A

1,368
1,320
2,688
(2,471) $ 4,809

(a) Intangible assets not subject to amortization have an indefinite life.

Estimated annual amortization expense for current
intangibles for the next five years is as follows:

Note 7 - Other assets

For the year ended
Dec. 31,
2014
2015
2016
2017
2018

Estimated amortization expense
(in millions)
302
269
240
215
180

Other assets
(in millions)
Corporate/bank owned life insurance $
Accounts receivable
Equity in joint venture and other
investments (a)

Income taxes receivable
Fair value of hedging derivatives
Software
Prepaid pension assets
Fails to deliver
Prepaid expenses
Due from customers on acceptances
Other

Total other assets

Dec. 31,

2013
4,482 $
3,616

2012
4,360
4,255

2,996
2,517
1,282
1,251
1,209
864
451
379
1,313

2,664
3,099
989
1,117

419

1,148

508

376

1,533

$ 20,360 $ 20,468

(a) Includes Federal Reserve Bank stock of $441 million and

$436 million, respectively, at cost.

BNY Mellon 163

Notes to Consolidated Financial Statements (continued)

Seed capital and private equity investments valued
using net asset value per share

investments are included in other assets. Consistent
with our policy to focus on our core activities, we
continue to reduce our exposure to private equity
investments.

The fair value of these investments has been
estimated using the net asset value (“NAV”) per share
of BNY Mellon’s ownership interest in the funds.
The table below presents information about BNY
Mellon’s investments in seed capital and private
equity investments.

Seed capital and private equity investments valued using NAV

Dec. 31, 2013

Dec. 31, 2012

(dollar amounts in
millions)
Seed capital and other
funds (a)

Private equity funds (b)

Total

Fair
value

Unfunded
commitments

$ 275
86
$ 361

$ 23
31
$ 54

Redemption
frequency
Monthly-
yearly
N/A

Redemption
notice period

Fair
value

Unfunded
commitments

3-45 days
N/A

$ 153
99
$ 252

$ 31
13
$ 44

Redemption
frequency
Monthly-
yearly
N/A

Redemption
notice period

3-45 days
N/A

(a) Other funds include various market neutral, leveraged loans, hedge funds, real estate and structured credit funds. Redemption notice

periods vary by fund.

(b) Private equity funds primarily include numerous venture capital funds that invest in various sectors of the economy. Private equity funds

do not have redemption rights. Distributions from such funds will be received as the underlying investments in the funds are liquidated.

Note 8 - Deposits

Total time deposits in denominations of $100,000 or
greater was $51.8 billion at Dec. 31, 2013, and $50.3
billion at Dec. 31, 2012. At Dec. 31, 2013, the
scheduled maturities of all time deposits are as
follows: 2014 – $52.9 billion; 2015 – $4 million;
2016 – $1 million; 2017 – $- million; 2018 – $2
million; and 2019 and thereafter – $- million.

164 BNY Mellon

Notes to Consolidated Financial Statements (continued)

Note 9 - Net interest revenue

Note 10 - Noninterest expense

The following table provides the components of net
interest revenue presented on the consolidated income
statement.

The following table provides a breakdown of
noninterest expense 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 with banks
Deposits with the Federal Reserve

and other central banks
Federal funds sold and securities
purchased under resale
agreements

Trading assets

Total interest revenue

Interest expense

Deposits in domestic offices
Deposits in foreign offices
Federal funds purchased and

securities sold under repurchase
agreements

Trading liabilities
Other borrowed funds
Commercial paper
Customer payables
Long-term debt

Total interest expense
Net interest revenue

2013

2012

2011

674 $
160

671 $ 681

129

168

1,782

1,913

1,949

103
1,885
279

84
1,997
388

1,985

543

150

152

148

47
157
3,352

35
96
3,507

3,588

35
70

46
108

194

(16)
38
7
—
8
201
343

2
32

—

301

604

$ 3,009 $ 2,973 $ 2,984

—
24
16
2
8
330
534

Noninterest expense

(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
Communications
Clearing
Litigation
Other
Amortization of intangible assets
Merger and integration and

restructuring charges
Total noninterest expense

2013

2012

2011

$ 3,620 $ 3,531 $ 3,567

1,262

897

5,726

1,384
1,015
6,019

1,280
950
5,761

1,252
629
596
435
337
317
280
131
130
24
768
342

1,222
593
524
421
331
275
269
141
127
488
726
384

1,217

624

485

416

330

261

298

173

135

210

629

428

180

$ 11,306 $ 11,333 $ 11,112

Note 11 - Restructuring charges

Aggregate restructuring charges are included in M&I,

litigation and restructuring charges on the income

statement. Beginning in the fourth quarter of 2013,

restructuring charges were recorded in the businesses.

Prior to the fourth quarter of 2013, all restructuring

charges were reported in the Other segment.

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, 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 in 2011. This charge was comprised of
$78 million of severance costs and $29 million
primarily for operating lease-related items and

BNY Mellon 165

Notes to Consolidated Financial Statements (continued)

The components of income before taxes are as
follows:

Components of income before
taxes
(in millions)
Domestic
Foreign

Income before taxes

2012

Year ended Dec. 31,
2013

2011
$ 2,363 $ 1,962 $ 2,336
1,281
$ 3,712 $ 3,302 $ 3,617

1,340

1,349

The components of our net deferred tax liability are
as follows:

Net deferred tax liability
(in millions)
Depreciation and amortization
Lease financings
Securities valuation
Pension obligation
Equity investments
Credit losses on loans
Net operating loss carryover
Reserves not deducted for tax
Employee benefits
Other assets
Other liabilities

Net deferred tax liability

Dec. 31,

2013

2012
$ 2,680 $ 2,672
932
545
45
256
(230)
(105)
(397)
(570)
(128)
353
$ 3,613 $ 3,373

859
493
362
266
(163)
(166)
(295)
(632)
(133)
342

As of Dec. 31, 2013, we have net operating loss
carryforwards for state and local income tax purposes
of $1.4 billion which will begin to expire in 2029.
We have a German net operating loss carryforward of
$206 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, 2013, we had approximately $5.3
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, 2013 would be up to $1.1 billion. Management
has no intention of repatriating these earnings to the
U.S. in the foreseeable future.

consulting costs. In 2013, we recorded a net charge
of $45 million reflecting additional severance
charges. The following table presents the activity in
the restructuring reserve related to the Operational
Excellence Initiatives through Dec. 31, 2013.

Operational Excellence Initiatives 2011 – restructuring
reserve activity
(in millions)
Original restructuring charge
Utilization

Severance Other
78 $
$
(4)
74

Total
29 $ 107
(33)
(29)
74
—

Balance at Dec. 31, 2011
Net additional charges (net
recovery/gain)
Utilization

Balance at Dec. 31, 2012

Net additional charges
Utilization

Balance at Dec. 31, 2013

55
(37)
92
45
(57)
80 $ — $

(57)
57
—
—
—

(2)
20
92
45
(57)
80

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 Partners)
Total restructuring charge
(recovery)

$ 45 $

2013 2012

Total
charges
since
2011 inception
52
85

4 $ 31 $ 17 $
25

(52)

(2) $ 107

150

Note 12 - Income taxes

The components of the income tax provision are as
follows:

Year ended Dec. 31,
2013

2012

2011

630 $
286
71
987

271 $
236
20
527

691
317
28
1,036

542
(30)
21
533
$ 1,520 $

(34)
130
(16)
39
62
83
252
12
779 $ 1,048

Provision (benefit) for
income taxes
(in millions)
Current taxes:

Federal
Foreign
State and local

Total current tax expense
Deferred tax expense (benefit):

Federal
Foreign
State and local

Total deferred tax expense
Provision for income taxes

166 BNY Mellon

Notes to Consolidated Financial Statements (continued)

The following table presents a reconciliation of the
statutory federal income tax rate to our effective
income tax rate.

Effective tax rate

Federal rate
State and local income taxes,
net of federal income tax
benefit

Tax-exempt income
Foreign operations
Tax credits
Tax litigation
Leverage lease dispositions
Other – net

Effective tax rate

Year ended Dec. 31,

2013
35.0%

2012
35.0%

2011
35.0%

1.6
(3.1)
(4.5)
(3.3)
16.8
(2.1)
0.5
40.9%

2.1
(3.2)
(5.4)
(4.8)
—
(0.2)
0.1
23.6%

1.7
(2.5)
(3.7)
(2.1)
—
(0.8)
1.4
29.0%

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

2013

2012

2011

340 $

250 $

290

570
(19)
21
(46)
—

163
(66)
21
(28)
—

24
(13)
16
(64)
(3)

866 $

340 $

250

Our total tax reserves as of Dec. 31, 2013 were $866
million compared with $340 million at Dec. 31, 2012.
If these tax reserves were unnecessary, $866 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,
2013 is accrued interest, where applicable, of $203
million. The additional tax expense related to interest
for the year ended Dec. 31, 2013 was $192 million

compared with $11 million for the year ended Dec.
31, 2012.

It is reasonably possible the total reserve for uncertain
tax positions could decrease within the next 12
months by an amount up to $270 million as a result of
adjustments related to tax years that are still subject
to examination.

As previously disclosed, on Nov. 10, 2009, BNY
Mellon filed a petition with the U.S. Tax Court
challenging the Internal Revenue Service’s (“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. On Sept. 23, 2013, the U.S. Tax Court
amended its prior ruling to allow BNY Mellon an
interest expense deduction and to exclude certain
items from taxable income. The net impact of the
court rulings for all years involved and related
interest decreased after-tax income in 2013 by $593
million. The U.S. Tax Court ruling was finalized on
Feb. 20, 2014. Finally, we intend to appeal the Tax
Court’s Feb. 11, 2013 decision disallowing the
foreign tax credits. See Note 22 of the Notes to
Consolidated Financial Statements for additional
information.

Our federal income tax returns are closed for all
periods through 2005. The 2006 year remains open
to examination. The years 2007 and 2008 are also
closed to further examination; however, one matter is
before the IRS Appeals Division. The years 2009 and
2010 are currently under examination. 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 2011.

Note 13 - Long-term debt

Long-term debt
(in millions)
Senior debt:
Fixed rate
Floating rate

Subordinated debt (a)
Junior subordinated debentures (a)

Total

(a) Fixed rate.

Dec. 31, 2013

Rate

Maturity Amount

Dec. 31, 2012
Rate

Amount

0.70 - 6.92%
0.05 - 1.10%
4.75 - 7.50%
6.37%

2014 - 2025 $ 13,946
3,079
2014 - 2038
2,514
2014 - 2033
325
2036
$ 19,864

0.70 - 6.92% $ 13,184
1,979
0.11 - 1.16%
2,732
4.75 - 7.50%
635
6.37 - 7.78%
$ 18,530

BNY Mellon 167

Notes to Consolidated Financial Statements (continued)

Total long-term debt that matures during the next five
years for BNY Mellon is as follows: 2014 – $4.37
billion, 2015 – $3.65 billion, 2016 – $2.45 billion,
2017 – $1.25 billion and 2018 – $2.85 billion. At
Dec. 31, 2013, subordinated debt of $300 million
may be redeemable at our option in 2014.

Trust-preferred securities

At Dec. 31, 2013, a wholly owned subsidiary of BNY
Mellon (the “Trust”) has issued cumulative
Company-Obligated Mandatory Redeemable Trust
Preferred Securities of Subsidiary Trust Holding
Solely Junior Subordinated Debentures (“trust
preferred securities”). The sole asset of this trust is
junior subordinated deferrable interest debentures of
BNY Mellon with maturities and interest rates that
match the trust preferred securities. Our obligation
under the agreement that relate to the trust preferred
securities, the Trust and the debentures constitutes a
full and unconditional guarantee by us of the Trust’s
obligation under the trust preferred securities.

Additionally, at Dec. 31, 2013, 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, 2013, the Series
A preferred stock was the sole asset of Mellon Capital
IV. See Note 15 of the Notes to Consolidated
Financial Statements for additional disclosures
related to preferred stock, including the Series A
preferred stock.

On June 14, 2013, BNY Mellon redeemed all
outstanding 7.78% Trust Preferred Securities issued
by BNY Institutional Capital Trust A (liquidation
amount $1,000 per security and $300 million in
aggregate).

The following tables set forth a summary of the trust
preferred securities issued by the Trusts as of Dec. 31,
2013 and Dec. 31, 2012:

Trust preferred securities at Dec. 31, 2013
(dollar amounts in millions)
MEL Capital III (a)
MEL Capital IV
Total

Amount of junior
subordinated debentures
330
$
—
330

Interest
rate
6.37% $

—

Assets
of trust Due date Call date
2016
2036
—
—

325
500
825

Call
price
Par
—

(a) Amount was translated from Sterling into U.S. dollars on a basis of U.S. $1.65 to £1, the rate of exchange on Dec. 31, 2013.

Trust preferred securities at Dec. 31, 2012
(dollar amounts in millions)
BNY Institutional Capital Trust A
MEL Capital III (a)
MEL Capital IV
Total

Amount of junior
subordinated debentures
300
$
323
—
623

Interest
rate
7.78% $
6.37%
—

Assets
of trust Due date Call date
2026
2036
—

Call
price
2006 101.56%
Par
2016
—
—

309
316
500
$ 1,125

(a) 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.

Note 14 - Securitizations and variable interest
entities

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, Consolidation.

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

168 BNY Mellon

Notes to Consolidated Financial Statements (continued)

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, 2013 and Dec. 31, 2012,
based on the assessments performed in accordance
with ASC 810 and ASU 2009-17. The net assets of
any consolidated VIE are solely available to settle the
liabilities of the VIE and to settle any investors’
ownership liquidation requests, including any seed
capital invested in the VIE by BNY Mellon.

Investments consolidated under ASC 810 and ASU 2009-17

at Dec. 31, 2013

Investment
Management

funds Securitizations

(in millions)
Available-for-sale
Trading assets
Other assets

Total assets

Trading liabilities
Other liabilities

Total liabilities
Non-redeemable
noncontrolling
interests

$
$

— $

10,397
875
11,272 $
10,085 $
46
10,131 $

Total
consolidated
investments
487
10,397
875
11,759
10,085
484
10,569

487 $
—
—
487 $
— $
438
438 $

783 $

— $

783

Investments consolidated under ASC 810 and ASU 2009-17

at Dec. 31, 2012

(in millions)

Available-for-sale
Trading assets
Other assets

Total assets

Trading liabilities
Other liabilities

Total liabilities
Non-redeemable
noncontrolling
interests

$
$

Investment
Management

Total
consolidated
investments

funds Securitizations

— $

10,961
520
11,481 $
10,152 $
29
10,181 $

499 $
—
—
499 $
— $
461
461 $

499
10,961
520
11,980
10,152
490
10,642

833 $

— $

833

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.

Non-consolidated VIEs

As of Dec. 31, 2013 and Dec. 31, 2012, 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, 2013
(in millions)
Other

134 $

Assets

Liabilities

Maximum
loss exposure
134

— $

Non-consolidated VIEs at Dec. 31, 2012
(in millions)
Other

100 $

Assets

Liabilities

Maximum
loss exposure
100

— $

The maximum loss exposure indicated in the above
tables relates solely to BNY Mellon’s seed capital or
residual interests invested in the VIEs.

Note 15 - 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, 2013, 1,142,249,790 shares of common
stock were outstanding.

Common stock repurchase program

On March 13, 2012, in connection with the Federal
Reserve’s non-objection to our 2012 capital plan, the
Board of Directors authorized a stock purchase
program providing for the repurchase of an aggregate
of $1.16 billion of common stock. On March 14,
2013, in connection with the Federal Reserve’s non-
objection to our 2013 capital plan, the Board of
Directors authorized a new stock purchase program
providing for the repurchase of an aggregate of $1.35
billion of common stock beginning in the second
quarter of 2013 and continuing through the first
quarter of 2014. The 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. In 2013, we repurchased 35.1
million common shares at an average price of $29.24
per common share for a total of $1.03 billion. At
Dec. 31, 2013, the maximum dollar value of shares
that may yet be purchased under the March 14, 2013
program, including employee benefit plan
repurchases, totaled $385 million.

BNY Mellon 169

Notes to Consolidated Financial Statements (continued)

Preferred stock

BNY Mellon has 100 million authorized shares of preferred stock with a par value of $0.01. The table below
summarizes BNY Mellon’s preferred stock issued and outstanding at Dec. 31, 2013 and Dec. 31, 2012.

Preferred stock summary

(dollars in millions, unless
otherwise noted)
Series A

Noncumulative Perpetual
Preferred Stock

Series C

Series D

Noncumulative Perpetual
Preferred Stock
Noncumulative Perpetual
Preferred Stock

Liquidation
preference
per share
(in dollars)

100,000

Total shares issued
and outstanding
Dec. 31,
2013
5,001

Dec. 31,
2012
5,001

Per annum dividend rate
Greater of (i) three-month
LIBOR plus 0.565% for
the related distribution
period; or (ii) 4.000%

Carrying value (a)

Dec. 31,
2013
500 $

Dec. 31,
2012
500

5.2% $

100,000

5,825

100,000

5,000

—

4.50% commencing Dec.
20, 2013 to but excluding
June 20, 2023, then a
floating rate equal to the
three-month LIBOR plus
2.46%

568

494

568

—

Total

15,826

10,826

$ 1,562 $ 1,068

(a) The carrying value of the Series C and Series D preferred stock is recorded net of issuance costs.

In 2013, we issued 500,000 Series D depositary
shares, each representing a 1/100th ownership interest
in a share of Series D preferred stock. BNY Mellon
will pay dividends on the Series D preferred stock if
declared by our board of directors, at an annual rate
of 4.5% on each June 20 and December 20, to but
excluding June 20, 2023; and a floating rate equal to
three-month LIBOR plus 2.46% on each March 20,
June 20, September 20 and December 20, from and
including June 20, 2023. Holders of both the Series A
and Series C preferred stock are entitled to receive
dividends on each dividend payment date (March 20,
June 20, September 20 and December 20 of each
year), if declared by BNY Mellon’s Board of
Directors. BNY Mellon’s 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 and
Series D preferred stock.

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 and Series D 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 and Series D preferred stock to the holders
of record of their respective depositary shares.

170 BNY Mellon

Notes to Consolidated Financial Statements (continued)

The following table presents a summary of the preferred stock dividends paid in 2013.

Preferred stock dividends (a)

Series A (b)

Series C (c)

Declaration date
Oct. 16, 2013
July 17, 2013
April 9, 2013
Jan. 16, 2013
Oct. 16, 2013
July 17, 2013
April 9, 2013
Jan. 16, 2013
Oct. 16, 2013

Record date
Dec. 5, 2013
Sept. 5, 2013
June 5, 2013
March 5, 2013
Dec. 5, 2013
Sept. 5, 2013
June 5, 2013
March 5, 2013
Dec. 5, 2013

Payment date
Dec. 20, 2013
Sept. 20, 2013
June 20, 2013
March 20, 2013
Dec. 20, 2013
Sept. 20, 2013
June 20, 2013
March 20, 2013
Dec. 20, 2013

Approximate dividend
paid per share (in dollars)
10.1111
10.2222
10.2222
10.0000
0.3250
0.3250
0.3250
0.3250
26.6250

Series D (d)
(a) Dividends are noncumulative.
(b) Dividend per Normal Preferred Capital Security of Mellon Capital IV, each representing 1/100th interest in a share of Series A preferred

stock.

(c) Dividend per depositary share, each representing a 1/4,000th interest in a share of Series C preferred stock.
(d) Dividend per depository share, each representing a 1/100th interest in a share of Series D preferred stock.

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
and the Series D preferred stock in whole or in part,
on or after the dividend payment date in June 2023.
Both the Series C or Series D preferred stock can be
redeemed 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 and the Certificate of
Designations of the Series D preferred stock).

Terms of the Series A preferred stock, Series C
preferred stock, and Series D 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, 2013.

Temporary equity

Temporary equity was $230 million at Dec. 31, 2013
and $178 million at Dec. 31, 2012. 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.

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, 2013 and 2012, 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 171

Notes to Consolidated Financial Statements (continued)

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

At Dec. 31, 2013, the amounts of capital by which
BNY Mellon and The Bank of New York Mellon,
exceed the Basel I “well capitalized” thresholds are as
follows:

Dec. 31,

2013

2012

Capital above thresholds at Dec. 31, 2013

(in millions)
Tier 1 capital
Total capital
Leverage

Consolidated

The Bank of
New York Mellon
8,320
4,880
688

11,535 $
7,896
1,495

Consolidated and largest bank
subsidiary capital ratios (a)

Consolidated capital ratios:

Tier 1 capital to risk-weighted assets ratio
Total capital to risk-weighted assets ratio
Leverage

16.2%
17.0
5.4

15.0%
16.3
5.3

The Bank of New York Mellon capital
ratios:

14.6%
15.1
5.3

Tier 1 capital to risk-weighted assets ratio
Total capital to risk-weighted assets ratio
Leverage

14.0%
14.6
5.4
(a) Determined under Basel I rules. Includes full capital credit
for certain capital instruments outstanding at Dec. 31, 2013.
A phase-out of non-qualifying instruments began on Jan. 1,
2014. For BNY Mellon to qualify as “well capitalized,” its
Basel I Tier 1 and Total (Tier 1 plus Tier 2) capital ratios
must be at least 6% and 10%, respectively. For The Bank of
New York Mellon, our largest bank subsidiary, to qualify as
“well capitalized,” its Basel I Tier 1, Total and leverage
capital ratios must be at least 6%, 10% and 5%,
respectively. For The Bank of New York Mellon 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 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.

172 BNY Mellon

The following table presents the components of our
Basel I Tier 1 and Total risk-based capital, the Basel I
risk-weighted assets as well as average assets used for
leverage capital purposes at Dec. 31, 2013 and 2012.

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 purposes

Dec. 31,

2013

2012

$ 35,959 $ 35,363
1,068
623

1,562
330

(20,001)
891
(387)
(19)
18,335

(20,445)
1,454
(1,350)
(19)
16,694

1
550

2
1,058

344
895

386
1,446
$ 19,230 $ 18,140
$ 113,322 $ 111,180

$ 336,787 $ 315,273

(a) On a regulatory basis as determined under Basel I rules.
(b) Reduced by deferred tax liabilities associated with non-tax

deductible identifiable intangible assets of $1,222 million at
Dec. 31, 2013 and $1,310 million at Dec. 31, 2012 and
deferred tax liabilities associated with tax deductible
goodwill of $1,302 million at Dec. 31, 2013 and $1,130
million at Dec. 31, 2012.

Notes to Consolidated Financial Statements (continued)

Note 16 - Other comprehensive income (loss)

Components of other comprehensive income (loss)

Dec. 31, 2013

Pre-tax
amount

Tax
(expense)
benefit

Year ended
Dec 31, 2012

Dec. 31, 2011

After-tax
amount

Pre-tax
amount

Tax
(expense)
benefit

After-tax
amount

Pre-tax
amount

Tax
(expense)
benefit

After-tax
amount

(in millions)

Foreign currency translation:

Foreign currency translation adjustments

arising during the period

(195)

130 $

62 $

192 $

80 $

50 $

130 $

(184) $

(11) $

Total foreign currency translation

130

192

130

(184)

(11)

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

(1,466)
(129)

(1,595)

Defined benefit plans:

Prior service cost arising during the period
Net (gain) loss arising during the period
Foreign exchange adjustment
Amortization of prior service credit, net loss

and initial obligation included in net
periodic benefit cost (a)

Total defined benefit plans

Unrealized gain (loss) on cash flow hedges:
Unrealized hedge gain (loss) arising during

period

Reclassification adjustment (a)

Net unrealized gain (loss) on cash flow

hedges

(2)
732
—

209

939

136

(124)

577
55

632

1
(303)
—

(83)

(385)

(54)

(3)

(889)
(74)

1,611
(162)

(604)
56

1,007
(106)

483
(48)

(177)
22

306
(26)

(963)

1,449

(548)

901

435

(155)

280

(1)
429
—

126

554

(73)

98
(298)
—

173

(27)

242

(239)

(41)
108
—

(69)

(2)

(99)

(2)

57
(190)
—

104

(29)

143

(142)

—
(741)
(4)

114

(631)

—
298
1

—
(443)
(3)

(45)

254

(377)

(640)

643

214

(214)

(426)

429

—

Total other comprehensive income (loss)

(514) $

306 $

(208) $

1,505 $

(502) $

1,003 $

(377) $

88 $

(289)

(a) The reclassification adjustment related to the unrealized gain (loss) on assets available-for-sale is recorded as net securities gains on the Consolidated

Income Statement. The amortization of prior service credit, net loss and initial obligation included in net periodic benefit cost is recorded as staff expense
on the Consolidated Income Statement. See Note 23 of the Notes to Consolidated Financial Statements for the location of the reclassification adjustment
related to cash flow hedges on the Consolidated Income Statement.

Changes in accumulated other comprehensive income (loss) attributable to The Bank of New York Mellon Corporation shareholders

ASC 820 Adjustments

Unrealized
gain (loss) on

Other post-
retirement available-for-
sale

benefits

Unrealized
assets gain (loss) on
cash flow
hedges

(in millions)

2010 ending balance
Change in 2011

2011 ending balance

Change in 2012

2012 ending balance

Change in 2013

2013 ending balance

Foreign
currency
translation

(473) $
(178)
(651) $
112
(539) $
151
(388) $

Pensions

(993) $
(336)
(1,329) $
(65)
(1,394) $
554
(840) $

(55) $
(41)
(96) $
36
(60) $
—
(60) $

170 $
280
450 $
900
1,350 $
(963)
387 $

Total
accumulated
other
comprehensive
income (loss), net
of tax
(1,355)
(272)
(1,627)
984
(643)
(249)
(892)

(4) $
3
(1) $
1
— $
9
9 $

BNY Mellon 173

Notes to Consolidated Financial Statements (continued)

Note 17 - Stock-based compensation

Our Long-Term Incentive Plans provide for the
issuance of stock options, restricted stock, restricted
stock units (“RSUs”) and other stock-based awards to
employees and directors of BNY Mellon. At Dec. 31,
2013, under the Long-Term Incentive Plan approved
in April 2011, we may issue 25,689,379 new options.
Of this amount, 11,940,138 shares (subject to
potential increase as provided in the Long-Term
Incentive Plan) may be issued as restricted stock or
RSUs. Stock-based compensation expense related to
retirement eligibility vesting totaled $65 million in
2013, $64 million in 2012 and $31 million in 2011.

Stock options

Our Long-Term Incentive Plans provide for the
issuance of stock options at fair market value at the
date of grant to officers and employees of BNY
Mellon. Generally, each option granted is exercisable
between one and ten years from the date of grant. No
stock options were granted in 2013.

The compensation cost that has been charged against
income was $49 million for 2013, $70 million for
2012 and $96 million for 2011. The total income tax
benefit recognized in the income statement was $20
million for 2013, $29 million for 2012 and $40
million for 2011.

We used a lattice-based binomial method to calculate
the fair value on the date of grant. The fair value of
each option award is estimated on the date of grant
using the weighted-average assumptions noted in the
following table:

Assumptions
Dividend yield
Expected volatility
Risk-free interest rate
Expected option lives
(in years)

2013
N/A
N/A
N/A

N/A

2012
3.0%
34
1.38

2011
2.2%
32
2.75

6.9

6.7

For 2012 and 2011, assumptions were determined as
follows:

• Expected volatilities are based on implied volatilities
from traded options on our stock, historical volatility
of our stock, and other factors.

• We use historical data to estimate option exercises
and employee terminations within the valuation
model.

• The risk-free rate for periods within the contractual
life of the option is based on the U.S. Treasury yield
curve at the time of grant.

• The expected term of options granted is derived from

the output of the option valuation model and
represents the period of time that options granted are
expected to be outstanding.

A summary of the status of our options as of Dec. 31, 2013, and changes during the year, is presented below:

Stock option activity

Balance at Dec. 31, 2012
Granted
Exercised
Canceled/Expired
Balance at Dec. 31, 2013
Vested and expected to vest at Dec. 31, 2013
Exercisable at Dec. 31, 2013

Shares subject
to option
82,359,866 $

—
(11,135,754)
(5,427,790)
65,796,322 $
65,605,396
52,130,325

Weighted-average
exercise price
31.39
—
23.68
(41.16)
32.30
32.33
34.00

Weighted-
average remaining

contractual term
(in years)
5.4

4.9
4.9
4.2

174 BNY Mellon

Notes to Consolidated Financial Statements (continued)

Stock options outstanding at Dec. 31, 2013

Options exercisable (a)

Options outstanding
Weighted-average
remaining
contractual life
(in years)

prices

Range of exercise

Weighted-
average
exercise
price
25.94
6.5 $
37.08
2.2
44.46
3.9
34.00
4.9 $
(a) At Dec. 31, 2012 and 2011, 57,710,802 and 60,158,853 options were exercisable at an average price per common share of $33.95 and

Weighted-average
exercise price
25.89
37.07
44.46
32.30

Exercisable
at Dec. 31,
2013
22,515,184 $
17,400,215
12,214,926
52,130,325 $

Outstanding at
Dec. 31, 2013
36,160,149
17,421,247
12,214,926
65,796,322

31 to 41
41 to 51
$ 18 to 51

$ 18 to 31

$35.21, respectively.

Aggregate intrinsic value of

options

(in millions)
Outstanding at Dec. 31,
Exercisable at Dec. 31,

2013
336 $
212 $

$
$

2012

123 $
$

2011
22
11

The weighted-average fair value of options at grant
date was $5.50 in 2012 and $8.47 in 2011.

The total intrinsic value of options exercised was $67
million in 2013, $8 million in 2012 and $7 million in
2011.

As of Dec. 31, 2013, $43 million of total
unrecognized compensation cost related to nonvested
options is expected to be recognized over a weighted-
average period of 10 months.

Cash received from option exercises totaled $263
million in 2013, $40 million in 2012 and $18 million
in 2011. The actual tax benefit realized for the tax
deductions from options exercised totaled $8 million
in 2013, less than $1 million in 2012 and $2 million
in 2011.

Restricted stock and RSUs

Restricted stock and RSUs are granted under our
long-term incentive plans at no cost to the recipient.
These awards are subject to forfeiture until certain
restrictions have lapsed, including continued
employment, for a specified period. The recipient of
a share of restricted stock is entitled to voting rights
and generally is entitled to dividends on the common
stock. An RSU entitles the recipient to receive a
share of common stock after the applicable
restrictions lapse. The recipient generally is entitled
to receive cash payments equivalent to any dividends
paid on the underlying common stock during the

period the RSU is outstanding but does not receive
voting rights.

The fair value of restricted stock and RSUs is equal to
the fair market value of our common stock on the
date of grant. The expense is recognized over the
vesting period, which is one to four years. The total
compensation expense recognized for restricted stock
and RSUs was $201 million in 2013, $185 million in
2012 and $134 million in 2011. The total income tax
benefit recognized in the income statement was $79
million for 2013, $76 million for 2012 and $52
million for 2011.

BNYMellon’s Executive Committee members were
granted a target award of 942,428 performance units
(“PSUs”) in 2013 that are earned annually based on
an earnout percentage calculated using a metric of net
income divided by risk-weighted assets under Basel
III. The awards earned in each of the three
performance periods vest at the end of the third
performance period. Three of the awards are granted
to FSA code-staff individuals and are required to be
marked to market due to discretionary claw-back
language contained in their grants.

BNY Mellon’s Executive Committee members were
granted 817,698 RSUs in 2011 which contained
certain performance criteria that were achieved in
2011. The actual number of units that will ultimately
vest is subject to negative discretion by BNY
Mellon’s Human Resources Compensation
Committee and as a result, are subject to variable
accounting.

BNY Mellon 175

Notes to Consolidated Financial Statements (continued)

The following table summarizes our nonvested PSU,
restricted stock and RSU activity for 2013.

Nonvested PSU, restricted stock
and RSU activity

Nonvested PSUs, restricted stock

and RSUs at Dec. 31, 2012

Granted
Vested
Forfeited
Nonvested PSUs, restricted stock

and RSUs at Dec. 31, 2013 (a)

Number of
shares

Weighted-
average
fair value

17,419,139 $
8,697,870
(4,063,858)
(511,774)

25.93

27.41

28.90

25.89

21,541,377 $

26.59

(a) Includes 955,274 shares granted to members of BNY

Mellon’s Executive Committee that are marked-to-market
based on the closing stock price at Dec. 31, 2013 of $34.94.

As of Dec. 31, 2013, $171 million of total
unrecognized compensation costs related to
nonvested restricted stock and RSUs is expected to be
recognized over a weighted-average period of 1.6
years.

The total fair value of restricted stock and RSUs that
vested was $117 million in 2013, $84 million in 2012
and $100 million in 2011.

Subsidiary Long-Term Incentive plans

BNY Mellon also has several subsidiary Long-Term
Incentive Plans which have issued restricted
subsidiary shares to certain employees. These share
awards are subject to forfeiture until certain
restrictions have lapsed, including continued
employment for a specified period of time. The
shares are non-voting and non-dividend paying.
Once the restrictions lapse, which generally occurs in
three to five years, the shares can only be sold, at the
option of the employee, to BNY Mellon at a price
based generally on the fair value of the subsidiary at
the time of repurchase. In certain instances BNY
Mellon has an election to call the shares.

Note 18 - Employee benefit plans

BNY Mellon has defined benefit and/or defined
contribution retirement plans covering substantially
all full-time and eligible part-time employees and
other post-retirement plans providing healthcare
benefits for certain retired employees.

176 BNY Mellon

Notes to Consolidated Financial Statements (continued)

Pension and post-retirement healthcare plans

The following tables report the combined data for our domestic and foreign defined benefit pension and post-
retirement healthcare plans.

(dollar amounts in millions)
Weighted-average assumptions used to determine
benefit obligations

Discount rate
Rate of compensation increase
Change in benefit obligation (a)
Benefit obligation at beginning of period
Service cost
Interest cost
Employee contributions
Amendments
Actuarial gain (loss)
(Acquisitions) divestitures
Curtailments
Benefits paid
Foreign exchange adjustment

Benefit obligation at end of period
Change in fair value of plan assets
Fair value at beginning of period
Actual return on plan assets
Employer contributions
Employee contributions
Acquisitions (divestitures)
Benefit payments
Foreign exchange adjustment
Fair value at end of period
Funded status at end of period

Amounts recognized in accumulated other
comprehensive (income) loss consist of:

Net loss (gain)
Prior service cost (credit)
Net initial obligation (asset)
Total (before tax effects)

Pension Benefits

Healthcare Benefits

Domestic

Foreign

Domestic

Foreign

2013

2012

2013

2012

2013

2012

2013

2012

4.99%
3.00

4.25%
3.00

4.29%
3.71

4.49%
3.49

4.99%
3.00

4.25%
3.00

4.21%
—

4.50%
—

$ (4,093)
(63)
(170)
—
—
443
—
—
171
N/A
(3,712)

$ (3,639)
(59)
(169)
—
—
(378)
—
—
152
N/A
(4,093)

$ (880)
(36)
(38)
(1)
(2)
(66)
1
—
21
(20)
(1,021)

4,278
589
25
—
—
(171)
N/A

3,529
487
414
—
—
(152)
N/A

4,721
$ 1,009

4,278
185

$ 1,174
(46)
—
$ 1,128

$ 2,122
(62)
—
$ 2,060

782
107
43
1
(1)
(21)
19
930
(91)

256
5
—
261

(684)
(32)
(35)
(1)
—
(105)
(12)
—
16
(27)
(880)

681
60
26
1
—
(16)
30
782
(98)

$ (226)
(2)
(9)
—
—
(5)
—
—
18
N/A
(224)

78
8
18
—
—
(18)
N/A
86
$ (138)

266
3
—
269

150
(89)
—
61

(288)
(2)
(12)
—
98
(43)
—
—
21
N/A
(226)

73
5
21
—
—
(21)
N/A
78
(148)

159
(99)
—
60

(6)
—
—
—
—
—
—
—
—
(1)
(7)

—
—
—
—
—
—
—
—
(7)

(1)
—
—
(1)

(4)
—
—
—
—
1
(3)
—
—
—
(6)

—
—
—
—
—
—
—
—
(6)

(1)
—
—
(1)

(a) The benefit obligation for pension benefits is the projected benefit obligation and for healthcare benefits, it is the accumulated benefit obligation.

BNY Mellon 177

Notes to Consolidated Financial Statements (continued)

Net periodic benefit cost (credit)

Pension Benefits

Healthcare Benefits

(dollar amounts in millions)
Weighted-average assumptions
as of Jan. 1:

Domestic
2012

2013

2011

2013

Foreign
2012

2011

2013

Domestic
2012

2011

2013

Foreign
2012

2011

Market-related value of plan assets $ 4,121
Discount rate
Expected rate of return on plan
assets

7.25

4.25%

Rate of compensation increase
Components of net periodic
benefit cost (credit):

3.00

$ 3,763 $ 3,836

4.75%

5.71%

$ 698 $ 624

$ 790
4.49% 4.97% 5.29%

$ 80

78 $

4.25%

4.75%

78
5.71%

N/A

N/A
N/A
4.50% 5.00% 5.40%

7.38

3.00

7.50

3.50

6.04

3.49

6.30

3.57

6.38

4.47

7.25

3.00

7.38

3.00

7.50

3.50

N/A

Service cost
Interest cost
Expected return on assets
Amortization of:

63
170
(292)

59
169
(272)

64
174
(282)

$ 36
38
(46)

$ 32 $ 33
36
(43)

35
(45)

2
9
(6)

2
12
(6)

Net initial obligation (asset)
Prior service cost (credit)
Net actuarial (gain) loss

—
(16)
205
3
—
—
Net periodic benefit cost (credit) $ 133

Settlement (gain) loss
Curtailment (gain) loss
Other

—
(16)
167
—
—
—
$ 107 $

—
(16)
109
—
5
—
54

—
—
15
—
—
—
$ 43

—
—
12
—
—
—

—
—
14
—
—
(1)
$ 34 $ 39

—
(10)
12
—
—
—
7

3
(2)
9
—
—
—
18 $

2
13
(6)

5
(1)
3
—
—
—
16

$ —
—
—

$ — $ —
—
—

—
—

—
—
—
—
—
—
$ —

—
—
—
—
—
—
$ — $

—
—
(1)
—
—
—
(1)

Changes in other comprehensive (income) loss in 2013
(in millions)
Net loss (gain) arising during period
Recognition of prior years’ net (loss)
Prior service cost arising during period
Recognition of prior years’ service credit
Recognition of net initial (obligation) asset
Foreign exchange adjustment

Total recognized in other comprehensive (income) loss (before tax effects)

Pension Benefits

Domestic

(740) $
(208)
—
16
—
N/A
(932) $

Foreign
5
(15)
2
—
—
—
(8) $

Amounts expected to be recognized in net periodic benefit

cost (income) in 2014 (before tax effects)
(in millions)
Loss recognition
Prior service (credit) recognition
Net initial obligation (asset) recognition

Pension Benefits

Domestic
125
(16)
—

Foreign
15
—
—

Healthcare Benefits
Domestic
3
(12)
—
10
—
N/A

Foreign
—
—
—
—
—
—
—

1 $

Healthcare Benefits

Domestic
11
(10)
—

Foreign

—

(in millions)
Pension benefits:
Prepaid benefit cost
Accrued benefit cost

Total pension benefits

Healthcare benefits:
Accrued benefit cost

Total healthcare benefits

Domestic
2013

2012

Foreign

2013

2012

$ 1,209 $ 409 $ — $ 10
(91)
(108)
(91) $ (98)

$ 1,009 $ 185 $

(224)

(200)

Plans with obligations in
excess of plan assets
(in millions)
Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets

Foreign

Domestic
2013

2013

2012

2012
$ 200 $ 245 $ 304 $ 342
320
255

199
—

241
21

294
242

$ (138) $ (148) $
$ (138) $ (148) $

(7) $
(7) $

(6)
(6)

For information on pension assumptions see the
“Critical accounting estimates” section.

The accumulated benefit obligation for all defined
benefit plans was $4.5 billion at Dec. 31, 2013 and
$4.8 billion at Dec. 31, 2012.

178 BNY Mellon

Notes to Consolidated Financial Statements (continued)

Assumed healthcare cost trend - Domestic post-
retirement healthcare benefits

The assumed healthcare cost trend rate used in
determining benefit expense for 2014 is 7.00%
decreasing to 4.75% in 2022. This projection is based
on various economic models that forecast a
decreasing growth rate of healthcare expenses over
time. The underlying assumption is that healthcare
expense growth cannot outpace gross national
product (“GNP”) growth indefinitely, and over time a
lower equilibrium growth rate will be achieved.
Further, the growth rate assumed in 2022 bears a
reasonable relationship to the discount rate.

An increase in the healthcare cost trend rate of one
percentage point for each year would increase the
accumulated post-retirement benefit obligation by
$16 million, or 7%, and the sum of the service and
interest costs by $1 million, or 6%. Conversely, a
decrease in this rate of one percentage point for each
year would decrease the benefit obligation by $14
million, or 6%, and the sum of the service and interest
costs by $1 million, or 5%.

Assumed healthcare cost trend - Foreign post-
retirement healthcare benefits

An increase in the healthcare cost trend rate of one
percentage point for each year would increase the
accumulated post-retirement benefit obligation by
less than $1 million and the sum of the service and
interest costs by less than $1 million. Conversely, a
decrease in this rate of one percentage point for each
year would decrease the benefit obligation by less
than $1 million and the sum of the service and
interest costs by less than $1 million.

The following benefit payments for BNY Mellon’s
pension and healthcare plans, which reflect expected
future service as appropriate, are expected to be paid:

Expected benefit payments
(in millions)
Pension benefits:
Year 2014
2015
2016
2017
2018
2019-2023

Total pension benefits
Healthcare benefits:
Year 2014
2015
2016
2017
2018
2019-2023
Total healthcare benefits

Plan contributions

Domestic

Foreign

210
220
233
243
247
1,323
2,476

17
17
17
17
18
82
168

13
14
17
17
23
122
206

—
—
—
—
1
1
2

BNY Mellon expects to make cash contributions to
fund its defined benefit pension plans in 2014 of $17
million for the domestic plans and $56 million for the
foreign plans.

BNY Mellon expects to make cash contributions to
fund its post-retirement healthcare plans in 2014 of
$17 million for the domestic plans and less than $1
million for the foreign plans.

Investment strategy and asset allocation

BNY Mellon is responsible for the administration of
various employee pension and healthcare post-
retirement benefits plans, both domestically and
internationally. The domestic plans are administered
by BNY Mellon’s Benefits Administration
Committee, a named fiduciary. Subject to the
following, at all relevant times, BNY Mellon’s
Benefits Investment Committee, another named
fiduciary to the domestic plans, is responsible for the
investment of plan assets. The Benefits Investment
Committee’s responsibilities include the investment
of all domestic defined benefit plan assets, as well as
the determination of investment options offered to
participants in all domestic defined contribution
plans. The Benefits Investment Committee conducts
periodic reviews of investment performance, asset
allocation and investment manager suitability. In

BNY Mellon 179

Notes to Consolidated Financial Statements (continued)

addition, the Benefits Investment Committee has
oversight of the Regional Governance Committees
for the foreign defined benefit plans.

Our investment objective for U.S. and foreign plans is
to maximize total return while maintaining a broadly
diversified portfolio for the primary purpose of
satisfying obligations for future benefit payments.

Equities are the main holding of the plans.
Alternative investments (including private equities)
and fixed income securities provide diversification
and, in certain cases, lower the volatility of returns.
In general, equity securities and alternative
investments within any domestic plan’s portfolio can
be maintained in the range of 30% to 70% of total
plan assets, fixed-income securities can range from
20% to 50% of plan assets and cash equivalents can
be held in amounts ranging from 0% to 5% of plan
assets. Actual asset allocation within the approved
ranges varies from time to time based on economic
conditions (both current and forecast) and the advice
of professional advisors.

Our pension assets were invested as follows at Dec.
31, 2013 and 2012:

Asset allocations

Equities
Fixed income
Private equities
Alternative investment
Real estate
Cash

Domestic
2013 2012
63%
52%
30
30
2
2
3
6
—
—
2
10

Foreign

2013
63%
29
—
4
4
(a) —

2012
65%
29
—
5
1
—

Total pension benefits 100% 100%

100% 100%
(a) Reflects the $400 million discretionary contribution to The

Bank of New York Mellon Corporation Pension Plan on Dec.
31, 2012. Excluding this contribution, the percentage of the
domestic plan assets held in cash was less than 1% at Dec.
31, 2012.

We held no The Bank of New York Mellon
Corporation stock in our pension plans at Dec. 31,
2013 and 2012. Assets of the U.S. post-retirement
healthcare plan are invested in an insurance contract.

Fair value measurement of plan assets

In accordance with ASC 715, BNY Mellon has
established a three-level hierarchy for fair value
measurements of its pension plan assets based upon
the transparency of inputs to the valuation of an asset

180 BNY Mellon

as of the measurement date. The valuation hierarchy
is consistent with guidance in ASC 820 which is
detailed in Note 20 of the Notes to Consolidated
Financial Statements.

The following is a description of the valuation
methodologies used for assets measured at fair value,
as well as the general classification of such assets
pursuant to the valuation hierarchy.

Cash and currency

This category consists primarily of foreign currency
balances and is included in Level 1 of the valuation
hierarchy. Foreign currency is translated monthly
based on current exchange rates.

Common and preferred stock, exchange traded funds
and equity funds

These investments include equities, exchange traded
funds and equity funds and are valued at the closing
price reported in the active market in which the
individual securities are traded, if available. Where
there are no readily available market quotations, we
determine fair value primarily based on pricing
sources with reasonable levels of price transparency.

Venture capital investments and partnership interests

There are no readily available market quotations for
these funds. The fair value of the investments is
based on the pension plan’s ownership percentage of
the fair value of the underlying funds as provided by
the fund managers. These funds are typically valued
on a quarterly basis. The pension plan’s venture
capital investments and partnership interests are
valued at NAV as a practical expedient for fair value
and classified as Level 3 of the valuation hierarchy.

Collective trust funds

Collective trust funds include commingled and U.S.
equity funds that have no readily available market
quotations. The fair value of the funds are based on
the securities in the portfolio, which typically are the
amount that the fund might reasonably expect to
receive for the securities upon a sale. These funds are
valued using observable inputs on either a daily or
monthly basis. Collective trust funds are included as
Level 2 of the valuation hierarchy.

Notes to Consolidated Financial Statements (continued)

Fixed income investments

Fixed income investments include U.S. Treasury
securities, U.S. Government agencies, sovereign
government obligations, U.S. corporate bonds and
foreign corporate debt funds. U.S. Treasury securities
are valued at the closing price reported in the active
market in which the individual security is traded and
included as Level 1 of the valuation hierarchy. U.S.
Government agencies, sovereign government
obligations, U.S. corporate bonds and foreign
corporate debt funds are valued based on quoted
prices for comparable securities with similar yields
and credit ratings. When quoted prices are not
available for identical or similar bonds, the bonds are
valued using discounted cash flows that maximize
observable inputs, such as current yields of similar
instruments, but includes adjustments for certain risks
that may not be observable, such as credit and
liquidity risks. U.S. Government agencies, sovereign
government obligations, U.S. corporate bonds and
foreign corporate debt funds are primarily included as
Level 2 of the valuation hierarchy with a small
portion of foreign corporate debt funds included as
Level 3.

Funds of funds

There are no readily available market quotations for
these funds. The fair value of the fund is based on
NAVs of the funds in the portfolio, which reflects the
value of the underlying securities. The fair value of
the underlying securities is typically the amount that
the fund might reasonably expect to receive upon
selling those hard to value or illiquid securities within
the portfolios. These funds are valued using
unobservable inputs on a monthly basis and are
included as Level 3 of the valuation hierarchy.

The following tables present the fair value of each
major category of plan assets as of Dec. 31, 2013 and
Dec. 31, 2012, by captions and by ASC 820 valuation
hierarchy. There were no transfers between Level 1
and Level 2.

Plan assets measured at fair value on a recurring basis—
domestic plans at Dec. 31, 2013

(in millions)

Level 1 Level 2 Level 3

Total
fair
value

Common and preferred stock:

U.S. equity
Non-U.S. equity
Collective trust funds:

Commingled
U.S. equity

Venture capital and partnership

interests

Fixed income:

U.S. Treasury securities
U.S. Government agencies
Sovereign government

obligations

U.S. corporate bonds
Other

Exchange traded funds
Funds of funds

$ 1,285 $ — $ — $ 1,285
138

138

—

—
—

—

379
—

—

—
—
66
—

437
1,334

—

—
70

102

640
41
—
—

—
—

—

—
—
—
143

437
1,334

379
70

102

640
41
66
143

Total domestic plan assets, at

fair value

$ 1,868 $ 2,624 $ 229 $ 4,721

Plan assets measured at fair value on a recurring basis—
foreign plans at Dec. 31, 2013

(in millions)

Equity funds
Sovereign/government

obligation funds

Corporate debt funds
Cash and currency
Venture capital and partnership

interests
Total foreign plan assets, at

fair value

Total
fair
value
$ 481 $ 130 $ — $ 611

Level 1 Level 2 Level 3

—
4

—

130

67
—

—

19
—

185

86
4

$ 540 $ 327 $

63 $ 930

Plan assets measured at fair value on a recurring basis—
domestic plans at Dec. 31, 2012

(in millions)

Common and preferred stock:

U.S. equity
Non-U.S. equity
Collective trust funds:

Commingled
U.S. equity

Venture capital and partnership

interests

Fixed income:

U.S. Treasury securities
U.S. Government agencies
Sovereign government

obligations

U.S. corporate bonds
Other

Exchange traded funds
Funds of funds

Level 1 Level 2 Level 3

value

Total
fair

$ 947 $ — $ — $ 947
118

118

—

—
—

—

162
—

—

—
—
68
—

734
841

—
—

734
841

—

105

—
143

112

892
26
—
—

—
—

—

—
—
—
130

162
143

112

892
26
68
130

Total domestic plan assets, at

fair value

$ 1,295 $ 2,748 $ 235 $ 4,278

BNY Mellon 181

Notes to Consolidated Financial Statements (continued)

Plan assets measured at fair value on a recurring basis—

foreign plans at Dec. 31, 2012

(in millions)

Equity funds
Sovereign/government

obligation funds

Corporate debt funds
Cash and currency
Venture capital and partnership

interests

Total foreign plan assets, at fair

value

Total
fair
value
$ 379 $ 116 $ — $ 495

Level 1 Level 2 Level 3

—
6

—

123

62
—

—

17
—

161

$ 423 $ 301 $

58 $ 782

Changes in Level 3 fair value measurements

The table below includes a rollforward of the plan assets for the years ended Dec. 31, 2013 and 2012 (including the
change in fair value), for financial instruments classified in Level 3 of the valuation hierarchy.

Fair value measurements using significant unobservable inputs—domestic plans—for the year ended Dec. 31, 2013

(in millions)
Fair value at Dec. 31, 2012
Total gains or (losses) included in earnings (or changes in net assets)
Purchases and sales:

Purchases
Sales

Fair value at Dec. 31, 2013
Change in unrealized gains or (losses) for the period included in earnings (or

changes in net assets) for assets held at the end of the reporting period

Funds of funds

Venture capital and
partnership interests

Total plan assets

130 $
13

—
—
143 $

11 $

105 $
—

3
(22)
86 $

(14) $

at fair value
235
13

3
(22)
229

(3)

Fair value measurements using significant unobservable inputs—foreign plans—for the year ended Dec. 31, 2013

(in millions)
Fair value at Dec. 31, 2012
Total gains or (losses) included in earnings (or changes in net assets)

Fair value at Dec. 31, 2013

Change in unrealized gains or (losses) for the period included in earnings (or
changes in net assets) for assets held at the end of the reporting period

Corporate Venture capital and
debt funds partnership interests

Total plan assets

at fair value

17 $
2
19 $

2 $

41 $
3
44 $

3 $

58
5
63

Fair value measurements using significant unobservable inputs—domestic plans—for the year ended Dec. 31, 2012

Funds of funds

Venture capital and
partnership interests

Total plan assets

128 $
6

—
(4)
130 $

5 $

121 $
16

9
(41)
105 $

(4) $

at fair value
249
22

9
(45)
235

(in millions)
Fair value at Dec. 31, 2011
Total gains or (losses) included in earnings (or changes in net assets)
Purchases and sales:

Purchases
Sales

Fair value at Dec. 31, 2012
Change in unrealized gains or (losses) for the period included in earnings (or
changes in net assets) for assets held at the end of the reporting period

182 BNY Mellon

Notes to Consolidated Financial Statements (continued)

Fair value measurements using significant unobservable inputs—foreign plans—for the year ended Dec. 31, 2012

(in millions)
Fair value at Dec. 31, 2011
Total gains or (losses) included in earnings (or changes in net assets)
Purchases and sales:

Purchases
Sales
Fair value at Dec. 31, 2012

Change in unrealized gains or (losses) for the period included in earnings (or
changes in net assets) for assets held at the end of the reporting period

Corporate Venture capital and
debt funds partnership interests

Total plan assets

at fair value

14 $
3

—
—
17 $

3 $

40 $
1

1
(1)
41 $

1 $

54
4

1
(1)
58

Venture capital and partnership interests and funds of
funds valued using net asset value per share

Defined contribution plans

BNY Mellon had pension and post-retirement plan
assets invested in venture capital and partnership
interests and funds of funds valued using net asset
value. The fund of funds investments are redeemable
at net asset value under agreements with the fund of
funds managers.

Venture capital and partnership interests and funds of funds
valued using NAV—Dec. 31, 2013

(dollar amounts
in millions)

Venture capital and

partnership
interests (a)

Funds of funds (b)

Total

Fair

value commitments

Unfunded Redemption
frequency

Redemption
notice
period

$ 130 $

143
$ 273 $

—
11

N/A

Monthly

30-45 days

Venture capital and partnership interests and funds of funds
valued using NAV—Dec. 31, 2012

(dollar amounts
in millions)

Venture capital and

partnership
interests (a)

Funds of funds (b)

Total

Fair

value commitments

Unfunded Redemption
frequency

Redemption
notice
period

$ 146 $

130
$ 276 $

—
18

N/A

Monthly

30-45 days

(a) Venture capital and partnership interests do not have redemption
rights. Distributions from such funds will be received as the
underlying investments are liquidated.

(b) Funds of funds include multi-strategy hedge funds that utilize

investment strategies that invest over both long-term investment and
short-term investment horizons.

We have an Employee Stock Ownership Plan
(“ESOP”) covering certain domestic full-time
employees with more than one year of service. The
ESOP works in conjunction with the defined benefit
pension plan. Employees are entitled to the higher of
their benefit under the ESOP or such defined benefit
pension plan at retirement. Benefits payable under
the defined benefit pension plan are offset by the
equivalent value of benefits earned under the ESOP.

At Dec. 31, 2013 and Dec. 31, 2012, the ESOP
owned 6.6 million and 6.9 million shares of our
common stock, respectively. The fair value of total
ESOP assets was $236 million at Dec. 31, 2013 and
$181 million at Dec. 31, 2012. Contributions are
made equal to required principal and interest
payments on borrowings by the ESOP. There were
no contributions and no ESOP related expense in
2013, 2012 or 2011.

We have defined contribution plans, excluding the
ESOP, for which we recognized a cost of $192
million in 2013, $180 million in 2012 and $182
million in 2011.

The Benefits Investment Committee appointed
Fiduciary Counselors, Inc. to serve as the
independent fiduciary to (i) make certain fiduciary
decisions related to the continued prudence of
offering the common stock of BNY Mellon or its
affiliates as an investment option under the plans
other than with respect to plan sponsor decisions, and
(ii) select and monitor any managed investments
(active or passive, including mutual funds) of BNY
Mellon or its affiliates to be offered to participants as
investment options under the plans.

BNY Mellon 183

Notes to Consolidated Financial Statements (continued)

Note 19 - Company financial information

Our bank subsidiaries are subject to dividend
limitations under the Federal Reserve Act, as well as
national and state banking laws. Under these statutes,
prior regulatory consent is required for dividends in
any year that would exceed the bank’s net profits for
such year combined with retained net profits for the
prior two years. Additionally, such bank subsidiaries
may not declare dividends in excess of net profits on
hand, as defined, after deducting the amount by
which the principal amount of all loans, on which
interest is past due for a period of six months or more,
exceeds the allowance for credit losses.

The payment of dividends also is limited by
minimum capital requirements imposed on banks. As
of Dec. 31, 2013, BNY Mellon’s bank subsidiaries
exceeded these minimum requirements.

Subsequent to Dec. 31, 2013, our bank subsidiaries
could declare dividends to the Parent of
approximately $2.9 billion without the need for a
regulatory waiver. In addition, at Dec. 31, 2013, non-
bank subsidiaries of the Parent had liquid assets of
approximately $1.9 billion.

The bank subsidiaries declared dividends of $1.0
billion in 2013, $679 million in 2012 and $156
million in 2011. The Federal Reserve and the OCC
have issued additional guidelines that require bank
holding companies and national banks to continually
evaluate the level of cash dividends in relation to
their respective operating income, capital needs, asset
quality and overall financial condition.

The Federal Reserve policy with respect to the
payment of cash dividends by bank holding
companies provides that, as a matter of prudent
banking, a bank holding company should not
maintain a rate of cash dividends unless its net
income available to common shareholders has been
sufficient to fully fund the dividends, and the
prospective rate of earnings retention appears to be
consistent with the holding company’s capital needs,
asset quality and overall financial condition. The
Federal Reserve can also prohibit a dividend if
payment would constitute an unsafe or unsound
banking practice. Any increase in BNY Mellon’s
ongoing quarterly dividends would require approval
from the Federal Reserve. The Federal Reserve’s
current guidance provides that, for large bank holding
companies like us, dividend payout ratios exceeding

184 BNY Mellon

30% of projected after-tax net income will receive
particularly close scrutiny.

The Federal Reserve requires U.S. bank holding
companies with total consolidated assets of $50
billion or more, like BNY Mellon, to submit annual
capital plans for review. The Federal Reserve will
evaluate the bank holding companies’ capital
adequacy, internal capital adequacy assessment
processes, and their plans to make capital
distributions, such as dividend payments or stock
repurchases.

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 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 have a ratio of
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. BNY Mellon’s most
recent capital plan was submitted to the Federal
Reserve on Jan. 6, 2014. The Federal Reserve has
indicated that it expects to publish its objection or
non-objection to the capital plan and proposed capital
actions, such as dividend payments and share
repurchases, on March 26, 2014.

The Federal Reserve Act limits and requires collateral
for extensions of credit by our insured subsidiary
banks to BNY Mellon and certain of its non-bank
affiliates. Also, there are restrictions on the amounts
of investments by such banks in stock and other
securities of BNY Mellon and such affiliates, and
restrictions on the acceptance of their securities as
collateral for loans by such banks. Extensions of
credit by the banks to each of our affiliates are limited
to 10% of such bank’s regulatory capital, and in the
aggregate for BNY Mellon and all such affiliates to

Notes to Consolidated Financial Statements (continued)

20%, and collateral must be between 100% and 130%
of the amount of the credit, depending on the type of
collateral.

Our insured subsidiary banks are required to maintain
reserve balances with Federal Reserve Banks under
the Federal Reserve Act and Regulation D. Required
balances averaged $5.7 billion and $5.4 billion for the
years 2013 and 2012, respectively.

In the event of impairment of the capital stock of one
of the Parent’s national banks or The Bank of New
York Mellon, the Parent, as the banks’ stockholder,
could be required to pay such deficiency.

The Parent guarantees the debt issued by Mellon
Funding Corporation, a wholly-owned financing
subsidiary of the Company. The Parent also
guarantees committed and uncommitted lines of
credit of Pershing LLC and Pershing Limited
subsidiaries. The Parent guarantees described above
are full and unconditional and contain the standard
provisions relating to parent guarantees of subsidiary
debt. Additionally, the Parent guarantees or
indemnifies obligations of its consolidated
subsidiaries as needed. Generally there are no stated
notional amounts included in these indemnifications
and the contingencies triggering the obligation for
indemnification are not expected to occur. As a
result, we are unable to develop an estimate of the
maximum payout under these indemnifications.
However, we believe the possibility is remote that we
will have to make any material payment under these
guarantees and indemnifications.

The Parent’s condensed financial statements are as
follows:

Condensed Income Statement—The Bank of New
York Mellon Corporation (Parent Corporation)

(in millions)
Dividends from bank subsidiaries
Dividends from nonbank subsidiaries
Interest revenue from bank subsidiaries
Interest revenue from nonbank

subsidiaries

Gain on securities held for sale
Other revenue

Total revenue

Interest (including $50, $30 and $13 to

subsidiaries, respectively)

Other expense

Total expense

Income before income taxes and equity

in undistributed net income of
subsidiaries

Provision (benefit) for income taxes
Equity in undistributed net income:

Bank subsidiaries
Nonbank subsidiaries

Net income
Preferred stock dividends
Net income applicable to common

shareholders of The Bank of New York
Mellon Corporation

2012

Year ended Dec. 31,
2013
$ 1,010 $
210
60

645 $
199
120

2011
120
54
211

101

32
26
1,439

245

94
339

1,100

(93)

184
734
2,111
(64)

126

11
47
1,148

340

103
443

705

(83)

130

17
51
583

282

138
420

163

936
721
2,445
(18)

1,781
638
2,516

—

$ 2,047 $ 2,427 $ 2,516

Condensed Balance Sheet—The Bank of New

York Mellon Corporation (Parent Corporation)

(in millions)
Assets:
Cash and due from banks
Securities
Loans, net of allowance
Investment in and advances to subsidiaries and

associated companies:

Banks
Other
Subtotal

Corporate-owned life insurance
Other assets

Total assets

Liabilities:
Deferred compensation
Commercial paper
Affiliate borrowings
Other liabilities
Long-term debt

Total liabilities

Shareholders’ equity

Total liabilities and shareholders’ equity

Dec. 31,

2013

2012

$ 6,959 $ 4,182
112
13

34
19

27,889
24,444
52,333
699
2,486

28,371
24,273
52,644
682
3,024
$ 62,530 $ 60,657

500 $
96
3,416
2,193
18,804
25,009
37,521

489
338
3,338
2,647
17,414
24,226
36,431
$ 62,530 $ 60,657

BNY Mellon 185

Notes to Consolidated Financial Statements (continued)

Condensed Statement of Cash Flows—The Bank
of New York Mellon Corporation (Parent
Corporation)

(in millions)
Operating activities:
Net income
Adjustments to reconcile net income to net

cash provided by/ (used in) operating
activities:
Amortization
Equity in undistributed net (income) of

subsidiaries

Change in accrued interest receivable
Change in accrued interest payable
Change in taxes payable (a)
Other, net

Net cash provided by operating

activities
Investing activities:
Purchases of securities
Proceeds from sales of securities
Change in loans
Acquisitions of, investments in, and

advances to subsidiaries

Other, net

Net cash provided by/(used in)

investing activities

Financing activities:

Net change in commercial paper
Proceeds from issuance of long-term debt
Repayments of long-term debt
Change in advances from subsidiaries
Issuance of common stock
Treasury stock acquired
Issuance of preferred stock
Cash dividends paid
Tax benefit realized on share based

payment awards

Net cash provided by/(used in)

financing activities

Change in cash and due from banks
Cash and due from banks at beginning of

year

Cash and due from banks at end of year
Supplemental disclosures
Interest paid
Income taxes paid
Income taxes refunded

Year ended Dec. 31,
2013

2012

2011

$ 2,111 $ 2,445 $ 2,516

(918)

(1,657)

(2,419)

21
(5)
63
(22)

13
(16)
177
(179)

(22)
11
168
(80)

1,251

796

187

—
67
(6)

722

—
86
7

175

(50)
101
32

(611)

—

794

285

(528)

(242)
3,892
(2,023)
78
288
(1,026)
494
(744)

328
2,761
(4,163)
(53)
65
(1,148)
1,068
(641)

—

5,042

(1,911)

(873)

—

(593)

—

732

(1,783)

1,773

2,777

(702)

1,432

4,182

4,884

3,452

$ 6,959 $ 4,182 $ 4,884

$
$
$

241 $ 324 $ 293
94 $ 401 $ 212
14 $
1 $ 123

(a)

Includes payments received from subsidiaries for taxes of $192
million in 2013, $648 million in 2012 and $501 million in 2011.

Note 20 - Fair value measurement

The guidance related to “Fair Value Measurement”
included in ASC 820 defines fair value as the price
that would be received to sell an asset, or paid to
transfer a liability, in an orderly transaction between
market participants at the measurement date and
establishes a framework for measuring fair value. It
establishes a three-level hierarchy for fair value

186 BNY Mellon

measurements based upon the transparency of inputs
to the valuation of an asset or liability as of the
measurement date and expands the disclosures about
instruments measured at fair value. ASC 820 requires
consideration of a company’s own creditworthiness
when valuing liabilities.

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

Determination of fair value

Following is a description of our valuation
methodologies for assets and liabilities measured at
fair value. We have established processes for
determining fair values. Fair value is based upon
quoted market prices in active markets, where
available. For financial instruments where quotes
from recent exchange transactions are not available,
we determine fair value based on discounted cash
flow analysis, comparison to similar instruments, and
the use of financial models. Discounted cash flow
analysis is dependent upon estimated future cash
flows and the level of interest rates. Model-based
pricing uses inputs of observable prices, where
available, for interest rates, foreign exchange rates,
option volatilities and other factors. Models are
benchmarked and validated by an independent
internal risk management function. Our valuation
process takes into consideration factors such as
counterparty credit quality, liquidity, concentration
concerns, and observability of model parameters.
Valuation adjustments may be made to ensure that
financial instruments are recorded at fair value.

Most derivative contracts are valued using internally
developed models which are calibrated to observable
market data and employ standard market pricing

Notes to Consolidated Financial Statements (continued)

theory for their valuations. An initial “risk-neutral”
valuation is performed on each position assuming
time-discounting based on a AA credit curve. Then,
to arrive at a fair value that incorporates counter-party
credit risk, a credit adjustment is made to these results
by discounting each trade’s expected exposures to the
counterparty using the counterparty’s credit spreads,
as implied by the credit default swap market. We also
adjust expected liabilities to the counterparty using
BNY Mellon’s own credit spreads, as implied by the
credit default swap market. Accordingly, the
valuation of our derivative position is sensitive to the
current changes in our own credit spreads as well as
those of our counterparties.

In certain cases, recent prices may not be observable
for instruments that trade in inactive or less active
markets. Upon evaluating the uncertainty in valuing
financial instruments subject to liquidity issues, we
make an adjustment to their value. The determination
of the liquidity adjustment includes the availability of
external quotes, the time since the latest available
quote and the price volatility of the instrument.

Certain parameters in some financial models are not
directly observable and, therefore, are based on
management’s estimates and judgments. These
financial instruments are normally traded less
actively. We apply valuation adjustments to mitigate
the possibility of error and revision in the model
based estimate value. Examples include products
where parameters such as correlation and recovery
rates are unobservable.

The methods described above for instruments that
trade in inactive or less active markets may produce a
current fair value calculation that may not be
indicative of net realizable value or reflective of
future fair values. We believe our methods of
determining fair value are appropriate and consistent
with other market participants. However, the use of
different methodologies or different assumptions to
value certain financial instruments could result in a
different estimate of fair value.

Valuation hierarchy

ASC 820 established a three-level valuation hierarchy
for disclosure of fair value measurements based upon
the transparency of inputs to the valuation of an asset
or liability as of the measurement date. The three
levels are described below.

Level 1: Inputs to the valuation methodology are
quoted prices (unadjusted) for identical assets or
liabilities in active markets. Level 1 assets and
liabilities include debt and equity securities and
derivative financial instruments actively traded on
exchanges and U.S. Treasury securities that are
actively traded in highly liquid over-the-counter
markets.

Level 2: Observable inputs other than Level 1 prices,
for example, quoted prices for similar assets and
liabilities in active markets, quoted prices for
identical or similar assets or liabilities in markets that
are not active, and inputs that are observable or can
be corroborated, either directly or indirectly, for
substantially the full term of the financial instrument.
Level 2 assets and liabilities include debt instruments
that are traded less frequently than exchange-traded
securities and derivative instruments whose model
inputs are observable in the market or can be
corroborated by market-observable data. Examples
in this category are agency and non-agency
mortgage-backed securities, corporate debt securities
and over-the-counter derivative contracts.

Level 3: Inputs to the valuation methodology are
unobservable and significant to the fair value
measurement. Examples in this category include
certain private equity investments, derivative
contracts that are highly structured or long-dated, and
interests in certain securitized financial assets.

A financial instrument’s categorization within the
valuation hierarchy is based upon the lowest level of
input that is significant to the fair value measurement.

Following is a description of the valuation
methodologies used for instruments measured at fair
value, as well as the general classification of such
instruments pursuant to the valuation hierarchy.

Securities

Where quoted prices are available in an active
market, we classify the securities within Level 1 of
the valuation hierarchy. Securities include both long
and short positions. Level 1 securities include highly
liquid government bonds, money market funds,
foreign covered bonds and exchange-traded equities.

If quoted market prices are not available, we estimate
fair values using pricing models, quoted prices of
securities with similar characteristics or discounted

BNY Mellon 187

Notes to Consolidated Financial Statements (continued)

cash flows. Examples of such instruments, which
would generally be classified within Level 2 of the
valuation hierarchy, include agency and non-agency
mortgage-backed securities, state and political
subdivisions, commercial mortgage-backed
securities, sovereign debt, corporate bonds and
foreign covered bonds.

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

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

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

In certain cases where there is limited activity or less
transparency around inputs to the valuation, we
classify those securities in Level 3 of the valuation
hierarchy. Securities classified within Level 3
primarily include securities of state and political
subdivisions and distressed debt securities.

binding dealer quotes, and are included in Level 3 of
the ASC 820 hierarchy.

Consolidated collateralized loan obligations

BNY Mellon values assets in consolidated CLOs
using observable market prices observed from the
secondary loan market. The returns to the note
holders are solely dependent on the assets and
accordingly equal the value of those assets. Based on
the structure of the CLOs, the valuation of the assets
is attributable to the senior note holders. Changes in
the values of assets and liabilities are reflected in the
income statement as investment and other income and
interest of investment management fund note holders,
respectively. Consolidated CLOs are generally
classified within Level 2 of the valuation hierarchy.

Derivatives

We classify exchange-traded derivatives valued using
quoted prices in Level 1 of the valuation hierarchy.
Examples include exchange-traded equity and foreign
exchange options. Since few other classes of
derivative contracts are listed on an exchange, most
of our derivative positions are valued using internally
developed models that use as their basis readily
observable market parameters, and we classify them
in Level 2 of the valuation hierarchy. Such
derivatives include swaps and options, foreign
exchange spot and forward contracts and credit
default swaps.

Derivatives valued using models with significant
unobservable market parameters in markets that lack
two-way flow are classified in Level 3 of the
valuation hierarchy. Examples include long-dated
interest rate or currency swaps and options, where
parameters may be unobservable for longer
maturities; and certain products, where correlation
risk is unobservable. The fair value of these
derivatives compose approximately 1% of our
derivative financial instruments. Additional
disclosures of derivative instruments are provided in
Note 23 of the Notes to Consolidated Financial
Statements.

Loans and unfunded lending-related commitments

At Dec. 31, 2013, more than 99% of our securities
were valued by pricing sources with reasonable levels
of price transparency. Less than 1% of our securities
were priced based on economic models and non-

Where quoted market prices are not available, we
generally base the fair value of loans and unfunded
lending-related commitments on observable market
prices of similar instruments, including bonds, credit

188 BNY Mellon

Notes to Consolidated Financial Statements (continued)

derivatives and loans with similar characteristics. If
observable market prices are not available, we base
the fair value on estimated cash flows adjusted for
credit risk which are discounted using an interest rate
appropriate for the maturity of the applicable loans or
the unfunded lending-related commitments.

Unrealized gains and losses, if any, on unfunded
lending-related commitments carried at fair value are
classified in other assets and other liabilities,
respectively. Loans and unfunded lending-related
commitments carried at fair value are generally
classified within Level 2 of the valuation hierarchy.

Seed capital

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. Seed capital is included in other assets. When
applicable, we value seed capital based on the
published NAV of the fund. We include funds in
which ownership interests in the fund are publicly
traded in an active market and institutional funds in
which investors trade in and out daily in Level 1 of
the valuation hierarchy. We include open-end funds
where investors are allowed to sell their ownership
interest back to the fund less frequently than daily
and where our interest in the fund contains no other
rights or obligations in Level 2 of the valuation
hierarchy. However, we generally include
investments in funds that allow investors to sell their
ownership interest back to the fund less frequently
than monthly in Level 3, unless actual redemption
prices are observable.

For other types of investments in funds, we consider
all of the rights and obligations inherent in our
ownership interest, including the reported NAV as
well as other factors that affect the fair value of our
interest in the fund. To the extent the NAV
measurements reported for the investments are based
on unobservable inputs or include other rights and
obligations (e.g., obligation to meet cash calls), we
generally classify them in Level 3 of the valuation
hierarchy.

Certain interests in securitizations

For certain interests in securitizations that are
classified in securities available-for-sale, trading
assets and long-term debt, we use discounted cash
flow models, which generally include assumptions of
projected finance charges related to the securitized
assets, estimated net credit losses, prepayment
assumptions and estimates of payments to third-party
investors. When available, we compare our fair value
estimates and assumptions to market activity and to
the actual results of the securitized portfolio.

Private equity investments

Our Other segment includes holdings of nonpublic
private equity investment through funds managed by
third-party investment managers. We value private
equity investments initially based upon the
transaction price, which we subsequently adjust to
reflect expected exit values as evidenced by financing
and sale transactions with third parties or through
ongoing reviews by the investment managers.

Private equity investments also include publicly held
equity investments, generally obtained through the
initial public offering of privately held equity
investments. These equity investments are often held
in a partnership structure. Publicly held investments
are marked-to-market at the quoted public value less
adjustments for regulatory or contractual sales
restrictions or adjustments to reflect the difficulty in
selling a partnership interest.

Discounts for restrictions are quantified by analyzing
the length of the restriction period and the volatility
of the equity security. Publicly held private equity
investments are primarily classified in Level 2 of the
valuation hierarchy.

The following tables present the financial instruments
carried at fair value at Dec. 31, 2013 and Dec. 31,
2012, by caption on the consolidated balance sheet
and by ASC 820 valuation hierarchy (as described
above). We have included credit ratings information
in certain of the tables because the information
indicates the degree of credit risk to which we are
exposed, and significant changes in ratings
classifications could result in increased risk for us.
There were no material transfers between Level 1 and
Level 2 during 2013.

BNY Mellon 189

Notes to Consolidated Financial Statements (continued)

Assets measured at fair value on a recurring basis at Dec. 31, 2013

(dollar amounts in millions)
Available-for-sale securities:

U.S. Treasury
U.S. Government agencies
Sovereign debt
State and political subdivisions (b)
Agency RMBS
Non-agency RMBS
Other RMBS
Commercial MBS
Agency commercial MBS
Asset-backed CLOs
Other asset-backed securities
Equity securities
Money market funds (b)
Corporate bonds
Other debt securities
Foreign covered bonds
Non-agency RMBS (c)

Total available-for-sale securities

Trading assets:

Debt and equity instruments (b)
Derivative assets not designated as hedging:

Interest rate
Foreign exchange
Equity

Total derivative assets not designated as hedging
Total trading assets

Other assets:

Derivative assets designated as hedging:

Interest rate
Foreign exchange

Total - derivative assets designated as hedging

Other assets (d)

Total other assets

Subtotal assets of operations at fair value

Percentage of assets prior to netting

Assets of consolidated investment management funds:

Trading assets
Other assets

Total assets of consolidated investment management funds
Total assets

Percentage of assets prior to netting

Level 1

Level 2

Level 3 Netting (a)

Total carrying
value

$ 12,852 $

—
40
—
—
—
—
—
—
—
—
19
938
—
—
2,629
—
16,478

— $
948
11,314
6,663
25,321
1,142
2,285
2,357
1,789
1,562
2,891
—
—
1,815
1,796
242
2,695
62,820

4,559

4,338

4
—
274
278
4,837

—
—
—
148
148
21,463

14,702
3,609
395
18,706
23,044

1,206
76
1,282
193
1,475
87,339

20%

80%

61
739
800

10,336
136
10,472

— $
—
—
11
—
—
—
—
—
—
—
—
—
—
—
—
—
11

6
1
15
22
23

—
—
—
105
105
139
—%

—
—
—

$ 22,263 $ 97,811 $

19%

81%

139 $
—%

— $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—

12,852
948
11,354
6,674
25,321
1,142
2,285
2,357
1,789
1,562
2,891
19
938
1,815
1,796
2,871
2,695
79,309

—

8,898

(13,231)
(2,294)
(281)
(15,806)
(15,806)

—
—
—
—
—
(15,806)

1,481
1,316
403
3,200
12,098

1,206
76
1,282
446
1,728
93,135

—
—
—
(15,806) $

10,397
875
11,272
104,407

190 BNY Mellon

Notes to Consolidated Financial Statements (continued)

Liabilities measured at fair value on a recurring basis at Dec. 31, 2013

(dollar amounts in millions)
Trading liabilities:

Debt and equity instruments
Derivative liabilities not designated as hedging:

Interest rate
Foreign exchange
Equity and other contracts

Total derivative liabilities not designated as hedging
Total trading liabilities

Long-term debt (b)
Other liabilities - derivative liabilities designated as hedging:

Interest rate
Foreign exchange

Total other liabilities - derivative liabilities
Subtotal liabilities of operations at fair value

Percentage of liabilities prior to netting

Liabilities of consolidated investment management funds:

Trading liabilities
Other liabilities

Total liabilities of consolidated investment management funds
Total liabilities

Percentage of liabilities prior to netting

Level 1

Level 2

Level 3 Netting (a)

Total carrying
value

$ 1,030 $

585 $

— $

1,615

3
—
214
217
1,247
—

—
—
—
1,247

15,178
3,536
745
19,459
20,044
321

167
336
503
20,868

94%

16
—
16

10,069
46
10,115

$ 1,263 $ 30,983 $

96%

31
—
44
75
75
—

—
—
—
75
—%

(12,429)
(1,711)
(281)
(14,421)
(14,421)
—

—
—
—
(14,421)

—
—
—
75 $
—%

—
—
—
(14,421) $

2,783
1,825
722
5,330
6,945
321

167
336
503
7,769

10,085
46
10,131
17,900

(a) ASC 815 permits the netting of derivative receivables and derivative payables under legally enforceable master netting agreements and
permits the netting of cash collateral. Netting is applicable to derivatives not designated as hedging instruments included in trading
assets or trading liabilities, and derivatives designated as hedging instruments included in other assets or other liabilities. Netting is
allocated to the derivative products based on the net fair value of each product.

(b) Includes certain interests in securitizations.
(c) Previously included in the Grantor Trust. The Grantor Trust was dissolved in 2011.
(d) Includes private equity investments, seed capital and a brokerage account.

BNY Mellon 191

Notes to Consolidated Financial Statements (continued)

Assets measured at fair value on a recurring basis at Dec. 31, 2012

(dollar amounts in millions)
Available-for-sale securities:

U.S. Treasury
U.S. Government agencies
Sovereign debt
State and political subdivisions (b)
Agency RMBS
Non-agency RMBS
Other RMBS
Commercial MBS
Asset-backed CLOs
Other asset-backed securities
Equity securities
Money market funds (b)
Corporate bonds
Other debt securities
Foreign covered bonds
Non-agency RMBS (c)

Total available-for-sale securities

Trading assets:

Debt and equity instruments (b)
Derivative assets not designated as hedging:

Interest rate
Foreign exchange
Equity

Total derivative assets not designated as hedging
Total trading assets

Other assets:

Derivative assets designated as hedging:

Interest rate
Foreign exchange

Total derivative assets designated as hedging

Other assets (d)

Total other assets

Subtotal assets of operations at fair value

Percentage of assets prior to netting

Assets of consolidated investment management funds:

Trading assets
Other assets

Total assets of consolidated investment management funds
Total assets

Percentage of assets prior to netting

Level 1

Level 2

Level 3 Netting (a)

Total carrying
value

$ 18,003 $

— $

—
41
—
—
—
—
—
—
—
27
2,190
—
—
2,995
—
23,256

1,074
9,383
6,077
34,193
1,459
2,794
3,139
1,282
2,131
—
—
1,585
2,368
723
3,110
69,318

912

4,116

36
—
121
157
1,069

22,734
3,512
152
26,398
30,514

—
—
—
96
96
24,421

928
61
989
116
1,105
100,937

19%

81%

182
390
572

10,735
130
10,865

— $
—
—
45
—
—
—
—
—
—
—
—
—
—
—
—
45

19
1
38
58
106

—
—
—
120
120
271
—%

44
—
44

$ 24,993 $111,802 $

18%

82%

315 $
—%

— $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—

—

(20,042)
(2,171)
(98)
(22,311)
(22,311)

—
—
—
—
—
(22,311)

18,003
1,074
9,424
6,122
34,193
1,459
2,794
3,139
1,282
2,131
27
2,190
1,585
2,368
3,718
3,110
92,619

5,076

2,747
1,342
213
4,302
9,378

928
61
989
332
1,321
103,318

—
—
—
(22,311) $

10,961
520
11,481
114,799

192 BNY Mellon

Notes to Consolidated Financial Statements (continued)

Liabilities measured at fair value on a recurring basis at Dec. 31, 2012

(dollar amounts in millions)
Trading liabilities:

Debt and equity instruments
Derivative liabilities not designated as hedging:

Interest rate
Foreign exchange
Equity

Total derivative liabilities not designated as hedging
Total trading liabilities

Long-term debt (b)
Other liabilities - derivative liabilities designated as hedging:

Interest rate
Foreign exchange

Total other liabilities - derivative liabilities
Subtotal liabilities of operations at fair value

Percentage of liabilities prior to netting

Liabilities of consolidated investment management funds:

Trading liabilities
Other liabilities

Total liabilities of consolidated investment management funds
Total liabilities

Percentage of liabilities prior to netting

Level 1

Level 2

Level 3 Netting (a)

Total carrying
value

$ 1,121 $

659 $

— $

1,780

—
—
91
91
1,212
—

—
—
—
1,212

23,173
3,632
266
27,071
27,730
345

343
361
704
28,779

168
—
56
224
224
—

—
—
—
224

(19,069)
(1,823)
(98)
(20,990)
(20,990)
—

—
—
—
(20,990)

95%

4,272
1,809
315
6,396
8,176
345

343
361
704
9,225

—
—
—

10,152
29
10,181

—
—
—

$ 1,212 $ 38,960 $

96%

224 $
1%

—
—
—
(20,990) $

10,152
29
10,181
19,406

BNY Mellon 193

Notes to Consolidated Financial Statements (continued)

Details of certain items measured at fair value

on a recurring basis

(dollar amounts in millions)
Alt-A RMBS, originated in:

2006-2007
2005
2004 and earlier

Total Alt-A RMBS
Prime RMBS, originated in:

2007
2006
2005
2004 and earlier

Total prime RMBS

Subprime RMBS, originated in:

2005
2004 and earlier

Total subprime RMBS

Commercial MBS - Domestic, originated in:

2009-2013
2008
2007
2006
2005
2004 and earlier

Total commercial MBS - Domestic

Foreign covered bonds:

Canada
United Kingdom
Netherlands
Germany
Other

Total foreign covered bonds

European floating rate notes - available-for-sale:

Sovereign debt:

United Kingdom
Germany
Netherlands
France
Other

Total sovereign debt

Alt-A RMBS (b), originated in:

2006-2007
2005
2004 and earlier

Total Alt-A RMBS (b)
Prime RMBS (b), originated in:

2006-2007
2005
2004 and earlier

Total prime RMBS (b)

Subprime RMBS (b), originated in:

2005-2007
2004 and earlier

Total subprime RMBS (b)

Dec. 31, 2013

Ratings

AAA/
AA

A+/
A

BBB+/
BBB

BB+ and
lower

Total
carrying
value (a)

Dec. 31, 2012

Ratings

AAA/
AA

A+/
A

BBB+/
BBB

BB+ and
lower

102 —% —% —%

95 —
53 —
250 —%

—
3
1%

89 —% —%
55 —
125 —
5
230
2%
499

—
44
7
15%

110 —%
283
393

2
1%

21%
6
11%

—
30
6%

41%
—
—
51
31%

49%
12
22%

466
22
457
683
486
153
$ 2,267

851
803
298
127
792
$ 2,871

81%
59
69
84
100
93
84%

19% —%
41
20
16
—
7
14%

—
11
—
—
—
2%

100% —% —%
—
100
—
100
100
—
—
100
100% —% —%

—
—
—
—

$ 4,709
2,182
2,105
1,568
790
$ 11,354

100% —% —%
—
100
—
100
—
100
61
—
97% —%

—
—
—
39
3%

100% $
100
67
93% $

59% $
100
56
37
52% $

30% $
80
66% $

111
107
61
279

106
70
215
337
728

108
344
452

—% $
283
—
24
—
707
—
900
—
640
—
285
—% $ 2,839

—% $
925
—
756
—
360
—
866
—
811
—% $ 3,718

—% $ 1,873
—
841
90
161
—
125
6
145
6% $ 3,145

—% $ 4,771
—
1,646
—
2,054
—
897
—
56
—% $ 9,424

—% —% —%
—
4
1%

—
9
2%

—
25
6%

—% —%
—
—
16
7%

—
33
42
29%

4%
3
3%

8%
4
5%

45%
—
7
7
12%

34%
6
13%

97%
59
78
85
98
100
89%

3% —%
41
16
14
1
—
9%

—
6
1
1
—
2%

100% —% —%
—
100
—
100
98
2
—
100
100% —% —%

—
—
—
—

79%
100
15
—
50
77%

19%
—
—
100
7
15%

2%
—
—
—
—
2%

100% —% —%
—
100
—
100
—
100
100
—
100% —% —%

—
—
—
—

$ 1,022 —% —% —%

538 —
190 —

$ 1,750 —%

4
3
2%

1
10
1%

100% $ 1,128
95
622
87
220
97% $ 1,970

—% —% —%

—
2

4
—
1% —%

1
12
2%

493 —% —% —%
304 —
25 —

1
11

822 —% —%

—
21
1%

100% $
601
99
378
68
31
99% $ 1,010

—% —% —%
1
—
8
—
1%
—%

2
24
1%

89 —% —%
1
34

123 —%

5
1%

10%
39
18%

90% $
55
81% $

94
36
130

—% —% —%

—

5
2% —%

36
10%

100%
100
62
91%

55%
100
60
35
52%

54%
87
79%

—%
—
—
—
—
—
—%

—%
—
—
—
—
—%

—%
—
85
—
43
6%

—%
—
—
—
—
—%

100%
95
86
97%

100%
97
68
98%

100%
59
88%

United Kingdom
Netherlands
Ireland
Italy
Other

$ 1,668
79%
434
100
10
165
104 —
89
42
75%
Total European floating rate notes - available-for-sale $ 2,413

21% —%
—
—
100
5

—
—
—
—

19% —%

(a) At Dec. 31, 2013 and Dec. 31, 2012, foreign covered bonds and sovereign debt were included in Level 1 and Level 2 in the valuation hierarchy. All other

assets in the table are Level 2 assets in the valuation hierarchy.

(b) Previously included in the Grantor Trust. The Grantor Trust was dissolved in 2011.

194 BNY Mellon

Notes to Consolidated Financial Statements (continued)

Changes in Level 3 fair value measurements

Our classification of a financial instrument in Level 3
of the valuation hierarchy is based on the significance
of the unobservable factors to the overall fair value
measurement. However, these instruments generally
include other observable components that are actively
quoted or validated to third-party sources;
accordingly, the gains and losses in the table below
include changes in fair value due to observable
parameters as well as the unobservable parameters in
our valuation methodologies. We also frequently
manage the risks of Level 3 financial instruments
using securities and derivatives positions that are
Level 1 or 2 instruments which are not included in the

table; accordingly, the gains or losses below do not
reflect the effect of our risk management activities
related to the Level 3 instruments.

The Company has a Level 3 Pricing Committee
which evaluates the valuation techniques used in
determining the fair value of Level 3 assets and
liabilities.

The tables below include a roll forward of the balance
sheet amounts for the years ended Dec. 31, 2013 and
2012 (including the change in fair value), for
financial instruments classified in Level 3 of the
valuation hierarchy.

Fair value measurements for assets using significant unobservable inputs for the year ended Dec. 31, 2013

(in millions)
Fair value at Dec. 31, 2012
Transfers out of Level 3
Total gains or (losses) for the period:
Included in earnings (or changes in
net assets)

Purchases, sales and settlements:

Purchases
Sales
Settlements

Fair value at Dec. 31, 2013
Change in unrealized gains or (losses)
for the period included in earnings (or
changes in net assets) for assets held at
the end of the reporting period

Available-for
sale securities
State and
political
subdivisions
45
—

Trading assets

Debt and
equity
instruments
48
$
—

Derivative

assets (a)
58
(19)

Other
assets
$ 120
—

Assets of
consolidated
investment
management
funds
44
—

Total
assets of
operations
$

271 $
(19)

7 (b)

2 (c)

(17) (c)

1 (d)

(7)

2 (e)

—
—
(41)
11

—
(49)
—
1

—
—
—
22

8
(24)
—
$ 105

8
(73)
(41)
139 $

—
(46)
—
—

—

(12)

$ —

(12) $

—

(a) Derivative assets are reported on a gross basis.
(b) Realized gains (losses) are reported in securities gains (losses). Unrealized gains (losses) are reported in accumulated other
comprehensive income (loss) except for the credit portion of OTTI losses which are recorded in securities gains (losses).

(c) Reported in foreign exchange and other trading revenue.
(d) Reported in investment and other income.
(e) Reported in income from consolidated investment management funds.

Fair value measurements for liabilities using significant unobservable inputs for the year ended Dec. 31, 2013
Trading liabilities
Derivative liabilities (a)
$

(in millions)
Fair value at Dec. 31, 2012
Transfers out of Level 3
Total (gains) or losses for the period:

Total liabilities
224
(17)

224
(17)

Included in earnings (or changes in net liabilities)

Settlements
Fair value at Dec. 31, 2013
Change in unrealized (gains) or losses for the period included in earnings (or changes in net
assets) for liabilities held at the end of the reporting period

(125) (b)
(7)
75

(29)

(125)
(7)
75

(29)

(a) Derivative liabilities are reported on a gross basis.
(b) Reported in foreign exchange and other trading revenue.

BNY Mellon 195

Notes to Consolidated Financial Statements (continued)

Fair value measurements for assets using significant unobservable inputs for the year ended Dec. 31, 2012

Available-for-sale securities

Trading assets

(in millions)

State and
political
subdivisions

Other
debt
securities

3
—

Debt and

equity
instruments

Derivative

assets (a)

63
—

97
(5)

Other
assets

$ 157
—

Assets of
consolidated
investment
assets of management
funds

Total

operations

365 $
(5)

—
—

45
—

Fair value at Dec. 31, 2011
Tranfers out of Level 3
Total gains or (losses) for the period:
Included in earnings (or changes in

net assets)

Purchases, sales and settlements:

Purchases
Sales
Settlements

Fair value at Dec. 31, 2012
Change in unrealized gains or

(losses) for the period included in
earnings (or changes in net assets)
for assets held at the end of the
reporting period

3 (b)

(3) (b)

(2) (c)

(44) (c)

7 (d)

(39)

— (e)

—
—
(3)
45

—
—
—
—

—
(13)
—
48

10
—
—
58

19
(55)
(8)
$ 120

29
(68)
(11) $
271 $

44
—
—
44

(3)

(23)

(24) $

—

(c) Reported in foreign exchange and other trading revenue.
(d) Reported in investment and other income.
(e) Reported in income from consolidated investment management funds.

Fair value measurements for liabilities using significant unobservable inputs for the year ended Dec. 31, 2012
Trading liabilities
Derivative liabilities (a)
$

(in millions)
Fair value at Dec. 31, 2011
Transfers out of Level 3
Total (gains) or losses for the period:

Included in earnings (or changes in net liabilities)

Fair value at Dec. 31, 2012
Change in unrealized (gains) or losses for the period included in earnings (or changes in net

assets) for liabilities held at the end of the reporting period

(82) (b)
224

(30)

(a) Derivative liabilities are reported on a gross basis.
(b) Reported in foreign exchange and other trading revenue.

314
(8)

Total liabilities
314
(8)

(82)
224

(30)

Assets and liabilities measured at fair value on a
nonrecurring basis

Under certain circumstances, we make adjustments to
fair value our assets, liabilities and unfunded lending-
related commitments although they are not measured
at fair value on an ongoing basis. An example would
be the recording of an impairment of an asset.

The following tables present the financial instruments
carried on the consolidated balance sheet by caption
and by level in the fair value hierarchy as of Dec. 31,
2013 and Dec. 31, 2012, for which a nonrecurring
change in fair value has been recorded during the
years ended Dec. 31, 2013 and Dec. 31, 2012.

Assets measured at fair value on a nonrecurring basis at Dec. 31, 2013
(in millions)
Loans (a)
Other assets (b)

Total assets at fair value on a nonrecurring basis

196 BNY Mellon

Level 1

— $
—
— $

Level 2
128
15
143

Level 3
9
—
9

Total carrying
value
137
15
152

Notes to Consolidated Financial Statements (continued)

Assets measured at fair value on a nonrecurring basis at Dec. 31, 2012
(in millions)
Loans (a)
Other assets (b)

Level 1

Total assets at fair value on a nonrecurring basis

— $
—
— $

Level 2
183
79
262 $

Level 3

23
—
23 $

Total carrying
value
206
79
285

(a) During the years ended Dec. 31, 2013 and 2012, the fair value of these loans decreased $3 million and $20 million, respectively, based

on the fair value of the underlying collateral as allowed by ASC 310, Accounting by Creditors for Impairment of a loan, with an offset to
the allowance for credit losses.

(b) Includes other assets received in satisfaction of debt and loans held for sale. Loans held for sale are carried on the balance sheet at the

lower of cost or market value.

Level 3 unobservable inputs

The following tables present the unobservable inputs used in valuation of assets and liabilities classified as Level 3
within the fair value hierarchy.

Quantitative information about Level 3 fair value measurements of assets

(dollars in millions)

Measured on a recurring basis:
Available-for-sale securities:

Fair value at
Dec. 31, 2013

Valuation techniques

Unobservable input

Range

State and political subdivisions

Discounted cash flow

Expected credit loss

Trading assets:

Debt and equity instruments:

Distressed debt

Derivative assets:
Interest rate:

Discounted cash flow

Expected maturity
Credit spreads

1 - 10 years
230-1,860 bps

Structured foreign exchange swaptions

Foreign exchange contracts:

Long-term foreign exchange options

Equity:

Equity options

Measured on a nonrecurring basis:
Loans

6 Option pricing model

(a)

Correlation risk
Long-term foreign exchange volatility

0%-25%
11%-17%

1 Option pricing model

(a)

Long-term foreign exchange volatility

19%

15 Option pricing model

(a)

Long-term equity volatility

24%-29%

Discounted cash flows

Timing of sale
Cap rate
Cost to complete/sell

0-12 months
8%
0%-30%

Quantitative information about Level 3 fair value measurements of liabilities

(dollars in millions)

Measured on a recurring basis:
Trading liabilities:

Derivative liabilities:
Interest rate:

Fair value at
Dec. 31, 2013

Valuation techniques

Unobservable input

Range

Structured foreign exchange swaptions

31 Option pricing model (a)

Correlation risk
Long-term foreign exchange volatility

0%-25%
11%-17%

Equity:

Equity options

44 Option pricing model (a)
(a) The option pricing model uses market inputs such as foreign currency exchange rates, interest rates and volatility to calculate the fair value of the option.

Long-term equity volatility

23%-29%

BNY Mellon 197

Notes to Consolidated Financial Statements (continued)

Estimated fair value of financial instruments

The carrying amounts of our financial instruments
(i.e., monetary assets and liabilities) are determined
under different accounting methods - see Note 1 of
the Notes to Consolidated Financial Statements. The
following disclosure discusses these instruments on a
uniform fair value basis. However, active markets do
not exist for a significant portion of these
instruments. For financial instruments where quoted
prices from identical assets and liabilities in active
markets do not exist, we determine fair value based
on discounted cash flow analysis and comparison to
similar instruments. Discounted cash flow analysis is
dependent upon estimated future cash flows and the
level of interest rates. Other judgments would result
in different fair values. The assumptions used at Dec.
31, 2013 and Dec. 31, 2012 include discount rates
ranging principally from 0.21% to 3.74%. The fair
value information supplements the basic financial
statements and other traditional financial data
presented throughout this report.

A summary of the practices used for determining fair
value and the respective level in the valuation
hierarchy for financial assets and liabilities not
recorded at fair value follows.

Interest-bearing deposits with the Federal Reserve
and other central banks and interest-bearing deposits
with banks

The estimated fair value of interest-bearing deposits
with the Federal Reserve and other central banks is
equal to the book value as these interest-bearing
deposits are generally considered cash equivalents.
These instruments are classified as Level 2 within the
valuation hierarchy. The estimated fair value of
interest-bearing deposits with banks is generally
determined using discounted cash flows and duration
of the instrument to maturity. The primary inputs
used to value these transactions are interest rates
based on current LIBOR market rates and time to
maturity. Interest-bearing deposits with banks are
classified as Level 2 within the valuation hierarchy.

Federal funds sold and securities purchased under
resale agreements

The estimated fair value of federal funds sold and
securities purchased under resale agreements is based
on inputs such as interest rates and tenors. Federal
funds sold and securities purchased under resale

198 BNY Mellon

agreements are classified as Level 2 within the
valuation hierarchy.

Securities held-to-maturity

Where quoted prices are available in an active market
for identical assets and liabilities, we classify the
securities as Level 1 within the valuation hierarchy.
Securities are defined as both long and short
positions. Level 1 securities include U.S. Treasury
securities.

If quoted market prices are not available for identical
assets and liabilities, we estimate fair value using
pricing models, quoted prices of securities with
similar characteristics or discounted cash flows.
Examples of such instruments, which would
generally be classified as Level 2 within the valuation
hierarchy, include certain agency and non-agency
mortgage-backed securities, commercial mortgage-
backed securities and state and political subdivision
securities. For securities where quotes from active
markets are not available for identical securities, we
determine fair value primarily based on pricing
sources with reasonable levels of price transparency
that employ financial models or obtain comparison to
similar instruments to arrive at “consensus” prices.

Specifically, the pricing sources obtain active market
prices for similar types of securities (e.g., vintage,
position in the securitization structure) and ascertain
variables such as discount rate and speed of
prepayment for the types of transaction and apply
such variables to similar types of bonds. We view
these as observable transactions in the current
marketplace and classify such securities as Level 2
within the valuation hierarchy.

Loans

For residential mortgage loans, fair value is estimated
using discounted cash flow analysis, adjusting where
appropriate for prepayment estimates, using interest
rates currently being offered for loans with similar
terms and maturities to borrowers. The estimated fair
value of margin loans and overdrafts is equal to the
book value due to the short-term nature of these
assets. The estimated fair value of other types of
loans is determined using discounted cash flows.
Inputs include current LIBOR market rates adjusted
for credit spreads. These loans are generally
classified as Level 2 within the valuation hierarchy.

Notes to Consolidated Financial Statements (continued)

Other financial assets

Payables to customers and broker-dealers

Other financial assets include cash, the Federal
Reserve Bank stock and accrued interest receivable.
Cash is classified as Level 1 within the valuation
hierarchy. The Federal Reserve Bank stock is not
redeemable or transferable. The estimated fair value
of the Federal Reserve Bank stock is based on the
issue price and is classified as Level 2 within the
valuation hierarchy. Accrued interest receivable is
generally short-term. As a result, book value is
considered to equal fair value. Accrued interest
receivable is included as Level 2 within the valuation
hierarchy.

Noninterest-bearing and interest-bearing deposits

Interest-bearing deposits are comprised of money
market rate and demand deposits, savings deposits
and time deposits. Except for time deposits, book
value is considered to equal fair value for these
deposits due to their short duration to maturity or
payable on demand feature. The fair value of
interest-bearing time deposits is determined using
discounted cash flow analysis. Inputs primarily
consist of current LIBOR market rates and time to
maturity. For all noninterest-bearing deposits, book
value is considered to equal fair value as a result of
the short duration of the deposit. Interest-bearing and
noninterest-bearing deposits are classified as Level 2
within the valuation hierarchy.

Federal funds purchased and securities sold under
repurchase agreements

The estimated fair value of federal funds purchased
and securities sold under repurchase agreements is
based on inputs such as interest rates and tenors.
Federal funds purchased and securities sold under
repurchase agreements are classified as Level 2
within the valuation hierarchy.

The estimated fair value of payables to customers and
broker-dealers is equal to the book value, due to the
demand feature of the payables to customers and
broker-dealers, and are classified as Level 2 within
the valuation hierarchy.

Borrowings

Borrowings primarily consist of overdrafts of
subcustodian account balances in our Investment
Services businesses, commercial paper and accrued
interest payable. The estimated fair value of
overdrafts of subcustodian account balances in our
Investment Services businesses is considered to equal
book value as a result of the short duration of the
overdrafts. Overdrafts are typically repaid within two
days. The estimated fair value of our commercial
paper is based on discount and duration of the
commercial paper. Our commercial paper matures
within 397 days from date of issue and is not
redeemable prior to maturity or subject to voluntary
prepayment. Our commercial paper is included in
Level 2 of the valuation hierarchy. Accrued interest
payable is generally short-term. As a result, book
value is considered to equal fair value. Accrued
interest payable is included as Level 2 within the
valuation hierarchy.

Long-term debt

The estimated fair value of long-term debt is based on
current rates for instruments of the same remaining
maturity or quoted market prices for the same or
similar issues. Long-term debt is classified as Level 2
within the valuation hierarchy.

The following tables present the estimated fair value
and the carrying amount of financial instruments not
carried at fair value on the consolidated balance sheet
at Dec. 31, 2013 and Dec. 31, 2012, by caption on the
consolidated balance sheet and by ASC 820 valuation
hierarchy (as described above).

BNY Mellon 199

Notes to Consolidated Financial Statements (continued)

Summary of financial instruments

Dec. 31, 2013

(in millions)
Assets:

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
Loans
Other financial assets

Total

Liabilities:

Noninterest-bearing deposits
Interest-bearing deposits
Federal funds purchased and securities sold under repurchase agreements
Payables to customers and broker-dealers
Borrowings
Long-term debt

Total

Summary of financial instruments

(in millions)
Assets:

Total

Liabilities:

Noninterest-bearing deposits
Interest-bearing deposits
Federal funds purchased and securities sold under repurchase agreements
Payables to customers and broker-dealers
Borrowings
Long-term debt

Total

Level 1

Level 2

Level 3

Total
estimated
fair value

Carrying
amount

— $ 104,359 $
—
—
3,268
—
6,460
9,728 $ 215,475 $

35,323
9,161
16,175
49,316
1,141

— $ 95,475 $
—
—
—
—
—
— $ 306,967 $

165,253
9,648
15,707
919
19,965

— $ 104,359 $ 104,359
35,300
—
9,161
—
19,743
—
49,180
—
—
7,601
— $ 225,203 $ 225,344

35,323
9,161
19,443
49,316
7,601

— $ 95,475 $ 95,475
165,654
—
9,648
—
15,707
—
919
—
—
19,543
— $ 306,967 $ 306,946

165,253
9,648
15,707
919
19,965

Dec. 31, 2012

Level 1

Level 2

Level 3

Total
estimated
fair value

Carrying
amount

— $ 90,110 $
—
—
1,070
—
4,727
5,797 $ 193,104 $

43,936
6,593
7,319
44,031
1,115

— $ 93,019 $
—
—
—
—
—
— $ 290,851 $

153,030
7,427
16,095
1,883
19,397

— $ 90,110 $ 90,110
43,910
—
6,593
—
8,205
—
—
44,010
—
5,842
— $ 198,901 $ 198,670

43,936
6,593
8,389
44,031
5,842

— $ 93,019 $ 93,019
153,076
—
7,427
—
16,095
—
1,883
—
—
18,530
— $ 290,851 $ 290,030

153,030
7,427
16,095
1,883
19,397

The table below summarizes the carrying amount of the hedged financial instruments, the notional amount of the
hedge and the unrealized gain (loss) (estimated fair value) of the derivatives.

Hedged financial instruments
(in millions)
At Dec. 31, 2013:

Interest-bearing deposits with banks
Securities available-for-sale
Deposits
Long-term debt
At Dec. 31, 2012:

Interest-bearing deposits with banks
Securities available-for-sale
Deposits
Long-term debt

200 BNY Mellon

Carrying amount

Notional amount
of hedge

Unrealized
Gain

(Loss)

1,396
5,914
—
15,036

11,328
5,597
10
15,100

1,396
6,647
—
14,755

11,328
5,355
10
14,314

30
721
—
483

38
12
1
911

(19)
(95)
—
(72)

(224)
(339)
—
(4)

Notes to Consolidated Financial Statements (continued)

Note 21 - Fair value option

ASC 825 provides an option to elect fair value as an
alternative measurement for selected financial assets,
financial liabilities, unrecognized firm commitments
and written loan commitments.

The following table presents the assets and liabilities,
by type, of consolidated investment management
funds recorded at fair value.

Assets and liabilities of consolidated investment
management funds, at fair value

(in millions)
Assets of consolidated investment
management funds:
Trading assets
Other assets

Total assets of consolidated
investment management funds
Liabilities of consolidated investment
management funds:
Trading liabilities
Other liabilities

Total liabilities of consolidated
investment management funds

Dec. 31, Dec. 31,
2012

2013

$ 10,397 $ 10,961
520

875

$ 11,272 $ 11,481

$ 10,085 $ 10,152
29

$ 10,131 $ 10,181

BNY Mellon values assets in consolidated CLOs
using observable market prices observed from the
secondary loan market. The returns to the note
holders are solely dependent on the assets and
accordingly equal the value of those assets. Mark-to
market valuation best reflects the limited interest
BNY Mellon has in the economic performance of the
consolidated CLOs. Changes in the values of assets
and liabilities are reflected in the income statement as
investment income of consolidated investment
management funds.

We have elected the fair value option on $240 million
of long-term debt in connection with ASC 810. The
fair value of this long-term debt was $321 million at
Dec. 31, 2013 compared with $345 million at Dec.
31, 2012. The long-term debt is valued using
observable market inputs and is included in Level 2
of the ASC 820 hierarchy.

The following table presents the changes in fair value
of the long-term debt included in foreign exchange
and other trading revenue in the consolidated income
statement.

Foreign exchange and other trading
revenue
(in millions)
Changes in the fair value of long-term debt (a) $
(a) The change in fair value of the long-term debt is

Year ended
Dec. 31,

2013

24 $

2012
(19)

approximately offset by an economic hedge included in
foreign exchange and other trading revenue.

Note 22 - Commitments and contingent
liabilities

In the normal course of business, various
commitments and contingent liabilities are
outstanding that are not reflected in the
accompanying consolidated balance sheets.

Our significant trading and off-balance sheet risks are
securities, foreign currency and interest rate risk
management products, commercial lending
commitments, letters of credit and securities lending
indemnifications. We assume these risks to reduce
interest rate and foreign currency risks, to provide
customers with the ability to meet credit and liquidity
needs and to hedge foreign currency and interest rate
risks. These items involve, to varying degrees, credit,
foreign currency and interest rate risk not recognized
in the balance sheet. Our off-balance sheet risks are
managed and monitored in manners similar to those
used for on-balance sheet risks. Significant industry
concentrations related to credit exposure at Dec. 31,
2013 are disclosed in the financial institutions
portfolio exposure table and the commercial portfolio
exposure table below.

Financial institutions
portfolio exposure
(in billions)
Banks
Asset managers
Securities industry
Insurance
Government
Other

Total

Commercial portfolio
exposure
(in billions)
Energy and utilities
Services and other
Manufacturing
Media and telecom

Total

Dec. 31, 2013
Total
Unfunded
Loans commitments exposure
11.7
5.5
4.9
4.4
3.6
1.3
31.4

2.3 $
4.1
2.0
4.3
3.2
1.1
17.0 $

9.4 $
1.4
2.9
0.1
0.4
0.2
14.4 $

Dec. 31, 2013
Unfunded
commitments

Loans

0.7 $
0.6
0.2
0.1
1.6 $

Total
exposure
6.6
6.6
6.1
1.8
21.1

5.9 $
6.0
5.9
1.7
19.5 $

BNY Mellon 201

Notes to Consolidated Financial Statements (continued)

Major concentrations in securities lending are
primarily to broker-dealers and are generally
collateralized with cash. Securities lending
transactions are discussed below.

The following table presents a summary of our off-
balance sheet credit risks, net of participations.

Off-balance sheet credit risks
(in millions)
Lending commitments (a)
Standby letters of credit (b)
Commercial letters of credit
Securities lending indemnifications (c)
(a) Net of participations totaling $6 million at Dec. 31, 2013

Dec. 31, Dec. 31,
2012
$ 34,039 $ 31,265
7,167
219
244,382 245,717

6,721
310

2013

and $350 million at Dec. 31, 2012.

(b) Net of participations totaling $720 million at Dec. 31, 2013

and $1.0 billion at Dec. 31, 2012.

(c) Excludes the indemnification for securities booked at BNY
Mellon beginning in late 2013 resulting from the CIBC
Mellon joint venture, which totaled $60 billion at Dec. 31,
2013. The balance at Dec. 31, 2012 excludes $66 billion of
securities lending at the CIBC Mellon joint venture.

Included in lending commitments are facilities that
provide liquidity for variable rate tax-exempt
securities wrapped by monoline insurers. The credit
approval for these facilities is based on an assessment
of the underlying tax-exempt issuer and considers
factors other than the financial strength of the
monoline insurer.

The total potential loss on undrawn lending
commitments, standby and commercial letters of
credit, and securities lending indemnifications is
equal to the total notional amount if drawn upon,
which does not consider the value of any collateral.

Since many of the commitments are expected to
expire without being drawn upon, the total amount
does not necessarily represent future cash
requirements. A summary of lending commitment
maturities is as follows: $9.3 billion in less than one
year, $24.6 billion in one to five years and $0.1
billion over five years.

Standby letters of credit (“SBLC”) principally
support corporate obligations. As shown in the off-
balance sheet credit risks table, the maximum
potential exposure of SBLCs was $6.7 billion at Dec.
31, 2013 and $7.2 billion at Dec. 31, 2012, and
includes $418 million and $781 million that were
collateralized with cash and securities at Dec. 31,
2013 and Dec. 31, 2012, respectively. At Dec. 31,

202 BNY Mellon

2013, $3.3 billion of the SBLCs will expire within
one year and $3.4 billion in one to five years.

We must recognize, at the inception of standby letters
of credit and foreign and other guarantees, a liability
for the fair value of the obligation undertaken in
issuing the guarantee. As required by ASC 460
Guarantees, the fair value of the liability, which was
recorded with a corresponding asset in other assets,
was estimated as the present value of contractual
customer fees.

The estimated liability for losses related to these
commitments and SBLCs, if any, is included in the
allowance for lending-related commitments. The
allowance for lending-related commitments was $134
million at Dec. 31, 2013 and $121 million at Dec. 31,
2012.

Payment/performance risk of SBLCs is monitored
using both historical performance and internal ratings
criteria. BNY Mellon’s historical experience is that
SBLCs typically expire without being funded.
SBLCs below investment grade are monitored closely
for payment/performance risk. The table below
shows SBLCs by investment grade:

Standby letters of credit

Investment grade
Noninvestment grade

Dec. 31,
2013
86%
14%

Dec. 31,
2012
93%
7%

A commercial letter of credit is normally a short-term
instrument used to finance a commercial contract for
the shipment of goods from a seller to a buyer.
Although the commercial letter of credit is contingent
upon the satisfaction of specified conditions, it
represents a credit exposure if the buyer defaults on
the underlying transaction. As a result, the total
contractual amounts do not necessarily represent
future cash requirements. Commercial letters of
credit totaled $310 million at Dec. 31, 2013 compared
with $219 million at Dec. 31, 2012.

A securities lending transaction is a fully
collateralized transaction in which the owner of a
security agrees to lend the security (typically through
an agent, in our case, The Bank of New York
Mellon), to a borrower, usually a broker-dealer or
bank, on an open, overnight or term basis, under the
terms of a prearranged contract, which normally
matures in less than 90 days.

Notes to Consolidated Financial Statements (continued)

We typically lend securities with indemnification
against borrower default. We generally require the
borrower to provide collateral with a minimum value
of 102% of the fair value of the securities borrowed,
which is monitored on a daily basis, thus reducing
credit risk. Market risk can also arise in securities
lending transactions. These risks are controlled
through policies limiting the level of risk that can be
undertaken. Securities lending transactions are
generally entered into only with highly-rated
counterparties. Securities lending indemnifications
were secured by collateral of $252 billion at Dec. 31,
2013 and $253 billion at Dec. 31, 2012.

CIBC Mellon, a joint venture between BNY Mellon
and the Canadian Imperial Bank of Commerce
(“CIBC”), engages in securities lending activities.
CIBC Mellon, BNY Mellon, and CIBC jointly and
severally indemnify securities lenders against specific
types of borrower default. At Dec. 31, 2013, $60
billion of borrowings at CIBC Mellon booked at
BNY Mellon beginning in late 2013 were secured by
collateral of $64 billion. At Dec. 31, 2012, $66
billion of borrowings at CIBC Mellon were secured
by collateral of $70 billion. If, upon a default, a
borrower’s collateral was not sufficient to cover its
related obligations, certain losses related to the
indemnification could be covered by the indemnitors.

We expect many of these guarantees to expire without
the need to advance any cash. The revenue
associated with guarantees frequently depends on the
credit rating of the obligor and the structure of the
transaction, including collateral, if any.

Operating leases

Net rent expense for premises and equipment was
$335 million in 2013, $313 million in 2012 and $350
million in 2011.

At Dec. 31, 2013, we were obligated under various
noncancelable lease agreements, some of which
provide for additional rents based upon real estate
taxes, insurance and maintenance and for various
renewal options. A summary of the future minimum
rental commitments under noncancelable operating
leases, net of related sublease revenue, is as follows:
2014—$276 million; 2015—$266 million; 2016—
$241 million; 2017—$208 million; 2018—$176
million; and 2019 and thereafter—$733 million.

Exposure for certain administrative errors

In connection with certain funds that we manage, we
may be liable to the funds for certain administrative
errors. The errors relate to questions about the
resident status of certain offshore tax exempt funds,
potentially exposing the Company to a tax liability
related to the funds’ earnings. The Company is in
discussions with tax authorities regarding the funds.
In addition to amounts accrued, we believe it is
reasonably possible that we could have a potential
additional exposure of approximately $100 million.

Indemnification Arrangements

We have provided standard representations for
underwriting agreements, acquisition and divestiture
agreements, sales of loans and commitments, and
other similar types of arrangements and customary
indemnification for claims and legal proceedings
related to providing financial services that are not
otherwise included above. Insurance has been
purchased to mitigate certain of these risks.
Generally, there are no stated or notional amounts
included in these indemnifications and the
contingencies triggering the obligation for
indemnification are not expected to occur.
Furthermore, often counterparties to these
transactions provide us with comparable
indemnifications. We are unable to develop an
estimate of the maximum payout under these
indemnifications for several reasons. In addition to
the lack of a stated or notional amount in a majority
of such indemnifications, we are unable to predict the
nature of events that would trigger indemnification or
the level of indemnification for a certain event. We
believe, however, that the possibility that we will
have to make any material payments for these
indemnifications is remote. At Dec. 31, 2013 and
Dec. 31, 2012, we have not recorded any material
liabilities under these arrangements.

Clearing and Settlement Exchanges

We are a minority equity investor in, and/or member
of, several industry clearing or settlement exchanges
through which foreign exchange, securities,
derivatives or other transactions settle. Certain of
these industry clearing and settlement exchanges
require their members to guarantee their obligations
and liabilities or to provide financial support in the
event other members do not honor their obligations.
We believe the likelihood that a clearing or settlement

BNY Mellon 203

Notes to Consolidated Financial Statements (continued)

exchange (of which we are a member) would become
insolvent is remote. Additionally, certain settlement
exchanges have implemented loss allocation policies
that enable the exchange to allocate settlement losses
to the members of the exchange. It is not possible to
quantify such mark-to-market loss until the loss
occurs. In addition, any ancillary costs that occur as a
result of any mark-to-market loss cannot be
quantified. At Dec. 31, 2013 and Dec. 31, 2012, we
have not recorded any material liabilities under these
arrangements.

Legal proceedings

In the ordinary course of business, BNY Mellon and
its subsidiaries are routinely named as defendants in
or made parties to pending and potential legal actions
and regulatory matters. Claims for significant
monetary damages are often asserted in many of these
legal actions, while claims for disgorgement,
penalties and/or other remedial sanctions may be
sought in regulatory matters. It is inherently difficult
to predict the eventual outcomes of such matters
given their complexity and the particular facts and
circumstances at issue in each of these matters.
However, on the basis of our current knowledge and
understanding, we do not believe that judgments or
settlements, if any, arising from these matters (either
individually or in the aggregate, after giving effect to
applicable reserves and insurance coverage) will have
a material adverse effect on the consolidated financial
position or liquidity of BNY Mellon, although they
could have a material effect on net income in a given
period.

In view of the inherent unpredictability of outcomes
in litigation and regulatory matters, particularly
where (i) the damages sought are substantial or
indeterminate, (ii) the proceedings are in the early
stages, or (iii) the matters involve novel legal theories
or a large number of parties, as a matter of course
there is considerable uncertainty surrounding the
timing or ultimate resolution of litigation and
regulatory matters, including a possible eventual loss,
fine, penalty or business impact, if any, associated
with each such matter. In accordance with applicable
accounting guidance, BNY Mellon establishes
accruals for litigation and regulatory matters when
those matters proceed to a stage where they present
loss contingencies that are both probable and
reasonably estimable. In such cases, there may be a
possible exposure to loss in excess of any amounts
accrued. BNY Mellon will continue to monitor such

204 BNY Mellon

matters for developments that could affect the amount
of the accrual, and will adjust the accrual amount as
appropriate. If the loss contingency in question is not
both probable and reasonably estimable, BNY Mellon
does not establish an accrual and the matter will
continue to be monitored for any developments that
would make the loss contingency both probable and
reasonably estimable. BNY Mellon believes that its
accruals for legal proceedings are appropriate and, in
the aggregate, are not material to the consolidated
financial position of BNY Mellon, although future
accruals could have a material effect on net income in
a given period.

For certain of those matters described herein for
which a loss contingency may, in the future, be
reasonably possible (whether in excess of a related
accrued liability or where there is no accrued
liability), BNY Mellon is currently unable to estimate
a range of reasonably possible loss. For those matters
where BNY Mellon is able to estimate a reasonably
possible loss, the aggregate range of such reasonably
possible loss is up to $730 million in excess of the
accrued liability (if any) related to those matters.

The following describes certain judicial, regulatory
and arbitration proceedings involving BNY Mellon:

Sentinel Matters
As previously disclosed, on Jan. 18, 2008, The Bank
of New York Mellon filed a proof of claim in the
Chapter 11 bankruptcy proceeding of Sentinel
Management Group, Inc. (“Sentinel”) pending in
federal court in the Northern District of Illinois,
seeking to recover approximately $312 million loaned
to Sentinel and secured by securities and cash in an
account maintained by Sentinel at The Bank of New
York Mellon. On March 3, 2008, the bankruptcy
trustee filed an adversary complaint against The Bank
of New York Mellon seeking to disallow The Bank of
New York Mellon’s claim and seeking damages for
allegedly aiding and abetting Sentinel insiders in
misappropriating customer assets and improperly
using those assets as collateral for the loan. In a
decision dated Nov. 3, 2010, the court found for The
Bank of New York Mellon and against the bankruptcy
trustee, holding that The Bank of New York Mellon’s
loan to Sentinel is valid, fully secured and not subject
to equitable subordination. The bankruptcy trustee
appealed this decision, and on Aug. 9, 2012, the
United States Court of Appeals for the Seventh
Circuit issued a decision affirming the trial court’s
judgment. On Sept. 7, 2012, the bankruptcy trustee

Notes to Consolidated Financial Statements (continued)

filed a petition for rehearing on the fraudulent transfer
portion of the opinion and, on Nov. 30, 2012, the
Court of Appeals withdrew its opinion and vacated its
judgment. On Aug. 26, 2013, the Court of Appeals
reversed its own prior decision and the district court’s
decision with respect to the bankruptcy trustee’s
fraudulent transfer and equitable subordination claims
and remanded the case to the district court for further
proceedings. See Note 5 of the Notes to Consolidated
Financial Statements for additional information.

As previously disclosed, in November 2009, the
Division of Enforcement of the U.S. Commodities
Futures Trading Commission (“CFTC”) indicated that
it is considering a recommendation to the CFTC that
it file a civil enforcement action against The Bank of
New York Mellon for possible violations of the
Commodity Exchange Act and CFTC regulations in
connection with its relationship to Sentinel. The
Bank of New York Mellon responded in writing to the
CFTC on Jan. 29, 2010 and provided an explanation
as to why an enforcement action is unwarranted.

Securities Lending Matters
As previously disclosed, BNY Mellon or its affiliates
have been named as defendants in a number of
lawsuits initiated by participants in BNY Mellon’s
securities lending program, which is a part of BNY
Mellon’s Investment Services business. The lawsuits
were filed on various dates from 2009 to 2013, and
are currently pending in courts in New York, North
Carolina and Illinois. The complaints assert
contractual, statutory, and common law claims,
including claims for negligence and breach of
fiduciary duty. The plaintiffs allege losses in
connection with the investment of securities lending
collateral, including losses related to investments in
Sigma Finance Inc. (“Sigma”) and Lehman Brothers
Holdings, Inc., and seek damages as to those losses.

Foreign Exchange Matters
As previously disclosed, beginning in December
2009, government authorities have been conducting
inquiries seeking information relating primarily to
standing instruction foreign exchange transactions in
connection with custody services BNY Mellon
provides to public pension plans and certain other
custody clients. BNY Mellon is cooperating with
these inquiries.

In addition, in early 2011, as previously disclosed, the
Virginia Attorney General’s Office and the Florida
Attorney General’s Office each intervened in a qui

tam lawsuit pending in its jurisdiction, and, on Aug.
11, 2011, filed superseding complaints. On Nov. 9,
2012, the Virginia court, which had previously
dismissed all of the claims against BNY Mellon,
dismissed the Virginia lawsuit with prejudice by
agreement of the parties. On Nov. 18, 2013, the
Florida Attorney General’s Office dismissed the
Florida lawsuit with prejudice by agreement of the
parties. On Oct. 4, 2011, the New York Attorney
General’s Office, the New York City Comptroller and
various city pension and benefit funds filed a lawsuit
asserting, claims under the Martin Act and state and
city false claims acts. On Aug. 5, 2013, the court
dismissed the false claims act claims, and certain
plaintiffs have since filed a notice of appeal. Also, on
Oct. 4, 2011, the United States Department of Justice
(“DOJ”) filed a civil lawsuit seeking civil penalties
under 12 U.S.C. Section 1833a and injunctive relief
under 18 U.S.C. Section 1345 based on alleged
ongoing violations of 18 U.S.C. Sections 1341 and
1343 (mail and wire fraud). On Jan. 17, 2012, the
court approved a partial settlement resolving the
DOJ’s claim for injunctive relief. In October 2011,
several public pension funds in the state of California
purported to intervene in a qui tam lawsuit that was
removed to federal district court in California. On
March 30, 2012, the court dismissed certain of
plaintiffs’ claims, including all claims under the
California False Claims Act. Certain plaintiffs have
since filed an amended complaint. Several plaintiffs
also had their claims dismissed for improper venue
and one refiled on Sept. 5, 2012 in a different
California federal district court. On Oct. 26, 2011,
the Massachusetts Securities Division filed an
Administrative Complaint against BNY Mellon, but
closed the matter on Jan. 30, 2014 by agreement of
the parties.

BNY Mellon has also been named as a defendant in
several putative class action federal lawsuits filed on
various dates in 2011 and 2012. The complaints,
which assert claims including breach of contract and
ERISA and securities laws violations, all allege that
the prices BNY Mellon charged for standing
instruction foreign exchange transactions executed in
connection with custody services provided by BNY
Mellon were improper. In addition, BNY Mellon has
been named as a nominal defendant in several
derivative lawsuits filed in 2011 and 2012 in state and
federal court in New York. On July 2, 2013, the court
in the consolidated federal derivative action
dismissed all of plaintiffs’ claims, and plaintiffs have
appealed that decision. On Oct. 1, 2013, the court in

BNY Mellon 205

Notes to Consolidated Financial Statements (continued)

the consolidated state derivative action dismissed all
of plaintiffs’ claims, and one of the plaintiffs filed a
notice of appeal. BNY Mellon was also named in a
qui tam lawsuit filed on May 22, 2012 in
Massachusetts state court, but the court dismissed all
of plaintiff’s claims on Sept. 10, 2013. To the extent
these lawsuits are pending in federal court, they are
being coordinated for pre-trial purposes in federal
court in New York.

Lyondell Litigation
As previously disclosed, in an action filed in New
York State Supreme Court for New York County, on
Sept. 14, 2010, plaintiffs as holders of debt issued by
Basell AF in 2005 allege that The Bank of New York
Mellon, as indenture trustee, breached its contractual
and fiduciary obligations by executing an
intercreditor agreement in 2007 in connection with
Basell’s acquisition of Lyondell Chemical Company.
Plaintiffs sought damages for their alleged losses
resulting from the execution of the 2007 intercreditor
agreement that allowed the company to increase the
amount of its senior debt. After its motion to dismiss
was denied in part, BNY Mellon appealed the denial.
On May 21, 2013, the appellate court found in our
favor and held that BNY Mellon had been released
from liability. Plaintiffs then sought leave to pursue
an appeal to the New York Court of Appeals, but that
court denied plaintiffs’ motion on Dec. 17, 2013.

Tax Litigation
As previously disclosed, on Aug. 17, 2009, BNY
Mellon received a Statutory Notice of Deficiency
disallowing tax benefits for the 2001 and 2002 tax
years in connection with a 2001 transaction that
involved the payment of UK corporate income taxes
that were credited against BNY Mellon’s U.S.
corporate income tax liability. On Nov. 10, 2009,
BNY Mellon filed a petition with the U.S. Tax Court
contesting the disallowance of the benefits. Trial was
held from April 16 to May 17, 2012. On Feb. 11,
2013, the Tax Court upheld the IRS’s Notice of
Deficiency and disallowed BNY Mellon’s tax credits
and associated transaction costs. On Sept. 23, 2013,
the Tax Court issued a supplemental opinion, partially
reducing the tax implications to BNY Mellon of its
earlier decision. The Tax Court entered its Decision,
which formally implemented its prior opinions and
rulings, on Feb. 20, 2014. BNY Mellon will appeal.
See Note 12 of the Notes to Consolidated Financial
Statements for additional information.

206 BNY Mellon

Mortgage-Securitization Trusts Proceeding
As previously disclosed, The Bank of New York
Mellon as trustee is the petitioner in a legal
proceeding filed in New York State Supreme Court,
New York County on June 29, 2011, seeking approval
of a proposed settlement involving Bank of America
Corporation and bondholders in certain Countrywide
residential mortgage-securitization trusts. The New
York and Delaware Attorneys General have
intervened in this proceeding. The trial in this matter
ended on Nov. 21, 2013. On Jan. 31, 2014, the court
issued its decision approving the settlement except to
the extent that it releases loan modification claims.
The court approved all the other terms of the
settlement.

Matters Related to R. Allen Stanford
In late December 2005, Pershing LLC became a
clearing firm for Stanford Group Co. (“SGC”), a
registered broker dealer that was part of a group of
entities ultimately controlled by R. Allen Stanford.
Stanford International Bank (“SIB”), also controlled
by Stanford, issued certificates of deposit (“CDs”).
Some investors allegedly wired funds from their SGC
accounts to purchase CDs. In 2009, the SEC charged
Stanford with operating a Ponzi scheme in connection
with the sale of CDs, and SGC was placed into
receivership. Alleged purchasers of CDs have four
pending lawsuits against Pershing in Texas. In
addition, alleged purchasers have filed twenty-seven
FINRA arbitration claims against Pershing in Texas,
Florida, Louisiana, Tennessee and Georgia. The
purchasers allege that Pershing, as SGC’s clearing
firm, assisted Stanford in a fraudulent scheme, and
assert contractual, statutory and common law claims.

Note 23 - Derivative instruments

We use derivatives to manage exposure to market risk
including interest rate risk, equity price risk and
foreign currency risk, as well as credit risk. Our
trading activities are focused on acting as a market-
maker for our customers and facilitating customer
trades. In addition, we periodically manage positions
for our own account. Positions managed for our own
account are immaterial to our foreign exchange and
other trading revenue and to our overall results of
operations.

The notional amounts for derivative financial
instruments express the dollar volume of the
transactions; however, credit risk is much smaller.
We perform credit reviews and enter into netting

Notes to Consolidated Financial Statements (continued)

agreements and collateral arrangements to minimize
the credit risk of derivative financial instruments. We
enter into offsetting positions to reduce exposure to
foreign currency, interest rate and equity price risk.

Use of derivative financial instruments involves
reliance on counterparties. Failure of a counterparty
to honor its obligation under a derivative contract is a
risk we assume whenever we engage in a derivative
contract. Counterparty default losses were $2.1
million in 2013 and less than $1 million in 2012.

Hedging derivatives

We utilize interest rate swap agreements to manage
our exposure to interest rate fluctuations. For hedges
of available-for-sale investment securities, deposits
and long-term debt, the hedge documentation
specifies the terms of the hedged items and the
interest rate swaps and indicates that the derivative is
hedging a fixed rate item and is a fair value hedge,
that the hedge exposure is to the changes in the fair
value of the hedged item due to changes in
benchmark interest rates, and that the strategy is to
eliminate fair value variability by converting fixed-
rate interest payments to LIBOR.

The available-for-sale investment securities hedged
consist of sovereign debt, U.S. Treasury bonds,
agency commercial mortgage-backed securities and
covered bonds that had original maturities of 30 years
or less at initial purchase. The swaps on all of these
investment securities are not callable. All of these
securities are hedged with “pay fixed rate, receive
variable rate” swaps of similar maturity, repricing and
fixed rate coupon. At Dec. 31, 2013, $6.4 billion face
amount of securities were hedged with interest rate
swaps that had notional values of $6.6 billion.

The fixed rate long-term debt instruments hedged
generally have original maturities of five to 30 years.
We issue both callable and non-callable debt. The
non-callable debt is hedged with simple interest rate
swaps similar to those described for deposits.
Callable debt is hedged with callable swaps where the
call dates of the swaps exactly match the call dates of
the debt. At Dec. 31, 2013, $14.8 billion par value of
debt was hedged with interest rate swaps that had
notional values of $14.8 billion.

In addition, we enter into foreign exchange hedges.
We use forward foreign exchange contracts with
maturities of nine months or less to hedge our British
Pound, Euro, Hong Kong Dollar, Indian Rupee and
Singapore Dollar foreign exchange exposure with
respect to foreign currency forecasted revenue and
expense transactions in entities that have the U.S.
dollar as their functional currency. As of Dec. 31,
2013, the hedged forecasted foreign currency
transactions and designated forward foreign exchange
contract hedges were $185 million (notional), with a
pre-tax gain of $7 million recorded in accumulated
other comprehensive income. This gain will be
reclassified to income or expense over the next nine
months.

We use forward foreign exchange contracts with
remaining maturities of nine months or less as hedges
against our foreign exchange exposure to Australian
Dollar, Euro, Swedish Krona, British Pound, Danish
Krone, Norwegian Krone and Japanese Yen with
respect to interest-bearing deposits with banks and
their associated forecasted interest revenue. These
hedges are designated as cash flow hedges. These
hedges are effected such that their maturities and
notional values match those of the deposits with
banks. As of Dec. 31, 2013, the hedged interest-
bearing deposits with banks and their designated
forward foreign exchange contract hedges were $1.6
billion (notional), with a pre-tax gain of less than $1
million recorded in accumulated other comprehensive
income. This gain will be reclassified to net interest
revenue over the next nine months.

Forward foreign exchange contracts are also used to
hedge the value of our net investments in foreign
subsidiaries. These forward foreign exchange
contracts have maturities of less than two years. The
derivatives employed are designated as hedges of
changes in value of our foreign investments due to
exchange rates. Changes in the value of the forward
foreign exchange contracts offset the changes in value
of the foreign investments due to changes in foreign
exchange rates. The change in fair market value of
these forward foreign exchange contracts is deferred
and reported within accumulated translation
adjustments in shareholders’ equity, net of tax. At
Dec. 31, 2013, forward foreign exchange contracts
with notional amounts totaling $5.6 billion were
designated as hedges.

BNY Mellon 207

Notes to Consolidated Financial Statements (continued)

In addition to forward foreign exchange contracts, we
also designate non-derivative financial instruments as
hedges of our net investments in foreign subsidiaries.

Those non-derivative financial instruments

designated as hedges of our net investments in
foreign subsidiaries were all long-term liabilities of
BNY Mellon in various currencies, and, at Dec. 31,
2013, had a combined U.S. dollar equivalent value of
$541 million.

Ineffectiveness related to derivatives and hedging

relationships was recorded in income as follows:

Ineffectiveness
(in millions)
Fair value hedges on loans
Fair value hedges of securities
Fair value hedges of deposits
and long-term debt
Cash flow hedges
Other (a)
Total

Year ended Dec. 31,
2013

2012

— $ — $

14.1

(3.3)

2011
0.1
(8.6)

(5.3)
(14.8)
3.7
(0.1)
(0.1)
0.1
0.1
(0.1)
1.6
17.8 $ (16.4) $ (14.0)

(a) Includes ineffectiveness recorded on foreign exchange

hedges.

The following table summarizes the notional amount and credit exposure of our total derivative portfolio at Dec. 31,
2013 and Dec. 31, 2012.

Impact of derivative instruments on the balance sheet

(in millions)
Derivatives designated as hedging instruments (a):
Interest rate contracts
Foreign exchange contracts

Total derivatives designated as hedging instruments

Derivatives not designated as hedging instruments (b):
Interest rate contracts
Foreign exchange contracts
Equity contracts
Credit contracts

Total derivatives not designated as hedging instruments
Total derivatives fair value (c)
Effect of master netting agreements (d)

Fair value after effect of master netting agreements

Notional value

Asset derivatives
fair value

Liability derivatives
fair value

Dec. 31,
2013

Dec. 31,
2012

Dec. 31,
2013

Dec. 31,
2012

Dec. 31,
2013

Dec. 31,
2012

$ 21,402 $ 19,679 $

7,382

16,805

1,206 $
76
1,282 $

928 $
61
989 $

167 $
336
503 $

343
361
704

359,204
11,375
166

420,142
24,123
101

$ 767,341 $ 796,155 $ 14,712 $ 22,789 $ 15,212 $ 23,341
3,632
413
—
$ 19,006 $ 26,613 $ 19,751 $ 27,386
$ 20,288 $ 27,602 $ 20,254 $ 28,090
(20,990)
7,100

3,536
1,003
—

3,610
684
—

3,513
311
—

5,291 $

5,833 $

4,482 $

(15,806)

(22,311)

(14,421)

(a) The fair value of asset derivatives and liability derivatives designated as hedging instruments is recorded as other assets and other

liabilities, respectively, on the balance sheet.

(b) The fair value of asset derivatives and liability derivatives not designated as hedging instruments is recorded as trading assets and

trading liabilities, respectively, on the balance sheet.

(c) Fair values are on a gross basis, before consideration of master netting agreements, as required by ASC 815.
(d) Master netting agreements are reported net of cash collateral received and paid of $1,841 million and $456 million, respectively, at Dec.

31, 2013, and $1,452 million and $131 million, respectively, at Dec. 31, 2012.

At Dec. 31, 2013, $466 billion (notional) of interest rate contracts will mature within one year, $164 billion between
one and five years, and $159 billion after five years. At Dec. 31, 2013, $412 billion (notional) of foreign exchange
contracts will mature within one year, $7 billion between one and five years, and $9 billion after five years.

Impact of derivative instruments on the income statement
(in millions)

Derivatives in fair value
hedging relationships

Location of gain or
(loss) recognized in
income on
derivatives

Gain or (loss) recognized
in income on derivatives
Year ended Dec. 31,

2013

2012

Interest rate contracts

Net interest revenue

486 $

(47) $

Location of gain or
(loss) recognized in
income on hedged
item

2011
(150) Net interest revenue

Gain or (loss) recognized
in hedged item
Year ended Dec. 31,

2013
(468) $

2012

29 $

2011

136

208 BNY Mellon

Notes to Consolidated Financial Statements (continued)

Gain or (loss)

recognized

in accumulated

OCI on derivatives

(effective portion)

Year ended Dec. 31,

2013

2012

2011

Location of gain or
(loss) reclassified
from accumulated
OCI into income
(effective portion)

Gain or (loss)

reclassified

from accumulated

OCI into income

(effective portion)

Year ended Dec. 31,

2013

2012

2011

Location of gain or
(loss) recognized in
income on derivatives
(ineffective portion and
amount excluded from
effectiveness testing)

(27) $
(3)
154
7

4 $ (118) Net interest revenue
2
236
(1)

(6) Other revenue
(525) Trading revenue
3 Salary expense

(28) $
(1)
154
(1)

1 $ (114) Net interest revenue
(6) Other revenue
3
(525) Trading revenue
236
2 Salary expense
(1)

$ 131 $ 241 $ (646)

$ 124 $ 239 $ (643)

Derivatives in
cash flow hedging
relationships

FX contracts
FX contracts
FX contracts
FX contracts

Total

Gain or (loss)

recognized in income on

derivatives
(ineffectiveness portion

and amount excluded

from effectiveness

testing)

Year ended Dec. 31,

2013

2011
2012
$ — $ — $ —

(0.1)

—

$ (0.1) $ 0.1 $ (0.1)

(0.1)
—
—

0.1
—
—

Gain or (loss)
recognized in
accumulated OCI
on derivatives
(effective portion)
Year ended Dec. 31,

2013

2012

2011

Location of gain or
(loss) reclassified
from accumulated
OCI into income
(effective portion)

Derivatives in net
investment hedging
relationships

FX contracts

(50) $ (181) $

75 Net interest revenue

Trading activities (including trading derivatives)

We manage trading risk through a system of position
limits, a VaR methodology based on Monte Carlo
simulations, stop loss advisory triggers, and other
market sensitivity measures. Risk is monitored and
reported to senior management by a separate unit on a
daily basis. Based on certain assumptions, the VaR
methodology is designed to capture the potential
overnight pre-tax dollar loss from adverse changes in
fair values of all trading positions. The calculation
assumes a one-day holding period for most
instruments, utilizes a 99% confidence level, and
incorporates the non-linear characteristics of options.
The VaR model is one of several statistical models
used to develop economic capital results, which is
allocated to lines of business for computing risk-
adjusted performance.

As the VaR methodology does not evaluate risk
attributable to extraordinary financial, economic or
other occurrences, the risk assessment process
includes a number of stress scenarios based upon the
risk factors in the portfolio and management’s
assessment of market conditions. Additional stress
scenarios based upon historic market events are also
performed. Stress tests, by their design, incorporate
the impact of reduced liquidity and the breakdown of
observed correlations. The results of these stress tests
are reviewed weekly with senior management.

Gain or (loss)

reclassified

from accumulated

OCI into income

(effective portion)

Year ended Dec. 31,

2013

2012

2011
2 $ — $ —

Location of gain or
(loss) recognized in
income on derivative
(ineffective portion and
amount excluded from
effectiveness testing)

Other revenue

Gain or (loss)

recognized in income on

derivatives
(ineffectiveness

portion and amount

excluded from

effectiveness testing)

Year ended Dec. 31,

2013

2011
2012
$ 0.1 $ 1.6 $ (0.1)

Revenue from foreign exchange and other trading
included the following:

Foreign exchange and other trading
revenue
(in millions)
Foreign exchange
Other trading revenue:
Fixed income
Equity/other

Total other trading revenue

Total

2013

2011
2012
$ 608 $ 520 $ 761

38
28
66

65
22
87
$ 674 $ 692 $ 848

142
30
172

Foreign exchange includes income from purchasing
and selling foreign currencies and currency forwards,
futures and options. Fixed income reflects results
from futures and forward contracts, interest rate
swaps, structured foreign currency swaps, options,
and fixed income securities. Equity/Other primarily
includes revenue from equity securities and equity
derivatives.

Counterparty credit risk and collateral

We assess credit risk of our counterparties through
regular examination of their financial statements,
confidential communication with the management of
those counterparties and regular monitoring of
publicly available credit rating information. This and

BNY Mellon 209

Notes to Consolidated Financial Statements (continued)

other information is used to develop proprietary
credit rating metrics used to assess credit quality.

Collateral requirements are determined after a
comprehensive review of the credit quality of each
counterparty. Collateral is generally held or pledged
in the form of cash or highly liquid government
securities. Collateral requirements are monitored and
adjusted daily.

Additional disclosures concerning derivative financial
instruments are provided in Note 20 of the Notes to
Consolidated Financial Statements.

Disclosure of contingent features in over-the-counter
(“OTC”) derivative instruments

Certain OTC derivative contracts and/or collateral
agreements of The Bank of New York Mellon, our
largest banking subsidiary and the subsidiary through
which BNY Mellon enters into the substantial
majority of all of its OTC derivative contracts and/or
collateral agreements, contain provisions that may
require us to take certain actions if The Bank of New
York Mellon’s public debt rating fell to a certain
level. Early termination provisions, or “close-out”
agreements, in those contracts could trigger
immediate payment of outstanding contracts that are
in net liability positions. Certain collateral
agreements would require The Bank of New York
Mellon to immediately post additional collateral to
cover some or all of The Bank of New York Mellon’s
liabilities to a counterparty.

The following table shows the fair value of contracts
falling under early termination provisions that were in
net liability positions as of Dec. 31, 2013 for three
key ratings triggers:

If The Bank of New York
Potential close-out
Mellon’s rating was changed to
exposures (fair value) (a)
(Moody’s/S&P)
A3/A-
110 million
Baa2/BBB
745 million
1,849 million
Bal/BB+
(a) The amounts represent potential total close-out values if The
Bank of New York Mellon’s rating were to immediately drop
to the indicated levels.

$
$
$

The aggregated fair value of contracts impacting
potential trade close-out amounts and collateral
obligations can fluctuate from quarter to quarter due
to changes in market conditions, changes in the
composition of counterparty trades, new business, or
changes to the agreement definitions establishing
close-out or collateral obligations.

Additionally, if The Bank of New York Mellon’s debt
rating had fallen below investment grade on Dec. 31,
2013, existing collateral arrangements would have
required us to have posted an additional $430 million
of collateral.

Offsetting assets and liabilities

The following tables present derivative instruments
and financial instruments that are either subject to an
enforceable netting agreement or offset by collateral
arrangements. There were no derivative instruments
or financial instruments subject to a netting
agreement for which we are not currently netting.

210 BNY Mellon

Notes to Consolidated Financial Statements (continued)

Offsetting of financial assets and derivative assets

Dec. 31, 2013

Dec. 31, 2012

(in millions)
Derivatives subject to netting
arrangements:
Interest rate contracts
Foreign exchange contracts
Equity and other contracts

Total derivatives subject to netting
arrangements

Total derivatives not subject to netting
arrangements

Total derivatives
Reverse repurchase agreements

Total

Gross assets Offset in the

recognized balance sheet (a) recognized

Net assets Gross assets Offset in the

Net assets
recognized balance sheet (a) recognized

14,798 $
2,778
607

18,183

2,105
20,288
10,180
30,468 $

13,231
2,294
281

15,806

1,567
484
326

2,377

22,234 $
3,255
264

20,042
2,171
98

25,753

22,311

—
15,806
1,096 (b)
16,902

2,105
4,482
9,084
13,566

1,849
27,602
6,718
34,320 $

—
22,311

137 (b)

22,448

2,192
1,084
166

3,442

1,849
5,291
6,581
11,872

(a) Includes the effect of netting agreements and net cash collateral paid. The offset related to the over-the-counter derivatives was

allocated to the various types of derivatives based on the net positions.

(b) Offsetting of reverse repurchase agreements relates to our involvement in the Fixed Income Clearing Corporation, where we settle

government securities transactions on a net basis for payment and delivery through the Fedwire system.

Offsetting of financial liabilities and derivative liabilities

Dec. 31, 2013

Dec. 31, 2012

(in millions)
Derivatives subject to netting
arrangements:
Interest rate contracts
Foreign exchange contracts
Equity and other contracts

Total derivatives subject to netting
arrangements

Total derivatives not subject to netting
arrangements

Total derivatives
Repurchase agreements

Total

Gross

Net
liabilities
recognized balance sheet (a) recognized

liabilities Offset in the

Gross

liabilities Offset in the

recognized balance sheet (a)

Net
liabilities
recognized

14,914 $
2,292
800

18,006

2,248
20,254
10,528
30,782 $

12,429
1,711
281

14,421

2,485
581
519

3,585

23,274 $
3,423
310

19,069
1,823
98

27,007

20,990

—
14,421
1,096 (b)
15,517

2,248
5,833
9,432
15,265

1,083
28,090
7,153
35,243 $

—
20,990

137 (b)

21,127

4,205
1,600
212

6,017

1,083
7,100
7,016
14,116

(a) Includes the effect of netting agreements and net cash collateral received. The offset related to the over-the-counter derivatives was

allocated to the various types of derivatives based on the net positions.

(b) Offsetting of repurchase agreements relates to our involvement in the Fixed Income Clearing Corporation, where we settle government

securities transactions on a net basis for payment and delivery through the Fedwire system.

Note 24 - Lines of businesses

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

Business accounting principles

principles are designed so that reported results of the
businesses will track their economic performance.

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

The accounting policies of the businesses are the
same as those described in Note 1 of the Notes to
Consolidated Financial Statements.

BNY Mellon 211

Notes to Consolidated Financial Statements (continued)

The operations of acquired businesses are integrated
with the existing businesses soon after they are
completed. As a result of the integration of staff
support functions, management of customer

relationships, operating processes and the financial
impact of funding acquisitions, we cannot precisely
determine the impact of acquisitions on income
before taxes and therefore do not report it.

The primary types of revenue for our two principal businesses and the Other segment are presented below:

Business
Investment Management

Investment Services

Other segment

Primary types of revenue

Investment management and performance fees from:

Mutual funds
Institutional clients
Private clients
High-net-worth individuals and families, endowments and foundations and related

entities

Distribution and servicing fees
Asset servicing fees, including institutional trust and custody fees, broker-dealer services,

global collateral services and securities lending

Issuer services fees, including Corporate Trust and Depositary Receipts
Clearing services fees, including broker-dealer services, registered investment advisor

services and prime brokerage services

Treasury services fees, including global payment services and working capital solutions
Foreign exchange

Credit-related activities
Leasing operations
Corporate treasury activities
Global markets and institutional banking services
Business exits

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

• Revenue amounts reflect fee and other revenue
generated by each business. Fee and other
revenue transferred between businesses under
revenue transfer agreements is included within
other revenue in each business.

• Revenues and expenses associated with specific

client bases are included in those businesses. For
example, foreign exchange activity associated
with clients using custody products is allocated to
Investment Services.

• Net interest revenue is allocated to businesses
based on the yields on the assets and liabilities
generated by each business. We employ a funds
transfer pricing system that matches funds with
the specific assets and liabilities of each business
based on their interest sensitivity and maturity
characteristics.
Incentive expense related to restricted stock and
certain corporate overhead charges are allocated
to the businesses.

•

• Support and other indirect expenses are allocated
to businesses based on internally-developed
methodologies.

212 BNY Mellon

• Recurring FDIC expense is allocated to the

businesses based on average deposits generated
within each business.

• Litigation expense is generally recorded in the

business in which the charge occurs.
• Management of the investment securities

portfolio is a shared service contained in the
Other segment. As a result, gains and losses
associated with the valuation of the securities
portfolio are included in the Other segment.
• Client deposits serve as the primary funding

source for our investment securities portfolio.
We typically allocate all interest revenue to the
businesses generating the deposits. Accordingly,
accretion related to the portion of the investment
securities portfolio restructured in 2009 has been
included in the results of the businesses.
• M&I expense is a corporate level item and is

recorded in the Other segment.

• Beginning in the fourth quarter of 2013,

restructuring charges were recorded in the
businesses. Prior to the fourth quarter of 2013,
restructuring charges were reported in the Other
segment.

• Balance sheet assets and liabilities and their
related income or expense are specifically

Notes to Consolidated Financial Statements (continued)

assigned to each business. Businesses with a net
liability position have been allocated assets.
• Goodwill and intangible assets are reflected

within individual businesses.

Total revenue includes approximately $2.3 billion in
2013, $2.3 billion in 2012 and $2.2 billion in 2011, of
international operations domiciled in the UK which
comprised 15%, 16% and 15% of total revenue,
respectively.

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

For the year ended Dec. 31, 2013
(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

Investment
Management
$

(a) $

Investment
Services
7,640
2,514
10,154
1
7,401
2,752

27%

3,726
260
3,986
—
2,992
994
25%

38,546

247,431

Other Consolidated

528 $
235
763
(36)
913
(114) $
N/M
56,334 $

11,894
3,009
14,903
(35)
11,306
3,632

(a)

24%

342,311

(a) Total fee and other revenue includes income from consolidated investment management funds of $183 million, net of noncontrolling
interests of $80 million, for a net impact of $103 million. Income before taxes includes noncontrolling interests of $80 million.

(b) Income before taxes divided by total revenue.

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

Investment
Management
$

(a) $

Investment
Services
7,368
2,440
9,808
(2)
7,592
2,218

23%

3,507
214
3,721
—
2,811
910
24%

36,120

223,233

Other Consolidated
11,506
2,973
14,479
(80)
11,333
3,226

631 $
319
950
(78)
930
98 $

N/M
56,028 $

22%

315,381

(a)

(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

Investment
Management
$

(a) $

Investment
Services
7,656
2,568
10,224
—
7,233
2,991

29%

3,243
204
3,447
1
2,743
703
20%

36,696

205,337

Other Consolidated
11,696
2,984
14,680
1
11,112
3,567

797 $
212
1,009
—
1,136
(127) $
N/M
49,112 $

24%

291,145

(a)

(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.

BNY Mellon 213

Notes to Consolidated Financial Statements (continued)

Note 25 - International operations

International activity includes Investment
Management and Investment Services fee revenue
generating businesses, foreign exchange trading
activity, loans and other revenue producing assets and
transactions in which the customer is domiciled
outside of the United States and/or the international
activity is resident at an international entity. Due to
the nature of our international and domestic activities,
it is not possible to precisely distinguish between
internationally and domestically domiciled

customers. As a result, it is necessary to make certain
subjective assumptions such as:

•

Income from international operations is
determined after internal allocations for interest
revenue, taxes, expenses and provision for credit
losses.

• Expense charges to international operations

include those directly incurred in connection with
such activities, as well as an allocable share of
general support and overhead charges.

Total assets, total revenue, income before income taxes and net income of our international operations are shown in
the table below.

International operations
(in millions)
2013

Total assets at period end (a)
Total revenue
Income before income taxes
Net income

2012

2011

EMEA

International
APAC

Total
International

Total
Domestic

Other

Total

$ 70,046 (b) $ 20,498 $ 1,808 $

3,821 (b)
1,015
822

936
493
399

738
414
335

92,352 $ 281,958 $ 374,310
14,983
9,488
5,495
3,712
1,790
1,922
2,192
636
1,556

$ 78,912 (b) $ 18,064 $ 1,816 $

3,727 (b)

936
761

902
429
349

646
326
265

98,792 $ 260,198 $ 358,990
14,555
9,280
5,275
3,302
1,611
1,691
2,523
1,148
1,375

Total assets at period end (a)
Total revenue
Income before income taxes
Net income

75,839 $ 249,427 $ 325,266
14,730
9,339
5,391
3,617
1,706
1,911
2,569
1,110
1,459
(a) Total assets include long-lived assets, which are not considered by management to be significant in relation to total assets. Long-lived

$ 61,115 (b) $ 13,030 $ 1,694 $

3,780 (b)
1,135
867

842
426
325

769
350
267

assets are primarily located in the United States.

(b) Includes revenue of approximately $2.3 billion, $2.3 billion and $2.2 billion and assets of approximately $36.4 billion, $40.0 billion and
$28.3 billion in 2013, 2012, and 2011, respectively, of international operations domiciled in the UK, which is 15%, 16% and 15% of
total revenue and 10%, 11%, and 9% of total assets, respectively.

Note 26 - Supplemental information to the Consolidated Statement of Cash Flows

Noncash investing and financing transactions that, appropriately, are not reflected in the Consolidated Statement of
Cash Flows are listed below.

Noncash investing and financing transactions
(in millions)
Transfers from loans to other assets for other real estate owned (“OREO”)
Change in assets of consolidated VIEs
Change in liabilities of consolidated VIEs
Change in noncontrolling interests of consolidated VIEs
Disposition of business

Year ended Dec. 31,

2013
5
209
50
50
—

2012
7
134
96
163
—

2011
16
3,419
3,478
29
544

214 BNY Mellon

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders
The Bank of New York Mellon Corporation:

We have audited the accompanying consolidated balance sheets of The Bank of New York Mellon Corporation
and subsidiaries (“BNY Mellon”) as of December 31, 2013 and 2012, 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, 2013. These consolidated financial statements are the responsibility of BNY Mellon’s
management. Our responsibility is to express an opinion on these consolidated financial statements based on our
audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of BNY Mellon as of December 31, 2013 and 2012, and the results of their operations and their
cash flows for each of the years in the three-year period ended December 31, 2013, in conformity with
U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), BNY Mellon’s internal control over financial reporting as of December 31, 2013, based on criteria
established in Internal Control - Integrated Framework (1992) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO), and our report dated February 28, 2014 expressed an
unqualified opinion on the effectiveness of BNY Mellon’s internal control over financial reporting.

New York, New York
February 28, 2014

BNY Mellon 215

Directors, Executive Committee and Other Executive Officers

Effective February 28, 2014

Directors
Ruth E. Bruch
Retired Senior Vice President and
Chief Information Officer
Kellogg Company
Cereal and convenience foods

Nicholas M. Donofrio
Retired Executive Vice President,
Innovation and Technology
IBM Corporation
Developer, manufacturer and provider of
advanced information technologies and services

Gerald L. Hassell
Chairman and Chief Executive Officer
The Bank of New York Mellon Corporation

Edmund F. (Ted) Kelly
Retired Chairman
Liberty Mutual Group
Multi-line insurance company

Richard J. Kogan
Retired Chairman, President and
Chief Executive Officer
Schering-Plough Corporation
Global healthcare company

Michael J. Kowalski
Chairman and Chief Executive Officer
Tiffany & Co.
International designer, manufacturer and
distributor of jewelry and fine goods

John A. Luke, Jr.
Chairman and Chief Executive Officer
MeadWestvaco Corporation
Manufacturer of paper, packaging and specialty
chemicals

Mark A. Nordenberg
Chancellor, Chief Executive Officer and
Distinguished Service Professor of Law
University of Pittsburgh
Major public research university

Catherine A. Rein
Retired Senior Executive Vice President and
Chief Administrative Officer
MetLife, Inc.
Insurance and financial services company

William C. Richardson
President and Chief Executive Officer Emeritus
The W. K. Kellogg Foundation
Retired Chairman and Co-Trustee of
The W. K. Kellogg Foundation Trust
Private foundation

Samuel C. Scott III
Retired Chairman, President and
Chief Executive Officer
Corn Products International, Inc.
Global producers of corn-refined products and
ingredients

Wesley W. von Schack
Chairman
AEGIS Insurance Services, Inc.
Mutual property and casualty insurance company

Executive Committee and Other Executive
Officers

Gerald L. Hassell *
Chairman and Chief Executive Officer

Curtis Y. Arledge *
Chief Executive Officer,
Investment Management

Richard F. Brueckner *
Chief of Staff

Arthur Certosimo
Chief Executive Officer,
Global Markets

Michael Cole-Fontayn
Chairman,
Europe, the Middle East and Africa

Thomas P. (Todd) Gibbons *
Chief Financial Officer

Mitchell E. Harris
President,
Investment Management

Timothy F. Keaney *
Chief Executive Officer,
Investment Services

Suresh Kumar
Chief Information Officer

Stephen D. Lackey
Chairman,
Asia Pacific

John A. Park *
Controller

Karen B. Peetz *
President

Lisa B. Peters
Chief Human Resources Officer

Brian G. Rogan *
Chief Risk Officer

Brian T. Shea *
President,
Investment Services
Head of Client Service Delivery and Client
Technology Solutions

Jane C. Sherburne *
General Counsel and Corporate Secretary

Kurt D. Woetzel
Chief Executive Officer,
Global Collateral Services

Designated as an Executive Officer.

216 BNY Mellon

Performance Graph

The Bank of New York Mellon Corporation
S&P 500 Financial Index
S&P 500 Index
Peer Group

2008
100.0 $
100.0
100.0
100.0

2009
100.8 $
117.2
126.5
112.8

Dec. 31,

2010
110.2 $
131.4
145.5
122.0

2011
74.0 $

109.0
148.6
93.7

2012
97.8 $
140.3
172.3
127.8

2013

135.6
190.2
228.1
179.4

This graph shows The Bank of New York Mellon Corporation’s cumulative total shareholder returns over the five-
year period from Dec. 31, 2008 to Dec. 31, 2013. Our peer group is composed of financial services companies
which provide investment management and investment servicing. We also utilize the S&P 500 Financial Index as a
benchmark against our performance. The graph shows the cumulative total returns for the same five-year period of
the S&P 500 Financial Index, the S&P 500 Index as well as our peer group listed below. The comparison assumes a
$100 investment on Dec. 31, 2008 in The Bank of New York Mellon Corporation common stock, in the S&P 500
Financial Index, in the S&P 500 Index and in the peer group detailed below and assumes that all dividends were
reinvested.

Peer Group*

American Express Company
Bank of America Corporation
BlackRock, Inc.
The Charles Schwab Corporation

Citigroup Inc.
JPMorgan Chase & Co.
Northern Trust Corporation
The PNC Financial Services Group, Inc.

Prudential Financial, Inc.
State Street Corporation
U.S. Bancorp
Wells Fargo & Company

* Returns are weighted by market capitalization at the beginning of the measurement period.

BNY Mellon 217

CORPORATE INFORMATION

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 35 countries and more than 100 markets.
At December 31, 2013, BNY Mellon had $27.6 trillion in assets under custody and/or administration, and $1.6 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 is the corporate brand of The Bank of New York Mellon Corporation (NYSE:
BK). Additional information is available on www.bnymellon.com, or follow us on Twitter @BNYMellon.

cORPORATE hEADqUARTERs
One Wall Street, New York, NY 10286
+ 1 212 495 1784
www.bnymellon.com

ANNUAL mEETiNg
The Annual Meeting of Shareholders will be held in New York
City at 101 Barclay Street at 9 a.m. on Tuesday, April 8, 2014.

ExchANgE LisTiNg
BNY Mellon’s common stock is traded on the New York Stock
Exchange under the ticker symbol BK. Mellon Capital IV’s
6.244% Fixed-to-Floating Rate Normal Preferred Capital
Securities fully and unconditionally guaranteed by
BNY Mellon (symbol BK/P) and depositary shares, each
representing a 1/4,000th interest in a share of BNY Mellon’s
Series C Noncumulative Perpetual Preferred Stock (symbol
BK PrC), are also listed on the New York Stock Exchange.

sTOcK PRicEs
Prices for BNY Mellon’s common stock can be viewed at
www.bnymellon.com/investorrelations.

cORPORATE gOvERNANcE
Corporate governance information is available at
www.bnymellon.com/governance.

cORPORATE sOciAL REsPONsiBiLiTY
Information about BNY Mellon’s commitment to
corporate social responsibility is available at
www.bnymellon.com/csr.

BNY Mellon’s Corporate Social Responsibility (CSR) Report,
which includes our Equal Employment Opportunities/
Affirmative Action policies, can be viewed and printed at
www.bnymellon.com/csr.

iNvEsTOR RELATiONs
Visit www.bnymellon.com/investorrelations or call
+1 212 635 1803.

cOmmON sTOcK DiviDEND PAYmENTs
Subject to approval of the board of directors, dividends are
typically paid on BNY Mellon’s common stock quarterly in
February, May, August and November.

FORm 10-K AND shAREhOLDER PUBLicATiONs
For a free copy of BNY Mellon’s Annual Report on Form
10-K, including the financial statements and the financial
statement schedules, or quarterly reports on Form 10-Q, as
filed with the Securities and Exchange Commission, send a
request by email to investorrelations@bnymellon.com or by
mail to Investor Relations at The Bank of New York Mellon
Corporation, One Wall Street, New York, NY 10286.

The 2013 Annual Report, as well as Forms 10-K, 10-Q and
8-K and quarterly earnings and other news releases, can be
viewed and printed at www.bnymellon.com/investorrelations.

TRANsFER AgENT AND REgisTRAR
Computershare
P.O. Box 30170
College Station, TX 77842
www.computershare.com

shAREhOLDER sERvicEs
Computershare maintains the records for our registered
shareholders and can provide a variety of services at no
charge such as those involving:
• Change of name or address
• Consolidation of accounts
• Duplicate mailings
• Dividend reinvestment enrollment
• Direct deposit of dividends
• Transfer of stock to another person

For assistance from Computershare, visit
www.computershare.com/investor or call +1 800 205 7699.

DiREcT sTOcK PURchAsE AND DiviDEND
REiNvEsTmENT PLAN
The Direct Stock Purchase and Dividend Reinvestment
Plan provides a way to purchase shares of common stock
directly from BNY Mellon at the current market value.
Nonshareholders may purchase their first shares of BNY
Mellon’s common stock through the Plan, and shareholders
may increase their shareholding by reinvesting cash
dividends and through optional cash investments. Plan
details are in a prospectus, which may be viewed online at
www.computershare.com/investor or obtained in printed
form by calling +1 800 205 7699.

ELEcTRONic DEPOsiT OF DiviDENDs
Registered shareholders may have quarterly dividends paid
on BNY Mellon’s common stock deposited electronically
to their checking or savings accounts, free of charge.
To have dividends deposited electronically, go to
www.computershare.com/investor to set up your account(s)
for direct deposit. If you prefer, you may also send a request
by email to web.queries@computershare.com or by mail to
Computershare, Shareholder Relations, P.O. Box 30170,
College Station, TX 77842.

For more information, call +1 800 205 7699.

shAREhOLDER AccOUNT AccEss

BY iNTERNET
www.computershare.com/investor

Shareholders can register to receive shareholder
information electronically. To enroll, visit
www.computershare.com/investor.

BY PhONE
24 hours a day/7 days a week
Toll-free in the U.S. +1 800 205 7699
Outside the U.S. +1 201 680 6578

Telecommunications Device for the Deaf (TDD) lines:
Toll-free in the U.S. +1 800 231 5469
Outside the U.S. +1 201 680 6610

BY mAiL
Computershare
P.O. Box 30170
College Station, TX 77842

The contents of the listed Internet sites are not incorporated in this
Annual Report.

�
The Bank of New York Mellon Corporation
One Wall Street
New York, NY 10286
+1 212 495 1784

www.bnymellon.com

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