The Bank of New York Mellon Annual Report 2014

FY2014 Annual Report · The Bank of New York Mellon

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Maximizing Returns
and Creating Value

2014 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 (a)
preferred stock dividends

net income applicable to common shareholders of the Bank of new York Mellon Corporation (a)

earnings per common share – diluted (a)(b)

KEY DATA
total revenue (a)
total expenses
Fee revenue as a percentage of total revenue excluding net securities gains (a)
percentage of non-u.S. total revenue (c)
Assets under management at year end (in billions) (d)
Assets under custody and/or administration at year end (in trillions) (e)

BALANCE SHEET AT DECEMBER 31
total assets (a)
total deposits
total the Bank of new York Mellon Corporation common shareholders’ equity (a)

CAPITAL RATIOS AT DECEMBER 31
Consolidated regulatory capital ratios: (f)(g)
Common equity tier 1 (“Cet1”) ratio
tier 1 capital ratio
total (tier 1 plus tier 2) capital ratio
leverage capital ratio

BnY Mellon common shareholders’ equity to total assets ratio (h)
BnY Mellon tangible common shareholders’ equity to tangible assets of operations ratio
– non-GAAp (h)

Selected regulatory capital ratios – fully phased-in – Non-GAAP: (h)(i)
estimated Cet1 ratio:(g)

Standardized Approach
Advanced Approach

estimated supplementary leverage ratio (“SlR”) (j)

2014

2013

2,567
(73)

2,494

2.15

$ 2,104
(64)

2,040

1.73

$ 15,692
12,177

$ 15,048
11,306

80%
38%

1,710
28.5

79%
37%

1,583
27.6

$ 385,303
265,869
35,879

$ 374,516
261,129
35,935

11.2%
12.2%
12.5%
5.6%

9.3%

6.5%

10.6%
9.8%
4.4%

14.5%
16.2%
17.0%
5.4%

9.6%

6.8%

10.6%
11.3%
n/A

(a)

(b)

(g)

(h)
(i)

(j)

Results for year ended and balances at Dec. 31, 2013 were restated to reflect the retrospective application of adopting new accounting guidance in 2014 related to our investments in
qualified affordable housing projects (ASu 2014-01).
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, if applicable.
Includes fee revenue, net interest revenue and income of consolidated investment management funds, net of net income attributable to noncontrolling interests.
excludes securities lending cash management assets and assets managed in the Investment Services business.
Includes the assets under custody and/or administration of CIBC Mellon Global Securities Services Company, a joint venture.
At Dec. 31, 2014, the Cet1, tier 1 and total risk-based regulatory capital ratios are based on Basel III components of capital, as phased-in, with asset risk-weightings using the Advanced
Approach framework under the final rules released by the Board of Governors of the Federal Reserve System (the “Federal Reserve”) on July 2, 2013 (the “Final Capital Rules”). the leverage
capital ratio is based on Basel III components of capital and quarterly average total assets, as phased-in. the risk-based and leverage capital ratios for Dec. 31, 2013 are based on Basel I
rules (including Basel I tier 1 common in the case of the Cet1 ratio). For additional information on these ratios, see “Capital” beginning on page 61.
the risk-based capital ratios at Dec. 31, 2014 include the net impact of the total consolidated assets of certain consolidated investment management funds in risk-weighted assets.
these assets were not included in the prior period. the leverage capital ratio was not impacted.
See “Supplemental Information – explanation of GAAp and non-GAAp financial measures” beginning on page 128 for a reconciliation of these ratios.
the estimated Cet1 ratios on a fully phased-in basis are based on our interpretation of the Final Capital Rules, which are being gradually phased in over a multi-year period.
For additional information on these ratios, see “Capital” beginning on page 61.
the estimated fully phased-in SlR is based on our interpretation of the Final Capital Rules, as supplemented by the Federal Reserve’s final rules on the SlR. When fully phased-in,
we expect to maintain an SlR of over 5%, 3% attributable to the minimum required SlR, and greater than 2% attributable to a buffer applicable to u.S. G-SIBs.

Dear Fellow Shareholders, Clients and Employees,

In 2014 we continued on our path to reposition our company – the Investments Company for the
World – to become an even stronger strategic partner to our clients. It was a year of significant
achievement in our Investment Services and Investment Management businesses, yet we still
have not realized our full potential. We increased assets under custody and/or administration to
$28.5 trillion and assets under management (AuM) to $1.7 trillion, retaining our leadership
position in the markets we serve. our market capitalization grew 14 percent to more than
$45 billion. And our total shareholder return again beat the median of the S&p Financials Index
and of our peer group. these are all good measures of improved performance and value creation.

While these are all positive achievements, growing revenues across many of our businesses
continued to be a challenge and our top-line revenues did not meet our plan. the strong u.S.
equity market performance was not enough to offset continued low interest rates, low market
volatility and weak equity market performance outside the u.S. to offset these weaknesses, we
focused intently on what we could control – expenses. In that regard, in 2014 many of the
initiatives we put in place in prior years really started paying off. on an operating basis, expenses
declined by 2 percenti versus 2013 and were significantly below our plan for the year. So, despite
soft revenues, our strong expense management resulted in positive operating leverage,– a key
goal for us.

While that is the story on an operating basis, I must note the significant one-time legal charges
and restructuring expenses we took during the year. Factoring in these items, overall noninterest
expenses grew by 8 percent year over year. However, these charges enabled us to put a number
of significant legal matters behind us, which we expect to lower our expense run rate in 2015
and beyond.

What we also recognize is that clients expect more from us, just as we expect more of ourselves.
the pace of global change is accelerating and we need to deliver more, better and even faster
than we did before.

We know we cannot solely rely on unpredictable markets to achieve results, so we put in place a
three-year plan, which we publicly shared in october, to deliver increased value to our sharehold
ers. our goal is to deliver revenue and earnings-per-share (epS) growth that is not dependent on
an improved interest-rate and economic environment. the work we’ve done to invest in revenue
opportunities to increase our profitability, and to streamline the company for improved efficiency,
is positioning us to deliver even stronger future results.

During 2014, we also strengthened our executive management team by adding new talent and
placing existing leaders into new roles that leverage their capabilities and expertise. these moves
will enable us to become a more nimble, thoughtful, productive and cost-effective service provid
er and investment manager. We hired and promoted some outstanding new leaders with proven
track records of driving change and improving performance. our new Chief Human Resources
officer, for example, is experienced at developing leadership talent. our new Chief Risk officer
is a recognized expert in his field who will help us meet or exceed regulatory requirements with
respect to our financial strength, risk management practices and integrity. our new head of Client
Service Delivery brings considerable public and private sector expertise in restructuring and
modernizing large, complex organizations to create better experiences for clients. And our new
General Counsel is helping us make substantial progress in addressing and resolving our most
significant legal matters.

We have a new Ceo of Investment Services, who is leading our business improvement efforts
and has a strong track record of success in operations and technology development – keys to
driving profitability in our services business. We also broadened the responsibilities of our
Ceo of Investment Management to include oversight of our Markets Group, capitalizing on
his extensive experience in the fixed-income and capital markets.

We strengthened our corporate governance by appointing three new directors to our Board in
2014 and one more in early 2015. they possess a wealth of relevant experience and complement
our existing directors; 14 of our 15 directors are independent.

Before turning to our strategic priorities, let’s recap our 2014 performance.

SUMMARY OF 2014 FINANCIAL RESULTS, YEAR-OVER-YEAR

REVENUE GROWTH: Revenue was up 4 percent, or down 1 percent on an adjusted basis.i
Challenging market conditions impeded some of our growth, and we did not achieve all of
the performance goals we had initially set.

In Investment Management, we benefited from an increased appetite for liability-driven
investments (lDI) as clients sought to better manage the risk in their pension plans. We also saw
greater interest in alternative investments as clients increased allocations to higher-growth
hedge fund, real estate and private equity investments. Additionally, we have begun to benefit
from the investments we’re making to expand our Wealth Management business into new u.S.
locations.

In Investment Services, we continued to achieve strong growth in clearing and global collateral
services, where we have been focused on broadening our unique suite of solutions for clients. the
decline in Corporate trust appears close to being over and should begin to contribute to revenue
growth in 2015. Asset Servicing is in the midst of a transformation designed to improve profitabil
ity and the value we deliver to clients as we consolidate platforms and functions to make it easier
for clients to do business with us. our goal is to drive down our costs, leverage our scale and be
the preferred provider of value-added solutions to our clients across Investment Services.

GENERATED POSITIVE OPERATING LEVERAGE: We controlled our operating expenses well, even
while absorbing elevated regulatory compliance costs and making investments in our business to
support future growth. on an adjusted basis, expenses were down 2 percent i year over year and
well below our original plan, and we generated positive operating leverage of 87 basis points.i So,
while revenue growth was soft, our intense focus on expense control paid off and helped create
shareholder value.

INCREASED EARNINGS PER SHARE: on a GAAp basis, we earned $2.15 per share in 2014, up
24 percent compared to 2013. those results include a significant after-tax legal expense in the
fourth quarter to address a number of legacy litigation matters, including substantially all of
the foreign exchange-related actions. We believe that taking this charge at this time is both
necessary and appropriate, as we take a pragmatic approach to resolving legal matters. this
action also allows us to concentrate our efforts on serving our clients for the future.

on an adjusted basis, we earned $2.39 per share, slightly below our plan but up 5 percent from
last year’s adjusted epS.i this was driven by modest growth in assets and market values, and
our success in winning new business and keeping expenses well controlled.

INCREASED RETURN ON TANGIBLE COMMON EQUITY (TCE): We achieved a healthy tCe return
of 16 percent, up from 15.3 percenti in 2013, which is higher than our peer group median and a
good measure of the value we are creating from the investments we are making.

MAINTAINED OUR STRONG CAPITAL POSITION: our transitional Standardized Approach common
equity tier 1 ratio (Cet1) was 15 percent and our estimated Basel III common equity tier 1 ratio
(Cet1) under the fully phased-in Advanced Approach stood at 9.8 percent at December 31, 2014.i
Both measures reflect our financial strength, and we believe we are well positioned to more than
meet our regulatory capital requirements into the future.

RETURNED VALUE TO SHAREHOLDERS: We increased our quarterly common stock dividend by
13 percent and repurchased more than $1.7 billion of our common stock, resulting in an earnings
payout ratio of 98 percent for 2014. this rate of return is among the highest in the industry and a
strength of our company.

ACHIEVED STRONG TOTAL SHAREHOLDER RETURN (TSR): our tSR was 18 percent for 2014 and
117 percent over the past three years. In both cases, we outperformed the median of the S&p
Financials Index and of our peer group.

OUR STRATEGIC PRIORITIES AND ACTIONS TO DRIVE LONG-TERM GROWTH

over the long term, our strategy is designed to create economic value for our company and our
clients by differentiating our services to strengthen and capitalize on our unique competitive
advantages. We have a clear set of strategic priorities to accelerate our progress. they include:

•

Improving our business processes, productivity and effectiveness while controlling
expenses and enhancing our efficiency;

• Driving revenue growth by leveraging our expertise and scale to offer broad-based,

innovative solutions to clients;

• Being a strong, trusted counterparty by maintaining our safety, soundness and

industry-leading liquidity and capital positions;

• Generating excess capital and deploying it effectively; and
• Attracting and retaining top talent.

IMPROVING BUSINESS PROCESSES, PRODUCTIVITY AND EFFECTIVENESS
We are taking action from top to bottom to further transform our company through a continuous
improvement process. It’s succeeding in enhancing productivity and service quality and reduc
ing costs and risk throughout the organization. We’ve already accomplished specific initiatives
to help us fund client solutions, implement regulatory changes and drive efficiency, and we’ve
identified additional opportunities. these productivity gains are allowing us to fund initiatives to
increase profitable revenue growth and improve our bottom line. In addition, we continue to
examine our portfolio of businesses. We exited several that didn’t fit strategically or weren’t
yielding expected results, thus freeing up resources to address our top priorities.

our accomplishments include:

• Streamlining our organization by reducing staff levels and layers, which is expected to yield

more than $100 million in run-rate savings, $50 million of which has already been realized
in 2014.

• eliminating 750,000 square feet of space in downtown Manhattan and beginning the planned
consolidation of our pittsburgh locations. We will do the same in other locations globally.

• Consolidating operating platforms to reduce costs and simplify our infrastructure. For

example, in 2014, we reduced our custody platforms from three to two and expect to be
down to one by early 2016.

III

•

Increasing the return on our technology investments by shifting more of our dollars from
tactical to strategic initiatives and reducing application development costs.
• Refocusing on our core businesses through a number of actions, including:

- Restructuring our Markets Group to reduce costs and exit some businesses that were

too capital-intensive or lacked effective size and scale.

- Shutting down our futures commission merchant derivatives clearing businesses in the

u.S. and Germany and selling our Corporate trust business in Japan and Mexico.

- Selling our investment in Wing Hang Bank.

DRIVING REVENUE GROWTH
the combined capabilities and intellectual capital of Investment Services and Investment
Management enable us to create additional value for clients and solutions that, in many cases,
our competitors can’t match. We are driving revenue growth by leveraging our expertise and scale
to offer broad-based, innovative solutions to our clients.

Leveraging Our Expertise and Scale
We are leveraging both our expertise and scale to deliver value to our stakeholders in many ways.

A few examples:

• We established our fourth innovation center, in California’s Silicon Valley, to support our ability
to harness emerging and disruptive technologies to gain new business insights, develop
innovative operational and technological capabilities, identify and hire top talent, and
pinpoint potential new ventures.

• We created a new Markets Group that brings together the capabilities and talents of our
Foreign exchange, Securities Finance, Collateral Management and Segregation, Capital
Markets and prime Brokerage businesses to meet the evolving trading, financing and
securities-lending requirements of our clients. We are combining our broad set of capabilities
to create unique and integrated solutions that deliver improved value to both the buy and sell
sides by reducing financing costs, addressing liquidity needs and helping clients navigate
risks that drive positive investment performance.

• We built a separately managed account capability in Asia through pershing and placed our
Investment Management products on the new platform. It’s a great collaboration that is
helping private banks and wealth managers serve their customers.

• We are now extending our private banking solutions, including credit lines and jumbo

mortgages, to pershing’s independent registered investment advisor clients. We made
more than $500 million in loans through this channel in the second half of 2014 alone.

Delivering Innovative Solutions to Our Clients
We’ve made a number of enhancements and investments to drive revenue and earnings growth
into the future and extend our leadership positions in the global markets we serve.

Within Investment Services:

• technology is a strategic asset for our company. our scale, combined with the investments
we are making in our technology platforms, drives development of innovative solutions and
enables our financial institution clients to provide their customers with top-tier, multi-class
capabilities without investing in infrastructure themselves. they gain a better product at a
lower price, improving their profitability. our strategy of owning our technology infrastructure
and application development, and insourcing the people who power it, has enabled us to
improve our results and reduce costs while retaining the institutional knowledge in-house.
We believe this provides us with a competitive advantage. Additionally, this strategy is
allowing us to team with our clients more efficiently and help them solve their most
pressing needs. It’s simply making us a smarter, more agile partner.

• We’ve also created a dedicated technology solutions unit that allows clients to leverage our

scale and utilize our proprietary applications to improve their profitability.

• We are enhancing our collateral management systems and foreign exchange (FX) electronic
trading platforms to provide broader capabilities for term financing, securities lending,
managing collateral and capturing more FX trading volume.

Within Investment Management:

• We are broadening the distribution of our investment strategies to the retail intermediary

and retirement channels, leveraging the pershing and Dreyfus platforms to reach
individuals through broker-dealers and financial advisors. We are providing a wide range of
registered investment advisors across the country with access to the broad, deep capabilities
of the largest investments companies in the world – capabilities they could not afford at the
cost and speed at which we can deliver them – helping them remain competitive in the
marketplace.

• We have been promoting our Wealth Management brand and expanding our sales force in
attractive new u.S. markets, an initiative that is already accelerating our revenue growth.
• Regulatory changes are driving certain traditional banking activities away from banks and

toward investment managers, including lending and the management of fixed-income assets
in pension funds. We are investing in and structuring ourselves to capitalize on this trend,
and we are already experiencing growth in these areas.

• At the beginning of 2015, we closed our acquisition of Cutwater Asset Management,
a u.S.-based fixed-income and solutions specialist with a 20-year track record and
approximately $23 billion in AuM. Cutwater is working closely with Insight, our highly
successful lDI specialty boutique, allowing us to extend our lDI and fixed-income
specialist strategies into the u.S. market.

BEING A STRONG, TRUSTED COUNTERPARTY
our status as a strong, trusted counterparty reflects the strength of our balance sheet, our overall
liquidity and capital positions, and our reputation as a sound and safe institution. our high credit
ratings allow us to assist with balance-sheet management and the overall securities financing
needs of our clients.

our continued investment in and focus on compliance, risk management and control functions
help us protect our strong capital position and enhance our status as a trusted counterparty.
We are also strengthening our technology to capture real-time data to improve our – and our
clients’ – decision-making.

Being a strong, trusted counterparty also means that every employee must recognize the vital
role we play in maintaining the safety and soundness of the financial markets. It is a role that
bears enormous responsibility and our integrity must never be compromised. thus, we continue
to emphasize through our training and leadership programs, and throughout all of our employee
communications, the importance of building a culture of doing what’s right, all of the time.

GENERATING EXCESS CAPITAL AND DEPLOYING IT EFFECTIVELY
over the last three years, we’ve generated approximately $10 billion of tangible capital. We have
a disciplined governance model designed to deploy capital effectively to fuel future growth and
increase value to shareholders. We consider acquisitions only when they enhance our core
strategy, exceed our internal rate of return and stand to achieve targeted outcomes faster and
more efficiently than could be achieved through organic means. our ability to generate capital
positions us well to comply with the new capital and liquidity requirements and, at the same
time, improve our ability to meet our net-interest-income objectives.

ATTRACTING AND RETAINING TOP TALENT
our investments expertise is unparalleled, reflecting the strength of our people and a
high-performance culture built on a foundation of enduring values.

We focus on attracting and retaining the most talented professionals in our industry across all
disciplines. our philosophy is simple: if we are invested in attracting and developing team mem
bers to the fullest, providing them with a dynamic and diverse workplace and giving them ample
opportunities to contribute, then they will stay, succeed and deliver excellence to our clients.

TAKING CARE OF THE COMMUNITIES WHERE WE WORK AND LIVE

What we do really matters. In addition to the services, strategies and advice we offer to help our
clients meet their financial goals and responsibilities, we also help address some of the most
serious challenges facing society today through a sustained commitment to corporate social
responsibility (CSR).

our total employee and company contributions to charities in communities around the world
increased in 2014 to $38 million, up 12 percent from 2013, including donations to support ebola
relief efforts. As part of our powering potential philanthropic focus, we continued to work with our
community partners to provide basic needs such as food, clothing and housing and expand our
support for job training and development programs that can lead to better jobs and self-
sufficiency. And, as part of our effort to use investments to drive positive change, we are piloting
a social innovation challenge to bring entrepreneurial ideas to social problems in a manner that
also produces investment returns. We have also been a leading advocate within the united
nations for improved rule of law – advancing both human rights for all and the ability of invest
ments to better flow to developing countries. It’s the right thing to do and it’s good for business.

We focus on eight CSR priorities: risk and reliability; strong governance; employee engagement;
diversity and inclusion; learning and development; social finance; community commitment; and
environmental management. Reflecting our continued progress in these areas, our company was
named to the Dow Jones Sustainability Indices (DJSI), one of the most highly regarded global
sustainability indices, for the second consecutive year. In addition, we received perfect scores for
climate change disclosure and performance in the Carbon Disclosure project’s S&p 500 Climate
performance leadership Index 2014 and its S&p 500 Climate Disclosure leadership Index 2014,
becoming the only u.S. financial company and one of only two S&p 500 companies to achieve the
top score two years in a row.

LOOKING FORWARD

the actions we’ve taken to bolster our organization have positioned us to execute against our
performance goals. the foundation for our future has never been stronger.

At our Investor Day in october 2014, we set three-year performance goalsii that call for healthy
earnings growth that is not dependent on a normalizing market – i.e., improvement in both the
forward curve in interest rates and the economic environment. We are targeting:

• Revenue growth of 3.5 to 4.5 percent in a flat interest-rate environment and 6 to 8 percent

in a normalizing market;

• epS growth of 7 to 9 percent in a flat-rate environment and 12 to 15 percent in a

normalizing market; and

• Return on tangible common equity of 17 to 19 percent with no rate changes and 20 to

22 percent in a normalizing market.

We are confident we can deliver on these targets.

I want to thank all of our team members and my executive Committee partners for their resolve
to realize the promise of our remarkable franchise for the benefit of our clients, shareholders,
employees and communities. our people are a rich source of competitive advantage – experts in
our field who are passionate about and creative in solving the challenges facing our clients today
and in the coming years.

I also wish to acknowledge our Board of Directors for their support and wise counsel. I note
with sadness the passing of Ruth e. Bruch, who served on our board with distinction for more
than a decade.

thank you for your continuing support of our great company – the Investments Company for
the World.

Gerald l. Hassell
Chairman and Chief executive officer

For a reconciliation and explanation of these non-GAAp measures, see pages 128-135 of our 2014 Annual Report.

ii please see our october 28, 2014, Investor Day presentation at www.bnymellon.com/investorrelations for

details regarding our targets and key assumptions.

VII

About BNY Mellon

OUR DISTINCTIVE AND ATTRACTIVE BUSINESS MODEL
BnY Mellon is an investments company. We manage and service financial assets. that’s what
we do. our business model is driven by twin engines of growth that span the entire investment
lifecycle: Investment Services and Investment Management. We service financial assets through
Investment Services, manage them through the 13 investment management boutiques within In
vestment Management and provide investment advice through our wealth management offerings.

this broad and diverse set of capabilities is centered on a simple idea – that, over time, financial
asset growth will exceed economic growth, creating the opportunity for excess return. Given our
global scale and diversity, we see more, and can deliver more, placing us in a strong position
competitively.

our business model is fee-based, with fees representing more than 80 percent of our revenues.
the vast majority of those fees are recurring. We can therefore grow our business without the
need to extend credit support. our credit ratings, capital ratios and payout ratio are each among
the highest in the industry.

our global strategy is powered by a strong and engaged leadership team, board of directors, and
talented employees. they focus on delivering insightful advice; innovative, value-added solutions;
and world-class service to our clients that drive long-term value to our shareholders.

LONG-TERM TRENDS FUEL OUR GROWTH
the drivers that create demand for our business model remain strong.

Individuals increasingly need to save and invest for their long-term needs.

•
• Maturing economies are investing in infrastructure and other economic development

programs to improve and stimulate their own growth rates.

• Capital rules and other regulations are dictating that investment managers and capital

•

markets providers become the suppliers of capital.
Investors are seeking strategies and insights that appropriately balance risk/return
rewards throughout the cycle.

• Cost and capital pressures are compelling financial institutions to seek a scalable, more
variable-cost servicing model, including technology platforms that offer a variety of
applications that can help them succeed with their customers.
Investors are requiring greater transparency into various investment strategies and better
risk analytics.

•

We are a global leader in almost every aspect of servicing financial assets. our broad set of
capabilities and advanced technology platforms enable speed to market and drive innovative,
cost-effective solutions and growth opportunities unique to BnY Mellon.

We also have investment management strategies to purchase securities by all forms of issuers,
from credit products to developed and emerging equities. We have become the seventh-largest
investment manager in the world – up from eighth just a year ago – by offering timely, insightful
strategies and attractive investment performance.

VIII

OUR CLIENTS
As a result of our leading and broad-based positions in both the Investment Services and Invest
ment Management businesses, our client base comprises a unique set of financial market leaders
– buy side, sell side, governments and market infrastructure providers. our clients include more
than 80 percent of Fortune 500 companies, 75 central banks that hold more than 90 percent of all
capital, and more than two-thirds of the top 1,000 pension funds. Most of our clients utilize both
major business lines, giving us dual revenue streams. Approximately 75 percent of our top 100
clients are enterprise clients – using the services of both Investment Services and Investment
Management – that contribute approximately $3 billion in revenue.

PARTNERING WITH OUR CLIENTS TO DRIVE THEIR SUCCESS
We are partnering with clients to help them with solutions to better manage their risk position
and make better-informed investment decisions.

our client coverage model is organized around the needs of key client segments. We have
full-service teams focused on the needs of investment managers; insurance companies;
banks, broker-dealers and advisors; corporate and public finance; and alternative asset
managers. this alignment positions us to develop more sophisticated and innovative solutions
for them.

the breadth of our capabilities and client base gives us exceptional insight into the evolving
needs of a large portion of the world’s capital markets. We leverage our insight and expertise to
continually create new sources of value for clients and shareholders. this means creating and
delivering solutions that make a difference to our clients while delivering profitable, risk-adjusted
returns and growth for our shareholders.

Financial Section

THE BANK OF NEW YORK MELLON CORPORATION

2014 Annual Report

Table of Contents

Exhibit 13.1

Financial Summary

Page
2

Financial Statements:

Page

Management’s Discussion and Analysis of Financial

Condition and Results of Operations:
Results of Operations:

General
Overview
Key 2014 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
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
Acronyms
Glossary

Report of Management on Internal Control Over

Financial Reporting

Report of Independent Registered Public

Accounting Firm

124

127

128

136

137

138

139

140

144

145

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

146

148

149

150

151

154

163

164

165

170

176

178

179

180

181

183

184

185

189

192

198

202

217

223

229

232

233

234

Performance Graph
Corporate Information

235

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 (a)
Net securities gains
Income from consolidated investment management funds
Net interest revenue

Total revenue (a)
Provision for credit losses
Noninterest expense

Income from continuing operations before income taxes (a)

Provision for income taxes (a)

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

Net income (a)

Net (income) attributable to noncontrolling interests (b)

Net income applicable to shareholders of The Bank of New York

Mellon Corporation (a)

Preferred stock dividends

Net income applicable to common shareholders of The Bank of New

York Mellon Corporation (a)

Earnings per diluted common share applicable to common

shareholders of The Bank of New York Mellon Corporation: (a)

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

Net income applicable to common stock

At Dec. 31

Interest-earning assets
Assets of operations (a)
Total assets (a)
Deposits
Long-term debt
Preferred stock
Total The Bank of New York Mellon Corporation common shareholders’

equity (a)

At Dec. 31

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

2014

2013

2012

2011

2010

12,558
91
163
2,880
15,692
(48)
12,177
3,563
912
2,651
—
2,651
(84)

2,567

(73)

11,715
141
183
3,009
15,048
(35)
11,306
3,777
1,592
2,185
—
2,185
(81)

2,104

(64)

11,286
162
189
2,973
14,610
(80)
11,333
3,357
842
2,515
—
2,515
(78)

2,437

(18)

11,566
48
200
2,984
14,798
1
11,112
3,685
1,122
2,563
—
2,563
(53)

2,510

—

10,757
27
226
2,925
13,935
11
10,170
3,754
1,112
2,642

(66)

2,576
(63)

2,513

—

2,494

2,040

2,419

2,510

2,513

2.15
—
2.15

1.73
—
1.73

2.03
—
2.03

2.02
—
2.02

2.10
(0.05)
2.05

317,646
376,021
385,303
265,869
20,264
1,562

$ 305,169
363,244
374,516
261,129
19,864
1,562

$ 292,887
347,745
359,226
246,095
18,530
1,068

$ 259,231
314,078
325,425
219,094
19,933
—

$ 180,541
232,697
247,463
145,339
16,517
—

35,879

35,935

35,346

33,408

32,350

1,710
28.5
289

1,583
27.6
235

1,380
26.3
237

1,255
25.1
266

1,166
24.1
269

(a) Results for years ended Dec. 31, 2013, Dec. 31, 2012, Dec. 31, 2011 and Dec. 31, 2010 were restated to reflect the retrospective application of adopting

new accounting guidance in 2014 related to our investments in qualified affordable housing projects (ASU 2014-01). See Note 2 of the Notes to
Consolidated Financial Statements for additional information.

(b) Primarily attributable to noncontrolling interests related to consolidated investment management funds.
(c) Excludes securities lending cash management assets and assets managed in the Investment Services business. Also excludes assets under management

(d)

related to Newton’s private client business that was sold in 2013.
Includes the assets under custody and/or administration (“AUC/A”) of CIBC Mellon Global Securities Services Company (“CIBC Mellon”), a joint
venture with the Canadian Imperial Bank of Commerce, of $1.1 trillion at Dec. 31, 2014, $1.2 trillion at Dec. 31, 2013 and $1.1 trillion at Dec. 31, 2012,
Dec. 31, 2011 and Dec. 31, 2010.

(e) Represents the total amount of securities on loan managed by the Investment Services business. Excludes securities for which BNY Mellon acts as an

agent, beginning in 2013, on behalf of CIBC Mellon clients, which totaled $65 billion at Dec. 31, 2014 and $62 billion at Dec. 31, 2013.

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 (a)(b)
Return on tangible common equity – Non-GAAP (a)(b)
Return on average assets
Continuing operations basis:
Return on common equity (a)(b)
Non-GAAP adjusted (b)(c)

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

Non-GAAP adjusted (a)(b)(c)

Pre-tax operating margin (b)

Non-GAAP adjusted (a)(b)(c)

Fee revenue as a percentage of total revenue excluding net securities

gains (a)

Percentage of non-U.S. total revenue (d)
Net interest margin (on a fully taxable equivalent basis)
Cash dividends per common share
Common dividend payout ratio (a)
Common dividend yield
Closing stock price per common share
Market capitalization (in billions)
Book value per common share – GAAP (a)(b)
Tangible book value per common share – Non-GAAP (a)(b)
Full-time employees
Year-end common shares outstanding (in thousands)
Average total equity to average total assets
Capital ratios at Dec. 31 (f)(g)

2014

2013

2012

2011

2010

6.8%
16.0
0.67

6.8%
8.1
16.0
17.6
23
28

38
0.97
0.66

5.9%
15.3
0.60

5.9%
8.3
15.3
19.7
25
28

37
1.13
0.58

31% (e)
1.6%

34% (e)
1.7%

7.0%
19.3
0.77

7.0%
8.8
19.3
21.8
23
29

37
1.21
0.52

26%
2.0%

7.5%
22.6
0.86

7.5%
9.0
22.6
24.5
25
30

37
1.36
0.48

24%
2.4%

8.1%
25.6
1.06

8.3%
9.9
26.2
28.3
27
32

36
1.70
0.36

18%
1.2%

40.57
45.4
32.09
14.70
50,300
1,118,228

34.94
39.9
31.46
13.95
51,100
1,142,250

25.70
29.9
30.38
12.81
49,500
1,163,490

19.91
24.1
27.62
10.56
48,700
1,209,675

30.20
37.5
26.06
8.90
48,000
1,241,530

10.2%

10.6%

11.0%

11.5%

13.1%

CET1 ratio (b)(h)(i)
Tier 1 capital ratio (h)(i)
Total (Tier 1 plus Tier 2) capital ratio (h)(i)
Leverage capital ratio (i)
BNY Mellon shareholders’ equity to total assets ratio (b)
BNY Mellon common shareholders’ equity to total assets ratio (a)(b)
BNY Mellon tangible common shareholders’ equity to tangible assets of

operations ratio – Non-GAAP (a)(b)

Estimated CET1 ratio, fully phased-in – Non-GAAP (b)(h)(j):

Standardized Approach
Advanced Approach

Estimated SLR, fully phased-in – Non-GAAP (b)(k)

(b)
(b)

11.2%
12.2
12.5
5.6
9.7
9.3

6.5

10.6
9.8
4.4

14.5%
16.2
17.0
5.4
10.0
9.6

6.8

10.6
11.3

N/A

13.5%
15.0
16.3
5.3
10.1
9.8

6.3

N/A
9.8
N/A

13.4%
15.0
17.0
5.2
10.3
10.3

6.4

N/A
N/A
N/A

11.8%
13.4
16.3
5.8
13.1
13.1

5.8

N/A
N/A
N/A

(a) Results for years ended Dec. 31, 2013, Dec. 31, 2012, Dec. 31, 2011 and Dec. 31, 2010 were restated to reflect the retrospective application of adopting

(b) See “Supplemental information – Explanation of GAAP and Non-GAAP financial measures” beginning on page 128 for the reconciliation of Non-GAAP

measures.

(c) Non-GAAP excludes the gains on the sales of our investment in Wing Hang and the One Wall Street building, the benefit primarily related to a tax

carryback claim, M&I, litigation and restructuring charges, the charge related to investment management funds, net of incentives, the net charge related
to the disallowance of certain foreign tax credits and amortization of intangible assets, if applicable.
Includes fee revenue, net interest revenue and income from consolidated investment management funds, net of net income attributable to noncontrolling
interests.

(d)

(e) The common dividend payout ratio was 25% for 2014 after adjusting for increased litigation expense, and 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.

(f)
(g) See “General” on page 4 for a clarification of the references to Basel I and Basel III used throughout this Annual Report.
(h) Beginning in 2014, risk-based capital ratios include the net impact of the total consolidated assets of certain consolidated investment management funds

in risk-weighted assets. These assets were not included in prior periods’ risk-based ratios. The leverage capital ratio was not impacted.

(i) At Dec. 31, 2014, the CET1, Tier 1 and Total risk-based regulatory capital ratios are based on Basel III components of capital, as phased-in, and asset
risk-weightings using the Advanced Approach framework. The leverage capital ratio is based on Basel III components of capital and quarterly average
total assets, as phased-in. The capital ratios prior to Dec. 31, 2014 are based on Basel I rules (including Basel I Tier 1 common in the case of the CET1
ratio). For additional information on these ratios, see “Capital” beginning on page 61.

(j) The estimated fully phased-in CET1 ratios are based on our interpretation of the final capital rules released by the Federal Reserve on July 2, 2013 (the
“Final Capital Rules”), which are being gradually phased-in over a multi-year period. For additional information on these ratios, see “Capital”
beginning on page 61.

(k) The estimated fully phased-in SLR as of Dec. 31, 2014 is based on our interpretation of the Final Capital Rules, as supplemented by the Federal Reserve’s

final rules on the SLR. When fully phased-in, we expect to maintain an SLR of over 5%, 3% attributable to the minimum required SLR, and greater than
2% attributable to a buffer applicable to U.S. G-SIBs.

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.

Certain business terms and commonly used acronyms
used in this Annual Report are defined in the
Glossary and Acronyms sections.

The following should be read in conjunction with the
Consolidated Financial Statements included in this
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 or otherwise include
components that differ from GAAP. 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 an
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
presentation. See “Supplemental information -

4 BNY Mellon

Explanation of GAAP and Non-GAAP financial
measures” beginning on page 128 for a reconciliation
of financial measures presented in accordance with
U.S. GAAP to adjusted Non-GAAP financial
measures.

In 2014, BNY Mellon elected to early adopt the new
accounting guidance included in ASU 2014-01,
“Accounting for Investments in Qualified Affordable
Housing Projects - a Consensus of the FASB
Emerging Issues Task Force.” As a result, we
restated the prior period financial statements to reflect
the impact of the retrospective application of the new
accounting guidance. See Note 2 of the Notes to
Consolidated Financial Statements for additional
information.

When in this Annual Report we refer to BNY
Mellon’s or our bank subsidiary’s “Basel I” capital
measures, we mean those capital measures, 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 CET1), we mean those capital measures as
calculated under the final revised capital rules (the
“Final Capital Rules”) released by the Federal
Reserve on July 2, 2013.

All information for 2014, 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, our former national bank subsidiary
located in Florida. We applied discontinued
operations accounting to this business. As a result,
certain information for 2010 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,

Results of Operations (continued)

BNY Mellon delivers informed investment
management and investment services in 35 countries
and more than 100 markets. As of Dec. 31, 2014,
BNY Mellon had $28.5 trillion in assets under
custody and/or administration, and $1.7 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.

Strategy and priorities

BNY Mellon’s businesses benefit from the global
growth in financial assets, the globalization of the
investment process, changes in demographics and the
continued evolution of the regulatory landscape -
each providing us with opportunities to advise and
service clients. Over the long term, our strategy is
designed to create economic value by differentiating
our services to create competitive advantages that
will deliver value to our clients and shareholders.

Our top priorities include:
•

improving our business processes, productivity
and effectiveness while controlling expenses and
enhancing our efficiency;
driving revenue growth by leveraging our
expertise and scale to offer broad-based,
innovative solutions to clients;
being a strong, trusted counterparty by
maintaining our safety and soundness and
industry-leading liquidity and capital positions;
generating excess capital and deploying it
effectively; and
attracting and retaining top talent.

•

Key initiatives

Within Investment Services, we are:

• making strategic platform investments in high-

growth markets to help clients lower their costs,
reduce capital investments and improve
profitability;
enhancing our collateral services and foreign
exchange trading platforms to provide clients
with broader capabilities;
creating market-leading, technology-driven
solutions for clients to generate high-value,
recurring-fee revenue growth through a newly
formed Technology Solutions Group; and
transforming our company through a continuous
improvement process to help us fund client

•

solutions, regulatory change and transformation
initiatives, while increasing efficiency and
improving our operating margin over the next
three years -- through 2017.

Within Investment Management, we are:

•

expanding the distribution of our investment
strategies to targeted client segments through
U.S. intermediary channels by realigning and
bolstering our Sales, Marketing and Product
functions;
promoting our Wealth Management brand by
broadening the distribution of our value-added
solutions in targeted U.S locations; and
connecting our Wealth Management services to
the rest of BNY Mellon by offering solutions to
Pershing clients.

As we execute our strategy, we are continuing to
drive efficient regulatory compliance for us and for
our clients globally. Excellence in risk management
is essential and we continue to invest in systems to
comply with global regulations. Maintaining our
strong capital position is a priority as we seek to
maintain our balance sheet strength and deploy our
capital efficiently to fuel future growth and to return
value to shareholders.

With respect to our Basel III CET1, which is a
measure of our financial strength, our current target is
to maintain our ratio more than 100 basis points
above the regulatory minimum guidelines. As a U.S.
G-SIB, we will be subject to the Basel III SLR. We
expect to establish a target Basel III SLR as we move
closer to implementation in 2018.

As we discussed at our Investor Day in October 2014,
our key initiatives -- driving organic revenue growth,
lowering costs and reducing risks -- will extend into
2015 and beyond as we continue to transform our
company to remain a global leader in investment
services and investment management.

Key 2014 and subsequent events

Litigation expense

In February 2015, BNY Mellon adjusted its financial
results for the fourth quarter ended Dec. 31, 2014 to
include an additional after-tax litigation expense of
$598 million in anticipation of the resolution of
several previously disclosed matters, including

BNY Mellon 5

Results of Operations (continued)

substantially all of the foreign exchange-related
actions.

resulted in an after-tax gain of $204 million, or $346
million pre-tax.

Real estate fund administration outsourcing

Supplementary leverage ratio

In February 2015, BNY Mellon announced an
outsourcing agreement with Deutsche Asset & Wealth
Management. Under the agreement, BNY Mellon
will provide direct real estate and infrastructure fund
finance, fund accounting, asset management
accounting, and client and financial reporting
functions for Deutsche Asset & Wealth
Management’s approximately $46 billion in assets
under administration.

Acquisition of Cutwater Asset Management

In January 2015, BNY Mellon completed the
acquisition of Cutwater Asset Management, a U.S.
based fixed income and solutions specialist with
approximately $23 billion in assets under
management at acquisition. Cutwater will work
closely with Insight Investment, a leading European
asset manager and one of BNY Mellon’s premier
investment firms.

Completion of federal income tax exam

In November 2014, the IRS notified us that our
carryback claim was approved. As a result, our
federal income tax returns are closed to further
examination through 2010. A tax benefit of $150
million primarily for the tax carryback claim was
reflected in the results for fourth quarter of 2014. For
additional information, see Note 12 of the Notes to
Consolidated Financial Statements.

Exit of the derivatives sales and trading business

In September 2014, BNY Mellon announced that it
repositioned the BNY Mellon Markets Groups and
will be exiting the derivatives sales and trading
business over the next several years. This action will
be beneficial to our operating margin and return on
capital.

Corporate headquarters

In September 2014, BNY Mellon sold its One Wall
Street office building in lower Manhattan for $585
million. BNY Mellon has occupied the 50 story, 1.1
million square foot building since 1989. The sale

6 BNY Mellon

The Final Capital Rules include a minimum 3% SLR
to become effective as a binding ratio on Jan. 1, 2018,
although commencing in January 2015 each
Advanced Approaches banking organization is
required to calculate and report its SLR.

On Sept. 3, 2014, the U.S. federal banking agencies
issued a final rule implementing the enhanced SLR.
An enhanced SLR applicable to BNY Mellon and the
other U.S. G-SIB bank holding companies will
require a buffer in excess of 2% over the minimum
3% SLR, for a total SLR in excess of 5%. In
addition, the eight U.S. G-SIBs’ insured depository
institution subsidiaries, regardless of the amount of
their consolidated assets or assets under custody, must
maintain a 6% SLR to be considered “well
capitalized.”

BNY Mellon’s estimated fully phased-in SLR of
4.4% at Dec. 31, 2014 was based on our
interpretation of the Final Capital Rules, as
supplemented by the final rules implementing the
SLR.

BNY Mellon expects to fully satisfy the requirements
of the SLR on or before it is phased-in. For
additional information regarding the SLR, see
“Supervision and Regulation - Basel III Final Capital
Rules or Proposals.”

Liquidity coverage ratio

The Basel III framework requires banking
organizations 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 LCR, is designed to ensure that
certain banking organizations, including BNY
Mellon, maintain a minimum amount of
unencumbered HQLA sufficient to withstand the net
cash outflow under a hypothetical standardized acute
liquidity stress scenario for a 30-day time horizon.
For additional information on HQLA, see “Liquidity
and Dividends” and “Supervision and Regulation -
Liquidity Standards - Basel III and U.S. Proposals.”

Results of Operations (continued)

On Sept. 3, 2014, the U.S. federal banking agencies
issued a final rule (the “Final LCR Rule”) to
implement the LCR in the U.S. Since Jan. 1, 2015,
covered companies, including BNY Mellon, The
Bank of New York Mellon and BNY Mellon, N.A.,
have been required to meet an LCR of 80%,
calculated monthly for a six month period, after
which the LCR must be calculated daily. The
required minimum LCR level will increase annually
by 10% increments until Jan. 1, 2017, at which time
we will be required to meet an LCR of 100%. As of
January 2015, based on our interpretation of the Final
LCR Rule, we believe we are in compliance with
applicable LCR requirements on a phased-in basis.
For additional information on the LCR, see
“Supervision and Regulation - Liquidity Standards -
Basel III and U.S. Proposals.”

Sale of our equity investment in Wing Hang Bank
Limited (“Wing Hang”)

In July 2014, BNY International Financing Corp., a
subsidiary of BNY Mellon, sold our equity
investment in Wing Hang, which is located in Hong
Kong, to Oversea-Chinese Banking Corporation
Limited, resulting in an after-tax gain of $315
million, or $490 million pre-tax. Equity income
related to our investment in Wing Hang totaled $20
million through July of 2014 and $95 million in full-
year 2013, including $37 million from the sale of a
property.

Acquisition of HedgeMark International, LLC

In May 2014, BNY Mellon acquired the remaining
65% interest of HedgeMark International, LLC, a
provider of hedge fund managed account and risk
analytic services. Since 2011, BNY Mellon has held
a 35% ownership stake in HedgeMark.

Organizational changes

BNY Mellon announced a series of organizational
changes as follows:

• Curtis Arledge, currently Vice Chairman and

CEO of Investment Management, added to his
responsibilities the oversight for a newly formed
BNY Mellon Markets Group. The BNY Mellon
Markets Group includes Global Markets, Global
Collateral Services and Prime Services. Day-to
day operations of the group will be managed by

Kurt Woetzel, the President of the BNY Mellon
Markets Group.

• Brian Shea was appointed Vice Chairman and
CEO of Investment Services, in addition to his
oversight of Client Service Delivery and Client
Technology Solutions.

• Monique Herena was appointed Senior Executive
Vice President and Chief Human Resources
Officer.

• Kevin McCarthy was appointed Senior Executive

•

Vice President and General Counsel.
James S. Wiener was appointed Senior Executive
Vice President and Chief Risk Officer.
• Douglas Shulman was appointed Senior

Executive Vice President and Global Head of
Client Service Delivery.

Restructuring charge

In 2014, BNY Mellon recorded an after-tax
restructuring charge of $110 million, or $177 million
pre-tax, primarily reflecting severance expense
relating to streamlining actions. Streamlining actions
include rationalizing our staff and simplifying and
automating global processes across Investment
Services, technology and operations.

Charge related to certain administrative errors

In 2014, BNY Mellon recorded a pre-tax charge of
$104 million, net of incentives, in connection with the
previously disclosed administrative errors relating to
certain offshore tax-exempt funds that we manage.
The errors relate to the resident status of such funds.

Capital plan and share repurchase program and
dividend increase

In March 2014, BNY Mellon received confirmation
that the Federal Reserve did not object to our 2014
capital plan submitted in connection with CCAR.
The board of directors subsequently approved the
repurchase of up to $1.74 billion worth of common
stock beginning in the second quarter of 2014 and
continuing through the first quarter of 2015.

In 2014, we repurchased 46.2 million common shares
at an average price of $36.13 per common share for a
total of $1.7 billion. We continued to repurchase
shares in the first quarter of 2015 under the 2014
capital plan and expect to substantially complete our
authorized repurchase of $425 million worth of
common shares in the first quarter of 2015.

BNY Mellon 7

Results of Operations (continued)

On April 7, 2014, the board of directors also
approved a 13% increase in BNY Mellon’s quarterly
common stock dividend from $0.15 per common
share to $0.17 per common share.

We submitted our 2015 capital plan on Jan. 5, 2015.
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, in March 2015. We
anticipate announcing our 2015 capital plan shortly
thereafter.

Exit from parallel run period for calculating risk-
weighted assets under the Advanced Approach 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. As
a result, on April 1, 2014, BNY Mellon transitioned
from the general risk-based capital rules to the Final
Capital Rules’ Advanced Approach, subject to
ongoing qualification. We were required to comply
with Advanced Approach reporting and public
disclosures commencing on June 30, 2014. This
means our CET1, Tier 1, and total capital ratios are
determined using the higher of the risk-weighted
assets as calculated under the general risk-based
capital rules (which use Basel I-based risk weighting
for 2014 and the Final Capital Rules’ new
Standardized Approach commencing on Jan. 1, 2015)
and under the Advanced Approach.

In each reporting quarter since exiting parallel run,
BNY Mellon’s risk-based capital ratios have been
calculated using risk-weighted assets determined
under the Advanced Approach methodology.

Summary of financial results

We reported net income applicable to common
shareholders of $2.5 billion or $2.15 per diluted
common share in 2014, or $2.8 billion or $2.39 per
diluted common share, adjusted for gains related to
the sales of our equity investment in Wing Hang and
the One Wall Street building, the benefit primarily
related to a tax carryback claim, litigation and
restructuring charges and the charge related to
investment management funds, net of incentives. In
2013, net income applicable to common shareholders
totaled $2.0 billion, or $1.73 per diluted common
share, or $2.7 billion, or $2.28 per diluted common
share, adjusted for litigation and restructuring

8 BNY Mellon

charges, the charge related to investment management
funds, net of incentives, and the U.S. Tax Court’s
decisions related to the disallowance of certain
foreign tax credits. See “Supplemental information -
Explanation of GAAP and Non-GAAP financial
measures” beginning on page 128 for the
reconciliation of Non-GAAP measures.

Highlights of 2014 results

• AUC/A totaled $28.5 trillion at Dec. 31, 2014
compared with $27.6 trillion at Dec. 31, 2013.
The increase of 3% primarily reflects higher
market values and net new business, partially
offset by the unfavorable impact of a stronger
U.S. dollar, based on year-end rates. (See the
“Investment Services business” beginning on
page 27).

• AUM, excluding securities lending cash

management assets and assets managed in the
Investment Services business, totaled a record
$1.71 trillion at Dec. 31, 2014 compared with
$1.58 trillion at Dec. 31, 2013. The 8% increase
resulted from higher equity market values and net
new business, partially offset by the unfavorable
impact of a stronger U.S. dollar, based on year-
end rates. (See the “Investment Management
business” beginning on page 23).

Investment services fees totaled $6.9 billion in
2014, an increase of 2% compared with $6.8
billion in 2013. Higher asset servicing fees,
reflecting organic growth, higher market values,
higher collateral management fees in Global
Collateral Services and net new business, as well
as higher clearing services fees, primarily driven
by higher mutual fund and asset-based fees, were
partially offset by lower Corporate Trust fees and
lower corporate actions and dividend fees in
Depositary Receipts. (See “Investment Services
business” beginning on page 27).

Investment management and performance fees
totaled $3.5 billion in 2014, a 3% increase
compared with $3.4 billion in 2013. The increase
was primarily driven by higher equity market
values, net new business and the favorable impact
of a weaker U.S. dollar, partially offset by higher
money market fee waivers and lower
performance fees. (See “Investment
Management business” beginning on page 23).

•

• Foreign exchange and other trading revenue

totaled $570 million in 2014 compared with $674
million in 2013. In 2014, foreign exchange

Results of Operations (continued)

revenue totaled $578 million, a decrease of 5%
compared with $608 million in 2013. The
decrease was driven by lower volatility, partially
offset by higher volumes. Total other trading was
a net loss of $8 million in 2014, compared with
with revenue of $66 million in 2013. (See “Fee
and other revenue” beginning on page 11).

•

Investment and other income totaled $1.2 billion
in 2014 compared with $481 million in 2013.
The increase primarily reflects the gains on the
sales of our equity investment in Wing Hang and
the One Wall Street building, partially offset by
lower equity investment revenue. (See “Fee and
other revenue” beginning on page 11).

• Net interest revenue totaled $2.9 billion in 2014
compared with $3.0 billion in 2013 and net
interest margin (FTE) was 0.97% in 2014
compared with 1.13% in 2013. Both decreases
primarily resulted from lower yields, lower
accretion, and the impact of interest rate hedging,
partially offset by a change in the mix of assets
and higher average interest-earning assets driven
in part by higher deposits. (See “Net interest
revenue” beginning on page 15).

• The provision for credit losses was a credit of $48

million in 2014 driven by the continued
improvement in the credit quality of the loan
portfolio. (See “Asset quality and allowance for
credit losses” beginning on page 50).

• Noninterest expense totaled $12.2 billion in 2014

compared with $11.3 billion in 2013. The
increase primarily reflects higher litigation
expense and restructuring charges, partially offset
by lower staff expense. Total noninterest expense
excluding amortization of intangible assets, M&I,
litigation and restructuring charges, and the
charge related to investment management funds
(Non-GAAP) decreased by $237 million, or 2%,
primarily reflecting lower staff and business
development expenses and a decrease in the cost
of generating certain tax credits, partially offset
by higher professional, legal and other purchased
services. (See “Noninterest expense” beginning
on page 18).

• The provision for income taxes was $912 million
(25.6% effective tax rate) in 2014 including a net
benefit primarily related to litigation expense and
the approval of a tax carryback claim, offset by
the sales of our investment in Wing Hang and the
One Wall Street building. (See “Income taxes”
on page 19).

• The net unrealized pre-tax gain on our total

investment securities portfolio was $1.3 billion at
Dec. 31, 2014 compared with $309 million at
Dec. 31, 2013. The increase was primarily driven
by a decline in market interest rates. (See
“Investment securities” beginning on page 44).

• Our estimated Basel III CET1 ratio (Non-GAAP)
calculated under the Advanced Approach on a
fully phased-in basis was 9.8% at Dec. 31, 2014
and 11.3% at Dec. 31, 2013. The decrease was
primarily driven by increases in estimated risk-
weighted assets which more than offset an
increase in the estimated Basel III CET1 capital.
Our estimated Basel III CET1 ratio (Non-GAAP)
calculated under the Standardized Approach on a
fully phased-in basis was 10.6% at both Dec. 31,
2014 and Dec. 31, 2013. (See “Capital”
beginning on page 61).

Results for 2013

In 2013 we reported net income applicable to
common shareholders of BNY Mellon of $2.0 billion,
or $1.73 per diluted common share. These results
were primarily driven by:

•

Investment services fees totaled $6.8 billion in
2013, an increase of 4% compared with $6.6
billion in 2012. The increase resulted from
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.

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 unfavorable impact of the stronger U.S.
dollar and higher money market fee waivers.

• Foreign exchange and other trading revenue
totaled $674 million in 2013, compared with
$692 million in 2012. In 2013, foreign exchange
revenue increased 17%, driven by higher volumes
and volatility. Other trading revenue decreased in
2013 reflecting lower fixed income trading
revenue.

BNY Mellon 9

•

Investment management and performance fees
totaled $3.2 billion reflecting higher market
values, net new business and higher performance
fees.

• Foreign exchange and other trading revenue
totaled $692 million reflecting lower foreign
exchange revenue partially offset by improved
fixed income trading revenue.

• The provision for credit losses was a credit of $80

million largely driven by a reduction in the
allowance for credit losses related to the
residential mortgage loan portfolio.

• Noninterest expense totaled $11.3 billion

reflecting 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.

Results of Operations (continued)

• 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.

• 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
initiatives.

• The provision for income taxes was $1.6 billion
(42.1% effective tax rate) in 2013 including a
15.7% net charge, or $593 million, resulting from
the U.S. Tax Court’s decisions related to the
disallowance of certain foreign tax credits.

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
reflecting improved asset servicing revenue,
driven by net new business and higher market
values, as well as higher clearing and treasury
services revenues, which 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.

10 BNY Mellon

Results of Operations (continued)

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 (b)
Total fee revenue (b)

Net securities gains

Total fee and other revenue (b)

2014

2013

2012

$ 4,075
1,335
968
564
6,942
3,492
570
173
169
1,212
12,558
91
$12,649

$ 3,905 $ 3,780
1,193
1,052
549
6,574
3,174
692
192
172
482
11,286
162
$ 11,856 $ 11,448

1,264
1,090
554
6,813
3,395
674
180
172
481
11,715
141

2014
vs.
2013

4%
6
(11)
2
2
3
(15)
(4)
(2)
N/M
7
N/M

Fee revenue as a percentage of total revenue excluding net securities gains (b)

80%

79%

78%

8%
AUM at period end (in billions) (c)
3%
AUC/A at period end (in trillions) (d)
(a) Asset servicing fees include securities lending revenue of $158 million in 2014, $155 million in 2013 and $198 million in 2012.
(b) Results for years ended Dec. 31, 2013 and Dec. 31, 2012 were restated to reflect the retrospective application of adopting new

$ 1,583 $ 1,380
$ 27.6 $ 26.3

$ 1,710
$ 28.5

2013
vs.
2012

3%
6
4
1
4
7
(3)
(6)
—
—
4
N/M

15%
5%

accounting guidance in 2014 related to our investments in qualified affordable housing projects (ASU 2014-01). See Note 2 of the Notes
to Consolidated Financial Statements for additional information.

(c) Excludes securities lending cash management assets and assets managed in the Investment Services business. Also excludes assets

under management related to Newton’s private client business that was sold in 2013.

(d) Includes the AUC/A of CIBC Mellon of $1.1 trillion at Dec. 31, 2014, $1.2 trillion at Dec. 31, 2013 and $1.1 trillion at Dec. 31, 2012.

Fee and other revenue

Fee and other revenue totaled $12.6 billion in 2014,
an increase of 7% compared with $11.9 billion in
2013. The increase was primarily driven by higher
investment and other income, asset servicing revenue
and investment management revenue, partially offset
by lower issuer services revenue and foreign
exchange and other trading revenue.

Investment services fees

Investment services fees were impacted by the
following compared with 2013:

• Asset servicing fees increased 4% primarily

reflecting organic growth, higher market values
and net new business.

• Clearing services fees increased 6% primarily
driven by higher mutual fund and asset-based
fees, partially offset by higher money market fee
waivers.
Issuer services fees decreased 11% primarily
reflecting lower Corporate Trust fees and lower

•

corporate actions and dividend fees in Depositary
Receipts.

• Treasury services fees increased 2% primarily

reflecting higher payment volumes.

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

Investment management and performance fees

Investment management and performance fees totaled
$3.5 billion in 2014, an increase of 3% compared
with 2013. The increase was primarily driven by
higher equity market values, net new business and the
favorable impact of a weaker U.S. dollar (primarily
versus the British Pound), partially offset by higher
money market fee waivers and lower performance
fees. Performance fees were $115 million in 2014
and $130 million in 2013.

Total AUM for the Investment Management business
was a record $1.7 trillion at Dec. 31, 2014, compared
with $1.6 trillion at Dec. 31, 2013. The increase
primarily resulted from higher equity market values

BNY Mellon 11

Results of Operations (continued)

and net new business, partially offset by the
unfavorable impact of a stronger U.S. dollar, based on
year-end rates. Net long-term inflows in 2014 totaled
$48 billion and primarily benefited from liability-
driven investments, while short-term outflows were
$1 billion.

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 (loss):

Fixed income
Equity/other

Total other trading revenue
(loss)
Total foreign exchange and
other trading revenue

2014

2012
$ 578 $ 608 $ 520

2013

(16)
8

(8)

38
28

142
30

172

$ 570 $ 674 $ 692

Foreign exchange and other trading revenue
decreased $104 million, or 15%, from $674 million in
2013. In 2014, foreign exchange revenue totaled
$578 million, a decrease of 5% compared with $608
million in 2013. The decrease was driven by lower
volatility, partially offset by higher volumes. Total
other trading loss was $8 million in 2014, compared
to revenue of $66 million in 2013. The decrease
primarily reflects losses on hedging activities within
one of the Investment Management boutiques and
lower fixed income derivatives trading revenue due to
exiting the derivatives sales and trading business.
Foreign exchange revenue and fixed income trading
revenue are reported in the Investment Services
business and the Other segment. Equity/other trading
revenue is primarily reported in the Other segment.

Our foreign exchange trading 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 corporate and institutional

12 BNY Mellon

clients. These revenues also depend on our ability to
manage the risk associated with the currency
transactions we execute. The 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 programs, 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
programs, which includes an option called the
Defined Spread Program that 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 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 programs; on a
per-transaction basis, the costs associated with the
standing instruction programs generally 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 our
historical standing instruction program, known as
Session Range, we typically assigned a price derived
from the daily pricing range for marketable-size
foreign exchange transactions (generally more than

Results of Operations (continued)

$1 million) executed between global financial
institutions, known as the “interbank range.” Using
the interbank range for the given day, we typically
priced client purchases of currencies at or near the
high end of this range and client sales of currencies at
or near the low end of this range. In the first quarter
of 2014, we upgraded our Session Range program.
The upgrades include pricing pursuant to pre-defined
rules and enhanced post-trade reporting, with
transactions priced once per day generally within the
interbank range of the day, and subject to application
of a price collar, with price being specific to session,
pricing location and currency pair. 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. Separately, the standing
instruction Defined Spread Program sets prices for
transactions in each pricing cycle (several times a day
in the case of developed market currencies) by adding
a predetermined spread either 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
description of the pricing rules is set forth in the
Defined Spread Program disclosure documentation,
which is available to clients and their investment
managers.

A shift by custody clients from the standing
instruction programs to other trading options
combined with competitive market pressures on the
foreign exchange business may negatively impact our
foreign exchange revenue. For the year ended Dec.
31, 2014, our total revenue for all types of foreign
exchange trading transactions was $578 million, or
approximately 4% of our total revenue, and
approximately 35% of our foreign exchange revenue
resulted from foreign exchange transactions
undertaken through our standing instruction
programs.

We continue to invest in our foreign exchange trading
and execution capabilities, which is leading towards
enhanced client service and higher volumes.

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

The $7 million decrease in distribution and servicing
fee revenue compared with 2013 primarily reflects an
increase in money market fee waivers. The impact of
distribution and servicing fees on income in any one
period is partially offset by distribution and servicing
expense paid to other financial intermediaries to
cover their costs for distribution and servicing of
mutual funds. Distribution and servicing expense is
recorded as noninterest expense on the income
statement.

Financing-related fees

Financing-related fees, which are primarily reported
in the Other segment, include capital markets fees,
loan commitment fees and credit-related fees.
Financing-related fees totaled $169 million in 2014
and $172 million in 2013.

Investment and other income

Investment and other income
(in millions)
Asset-related gains
Corporate/bank-owned life
insurance
Expense reimbursements from
joint venture
Lease residual gains
Seed capital gains
Private equity gains
Equity investment revenue
Transitional services agreements
Other income (a)

Total investment and other
income (a)

2014
$ 872 $

2013

71 $

2012
34

131

144

148

55
49
20
6
1
—
78

42
18
34
6
98
11
57

38
51
59
8
16
24
104

$ 1,212 $ 481 $ 482

(a) Results for the years ended Dec. 31, 2013 and Dec. 31, 2012
were restated to reflect the retrospective application of
adopting new accounting guidance in 2014 related to our
investments in qualified affordable housing projects (ASU
2014-01). See Note 2 of the Notes to Consolidated Financial
Statements for additional information.

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

Investment and other income, which is primarily
reported in the Other segment and Investment
Management business, includes asset-related gains,
insurance contracts, expense reimbursements from
our CIBC Mellon joint venture, lease residual gains,
seed capital gains, gains on private equity
investments, equity investments, transitional services

BNY Mellon 13

Results of Operations (continued)

agreements, and other income. Asset-related gains
include real estate, loans 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 Shareowner Services business, which was sold on
Dec. 31, 2011. Other income primarily includes
foreign currency remeasurement gain (loss), other
investments and various miscellaneous revenues. The
$731 million increase in investment and other income
compared with 2013 primarily resulted from the gains
on the sales of the equity investment in Wing Hang
and the One Wall Street building, partially offset by
lower equity investment revenue.

Net securities gains

2013 compared with 2012

Fee and other revenue totaled $11.9 billion in 2013
compared with $11.4 billion in 2012. The increase
primarily reflects higher investment management and
performance fees, 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 increased 4% compared with
2012 reflecting 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.

Net securities gains totaled $91 million in 2014
compared with $141 million in 2013. The low
interest rate environment in 2014 and 2013 created
the opportunity for us to realize gains as we
rebalanced and managed the duration risk of the
investment securities portfolio.

Investment management and performance fees
increased 7% primarily reflecting 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 unfavorable
impact of the stronger U.S. dollar.

Foreign exchange and other trading revenue
decreased 3%. Foreign exchange revenue increased
17% driven by higher volumes and volatility. Other
trading revenue decreased 62% due to lower
derivatives trading revenue and a loss on trading
securities driven by higher interest rates.

14 BNY Mellon

Results of Operations (continued)

Net interest revenue

(dollars in millions)
Net interest revenue (non-FTE)
Tax equivalent adjustment
Net interest revenue (FTE) – Non-GAAP
Average interest-earning assets
Net interest margin (FTE)

2014

2,880
62
2,942
$ 303,991

2013
3,009 $
63
3,072

2012
2,973
55
3,028
$ 272,841 $ 250,450

0.97%

1.13%

1.21%

2014
vs
2013

2013
vs
2012

(4) %
(2)
(4) %
11 %
(16) bps

1 %

N/M

1 %
9 %
(8) bps

Net interest revenue totaled $2.9 billion in 2014, a
decrease of $129 million compared to 2013 primarily
resulting from lower yields, lower accretion and the
impact of interest rate hedging. The decrease was
partially offset by a change in the mix of assets and
higher average interest-earning assets driven by
higher deposits.

The net interest margin (FTE) was 0.97% in 2014
compared with 1.13% in 2013. The decline in the net
interest margin (FTE) reflects the factors noted
above.

Average interest-earning assets were $304 billion in
2014 compared with $273 billion in 2013. The
increase was due in part to higher client deposits.
Average total securities increased to $113 billion in
2014, up from $108 billion billion in 2013, reflecting
our strategy to increase our high quality liquid assets
in the securities portfolio. Average loans increased to
$54 billion in 2014, up from $48 billion in 2013,
primarily driven by higher margin loans. Average
assets related to interest-bearing deposits with the
Federal Reserve and other central banks increased to
$87 billion in 2014, up from $67 billion in 2013,
reflecting higher client deposits.

In the second half of 2014, we reduced our interbank
placement assets and increased our high quality liquid
assets in the securities portfolio.

In 2014, several of Europe’s central banks have cut
key deposit interest rates below zero. BNY Mellon
has charged and/or reserves the right to charge
negative interest rates, where appropriate, based on
currency, which partially offset the actions of the
central banks. The impact of the continuing decline
of European reinvestment rates may negatively
impact our net interest revenue.

2013 compared with 2012

Net interest revenue of $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. 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.

BNY Mellon 15

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

2014
Interest

Average rates

238
207
86
182

199
328
170
697

310
781
154

235
283
518
123
1,886
3,296

(a)

(b)

7
3
4
15
29

31
—
23
54
83
(13)
25

2
4
6
2
9
242
354

35,588
86,594
14,704
17,484

6,461
16,923
13,342
36,726

20,545
45,313
6,070

15,116
20,827
35,943
5,024
112,895
303,991
(195)
5,472
52,648
10,650
372,566

5,605
1,186
2,810
41,779
51,380

7,303
4,572
97,543
109,418
160,798
18,631
2,199

183
844
1,027
2,546
9,502
20,601
215,304
81,741
26,912
9,315
333,272

242

38,180
872
39,052
372,566

31%
35

0.67%
0.24
0.59
1.04

3.08
1.93
1.28
1.90

1.51
1.72
2.56

1.56
1.36
1.44
2.43
1.67
1.08%

0.12%
0.28
0.14
0.04
0.06

0.42
0.01
0.02
0.05
0.05
(0.07)
1.12

1.32
0.45
0.61
0.08
0.09
1.17
0.16%

0.97%

Includes fees of $29 million in 2014. 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 $62 million in 2014, and is based on the applicable tax rate (35%).
(c)

Includes the Cayman Islands branch office.

16 BNY Mellon

Results of Operations (continued)

Average balances and interest rates (continued)

2013

2012

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

Average
balance

Interest

Average
rates

Average
balance

Interest

Average
rates

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 office

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)

0.24

0.63
1.28

3.46
2.12
1.72
2.24

1.49
2.12
2.64

3.42
1.63
2.47
2.54
2.18
1.42%

0.22%
0.18
0.10
0.08
0.11

0.77
0.05
0.07
0.12
0.11
—
1.65

1.51
1.04
1.22
0.19
0.10
1.66
0.30%

$ 41,222 $ 279

0.68%

$ 38,959 $ 388

1.00%

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

150

47
160

192
322
160
674 (a)

292
859
158

512
126
638
158
2,105

$ 272,841 $ 3,415 (b)

(230)
5,662
52,438
11,600
$ 342,311

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%

63,785

5,492
13,087

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

17,880
38,568
5,060

15,879
17,942
33,821
3,825
99,154

152

35
168

197
299
175
671 (a)

267
817
134

541
293
834
96
2,148

$250,450 $ 3,562 (b)

(368)
4,311
49,709
11,279
$315,381

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

13
2
2
18
35

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

38
1
31
70
105
(16)
38

322
855
1,177
690
9,038
19,103

4
3
7
—
8
201
$ 195,969 $ 343

73,288
25,514
10,295
305,066

196

36,220
829
37,049
$ 342,311

33%
33

0.22%
0.26
0.07
0.04
0.07

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

0.60
0.01
0.04
0.07
0.07
(0.15)
1.46

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

1.05
0.37
0.55
0.06
0.09
1.05
0.17%

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

Includes fees of $37 million in 2013 and $38 million in 2012. 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 $55 million in 2012, and is based on the applicable tax rate (35%).
(c)

Includes the Cayman Islands branch office.

BNY Mellon 17

1.13%

1.21%

33%
31

Results of Operations (continued)

Noninterest expense

(dollars in millions)
Staff:

Compensation
Incentives
Employee benefits
Total staff

Professional, legal and other purchased services
Software
Net occupancy
Distribution and servicing
Furniture and equipment
Sub-custodian
Business development
Other
Amortization of intangible assets
M&I, litigation and restructuring charges
Total noninterest expense - GAAP

2014

2013

2012

$ 3,630
1,331
884
5,845
1,339
620
610
428
322
286
268
1,031
298
1,130
$ 12,177

$ 3,620 $ 3,531
1,280
950
5,761
1,222
524
593
421
331
269
275
994
384
559
$ 11,306 $ 11,333

1,384
1,015
6,019
1,252
596
629
435
337
280
317
1,029
342
70

2014
vs.
2013

— %
(4)
(13)
(3)
7
4
(3)
(2)
(4)
2
(15)
—
(13)
N/M
8 %

2013
vs.
2012

3 %
8
7
4
2
14
6
3
2
4
15
4
(11)
N/M
— %

Total staff expense as a percentage of total revenue (a)

37%

40%

39%

Full-time employees at year end

50,300

51,100

49,500

(2)%

3 %

Memo:
Total noninterest expense excluding amortization of intangible assets, M&I,
litigation and restructuring charges and the charge related to investment
management funds, net of incentives – Non-GAAP (b)

$ 10,645

$ 10,882 $ 10,374

(2)%

5 %

(a) Results for the years ended Dec. 31, 2013 and Dec. 31, 2012 were restated to reflect the retrospective application of adopting new

accounting guidance in 2014 related to our investments in qualified affordable housing projects (ASU 2014-01). See Note 2 of the Notes
to Consolidated Financial Statements for additional information.

(b) The charge related to investment management funds, net of incentives was $104 million in 2014, $12 million in 2013 and $16 million in

2012.

Total noninterest expense was $12.2 billion in 2014,
an increase of 8% compared with $11.3 billion in
2013. The increase primarily reflects higher litigation
expense and restructuring charges, partially offset by
lower staff expense. Excluding amortization of
intangible assets, M&I, litigation and restructuring
charges and the charge related to investment
management funds, net of incentives (Non-GAAP),
noninterest expense decreased 2%, compared with
2013 primarily reflecting lower staff and business
development expenses and a decrease in the cost of
generating certain tax credits, partially offset by
higher professional, legal and other purchased
services.

expense growth to slow as new rules are
implemented.

Staff expense

Given our mix of fee-based businesses, which are
staffed with high-quality professionals, staff expense
comprised of 55% of total noninterest expense in both
2014 and 2013, excluding amortization of intangible
assets, M&I, litigation and restructuring charges and
the charge related to investment management funds,
net of incentives.

Staff expense consists of:

We continue to invest in our compliance, risk and
other control functions in light of increasing
regulatory requirements. While our expenses remain
high in those areas as a result of the need to hire
additional staff and advisors and to enhance our
technology platforms, we expect the rate of related

•

18 BNY Mellon

compensation expense, which includes:
-
-

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

-
incentive expense, which includes:

Results of Operations (continued)

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 $5.8 billion in 2014, a decrease of
3% compared with 2013. The decrease primarily
reflects lower pension and incentive expenses, the
benefit of replacing technology contractors with
permanent staff and the impact of streamlining
actions.

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, M&I, litigation and restructuring
charges, and the charge related to investment
management funds, net of incentives (Non-GAAP),
totaled $4.8 billion in 2014, a decrease of 2%
compared with 2013. The decrease primarily reflects
lower business development expense and a decrease
in the cost of generating certain tax credits, partially
offset by higher professional, legal and other
purchased services. The decrease in business
development expenses resulted from discretionary
expense control and the 2013 corporate branding
campaign. The increase in professional, legal and
other purchased services was driven by higher
expenses related to the implementation of strategic
platforms.

In 2014, we incurred $1.1 billion of M&I, litigation
and restructuring charges compared with $70 million
in 2013. The increase primarily reflects higher
litigation expense.

In 2014, we recorded restructuring charges of $177
million, primarily reflecting severance expense
related to streamlining actions. For additional
information on restructuring charges, see Note 11 of
the Notes to Consolidated Financial Statements.

2013 compared with 2012

Total noninterest expense was $11.3 billion in 2013, a
decrease of less than 1%, compared with 2012. The
decrease primarily reflects lower litigation expense,
partially offset by higher staff, software, business
development, net of occupancy and consulting
expenses. Excluding amortization of intangible
assets, and M&I, litigation and restructuring charges
and the charge related to investment management
funds, net of incentives (Non-GAAP), noninterest
expense increased 5% compared with 2012.

Income taxes

BNY Mellon recorded an income tax provision of
$912 million (25.6% effective tax rate) in 2014
including a net benefit primarily related to litigation
expense and the approval of a tax carryback claim,
offset by the sales of our investment in Wing Hang
and the One Wall Street building. The provision for
income taxes was $1.6 billion (42.1% effective tax
rate) in 2013 including a 15.7% net charge, or $593
million, resulting from the U.S. Tax Court’s decisions
related to the disallowance of certain foreign tax
credits. The income tax provision was $842 million
(25.1% effective tax rate) in 2012.

In 2014, BNY Mellon adopted ASU 2014-01,
“Accounting for Investments in Qualified Affordable
Housing Projects - a Consensus of the FASB
Emerging Issues Task Force”. See Note 2 of the
Notes to Consolidated Financial Statements for the
impact of the retrospective application of this new
accounting guidance.

We expect the effective tax rate to be approximately
25% to 27% in the first quarter of 2015.

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.

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.

BNY Mellon 19

Results of Operations (continued)

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 organizational changes are made or when
improvements are made in the measurement
principles. 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.
In 2014, we reclassified the results of Newton’s
private client business from the Investment
Management business to the Other segment. The
reclassifications did not impact consolidated results.
All prior periods have been restated.

In addition, prior period consolidated and Other
segment results for the years ended Dec. 31, 2013 and
Dec. 31, 2012 have been restated to reflect the impact
of the retrospective application of adopting new
accounting guidance in 2014 related to our
investments in qualified affordable housing projects
(ASU 2014-01). See Note 2 of the Notes to
Consolidated Financial Statements for additional
information.

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 and related
foreign exchange 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.

The results of our businesses may also be 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. On a consolidated basis
and in our Investment Services business, we typically
have more foreign currency denominated expenses
than revenues. However, our Investment
Management business typically has more foreign
currency denominated revenues than expenses. As a
result, currency fluctuations impact the Investment
Management business more than the Investment
Services business. However, currency fluctuations, in
isolation, are not expected to significantly impact net
income on a consolidated basis.

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. Restructuring
charges recorded in 2014 relate to corporate-level
initiatives and were therefore recorded in the Other
segment. 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.

20 BNY Mellon

Results of Operations (continued)

The following table presents key market metrics at period end and on an average basis.

Key market metrics

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)

2014

2013

2012

2059
1931
6566
6681
1710
1694

1848
1644
6749
6472
1661
1496

1426
1379
5898
5743
1339
1272

Increase/(Decrease)

2014 vs. 2013
11 %
17
(3)
3
3
13

2013 vs. 2012
30 %
19
14
13
24
18

1
7
(22)

(2) bps

(3)
(3)
—
(3) bps

NYSE and NASDAQ share volume (in billions)
JPMorgan G7 Volatility Index – daily average (c)
Average Fed Funds effective rate
(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.

357
754
7.19
0.09%

354
705
9.19
0.11%

366
724
9.23
0.14%

Fee revenue in Investment Management, and to a
lesser extent in Investment Services, is impacted by
the value of market indices. At Dec. 31, 2014, using
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, 2014
(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)

Investment
Management

3,733
274
4,007
—
3,106
901
22%

Investment
Services
7,719
2,340
10,059
—
8,124
1,935

19%

(a) $

(a)

(a) $

37,783

$ 266,483

2,983
1,024

(a)

7,949
2,110

26%

21%

Other
1,276
266
1,542
(48)
947
643
N/M
68,300

947
643
N/M

Consolidated

12,728
2,880
15,608
(48)
12,177
3,479

(a)

22%

372,566

11,879
3,777

(a)

24%

(a) Both total fee and other revenue and total revenue include income from consolidated investment management funds of $163 million, net
of noncontrolling interests of $84 million, for a net impact of $79 million. Income before taxes is net of noncontrolling interests of $84
million.

(b) Income before taxes divided by total revenue.

BNY Mellon 21

Results of Operations (continued)

For the year ended Dec. 31, 2013
(dollar amounts in millions)
Fee and other revenue (a)
Net interest revenue

Total revenue (a)
Provision for credit losses
Noninterest expense

Income (loss) before taxes (a)

Pre-tax operating margin (a)(c)
Average assets
Excluding amortization of intangible assets:

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

Investment
Management
3,668
260
3,928
—
2,960
968
25%

Investment
Services
7,640
2,515
10,155
1
7,402
2,752

27%

(b) $

(b)

(b) $

38,546

$ 247,430

2,812
1,116

(b)

7,208
2,946

28%

29%

Other
651
234
885
(36)
944
(23)
N/M
56,335

944
(23)
N/M

Consolidated
11,959
$
3,009
14,968
(35)
11,306
3,697

(b)

25%

342,311

10,964
4,039

(b)

27%

(a) Consolidated results and Other segment results have been restated to reflect the retrospective application of adopting new accounting
guidance in 2014 related to our investments in qualified affordable housing projects (ASU 2014-01). See Note 2 of the Notes to
Consolidated Financial Statements for additional information.

(b) Both total fee and other revenue and total revenue include 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 is net of noncontrolling interests of $80
million.

For the year ended Dec. 31, 2012
(dollar amounts in millions)
Fee and other revenue (a)
Net interest revenue

Total revenue (a)
Provision for credit losses
Noninterest expense

Income before taxes (a)

Pre-tax operating margin (a)(c)
Average assets
Excluding amortization of intangible assets:

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

Investment
Management
3,464
214
3,678
—
2,782
896
24%

Investment
Services
7,345
2,439
9,784
(3)
7,560
2,227

23%

(b) $

(b)

(b) $

36,120

$ 223,233

2,590
1,088

(b)

7,368
2,419

30%

25%

Other
752
320
1,072
(77)
991
158
N/M
56,028

991
158
N/M

Consolidated
11,561
$
2,973
14,534
(80)
11,333
3,281

(b)

23%

315,381

10,949
3,665

(b)

25%

(b) Both total fee and other revenue and total revenue include 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 is net of noncontrolling interests of $76
million.

22 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

Investment management and performance fees

Distribution and servicing
Other (a)

Total fee and other revenue (a)

Net interest revenue
Total revenue

Noninterest expense (ex. amortization of intangible assets and the charge related

to investment management funds, net of incentives)

Income before taxes (ex. amortization of intangible assets and the charge

related to investment management funds, net of incentives)

Amortization of intangible assets
Charge related to investment management funds, net of incentives

Income before taxes

Pre-tax operating margin
Adjusted pre-tax operating margin (b)

Wealth management:

Average loans
Average deposits

2014

2013

2012

2014
vs.
2013

2013
vs.
2012

1,231
1,514
624
3,369
115
3,484
162
87
3,733
274
4,007

2,879

1,128
123
104
901

1,194 $
1,478
583
3,255
130
3,385
172
111
3,668
260
3,928

2,800

1,128

148
12

968 $

1,125
1,347
544
3,016
137
3,153
187
124
3,464
214
3,678

2,574

1,104

192
16
896

22%
34%

25%
34%

24 %
35 %

3 %
2
7
4
(12)
3
(6)
(22)
2
5
2

—
(17)
N/M
(7)%

6%
10
7
8
(5)
7
(8)
(10)
6
21
7

2
(23)
N/M
8%

$ 10,589
$ 14,156

$
$

7,950
9,361 $
13,755 $ 11,311

13 %
3 %

18%
22%

(a) Total fee and other revenue includes the impact of the consolidated investment management funds. Additionally, other revenue includes

asset servicing, treasury services, foreign exchange and other trading revenue and investment and other income.

(b) Excludes the net negative impact of money market fee waivers, amortization of intangible assets and the charge related to investment

management funds, net of incentives, and is net of distribution and servicing expense. See “Supplemental information - Explanation of
GAAP and Non-GAAP financial measures” beginning on page 128 for the reconciliation of Non-GAAP measures.

BNY Mellon 23

Results of Operations (continued)

AUM trends (a)
(dollar amounts in billions)
AUM at period end, by product type:
Equity
Fixed income
Index
Liability-driven investments (b)
Alternative investments
Cash

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:
Equity
Fixed income
Index
Liability-driven investments (b)
Alternative investments

Total long-term inflows (outflows)

Short term:
Cash

Total net inflows (outflows)

2014

2013

2012

2011

2010

264 $
222
357
504
66
297
1,710

276 $
220
323
403
62
299
1,583

241 $
209
239
329
60
302
1,380

216 $
183
195
276
57
328
1,255

1,187
438
85
1,710

1,072
425
86
1,583

894
411
75
1,380

758
427
70
1,255

226
175
173
202
58
332
1,166

639
454
73
1,166

1,583

1,380

1,255

1,166

1,109

(11)
3
5
45
6
48

—
11
19
64
1
95

—
19
9
25
3
56

(10)
11
28
52
2
83

N/A
N/A
N/A
N/A
N/A
48

(1)
47
80
1,710

5
100
103
1,583

(20)
36
89
1,380

(14)
69
20
1,255

(18)
30
27
1,166

Net market/currency impact
Ending balance of AUM
(a) Excludes securities lending cash management assets and assets managed in the Investment Services business. Also excludes assets

under management related to Newton’s private client business that was sold in 2013.

(b) Includes currency and overlay assets under management.

Business description

Our Investment Management business comprises the
seventh largest global asset manager and the seventh
largest U.S. wealth manager.

It encompasses 13 affiliated investment management
boutiques that deliver a diversified portfolio of
focused investment strategies over our distribution
network to institutional and retail clients across North
America, EMEA and Asia-Pacific. Our multi-
boutique model is designed to deliver the best
elements of investment focus and infrastructure scale
to benefit clients.

The investment management boutiques offer a broad
range of equity, fixed income, alternative/overlay and
cash 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,

24 BNY Mellon

which are responsible for managing and distributing
locally registered investment 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.

BNY Mellon Wealth Management is ranked the
seventh largest U.S. wealth manager in 2014 by
Barron’s. We offer private banking, discretionary
portfolio management and tax, wealth and estate
planning services to high and ultra-high net worth
individuals, families and family offices as well as to
charitable gift programs, endowments and
foundations. We provide these services through an
extensive network of more than 40 U.S. locations and
offices in London, Hong Kong, Toronto and Cayman.
Our client satisfaction rates are among the highest in
our industry. In 2014, Family Wealth Report named
BNY Mellon Wealth Management the Best U.S.
Private Bank and Best Private Bank Serving Family
Offices.

Results of Operations (continued)

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
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, index, liability-driven investments and
alternative investments.

Managed equity assets typically generate higher
percentage fees than liability-driven investments 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 a record
$1.7 trillion at Dec. 31, 2014 compared with $1.6
trillion at Dec. 31, 2013, an increase of 8%. The
increase resulted from higher equity market values
and net new business, partially offset by the
unfavorable impact of a stronger U.S. dollar, based on
year-end rates. Net long-term inflows were $48
billion in 2014 and benefited from liability-driven
investments, alternative investments, index funds and
other fixed income products. Net short-term outflows
were $1 billion in 2014.

Total revenue was $4.0 billion in 2014, an increase of
2% compared with 2013. The increase reflects higher
investment management fees and net interest revenue,
partially offset by lower other revenue, performance
fees and distribution and servicing fees.

Revenue generated in the Investment Management
business included 45% from non-U.S. sources in both
2014 and 2013.

Investment management fees in the Investment
Management business were $3.4 billion in 2014
compared with $3.3 billion in 2013. The increase
primarily resulted from higher equity market values,
net new business and the favorable impact of a
weaker U.S. dollar, partially offset by higher money
market fee waivers.

In 2014, 37% of investment management fees in the
Investment Management business were generated
from managed mutual fund fees. These fees are
based on the daily average net assets of each fund and
the management fee paid by that fund. Managed
mutual fund fee revenue increased 3% in 2014
compared with 2013. The increase primarily reflects
higher equity market values and net new business.

Performance fees were $115 million in 2014
compared with $130 million in 2013. Performance
across a range of strategies generated positive returns,
which were partially offset with stronger than average
performance fees generated in 2013.

BNY Mellon 25

Results of Operations (continued)

Distribution and servicing fees were $162 million in
2014 compared with $172 million in 2013. The
decrease was due in part to higher money market fee
waivers.

Other fee revenue was $87 million in 2014 compared
with $111 million in 2013. The decrease primarily
resulted from lower other trading revenue related to
losses on hedging activities within a boutique and
lower seed capital gains.

Net interest revenue was $274 million in 2014
compared with $260 million in 2013. The increase
primarily resulted from higher average loans and
deposits. Average loans increased 13% in 2014
compared with 2013, while average deposits
increased 3% in 2014 compared with 2013.

Noninterest expense, excluding amortization of
intangible assets and the charge related to investment
management funds, net of incentives, was $2.9 billion
in 2014 compared with $2.8 billion in 2013. The
increase primarily resulted from higher staff, business
development and purchased services expenses
resulting from investments in strategic initiatives as
well as the unfavorable impact of a weaker U.S.
dollar.

2013 compared with 2012

Income before taxes totaled $968 million in 2013
compared with $896 million in 2012. Income before
taxes excluding amortization of intangible assets and
the charge related to investment management funds,
net of incentives, was $1.1 billion in 2013, up slightly
compared with 2012. Fee and other revenue
increased $204 million compared with 2012 primarily
due to higher equity market values, net new business
and the impact of the Meriten acquisition, partially
offset by higher fee waivers and the unfavorable
impact of a stronger U.S. dollar. Net interest revenue
increased $46 million compared to 2012 primarily
resulting from higher average loans and deposits.
Noninterest expense, excluding amortization of
intangible assets and the charge related to investment
management funds, net of incentives, increased $226
million compared to 2012, primarily reflecting higher
incentive expense driven by improved results, the
impact of the Meriten acquisition, investments in
strategic initiatives and the annual employee merit
increase.

26 BNY Mellon

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

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

Investment services fees as a percentage of noninterest expense (b)

2014
vs.
2013

2013
vs.
2012

4 %
6
(11)
2
2
(10)
6
1
(7)
(1)
N/M
10
(28)
(10)
(30)%

4 %
6
4
3
4
10
(13)
4
3
4
N/M
(2)
22
1
24 %

2014

2013

2012

3,968
1,329
966
555
6,818
627
274
7,719
2,340
10,059
—
7,949
2,110
175
1,935

3,800 $
1,258
1,087
544
6,689
693
258
7,640
2,515
10,155
1
7,208
2,946
194
2,752 $

3,663
1,183
1,049
527
6,422
628
295
7,345
2,439
9,784
(3)
7,368
2,419
192
2,227

19%
21%

95%

27%
29%

93%

23%
25%

93%

Securities lending revenue

120

117 $

155

3 %

(25)%

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)

Asset servicing:
Estimated new business wins (AUC/A) (in billions)

Depositary Receipts:
Number of sponsored programs

$ 33,466
$ 221,453

$
28,407
$ 206,793

$
25,503
$ 185,441

$
$

28.5
289

$
$

27.6
235

$
$

26.3
237

536

639 $

1,479

18 %
7 %

3 %
23 %

11 %
12 %

5 %
(1)%

1,279

1,335

1,379

(4)%

(3)%

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

222
5,788
$ 434,959
9,687
$

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

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

4 %
3 %
15 %
13 %

18 %
3 %
19 %
7 %

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 and litigation expense.
(c) Includes the AUC/A of CIBC Mellon of $1.1 trillion at Dec. 31, 2014, $1.2 trillion at Dec. 31, 2013 and $1.1 trillion at Dec. 31, 2012.
(d) Represents the total amount of securities on loan managed by the Investment Services business. Excludes securities for which BNY

2,016 $

2,012

2,042

1 %

— %

Mellon acts as agent, beginning in the fourth quarter of 2013, on behalf of CIBC Mellon clients, which totaled $65 billion at Dec. 31,
2014 and $62 billion at Dec. 31, 2013.

BNY Mellon 27

Results of Operations (continued)

Business description

Our Investment Services business provides global
custody and related services, government clearing,
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 service
delivery 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, which may
include 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
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 $28.5 trillion of AUC/A at Dec. 31,
2014. We are the largest custodian for U.S. corporate
and public pension plans and we service 54% 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

28 BNY Mellon

investment and capital flows, which increases the
opportunity to provide solutions to our clients. The
changing regulatory environment is also driving
client demand for new solutions and services.

BNY Mellon is a leader in both global and U.S.
Government securities clearance. We settle securities
transactions in over 100 markets, act as a clearing
agent for 18 of the 22 primary dealers and handle
most of the transactions cleared through the Federal
Reserve Bank of New York (by volume). As more
fully described below, we are a leader in servicing tri
party repo collateral with approximately $2.1 trillion
globally. We currently service approximately $1.4
trillion of the $1.6 trillion tri-party repo market in the
U.S.

BNY Mellon has reduced the amount of secured
intraday credit it provides to dealers in connection
with their tri-party repo trades in a number of ways,
including limiting the collateral used to secure
intraday credit to certain more liquid asset classes,
reducing the amount of time during which we extend
intraday credit, 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 Depository Trust Company sourced
securities. This combination of measures, together
with the technological enhancements put in place in
2014, have practically eliminated (defined as a 90%
reduction) intraday credit related to tri-party repo
processing.

Global Collateral Services 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.

Results of Operations (continued)

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 $3.1
trillion in 33 markets.

We serve as depositary for 1,279 sponsored American
and global depositary receipt programs at Dec. 31,
2014, acting in partnership with leading companies
from 65 countries - an estimated 60% global market
share.

Pershing and its affiliates provide business solutions
to approximately 1,500 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.

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.

BNY Mellon also has been named as a defendant in
legal actions brought by MBS investors alleging that
the trustee has expansive duties under the governing
agreements, including to investigate and pursue
claims against other parties to the MBS transaction.
For additional information on our legal proceedings
related to this matter, see Note 22 of the Notes to
Consolidated Financial Statements.

Review of financial results

AUC/A at Dec. 31, 2014 were $28.5 trillion, an
increase of 3% from $27.6 trillion at Dec. 31, 2013.
The increase was primarily driven by higher market
values and net new business, partially offset by the
unfavorable impact of a stronger U.S. dollar, based on
year-end rates. AUC/A were comprised of 36%
equity securities and 64% fixed income securities at
both Dec. 31, 2014 and Dec. 31, 2013.

Income before taxes was $1.9 billion in 2014
compared with $2.8 billion in 2013. Income before
taxes, excluding amortization of intangible assets,
was $2.1 billion in 2014 compared with $2.9 billion
in 2013. The decrease compared with 2013
primarily reflects higher litigation expense, lower net
interest revenue and lower Corporate Trust and
Depositary Receipts revenue, partially offset by
higher asset servicing revenue.

Revenue generated in the Investment Services
business included 36% from non-U.S. sources in
2014 compared with 35% in 2013.

Investment services fees were $6.8 billion in 2014, an
increase of 2% compared with 2013, reflecting the
following factors:

• Asset servicing fees (global custody, broker-

dealer services and global collateral services)
were $4.0 billion in 2014 compared with $3.8
billion in 2013. The increase primarily reflects
organic growth, higher market values and net new
business.

• Clearing services fees were $1.33 billion in 2014

•

compared with $1.26 billion in 2013. The
increase was primarily driven by higher mutual
fund and asset-based fees, partially offset by
higher money market fee waivers.
Issuer services fees (Corporate Trust and
Depositary Receipts) were $966 million in 2014,
compared with $1.09 billion in 2013. The
decrease primarily reflects lower customer
reimbursements, and lower corporate actions and
dividend fees in Depositary Receipts.

• Treasury services fees were $555 million in 2014

compared with $544 million in 2013. The
increase primarily reflects higher payment
volumes.

BNY Mellon 29

Results of Operations (continued)

Foreign exchange and other trading revenue totaled
$627 million in 2014 compared with $693 million in
2013. The decrease primarily reflects lower
volatility, partially offset by higher volumes.
Net interest revenue was $2.3 billion in 2014
compared with $2.5 billion in 2013. The decrease
primarily reflects lower yields and lower accretion,
partially offset by higher average loans and deposits.

Noninterest expense, excluding amortization of
intangible assets, increased $741 million compared
with 2013. The increase primarily reflects higher
litigation expense, and higher professional, legal and
other purchased services expense primarily driven by
increased expenses related to the implementation of
strategic platforms, partially offset by lower staff
expenses.

2013 compared with 2012

Income before taxes totaled $2.8 billion in 2013
compared with $2.2 billion in 2012. Excluding
intangible amortization, income before taxes was $2.9
billion in 2013 compared with $2.4 billion in 2012.
Fee and other revenue increased $295 million
reflecting higher asset servicing fees driven by
organic growth and higher market values, higher
clearing services fees, higher Depositary receipts
revenue and, higher foreign exchange and other
trading revenue driven by higher volumes and
volatility, partially offset by lower securities lending
revenue and Corporate Trust fees. The $76 million
increase in net interest revenue primarily reflects
higher average loans and deposits. Noninterest
expense (excluding intangible amortization)
decreased $160 million primarily due to lower
litigation expense, partially offset by higher staff,
software and volume-driven expenses, and higher
consulting expense driven by regulatory/compliance
requirements and business initiatives in 2013.

30 BNY Mellon

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. M&I and restructuring charges)

Income before taxes (ex. M&I and restructuring charges)

M&I and restructuring charges
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;
a 33.9% equity interest in ConvergEx;
business exits, including the results of Newton’s
private client business in 2013 and 2012; 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 Newton’s private client business;
and
gains (losses) associated with the valuation of
investment securities and other assets.

Expenses include:

• M&I expenses;
•

restructuring charges recorded in 2014 that relate
to corporate-level initiatives and were therefore
recorded in the Other segment. 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;
direct expenses supporting credit-related services,
leasing, investing, and funding activities; and

•

2014

2013

2012

1,276 $
266
1,542
(48)
770
820
177
643 $
10,155 $

651 $
234
885
(36)
909
12
35
(23) $
10,548 $

752
320
1,072
(77)
920
229
71
158
9,607

•

certain corporate overhead not directly
attributable to the operations of other businesses.

Review of financial results

The Other segment had pre-tax income of $643
million in 2014 compared with pre-tax loss of $23
million in 2013.

Total fee and other revenue increased $625 million
compared with 2013. The increase primarily reflects
the gains on the sales of our investment in Wing Hang
and the One Wall Street building, partially offset by
lower equity investment revenue, lower securities
gains and the impact of the sale of Newton’s private
client business.

Net interest revenue increased $32 million compared
with 2013. The increase primarily reflects changes in
the internal credit rates to the businesses for deposits
in early 2013.

The provision for credit losses was a credit of $48
million in 2014 driven by the continued improvement
in the credit quality of the loan portfolio.

Noninterest expense excluding M&I and restructuring
charges decreased $139 million compared with 2013.
The decrease primarily reflects lower staff expense,
lower business development expense as a result of
discretionary expense control and the 2013 corporate
branding campaign, and a decrease in the cost of
generating certain tax credits, partially offset by
higher litigation expense.

M&I and restructuring charges recorded in 2014
primarily reflect severance expense related to
streamlining actions.

BNY Mellon 31

Results of Operations (continued)

2013 compared with 2012

The pre-tax loss totaled $23 million in 2013
compared with a pre-tax income of $158 million in
2012. Total revenue decreased $187 million in 2013
compared with 2012, which primarily reflects lower
net interest revenue, lower fixed income trading
revenue due to lower derivatives trading revenue and
a loss on trading securities 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. Noninterest expense excluding
amortization of intangible assets decreased $11
million in 2013 compared with 2012. The decrease
primarily reflects a decrease in the cost of generating
certain tax credits, partially offset by higher net
occupancy expense, pension expense and higher
business development expenses related to our
corporate branding investment.

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, 2014, we had approximately 9,000
employees in EMEA, approximately 12,500
employees in APAC and approximately 700
employees in other global locations, primarily Brazil.

BNY Mellon Investment Management operates on a
multi-boutique model, bringing investors the skills of

32 BNY Mellon

our specialist boutique asset managers, which
together manage investments spanning virtually all
asset classes.

We are the seventh largest global asset manager and
the second largest institutional manager in Europe.
We are the market leader in the field of liability-
driven investments.

At Dec. 31, 2014, our international operations
managed 45% of BNY Mellon’s AUM compared with
42% at Dec. 31, 2013. The increase primarily
resulted from higher market values and net new
business, partially offset by the unfavorable impact of
a stronger U.S. dollar.

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 $2.1 trillion globally.

We have over 50 years of experience providing trade
and cash services to financial institutions and central
banks outside of the U.S. In addition, we offer a
broad range of servicing and fiduciary products to
financial institutions, corporations and central banks
depending on the state of market development. In
emerging markets, we lead with global payments and
issuer services, introducing other products as the
markets mature. For more established markets, our
focus is on global, not local, investment services.

Results of Operations (continued)

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 36% from non-U.S. sources in 2014
compared with 35% in 2013.

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 vs.
U.S. dollar
Spot rate (at Dec. 31):
British pound
Euro

Yearly average rate:

2014

2013

2012

$ 1.5609
1.2155

$1.6526
1.3767

$ 1.6168
1.3184

British pound
Euro

$ 1.6475
1.3257

$1.5645
1.3281

$ 1.5849
1.2858

International clients accounted for 38% of revenues
in 2014 compared with 37% in both 2013 and 2012.
Net income from international operations was $1.8
billion in 2014 compared with $1.6 billion in 2013
and $1.4 billion in 2012.

In 2014, revenues from EMEA were $3.9 billion,
compared with $3.8 billion in 2013 and $3.7 billion
in 2012. Revenues from EMEA were up 3% for 2014
compared to 2013. The increase in 2014 primarily
reflects higher asset servicing revenue and Broker
Dealer Services, partially offset by lower Depositary
Receipts and Corporate Trust revenue. Investment
Services generated 63% and Investment Management
generated 36% of EMEA revenues. Net income from
EMEA was $775 million in 2014 compared with
$822 million in 2013 and $761 million in 2012.

Revenues from APAC were $1.4 billion in 2014
compared with $936 million in 2013 and $902
million in 2012. Revenues from APAC were up 48%

for 2014 compared to 2013. The increase in 2014
primarily resulted from the gain on the sale of our
investment in Wing Hang, higher asset servicing
revenue and treasury services revenue, partially offset
by lower investment management and performance
fees. Revenue from APAC in 2014 was generated by
Investment Services 49%, Investment Management
14% and the Other segment 37%. Net income from
APAC was $719 million in 2014 compared with $399
million in 2013 and $349 million in 2012.

For additional information regarding our International
operations, see Note 25 of the Notes to Consolidated
Financial Statements.

Exposure in Ireland, Italy, Spain, Portugal, Greece,
Russia and Ukraine

We have provided expanded disclosure on countries
that 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. See “Risk
management” for additional information on how our
exposures are managed.

BNY Mellon has a limited economic interest in the
performance of assets of consolidated investment
management funds, and therefore they are excluded
from this disclosure. 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.

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.

Recent events in Russia and Ukraine significantly
increased geopolitical tensions in Central and Eastern
Europe. Recent declines in oil prices could also
negatively impact companies located in that region.
In addition to the exposures in the following table, we
provide investments services, including acting as a
depositary receipt bank, for companies in Russia, and

BNY Mellon 33

Results of Operations (continued)

investment management services primarily through
our noncontrolling interest in an asset manager. To
date, our Russian-related businesses have not been
materially impacted by the ongoing tensions,
sanctions or impact of the decline in oil prices.
Future developments including additional sanctions
against Russian entities or a prolonged decrease in oil
prices could adversely impact these businesses and
our results of operations. At Dec. 31, 2014, our
exposure to Ukraine was less than $1 million.

At Dec. 31, 2014 and Dec. 31, 2013, BNY Mellon
had exposure of less than $1 million in both Portugal
and Greece.

The following tables present our on- and off-balance
sheet exposure in Ireland, Italy and Spain at both
Dec. 31, 2014 and Dec. 31, 2013. Additionally, our
on- and off-balance sheet exposure to Russia is
presented at Dec. 31, 2014. Exposure in the tables
below reflects the country of operations and risk of
the immediate counterparty.

On- and off-balance sheet exposure at Dec. 31, 2014
(in millions)
On-balance sheet exposure
Gross:

Deposits with banks (primarily interest-bearing) (a)
Investment securities (primarily sovereign debt and 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

Ireland

Italy

Spain

Russia

Total

147 $

186 $

195 $

44 $

572

818
198
239
1,402

1,458
3
7
1,654

1,992
1
12
2,200

—
199
—
243

109
—
109
1,293 $

7
2
9
1,645 $

11
1
12
2,188 $

—
—
—
243 $

91 $
61
152

82
70 $

— $
3
3

—

3 $

— $
14
14

14
— $

— $
—
—

—
— $

4,268
401
258
5,499

127
3
130
5,369

91
78
169

96
73

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

Total net on- and off-balance sheet exposure

5,668
226
5,442
(a) Interest-bearing deposits with banks represent a $94 million placement with an Irish subsidiary of a UK holding company, a $37 million
placement with an Irish financial institution, a $100 million placement with a financial institution in Italy, a $195 million placement with
a financial institution in Spain, $146 million of nostro accounts related to our depositary receipts, custody and treasury services
activities located in Ireland, Italy, Spain and Russia.

2,214 $
26
2,188 $

1,554 $
191
1,363 $

1,657 $
9
1,648 $

243 $
—
243 $

(b) Investment securities represent $146 million, fair value, of residential mortgage-backed securities located in Ireland and Italy, $4.1

billion, fair value, of sovereign debt located in Ireland, Italy and Spain and $45 million, fair value, of investment grade corporate bonds
located in Ireland, Italy and Spain. The investment securities were 97% investment grade.

(c) Loans and leases primarily include $124 million of overdrafts primarily to Irish-domiciled investment funds resulting from our custody
business, a $74 million commercial lease to a company located in Ireland, which was fully collateralized by U.S. Treasuries and $199
million of trade finance and syndicated loans primarily to large, state-owned financial institutions in Russia. 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 the receivable related to OTC foreign exchange and interest rate derivatives, net of master netting agreements.

Trading assets include $239 million of receivables primarily due from Irish-domiciled investment funds and $19 million of receivables
primarily due from financial institutions in Italy and Spain. Trading assets in Ireland and Spain were collateralized by $46 million of
cash and U.S. Treasuries. Additionally, cash collateral on trading assets represents $7 million in Italy.

(e) Lending-related commitments include $79 million to an insurance company in Ireland, collateralized by $14 million of marketable

securities, and $12 million to an investment company in Ireland, secured by a lien on the client’s collateral portfolio.

(f) Letters of credit primarily represent $56 million extended to an insurance company in Ireland, collateralized by $54 million of

marketable securities and $13 million extended to an insurance company in Spain, fully collateralized by marketable securities. Risk
participations with higher risk countries counterparties are excluded.

34 BNY Mellon

Results of Operations (continued)

On- and off-balance sheet exposure at Dec. 31, 2013
(in millions)
On-balance sheet exposure
Gross:

Deposits with banks (primarily interest-bearing) (a)
Investment securities (primarily sovereign debt and 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

100 $
165
267
62
594

87
—
87
507 $

70 $
115
185

68
117 $

779 $
155
624 $

217 $
279
3
35
534

30
2
32
502 $

— $
3
3

—

3 $

375 $
137
1
18
531

18
1
19
512 $

— $
13
13

13
— $

692
581
271
115
1,659

135
3
138
1,521

70
131
201

81
120

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

(c) Loans and leases primarily 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 and $13
million of loans to financial institutions located in Ireland, which were collateralized by $12 million of marketable securities. 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 the receivable related to OTC foreign exchange and interest rate derivatives, 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 trading assets primarily represents $30 million in Italy.
Trading assets located in Spain are 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) Letters of credit primarily represent $65 million extended to an insurance company in Ireland, fully collateralized by marketable

securities, $48 million extended to a financial institution in Ireland and $13 million extended to an insurance company in Spain, fully
collateralized by marketable securities.

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 “**”).

BNY Mellon 35

Results of Operations (continued)

Cross-border outstandings

(in millions)
2014:

France*
United Kingdom**
China**
Germany**
Netherlands**

2013:

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

2012:

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

Banks and other
financial
institutions (a)

Public sector

Commercial,
industrial and
other

Total cross-border
outstandings (b)

410 $

2,583
3,459
1,207
526

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

3,770 $
544
—
1,505
1,737

— $

2,154
16
2,020
1,551
—
45

46 $

2,054
—
—
1,378
897
—

183
655
30
569
664 (c)

11
829 (c)
251
196
59
6
641

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

4,363
3,782
3,489
3,281
2,927

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

(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 $13 billion at
Dec. 31, 2014 compared with $15 billion at Dec. 31,
2013. The decrease was primarily driven by lower
global trade finance loans and interest-bearing
deposits with banks located in China.

Critical accounting estimates

Our significant accounting policies are described in
Note 1 of the Notes to Consolidated Financial
Statements under “Summary of significant
accounting and reporting policies”. Our critical
accounting estimates are those related to the
allowance for loan losses and allowance for lending-
related commitments, fair value of financial
instruments and derivatives, other-than-temporary
impairment, goodwill and other intangibles, and
pension accounting. Further information on policies
related to the allowance for loan losses and allowance
for lending-related commitments can be found under
“Summary of significant accounting and reporting
policies” in Note 1 of the Notes to Consolidated
Financial Statements. Additionally, further

36 BNY Mellon

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

Results of Operations (continued)

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 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, if the loan is collateral dependent.

The second element, higher risk-rated credits and
pass-rated credits, is based on our probable loss
model. Individual credit analyses are performed on
such loans 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. In
the fourth quarter of 2014, we adopted the probable
loss model to calculate the allowance for the Wealth
Management mortgage portfolio which resulted in a
$2 million increase in the allowance for this portfolio.
In prior periods, the allowance was calculated using a
delinquency pool approach as described below in the
third element for the allowance for residential
mortgage loans.

The third element, the allowance for residential
mortgage loans, is determined by segregating five
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. BNY Mellon assigns 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
internal historical data related to our residential
mortgage portfolio. 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.

BNY Mellon 37

Results of Operations (continued)

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.

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 $83 million, while if each
credit were rated one grade worse, the allowance
would have increased by $251 million. Similarly, if
the loss given default were one rating worse, the
allowance would have increased by $33 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 less than $1 million,
respectively.

Fair value of financial instruments

The guidance related to Fair Value Measurement
included in 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

38 BNY Mellon

transparency of inputs to the valuation of an asset or
liability as of the measurement date.

Fair value - Securities

Level 1 - Securities - Recent quoted prices from
exchange transactions are used for debt and equity
securities that are actively traded on exchanges and
for U.S. Treasury securities and U.S. Government
securities that are actively traded in highly liquid
over-the-counter markets.

Level 2 - Securities - For securities where quotes
from recent transactions are not available for identical
securities, we determine fair value primarily based on
pricing sources with reasonable levels of price
transparency. The pricing sources employ financial
models or obtain comparisons to similar instruments
to arrive at “consensus” prices.

Specifically, the pricing sources obtain recent
transactions for similar types of securities (e.g.,
vintage, position in the securitization structure) and
ascertain variables such as discount rate and speed of
prepayment for the type of transaction and apply such
variables to similar types of bonds. We view these as
observable transactions in the current market place
and classify such securities as Level 2.

In addition, we have significant investments in more
actively traded agency RMBS and other types of
securities such as sovereign debt. The pricing sources
derive the prices for these securities largely from
quotes they obtain from three major inter-dealer
brokers. The pricing sources receive their daily
observed trade price and other information feeds from
the inter-dealer brokers.

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

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, 2014.

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

Results of Operations (continued)

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.

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, foreign
exchange swaps and options, forward rate
agreements, equity swaps and options, and credit
default swaps.

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.

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.

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

Level 3 - Securities - Where we have used our own
cash flow models, which included a significant input
into the model that was deemed unobservable, to
estimate the value of securities, we classify them in
Level 3 of the ASC 820 hierarchy. More than 99% of
our securities are valued by pricing sources with
reasonable levels of price transparency. Less than 1%
of our securities are priced based on economic
models and non-binding dealer quotes, and are
included in Level 3 of the fair value hierarchy.

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

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

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

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
level of the valuation hierarchy, see Note 20 of the
Notes to Consolidated Financial Statements.

BNY Mellon 39

Results of Operations (continued)

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 OTTI
model for investments in debt securities. Under this
guidance, a debt security is considered impaired if its
fair value is less than its amortized cost basis. An
OTTI is triggered if (1) the intent is to sell the
security; (2) the security will more likely than not
have to be sold before the impairment is recovered, or
(3) the amortized cost basis is not expected to be
recovered. When an entity does not intend to sell the
security before recovery of its cost basis, it will
recognize the credit component of an OTTI of a debt
security in earnings and the remaining portion in
accumulated other comprehensive income.

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

40 BNY Mellon

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
with regard to estimated defaults and the amount we
expect to receive to cover the value of the loans
underlying the securities. See Note 4 of the Notes to
Consolidated Financial Statements for projected
weighted-average default rates and loss severities at
Dec. 31, 2014 and 2013 for the 2007, 2006 and
late-2005 non-agency RMBS and the securities
previously held in the Grantor Trust we established in
connection with the restructuring of our investment
securities portfolio in 2009. If actual delinquencies,
default rates and loss severity assumptions worsen,
we would expect additional impairment losses to be
recorded in future periods.

Net securities gains in 2014 were $91 million
compared with $141 million in 2013. The low
interest rate environment in 2014 and 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, 2014, 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 $4 million (pre-tax). If we were to

Results of Operations (continued)

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 decreased by $3 million (pre
tax).

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.

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 ($17.9 billion at Dec. 31, 2014) and
indefinite-lived intangible assets ($2.7 billion at Dec.
31, 2014) are not amortized but subject to tests for
impairment annually or more often if events or
circumstances indicate it is more likely than not they
may be impaired. Other intangible assets are
amortized over their estimated useful lives and are
subject to impairment if events or circumstances
indicate a possible inability to realize the carrying
amount.

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

The goodwill impairment test is performed in two
steps. The first step compares the estimated fair
value of the reporting unit with its carrying amount,
including goodwill. If the estimated fair value of the
reporting unit exceeds its carrying amount, goodwill
of the reporting unit is considered not impaired.
However, if the carrying amount of the reporting unit
were to exceed its estimated fair value, a second step
would be performed that would compare the implied
fair value of the reporting unit’s goodwill with the
carrying amount of that goodwill. An impairment
loss would be recorded to the extent that the carrying
amount of goodwill exceeds its implied fair value. A
substantial goodwill impairment charge would not
have a significant impact on our financial condition,
but could have an adverse impact on our results of

In the second quarter of 2014, 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, 2014. The discount rate
applied to these cash flows ranged from 10.25% to
12.0% and incorporated a 6.00% 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 16%. The Asset
Management reporting unit had $7.7 billion of
allocated goodwill. For the Asset Management
reporting unit, in the future, small changes in the
assumptions could produce a non-cash goodwill
impairment, which would have no effect on our
regulatory capital ratios. In addition, certain money
market fee waiver practices and changes in the level
of assets under management could have an effect on
Asset Management broadly, as well as the fair value
of this reporting unit.

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

Indefinite-lived intangible assets are evaluated for
impairment at least annually by comparing their fair
values, estimated using discounted cash flow
analyses, to their carrying values. Other amortizing
intangible assets ($1.4 billion at Dec. 31, 2014) 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

BNY Mellon 41

Results of Operations (continued)

regarding goodwill, intangible assets and the annual
and interim impairment testing.

Pension accounting

BNY Mellon has defined benefit pension plans
covering approximately 17,400 U.S. employees and
approximately 12,200 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,
2014, the U.S. plans accounted for 79% of the
projected benefit obligation. The pension expense for
BNY Mellon plans was $68 million in 2014
compared with $176 million in 2013 and $141
million in 2012.

On Jan. 29, 2015, the Board of Directors approved an
amendment to freeze benefit accruals under the U.S.
qualified and nonqualified defined benefit plans
effective June 30, 2015. This change will result in no
additional benefits being earned by participants in
those plans based on service or pay after June 30,
2015. The plans were previously closed to new
participants effective Dec. 31, 2010 at which time a
non-elective contribution was added to the
Company’s defined contribution plan for employees
not eligible to join the pension plan. Employees
currently participating in the pension plan will
receive this non-elective contribution starting July 1,
2015.

A total net pension credit of $10 million is expected
to be recorded by BNY Mellon in 2015, assuming
currency exchange rates at Dec. 31, 2014. The
reduction in expense in 2015 is due to the amendment
to the U.S. plans and includes a curtailment gain of
$30 million that will be recognized in the first quarter
of 2015. The reduction is partially offset by an
increase in pension expense primarily driven by a
decrease in the discount rate and updated mortality
assumption for the U.S. plans. The reduction in
pension costs for 2015 will also be partially offset by
an increase in defined contribution plan costs of
approximately $12 million.

A number of key assumption and measurement date
values determine pension expense. The key elements
include the long-term rate of return on plan assets, the
discount rate, the market-related value of plan assets
and the price used to value stock in the ESOP. Since
2012, these key elements have varied as follows:

42 BNY Mellon

(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)

2015

2014

2013

2012

7.25%

7.38%

4.13%

4.99%

4.25%

4.75%

$ 4,696

$ 4,430 $ 4,121 $ 3,763

$ 39.18

$ 32.81 $ 24.60 $ 22.96

N/A $

(34) $ (133) $ (107)

N/A

(34)

(43)

(34)

N/A $

(68) $ (176) $ (141)

(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 4.13% as of Dec. 31,
2014. As a result of the amendment to the U.S.
pension plans described above, liabilities were re
measured as of Jan. 29, 2015 at a discount rate of
3.73%.

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.

The market-related value of plan assets also
influences the level of pension expense. Differences

Results of Operations (continued)

between expected and actual returns are recognized
over five years to compute an actuarially derived
market-related value of plan assets. The market-
related value of plan assets was $4,713 million as of
the Jan. 29, 2015 re-measurement.

Unrecognized actuarial gains and losses are
amortized over the future service period of active
employees if they exceed a threshold amount. As of
Dec. 31, 2014, BNY Mellon had $1.9 billion of
unrecognized losses which are being amortized. As a
result of the amendment to the U.S. pension plans
described above, future unrecognized actuarial gains
and losses for the U.S. plans that exceed a threshold
amount will be amortized over the average future life
expectancy of plan participants with a maximum of
15 years.

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

$ 56

$ 28

$ (28)

$ (56)

(50) bps

(25) bps

25 bps

50 bps

$ 30

$ 15

$ (14)

$ (28)

(20) %

(10) %

10 %

20 %

$ 161

$ (10)

$ 81

$ (5)

$ 7

$ 4

$ (82)

(3)

$(164)

$ 10

(7)

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

Consolidated balance sheet review

At Dec. 31, 2014, total assets were $385 billion
compared with $375 billion at Dec. 31, 2013. Total
assets averaged $373 billion in 2014 compared with
$342 billion in 2013. Fluctuations in the period-end
and average total assets were primarily driven by the

level of client deposits and payables to customers and
broker dealers. Deposits totaled $266 billion at Dec.
31, 2014 and $261 billion at Dec. 31, 2013. Total
deposits averaged $243 billion in 2014 and $226
billion in 2013. At Dec. 31, 2014, total interest-
bearing deposits were 51% of total interest-earning
assets compared with 54% at Dec. 31, 2013.

At Dec. 31, 2014, we had $40 billion of liquid funds
and $103 billion of cash (including $97 billion of
overnight deposits with the Federal Reserve and other
central banks) for a total of $143 billion of available
funds. This compares with available funds of $155
billion at Dec. 31, 2013. The decrease in available
funds primarily reflects our strategic effort to reduce
our level of interbank deposits. Total available funds
as a percentage of total assets was 37% at Dec. 31,
2014 compared with 41% at Dec. 31, 2013. Of the
$40 billion in liquid funds held at Dec. 31, 2014, $19
billion was placed in interest-bearing deposits with
large, highly-rated global financial institutions with a
weighted-average life to maturity of approximately
22 days. Of the $19 billion, $3 billion was placed
with banks in the Eurozone.

Investment securities were $119 billion, or 31% of
total assets, at Dec. 31, 2014, compared with $99
billion, or 26% of total assets, at Dec. 31, 2013. The
increase reflects a higher level of investments in U.S.
Treasury securities, Agency RMBS, and sovereign
debt/sovereign guaranteed and an increase in the net
unrealized pre-tax gain on our investment securities
portfolio, partially offset by a lower level of
investments in state and political subdivisions and
European floating rate notes.

Loans were $59 billion, or 15% of total assets, at
Dec. 31, 2014, compared with $52 billion, or 14% of
total assets, at Dec. 31, 2013. The increase in loans
primarily reflects higher margin loans, overdrafts and
wealth management loans and mortgages, partially
offset by a decrease in loans to financial institutions.

Long-term debt totaled $20.3 billion at Dec. 31, 2014
and $19.9 billion at Dec. 31, 2013. In 2014, the
Parent issued $4.7 billion of senior debt, partially
offset by maturities of $4.3 billion.

BNY Mellon 43

Results of Operations (continued)

and the impact of the increase in our pension benefit
obligation, partially offset by earnings retention,
approximately $650 million resulting from stock
awards, the exercise of stock options and stock issued

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

for employee benefit plans, and an increase in the
value of our investment securities portfolio.

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.

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)

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

notes (d)

Commercial MBS
State and political
subdivisions

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

Total investment

securities

Dec. 31,
2013

Fair
value

$ 39,673
16,827

12,028

2,695
1,335

2,878

4,064

6,718

2,872
1,815
1,496
1,354
2,891
2,784

Dec. 31, 2014

2014
change in
unrealized Amortized
Fair
gain (loss)
value
cost
647 $ 46,574 $ 46,762
24,857
24,639
78

135

(97)
17

103

4
31
(9)
—
2
(7)

18,093

18,253

1,747
1,095

1,967

4,958

5,200

2,788
1,747
2,109
686
3,241
3,024

2,214
1,113

1,959

4,997

5,271

2,866
1,785
2,111
684
3,240
3,032

Fair value
as a % of
amortized Unrealized
gain (loss)

cost (a)

100 % $
101

101

82
94

101

103
102
100
100
100
100

188
218

160

467
18

(8)

78
38
2
(2)
(1)
8

Ratings

AAA/ A+/ BBB+/
BBB-
A-
AA-

BB+
and Not
lower
rated

100 % — % — % — % — %
100 —

— — —

77 —

23 — —

—
1

1
8

100 —
66
20
100 —
100 —
1
99
52
42

1
22

—

91
68

7
1

7 —

— —

—

— — —
14 — —
— —
—
— — —
— —
—
6
—
—

$ 99,430 (g) $

967 $ 117,868 $ 119,144 (g)

100% $

1,276 (g)(h)

90%

2% —%

(a) Amortized cost before impairments.
(b) Primarily comprised of exposure to UK, France, Germany, Spain and Netherlands.
(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 with a fair value of $1.7 billion and $1.6 billion and money market funds with a fair value of $938 million and $763 million at
Dec. 31, 2013 and Dec. 31, 2014, respectively.
Includes net unrealized gains on derivatives hedging securities available-for-sale of $678 million at Dec. 31, 2013 and net unrealized losses on
derivatives hedging securities available-for-sale of $313 million at Dec. 31, 2014.

(g)

(h) Unrealized gains of $1,082 million at Dec. 31, 2014 related to available-for-sale securities.

The fair value of our investment securities portfolio
was $119.1 billion at Dec. 31, 2014 compared with
$99.4 billion at Dec. 31, 2013. The increase reflects a
higher level of investments in U.S. Treasury
securities, Agency RMBS, and sovereign debt/
sovereign guaranteed and an increase in the net
unrealized pre-tax gain on our investment securities
portfolio, partially offset by a lower level of

investments in state and political subdivisions and
European floating rate notes. In 2014, we received
$507 million of paydowns and sold $166 million of
sub-investment grade securities.

At Dec. 31, 2014, the total investment securities
portfolio had a net unrealized pre-tax gain of $1.3
billion compared with $309 million at Dec. 31, 2013,

44 BNY Mellon

Results of Operations (continued)

including the impact of related hedges. The increase
in the net unrealized pre-tax gain was primarily
driven by a decline in market interest rates. The
unrealized gain net of tax on our investment securities
available-for-sale portfolio included in accumulated
other comprehensive income was $675 million at
Dec. 31, 2014, compared with $357 million at
Dec. 31, 2013.

At Dec. 31, 2014, 90% of the securities in our
portfolio were rated AAA/AA- compared with 89%
of the securities rated AAA/AA- at Dec. 31, 2013.

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

The following table presents the amortizable purchase
premium (net of discount) related to the investment
securities portfolio and accretable discount related to
the 2009 restructuring of the investment securities
portfolio.

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 prior restructuring of the investment securities portfolio:

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

2014

2013

2012

2,432 $
4.8
626 $

2,377 $
5.2
625 $

2,476
4.2
575

413 $
5.9
163 $

642 $
6.0
218 $

871
5.3
279

(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.

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

Net securities gains (losses)

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

Total net securities gains

2014

2013

25 $
17

13
7
4
3
2
1
1
18
91 $

60 $
(1)

13
—
4
8
2
8
16
31
141 $

2012

83
(68)

—
—
29
7
96
(34)
11
38
162

The following table shows the fair value of the
European floating rate notes by geographical location
at Dec. 31, 2014. The unrealized loss on these
securities was $8 million at Dec. 31, 2014, an
improvement of $36 million compared with $44
million at Dec. 31, 2013.

European floating rate notes at Dec. 31, 2014 (a)

(in millions)
United Kingdom
Netherlands
Ireland
Other

Total fair value

RMBS

$ 1,151 $
533
144
28
$ 1,856 $

Other

Total
fair
value
103 $ 1,254
533
—
144
—
28
—
103 $ 1,959

(a) 70% 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 in joint venture and other investments are
primarily categorized as other assets. The following
table presents the carrying values at Dec. 31, 2014
and Dec. 31, 2013.

BNY Mellon 45

Results of Operations (continued)

Equity in joint venture and other
investments

(in millions)
Equity in joint venture and other
investments:

CIBC Mellon joint venture
Siguler Guff
ConvergEx
Wing Hang
Other equity investments

Total equity in joint venture and other
investments

Tax advantaged low income housing
investments
Federal Reserve Bank stock
Seed capital
Renewable energy investments
Private equity investments

Dec. 31

2014

2013

550 $
272
105
—
193

576
278
133
535
233

1,120

1,755

863
447
406
383
68

767
441
308
—
86

Total equity in joint venture and other
investments

$ 3,287 $ 3,357

For additional information on the fair value of our
private equity and certain seed capital investments,
see Note 7 of the Notes to Consolidated Financial
Statements.

In July 2014, BNY International Financing Corp., a
subsidiary of BNY Mellon, sold our equity
investment in Wing Hang resulting in an after-tax
gain of $315 million, or $490 million pre-tax. Equity
investment revenue related to our investment in Wing
Hang totaled $20 million through July of 2014 and
$95 million in 2013, including $37 million from the
sale of a property. Equity investment revenue totaled
$44 million in 2012.

We received no stock dividends from Wing Hang in
2014, compared with $13 million (or $1.4 million
shares) in 2013 and $14 million (or $1.5 million
shares) in 2012. Cash dividends received were $13
million in 2014, compared with $4 million in 2013.
No cash dividends were received in 2012.

Private equity activities consist of investments in
private equity funds, mezzanine financings, small
business investment companies (“SBICs”) and direct
equity investments. Consistent with our policy to
focus on our core activities, we continue to reduce
our exposure to private equity investments that are
not compliant with the Volcker Rule. The carrying
and fair value of our private equity investments was
$68 million at Dec. 31, 2014, a decrease of $18
million from Dec. 31, 2013. At Dec. 31, 2014,
private equity investments consisted of investments in
private equity funds of $28 million, Volcker
compliant SBICs of $18 million, direct equity of $15
million, and leveraged bond funds of $7 million.
Income on these investments was $6 million in 2014.

At Dec. 31, 2014, we had $57 million of unfunded
investment commitments to private equity funds,
including $45 million to Volcker-complaint SBICs. If
unused, the commitments expire between 2015 and
2024.

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

46 BNY Mellon

Dec. 31, 2014
Unfunded
commitments

Loans

Total
exposure

Dec. 31, 2013
Unfunded
commitments

Loans

Total
exposure

13.3 $
1.7
15.0
11.2
2.5
2.2
1.2
5.9
1.1
39.1
20.0
59.1 $

15.5 $
18.7
34.2
1.7
2.7
—
—
—
—
38.6
0.7
39.3 $

28.8
20.4
49.2
12.9
5.2
2.2
1.2
5.9
1.1
77.7
20.7
98.4

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

Results of Operations (continued)

At Dec. 31, 2014, total exposures were $98.4 billion,
an increase of 6% from $92.8 billion at Dec. 31,
2013. The increase in total exposure primarily
reflects higher margin loans, overdrafts and wealth
management loans and mortgages, partially offset by
a decrease in exposure to financial institutions.

Financial institutions

Our financial institutions and commercial portfolios
comprise our largest concentrated risk. These
portfolios comprised 50% of our total lending
exposure at Dec. 31, 2014 and 57% at Dec. 31, 2013.
Additionally, a substantial portion of our overdrafts
relate to financial institutions and commercial
customers.

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

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

Loans

7.6 $
2.0
3.1
0.1
0.1
0.4

Total

13.3 $

Unfunded
commitments

Dec. 31, 2014
Total
exposure
9.3
6.8
4.2
4.1
3.0
1.4
28.8

1.7 $
4.8
1.1
4.0
2.9
1.0

15.5 $

% Inv.
grade
83%
99
95
99
97
97
93%

% due
<1 yr

Loans

Dec. 31, 2013
Unfunded
commitments

95% $
81
94
17
41
30
72% $

9.4 $
1.4
2.9
0.1
0.4
0.2
14.4 $

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 $

The financial institutions portfolio exposure was
$28.8 billion at Dec. 31, 2014 compared with $31.4
billion at Dec. 31, 2013. The decrease primarily
reflects lower exposure to banks driven by a lower
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, 2014. 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, 72% expire within one year, and
34% expire within 90 days. In addition, 40% of the
financial institutions exposure is secured. For
example, securities industry and asset managers often
borrow against marketable securities held in custody.

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 99% of the exposures meeting our
investment grade equivalent ratings criteria as of Dec.
31, 2014. These exposures are generally short-term
liquidity facilities, with the vast majority to regulated
mutual funds.

BNY Mellon 47

Results of Operations (continued)

Commercial

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

Commercial portfolio exposure

Dec. 31, 2014

Loans

Unfunded
commitments

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

Total

0.8 $
0.5
0.3
0.1
1.7 $

Dec. 31, 2013
Unfunded
commitments

Loans

Total % Inv. % due
grade
<1 yr
94%
98
91
92
94%

exposure
6.7
6.1
6.0
1.6
20.4

28% $
10
11
6
16% $

5.9 $
5.6
5.7
1.5
18.7 $

0.6 $
0.7
0.2
0.1
1.6 $

Total
exposure
6.6
6.6
6.1
1.8
21.1

6.0 $
5.9
5.9
1.7
19.5 $

The commercial portfolio exposure decreased 3% to
$20.4 billion at Dec. 31, 2014, from $21.1 billion at
Dec. 31, 2013, primarily reflecting a decrease in the
energy and utilities portfolio. Utilities-related
exposure represents approximately three-quarters of
the energy and utilities portfolio.

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

Percentage of the portfolios that
are investment grade
Financial institutions
Commercial

Dec. 31,
2013
93%
94%

2014
93%
94%

2012
93%

93%

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, 2014.

Wealth management loans and mortgages

Our wealth management exposure was $12.9 billion
at Dec. 31, 2014 compared with $11.5 billion at Dec.
31, 2013. The increase primarily reflects growth in
the wealth management mortgage and loan portfolio.
Wealth management loans and mortgages primarily
consist 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 a weighted-average loan-to-value ratio of 60% at
origination. In the wealth management portfolio, less

48 BNY Mellon

than 1% of the mortgages were past due at Dec. 31,
2014.

At Dec. 31, 2014, the wealth management mortgage
portfolio consisted of the following geographic
concentrations: California - 22%; New York - 20%;
Massachusetts - 15%; Florida - 8%; and other - 35%.

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.
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 $5.2 billion at Dec. 31, 2014 compared with
$4.4 billion at Dec. 31, 2013.

At Dec. 31, 2014, 58% of our commercial real estate
portfolio was secured. The secured portfolio is
diverse by project type, with 60% secured by
residential buildings, 20% secured by office
buildings, 11% secured by retail properties, and 9%
secured by other categories. Approximately 97% of
the unsecured portfolio consists of real estate
investment trusts (“REITs”), which are predominantly
investment grade, and real estate operating
companies.

At Dec. 31, 2014, our commercial real estate
portfolio consists of the following concentrations:

Results of Operations (continued)

New York metro - 45%; REITs and real estate
operating companies - 41%; and other - 14%.

Lease financings

The leasing portfolio exposure totaled $2.2 billion
and included $146 million of airline exposures at
Dec. 31, 2014, compared with $2.3 billion of leasing
exposures, including $166 million of airline
exposures, at Dec. 31, 2013. At Dec. 31, 2014,
approximately 87% of the leasing exposure was
investment grade.

At Dec. 31, 2014, 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 48% of the non-airline
portfolio is additionally secured by highly rated
securities and/or letters of credit from investment
grade issuers. Excluding airline lease financing,
counterparty rating equivalents at Dec. 31, 2014,
were as follows:

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, 2014, the purchased loans in this
portfolio had a weighted-average loan-to-value ratio
of 76% at origination and 18% 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

•
•
•

50% of the counter parties were A, or equivalent;
42% were BBB; and
8% were non-investment grade.

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

At Dec. 31, 2014, our $146 million of exposure to the
airline industry consisted of $61 million to major U.S.
carriers, $76 million to foreign airlines and $9 million
to U.S. regional airlines.

Our airline lease customers experienced a recent
recovery in the industry that continued in 2014.
However, a significant portion of these customers
remain highly leveraged and vulnerable to economic
downturns. We continue to closely monitor this
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 $1.2 billion at Dec. 31, 2014, compared with
$1.4 billion at Dec. 31, 2013. Included in this
portfolio at Dec. 31, 2014 are $350 million of

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 $8.7 billion of
loans at Dec. 31, 2014 and $6.7 billion at Dec. 31,
2013 related to a term loan program that offers fully
collateralized loans to broker-dealers.

Tri-party repo committed credit facilities

We are working to partially convert the secured
intraday credit provided to dealers in connection with
their tri-party repo trades from uncommitted credit to
committed credit in the first quarter of 2015. The
dealers will be required to fully secure the
outstanding intraday credit with high-quality liquid
assets having a market value in excess of the amount
of the outstanding credit.

BNY Mellon 49

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
Other residential mortgages
Overdrafts
Other
Margin loans

Total domestic

Foreign:

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

Total foreign
Total loans (b)

2014

2013

2012

2011

2010 (a)

5,603 $
1,390
11,095
2,524
1,282
1,222
1,348
1,113
20,034
45,611

7,716
252
89
6
889
4,569
13,521
59,132 $

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

(a) Presented on a continuing operations basis.
(b) Net of unearned income of $866 million at Dec. 31, 2014, $1,020 million at Dec. 31, 2013, $1,135 million at Dec. 31, 2012, $1,343

million at Dec. 31, 2011 and $2,036 million at Dec. 31, 2010, primarily on domestic and foreign lease financings.

Maturity of loan portfolio

International loans

The following table shows the maturity structure of
our loan portfolio at Dec. 31, 2014.

Maturity of loan portfolio at Dec. 31, 2014 (a)

Within
1 year

Between
1 and 5
years

After
5 years

Total

$ 4,749 $
193

704
960

$ 150
237

$ 5,603
1,390

1,869
—
—
—
3,533
395

228
1,348
1,113
20,034
27,665
12,044

2,524
1,348
1,113
20,034
32,012
12,543
$ 39,709 $ 3,928 (b) $ 918 (b) $44,555
(a) Excludes loans collateralized by residential properties, lease
financings and wealth management loans and mortgages.
(b) Variable rate loans due after one year totaled $4.8 billion

427
—
—
—
814
104

Foreign

Total

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

and fixed rate loans totaled $96 million.

50 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 $12.6 billion at
Dec. 31, 2014 and $12.5 billion at Dec. 31, 2013.
The increase primarily resulted from higher
overdrafts and an increase in commercial loans,
partially offset by lower loans to financial
institutions.

Asset quality and allowance for credit losses

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

Results of Operations (continued)

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.

Allowance for credit losses activity

(dollar amounts in millions)
Margin loans
Non-margin loans
Total loans
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
Balance, Dec. 31,
Domestic
Foreign

Total allowance, Dec. 31, (a)

2014

$ 20,034
39,077
$ 59,111
$ 54,209

2013

2012

2011

2010 (a)

$ 15,652 $ 13,397 $ 12,760 $ 6,810
30,998
$ 51,657 $ 46,629 $ 43,979 $ 37,808
$ 48,316 $ 43,060 $ 40,919 $ 36,305

31,219

33,232

36,005

288
56
344

339
48
387

439
58
497

511
60
571

578
50
628

(12)
(2)
—
(1)
(2)
(3)
(20)

1
—
1
—
—
2
4
(16)
(48)

(4)
(1)
—
(1)
(8)
(3)
(17)

1
—
4
—
—
4
9
(8)
(35)

(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

$
$

236
44
280
191
89
0.03%
5.71
0.32
0.49
0.47
0.72

$
$

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%
15.09
0.90
1.26
1.13
1.59

511
60
571
498
73
0.19%
11.91
1.32
1.61
1.51
1.84

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

Net charge-offs were $16 million in 2014, $8 million
in 2013 and $30 million in 2012. Net charge-offs in
2014 included $11 million of commercial loans and
$3 million of foreign loans. 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
in 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.

The provision for credit losses was a credit of $48
million in 2014 driven by the continued improvement
in the credit quality of the loan portfolio. The
provision for credit losses was a credit of $35 million
in 2013 and a credit of $80 million in 2012.

BNY Mellon 51

Results of Operations (continued)

The total allowance for credit losses was $280 million
at Dec. 31, 2014, $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
0.72% at Dec. 31, 2014, 0.96% at Dec. 31, 2013 and
1.16% at Dec. 31, 2012. The ratio of the allowance
for loan losses to non-margin loans was 0.49% at
Dec. 31, 2014 compared with 0.58% at Dec. 31, 2013
and 0.80% at Dec. 31, 2012. The decrease in the total
allowance for credit losses and the lower ratios at
Dec. 31, 2014 compared with both prior periods
primarily reflects an improvement in the credit
quality in the loan portfolio.

We had $20.0 billion of secured margin loans on our
balance sheet at Dec. 31, 2014 compared with $15.7
billion at Dec. 31, 2013 and $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”

Nonperforming assets

and Note 1 of the Notes to Consolidated Financial
Statements, we have allocated our allowance for
credit losses as follows:

Allocation of allowance

Commercial
Commercial real estate
Foreign
Other residential

mortgages

Lease financing
Financial institutions
Wealth management (b)

2014

2013

2012

2011 2010 (a)

21%
18
16

24%
12
16

27%
8
12

18%
7
12

12
11
8

11
14
7

13
9
8

13
13
6

100% 100% 100% 100%

16%
7
11

16
2
7
100%

(a) Excludes discontinued operations in 2010.
(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.

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

Nonperforming assets
(dollars in millions)
Loans:

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

Total nonperforming loans

Other assets owned

Total nonperforming assets (b)

2014

2013

2012

2011

2010 (a)

112
12
1
—
—
—
125
3
128
0.22%
0.3
152.8
149.2
224.0
218.8

117
11
4
15
6
—
153
3
156 $
0.30%
0.4
137.3
134.6
224.8
220.5

158
30
18
27
9
3
245
4
249 $
0.53%
0.7
108.6
106.8
158.0
155.4

203
32
40
21
10
23
329
12

341 $
0.78%
1.1
119.8
115.5
151.1
145.7

244
59
44
34
7
5
393
6
399
1.06%
1.3
126.7
124.8
145.3
143.1

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) Excludes discontinued operations at Dec. 31, 2010.
(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 $53 million at Dec. 31, 2014, $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.

52 BNY Mellon

Results of Operations (continued)

Nonperforming assets activity
(in millions)
Balance at beginning of period

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

Balance at end of period

2014

2013

156 $
35
(14)
(8)
(40)
(1)
128 $

249
62
(39)
(12)
(99)
(5)
156

Nonperforming assets were $128 million at Dec. 31,
2014, a decrease of $28 million compared with $156
million at Dec. 31, 2013. The decrease primarily
resulted from repayments of $15 million in the
commercial loan portfolio, $4 million in the other
residential mortgage loan portfolio and $2 million in
the wealth management portfolio. Also in 2014, $14
million of other residential mortgage loans returned
to accrual status. Sales in 2014 were $9 million in the
other residential mortgage loan portfolio and $4
million in the foreign loan portfolio. Charge-offs in
2014 were $3 million in the foreign loan portfolio, $2
million in the other residential loans portfolio, $2
million in the commercial real estate loan portfolio.
The decrease was partially offset by additions of $26
million in the other residential mortgage loan
portfolio and $5 million in the wealth management
portfolio.

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

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

2014 2013 2012

2011 2010

Consumer
Commercial
Total domestic
Foreign

Total past due loans $

7 $

6 $
6 $ 13 $ 21
— — — —
12
6
33
13
—
—
—
6 $
6 $ 13 $ 33

7
6
— —
7 $

Loans past due 90 days or more at Dec. 31, 2014
primarily consisted of other residential mortgage
loans. See Note 5 of the Notes to Consolidated
Financial Statements for additional information on
our past due loans. See “Nonperforming assets” in
Note 1 of the Notes to Consolidated Financial
Statements for our policy for placing loans on
nonaccrual status.

Deposits

Total deposits were $265.9 billion at Dec. 31, 2014,
an increase of 2% compared with $261.1 billion at
Dec. 31, 2013. The increase in deposits reflects
higher levels of noninterest-bearing deposits driven
by higher client deposits in our Investor Services
business, partially offset by lower interest-bearing
deposits.

Noninterest-bearing deposits were $104.3 billion at
Dec. 31, 2014 compared with $95.4 billion at Dec.
31, 2013. Interest-bearing deposits were $161.6
billion at Dec. 31, 2014 compared with $165.7 billion
at Dec. 31, 2013.

The aggregate amount of deposits by foreign
customers in domestic offices was $10.3 billion and
$8.5 billion at Dec. 31, 2014 and 2013, respectively.

Deposits in foreign offices totaled $116.7 billion at
Dec. 31, 2014, and $119.4 billion at Dec. 31, 2013.
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, 2014.

Domestic time deposits > $100,000 at Dec. 31, 2014

(in millions)

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

Certificates
of deposit

57
6
9
3

75 $

Other
time
deposits

41,271
—
—
—
41,271 $

Total

41,328
6
9
3
41,346

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 consist 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.

BNY Mellon 53

Results of Operations (continued)

See “Liquidity and dividends” below for a discussion
of long-term debt and liquidity metrics that we
monitor.

sold under repurchase agreements related to certain
securities for which we were able to charge for
lending them.

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

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

Payables to customers and broker-dealers

2014

(dollars in millions)
Maximum daily balance
$ 25,224
during the year
Average daily balance (a) $ 17,950
Weighted-average rate
during the year (a)
Ending balance at Dec. 31 $ 21,181
Weighted-average
rate at Dec. 31

0.09%

2013

2012

$ 17,290 $ 16,476
$ 15,365 $ 13,466

0.09%

0.10%

$ 15,707 $ 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 $9,502 million in
2014, $9,038 million in 2013 and $8,033 million in 2012.

Payables to customers and broker-dealers

Quarter ended
Sept. 30,
2014

Dec. 31,
2014

Dec. 31,
2013

(dollars in millions)
Maximum daily balance
$ 22,112
during the quarter
Average daily balance (a) $ 20,707
Weighted-average rate
during the quarter (a)

0.08%

$ 20,244 $ 17,290
$ 18,041 $ 15,964

0.10%

0.09%

Ending balance
Weighted-average rate at
period end

$ 21,181

$ 20,155 $ 15,707

0.09%

0.13%

0.07%

(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 $10,484 million
in the fourth quarter of 2014, $9,705 million in the third
quarter of 2014 and $9,400 million in the fourth quarter of
2013.

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 $21.2 billion at Dec. 31, 2014
compared with $20.2 billion at Sept. 30, 2014 and
$15.7 billion at Dec. 31, 2013. Payables to
customers and broker-dealers are driven by customer
trading activity levels and market volatility.

Federal funds purchased and securities sold under
repurchase agreements

(dollars 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

2014

2013

2012

$29,522
$18,631

$ 23,022
$ 10,942

$ 21,818
$ 10,022

(0.07)%

(0.15)%

0.00 %

$11,469

$ 9,648

$ 7,427

(0.02)%

(0.11)%

(0.02)%

Federal funds purchased and securities sold under
repurchase agreements

(dollars 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,
2014

Dec. 31,
2014

Dec. 31,
2013

$26,777
$20,285

$ 28,746
$ 20,620

$ 23,022
$ 13,155

(0.05)%

(0.07)%

(0.10)%

$11,469

$ 9,687

$ 9,648

(0.02)%

(0.05)%

(0.11)%

Federal funds purchased and securities sold under
repurchase agreements were $11.5 billion at Dec. 31,
2014 compared with $9.7 billion at Sept. 30, 2014
and $9.6 billion at Dec. 31, 2013. The maximum
daily balance was $26.8 billion in the fourth quarter
of 2014 compared with $28.7 billion in the third
quarter of 2014 and $23.0 billion in the fourth
quarter of 2013. The average daily balance was
$20.3 billion in the fourth quarter of 2014, $20.6
billion in the third quarter of 2014 and $13.2 billion
in the fourth quarter of 2013. Fluctuations between
periods resulted from overnight borrowing
opportunities. The weighted-average rates in all
periods presented reflect revenue earned on securities

54 BNY Mellon

Results of Operations (continued)

Information related to commercial paper is presented
below.

Information related to other borrowed funds is
presented below.

Commercial paper

(dollars 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

2014

2013

2012

$
$

5,003
2,546

$
$

4,873 $
690 $

2,547
819

0.08%
—

0.06%

96 $

0.19%
338

—%

0.03%

0.10%

Other borrowed funds

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

2014

2013

2012

$ 2,413
$ 1,027

$ 7,383 $ 5,506
$ 1,177 $ 1,392

0.61%
786

0.55%
663 $ 1,380

1.22%

1.15%

0.81%

1.89%

Commercial paper

(dollars 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,
2014

Dec. 31,
2014

Dec. 31,
2013

$ 4,800
$ 4,400

$ 5,003 $ 4,827
$ 3,654 $ 1,254

0.09%

0.07%

$ —

— $

0.05%
96

—%

0.03%

Other borrowed funds

(dollars 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,
2014

Dec. 31,
2014

Dec. 31,
2013

$ 2,413
870
$

$ 1,744 $ 7,383
933 $ 1,124
$

1.06%
786

0.47%
852 $

0.83%
663

1.15%

0.43%

0.81%

There was no commercial paper outstanding at either
Dec. 31, 2014 and Sept. 30, 2014 and $96 million at
Dec. 31, 2013. Average commercial paper
outstanding was $4.4 billion in the fourth quarter of
2014, $3.7 billion in the third quarter of 2014 and
$1.3 billion in the fourth quarter of 2013. The
maximum daily balance was $4.8 billion in the fourth
quarter of 2014 compared with $5.0 billion in the
third quarter of 2014 and $4.8 billion in the fourth
quarter of 2013. The increase in the average daily
balance in the fourth quarter of 2014 was primarily
driven by attractive short-term 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.

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 $786 million at Dec. 31,
2014 compared with $852 million at Sept. 30, 2014
and $663 million at Dec. 31, 2013. Other borrowed
funds averaged $870 million in the fourth quarter of
2014, $933 million in the third quarter of 2014 and
$1.1 billion in the fourth quarter of 2013. The
maximum daily balance was $2.4 billion in the fourth
quarter of 2014 compared with $1.7 billion in the
third quarter of 2014 and $7.4 billion in the fourth
quarter of 2013. Fluctuations from prior periods
primarily reflect changes in overdrafts of sub-
custodian account balances in our Investment
Services businesses.

BNY Mellon 55

Results of Operations (continued)

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, or to
rollover or issue new debt, especially during periods
of market stress and in order to meet its short-term
(up to one year) obligations. 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. Changes in
economic conditions or exposure to credit, market,
operational, legal, and reputational risks also can
affect BNY Mellon’s liquidity risk profile and are
considered in our liquidity risk framework.

For additional information on our liquidity policy, see
“Risk Management - 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.

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. Moreover,
BNY Mellon also manages potential intraday
liquidity risks, which are the risks that the firm cannot
fund or settle obligations during the business day.
Sources of intraday liquidity risks include timing
mismatches of inflows and outflows, inability to hold
or raise intraday cash, and unexpected market or
idiosyncratic events. We monitor and manage
intraday liquidity against existing and expected
intraday liquid resources (such as cash balances,
remaining intraday credit capacity, intraday
contingency funding, and available collateral) to

56 BNY Mellon

enable BNY Mellon to meet its obligations under
normal and reasonably severe stressed conditions.

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. We also
maintain various internal liquidity limits as part of
our standard analysis to monitor depositor and market
funding concentration, liability maturity profile and
potential liquidity draws due to off-balance sheet
exposure. Our performance with our internal
liquidity limits demonstrates our strong ongoing
liquidity.

U.S. regulators have established an LCR that requires
certain banking organizations, including BNY
Mellon, to maintain a minimum amount of
unencumbered HQLA sufficient to withstand the net
cash outflow under a hypothetical standardized acute
liquidity stress scenario for a 30-day time horizon.

The following table presents the estimated
consolidated HQLA as of Dec. 31, 2014.

Estimated consolidated HQLA
(in billions)
Securities (a)
Cash (b)

Total estimated consolidated HQLA

Dec. 31,
2014
97
89
186

(a) Primarily includes U.S. Treasury, U.S. agency, sovereign
and U.S. GSE securities, investment-grade corporate debt
and publicly traded common equity.

(b) Primarily includes cash on deposit with central banks.

Starting on Jan. 1, 2015, we and our domestic bank
subsidiaries are required to meet an LCR of 80%
calculated monthly for a six month period, after
which the LCR must be calculated daily. The
required minimum LCR level will increase annually
by 10% increments until Jan. 1, 2017, at which time,
we will be required to meet an LCR of 100%. As of
January 2015, based on our interpretation of the Final
LCR Rule, we believe we and our domestic bank

Results of Operations (continued)

subsidiaries are in compliance with applicable LCR
requirements on a phased-in basis. For additional
information on the LCR, see “Supervision and
Regulation - Liquidity Standards - Basel III and U.S.
Proposals”.

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. We perform 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.

Beginning on Jan. 1, 2015, BHCs with total
consolidated assets of $50 billion or more are subject
to the Federal Reserve’s Enhanced Prudential

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

Standards, which include liquidity standards,
described under “Supervision and Regulation -
Enhanced Prudential Standards”. BNY Mellon has
taken actions to comply with various liquidity risk
management standards and maintain a liquidity buffer
of unencumbered highly liquid assets based on the
results of internal liquidity stress testing.

We define available funds for internal liquidity
management purposes 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 lower level of available
funds at Dec. 31, 2014 compared with Dec. 31, 2013
primarily resulted from our plan to reduce interbank
placement assets with an increase in HQLA in our
investment securities portfolio.

Dec. 31,
2014

Dec. 31,
2013

Average
2013

2014

2012

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

$ 19,495
20,302
39,797
6,970
96,682
$ 143,449

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

$ 35,588
14,704
50,292
5,472
86,594
$ 142,358

$ 41,222 $ 38,959
5,492
44,451
4,311
63,785
$ 122,369 $ 112,547

8,412
49,634
5,662
67,073

37%

41%

38%

36%

On an average basis for 2014 and 2013, non-core
sources of funds, such as money market rate
accounts, federal funds purchased and securities sold
under repurchase agreements, trading liabilities,
commercial paper and other borrowings, were $30.0
billion and $21.3 billion, respectively. The increase
primarily reflects higher levels of securities sold
under repurchase agreements. Average foreign
deposits, primarily from our European-based
Investment Services business, were $109.4 billion for
2014 compared with $101.3 billion for 2013. The
increase primarily reflects growth in client deposits.
Domestic savings, interest-bearing demand and time
deposits averaged $45.8 billion for 2014 compared
with $45.2 billion for 2013. The increase primarily
reflects higher time deposits.

Average payables to customers and broker-dealers
were $9.5 billion for 2014 and $9.0 billion for 2013.
Payables to customers and broker-dealers are driven
by customer trading activity and market volatility.
Long-term debt averaged $20.6 billion for 2014 and
$19.1 billion for 2013. The increase in average long
term debt was driven by issuance of long-term debt in
anticipation of upcoming debt maturities. Average
noninterest-bearing deposits increased to $81.7
billion for 2014 from $73.3 billion for 2013,
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.

BNY Mellon 57

Results of Operations (continued)

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, 2014, our bank subsidiaries
could declare dividends to the Parent of
approximately $2.0 billion, without the need for a
regulatory waiver. In addition, at Dec. 31, 2014, non-
bank subsidiaries of the Parent had liquid assets of
approximately $1.4 billion.

In April 2014, BNY Mellon announced a 13%
increase in our quarterly common stock dividend
from $0.15 to $0.17 per common share. Our common
stock dividend payout ratio was 31% for 2014, or
25% after adjusting for increased litigation expense.
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 2014 and 2013 the Parent’s average commercial
paper borrowings were $2.5 billion and $690 million,
respectively. The Parent had cash of $7.4 billion at
Dec. 31, 2014, compared with $6.8 billion at Dec. 31,
2013. In addition to issuing commercial paper for
funding purposes, the Parent issued commercial
paper, on an overnight basis, to certain custody clients
with excess demand deposit balances. This overnight
program was ended at the end of the third quarter of
2014. There was no overnight commercial paper
outstanding issued by the Parent at Dec. 31, 2014,
and $96 million of overnight commercial paper was
outstanding at Dec. 31, 2013. Net of commercial
paper outstanding, the Parent’s cash position at Dec.
31, 2014, increased by $717 million compared with
Dec. 31, 2013, primarily reflecting the issuance of
senior medium-term notes and dividends received
from subsidiaries, partially offset by maturities of
long-term debt and common share repurchases.

58 BNY Mellon

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 and loans to its
subsidiaries.

In 2014, we repurchased 46.2 million common shares
at an average price of $36.13 per common share for a
total cost of $1.7 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 a minimum of
the next 18 months without the need to receive
dividends from its bank subsidiaries or issue debt. As
of Dec. 31, 2014, the Parent was in compliance with
its liquidity policy.

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, 2014, 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

Results of Operations (continued)

eight U.S. bank holding companies that they view as
having high systemic importance, including The Bank
of New York Mellon Corporation. 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 $20.3 billion at Dec. 31, 2014
and $19.9 billion at Dec. 31, 2013. In 2014, the
Parent issued $4.7 billion of senior debt, partially
offset by maturities of $4.3 billion. The Parent has
$3.7 billion of long-term debt that will mature in
2015.

The following table presents the long-term debt
issued by the Parent in 2014.

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

2.2% senior medium-term notes due 2019
2.2% senior medium-term notes due 2019
2.3% senior medium-term notes due 2019
3-month LIBOR + 48 bps senior medium-term notes

due 2019

2014

500
750
1,150

350

3-month LIBOR + 50 bps senior medium-term notes

due 2019

3.25% senior medium-term notes due 2024
3.4% senior medium-term notes due 2024
3.65% senior medium-term notes due 2024

Total debt issuances

200
500
500
750
$ 4,700

In February 2015, we issued $1.25 billion of senior
medium-term notes maturing in 2020 at an annual
interest rate of 2.15% and $750 million of senior
medium-term notes maturing in 2025 at an annual
interest rate of 3.00%.

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 112.0% at Dec. 31, 2014
and 109.4% at Dec. 31, 2013. 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 uncommitted lines of credit in place for liquidity
purposes which are guaranteed by the Parent.
Pershing LLC has eight separate uncommitted lines
of credit amounting to $1.5 billion in aggregate.

Average daily borrowing under these lines was $4
million, in aggregate, in 2014.

Pershing Limited, an indirect UK-based subsidiary of
BNY Mellon, has two separate uncommitted lines of
credit amounting to $250 million in aggregate in
place for liquidity purposes, which are guaranteed by
the Parent. Average borrowings under these lines was
$54 million, in aggregate, in 2014.

Statement of cash flows

Cash provided by operating activities was $4.5 billion
in 2014 compared with $642 million used for
operating activities in 2013 and $1.6 billion provided
by operating activities in 2012. In 2014, cash flows
from operations were principally the result of
earnings and changes in trading activities, partially
offset by changes in accruals and other balances. In
2013, cash flows used for operations were principally
the result of 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 2014, cash used for investing activities was $11.7
billion compared with $13.2 billion in 2013 and $29.4
billion in 2012. In 2014, purchases of securities,
changes in federal funds sold and securities
purchased under resale agreements and an increase in
loans were significant uses of funds, partially offset
by sales, paydowns and maturities of securities and
decreases in deposits with banks and with the Federal
Reserve and other central banks. 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 were significant uses of funds, partially
offset by sales, paydowns and maturities of securities.

In 2014, cash provided by financing activities was
$7.8 billion compared with $15.6 billion in 2013 and
$28.3 billion in 2012. In 2014, increases in payables
to broker-dealers and the proceeds from the issuance
of long-term debt were significant sources of funds,
partially offset by the repayment of long-term debt
and treasury stock repurchases. In 2013, an increase

BNY Mellon 59

Results of Operations (continued)

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 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.

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, 2014, $669 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 $199 million. At this
point, it is not possible to determine when these
amounts will be settled or resolved.

Contractual obligations at Dec. 31, 2014

Payments due by period

(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
Investment commitments (c)

Total

Less than
1 year

$ 114,583 $ 114,583 $

47,046
11,469
21,181
786
22,859
339
69
358

46,945
11,469
21,181
786
4,134
35
29
154

Total contractual obligations

$ 218,690 $ 199,316 $

1-3 years

3-5 years

— $
29
—
—
—
4,492
89
33
192
4,835 $

— $
3
—
—
—
7,676
66
7
3
7,755 $

Over
5 years
—
69
—
—
—
6,557
149
—
9
6,784

(a) Includes commercial paper.
(b) Includes interest.
(c) Includes Community Reinvestment Act commitments.

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

Other commitments at Dec. 31, 2014

Amount of commitment expiration per period
Less than
1 year

(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

Over
5 years
—
200
—
938
30
—
4
1,172
(a) Excludes the indemnifications for securities booked at BNY Mellon beginning in late 2013 resulting from the CIBC Mellon joint venture

14,141
972
405
101
42
—
15,661 $

8,501
1,410
659
370
5
—
10,945 $

33,273
5,767
2,356
951
138
255

10,431
3,385
354
450
91
251

$ 347,126 $ 319,348 $

$ 304,386 $ 304,386 $

1-3 years

3-5 years

— $

Total

which totaled $64 billion at Dec. 31, 2014.

(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.

60 BNY Mellon

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 VIEs. For BNY Mellon, these items
include certain credit guarantees and securitizations.

Capital

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

2014

2013

9.7%
9.3%
6.5%

10.0%
9.6%
6.8%

$ 37,441
$ 35,879
$ 16,439
32.09
$
14.70
$
$
40.57
$ 45,366
1,118,228

$ 37,497
$ 35,935
$ 15,934
31.46
$
13.95
$
$
34.94
$ 39,910
1,142,250

Full-year:
Average common equity to average assets
Cash dividends per common share
Common dividend payout ratio (b)(c)
34%
Common dividend yield (annualized)
1.7%
(a) See “Supplemental information – Explanation of GAAP and Non-GAAP financial measures” beginning on page 128 for a reconciliation

9.8%
0.66

10.2%
0.58

31%
1.6%

of GAAP to non-GAAP.

(b) Results for the year ended Dec. 31, 2013 were restated to reflect the retrospective application of adopting new accounting guidance in
2014 related to our investments in qualified affordable housing projects (ASU 2014-01). See Note 2 of the Notes to Consolidated
Financial Statements for additional information.

(c) The common dividend payout ratio was 25% for 2014 after adjusting for increased litigation expense, and 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, 2014 decreased to
$37.4 billion from $37.5 billion at Dec. 31, 2013.
The decrease primarily reflects share repurchases, a
decrease in foreign currency translation adjustments
and the impact of the increase in our pension benefit
obligation, partially offset by earnings retention,
approximately $650 million resulting from stock
awards, the exercise of stock options and stock issued
for employee benefit plans, and an increase in the
value of our investment securities portfolio.

The unrealized gain net of tax on our investment
securities portfolio recorded in accumulated other
comprehensive income was $675 million at Dec. 31,
2014, compared with $357 million at Dec. 31, 2013.
The increase in the valuation of the investment

securities portfolio reflects a decline in market
interest rates.

In 2014, we repurchased 46.2 million common shares
at an average price of $36.13 per common share for a
total cost of $1.67 billion. We continued to
repurchase shares in the first quarter of 2015 under
the 2014 capital plan and expect to substantially
complete our authorized repurchases of $425 million
worth of common shares in the first quarter of 2015.

On Jan. 23, 2015, The Bank of New York Mellon
Corporation declared a quarterly common stock
dividend of $0.17 per common share. This cash
dividend was paid on Feb. 13, 2015 to shareholders
of record as of the close of business on Feb. 3, 2015.

BNY Mellon 61

Results of Operations (continued)

BNY Mellon’s tangible common shareholders’ equity
to tangible assets of operations ratio was 6.5% at Dec.
31, 2014 and 6.8% at Dec. 31, 2013. The decrease
primarily reflects an increase in total assets and a
lower level of cash on deposit with the Federal
Reserve and other central banks.

under the general risk-based guidelines (which for
2014 looked to Basel I-based requirements and,
commencing on Jan. 1, 2015, look to the Final
Capital Rules’ new Standardized Approach), and
under the Advanced Approach (“the Collins Floor
comparison”).

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, 2014 and Dec. 31, 2013, BNY Mellon
and our bank subsidiaries were considered “well
capitalized” on the basis of the Tier 1 and Total
capital to risk-weighted assets ratios and the leverage
capital ratio (Tier 1 capital to quarterly average assets
as defined for regulatory purposes).

The U.S. banking agencies’ capital rules have been
based on guidance from the Basel Committee on
Banking Supervision, as amended from time to time.
For additional information on these capital
requirements see “Supervision and Regulation.”
Prior to Jan. 1, 2014, BNY Mellon and our banking
subsidiaries were subject to the capital requirements
of Basel I (“general risk-based capital rules”) and
Basel II.5. Effective Jan. 1, 2014, BNY Mellon
became subject to Basel III under the Final Capital
Rules, which are being gradually phased-in over a
multi-year period through 2018. 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 related to the Final
Capital Rules’ Advanced Approaches, effective in the
second quarter of 2014. In conjunction with the exit
from parallel run, the risk-based capital adequacy of
BNY Mellon and certain subsidiaries is determined
using the higher of risk-weighted assets as calculated

Our estimated Basel III CET1 ratios on a fully
phased-in basis are based on our current
interpretation, expectations and understanding of the
Final Capital Rules. The estimated fully phased-in
Basel III CET1 ratios assume all relevant regulatory
model approvals. The Final Capital Rules require
approval by banking regulators of certain models
used as part of risk-weighted asset calculations. If
these models are not approved, the estimated fully
phased-in capital ratios would likely be adversely
impacted. Risk-weighted assets at Dec. 31, 2014
under the transitional Advanced Approach do not
reflect the use of a simple VaR methodology for repo
style transactions (including agented indemnified
securities lending transactions), eligible margin loans,
and similar transactions. The Company has requested
written approval to use this methodology. The
estimated net impact of such a VaR methodology for
Dec. 31, 2014 regulatory capital ratios calculated
under the transitional Advanced Approach would
have been an increase of approximately 25 basis
points to the CET1, Tier 1 and Total capital ratios.
The leverage capital ratio was not impacted.

At Dec. 31, 2014, the CET1, Tier 1 and Total risk-
based regulatory capital ratios are based on Basel III
components of capital, as phased-in, and asset risk-
weightings using the Advanced Approach framework.
The transitional Standardized Approach CET1, Tier 1
and Total risk-based consolidated regulatory capital
ratios (which represent the Collins Floor comparison)
were 15.0%, 16.3% and 16.9%, respectively, at Dec.
31, 2014. The leverage capital ratios for Dec. 31,
2014 are based on Basel III components of capital
and quarterly average total assets, as phased-in. The
risk-based and leverage capital ratios for Dec. 31,
2013 are based on Basel I rules (including Basel I
Tier 1 common in the case of the CET1 ratio).

62 BNY Mellon

Results of Operations (continued)

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

Consolidated and largest bank subsidiary regulatory capital ratios

Well
capitalized

Adequately
capitalized

Dec. 31,

2014

2013

Consolidated regulatory capital ratios: (a)

CET1 ratio
Tier 1 capital ratio
Total (Tier 1 plus Tier 2) capital ratio
Leverage capital ratio

Selected regulatory capital ratios – fully phased-in – Non-GAAP: (b)
Estimated CET1 ratio:

Standardized Approach
Advanced Approach

Estimated SLR (e)

The Bank of New York Mellon regulatory capital ratios:

N/A (c)
6%
10%
N/A (c)

4%
5.5%
8%
4%

11.2% (b)
12.2% (b)
12.5% (b)
5.6%

14.5% (b)
16.2%
17.0%
5.4%

(d)
(d)
N/A

(d)
(d)
3% (f)

10.6%
9.8%
4.4%

10.6%
11.3%
N/A

Tier 1 capital ratio
Total (Tier 1 plus Tier 2) capital ratio
Leverage capital ratio

14.6%
15.1%
5.3%
(a) Risk-based capital ratios at Dec. 31, 2014 include the net impact of the total consolidated assets of certain consolidated investment
management funds in risk-weighted assets. These assets were not included in Dec. 31, 2013 risk-based ratios. The leverage capital
ratio was not impacted.
See “Supplemental Information – Explanation of GAAP and Non-GAAP financial measures” beginning on page 128 for a
reconciliation of these ratios.

13.0%
13.2%
5.2%

6%
10%
5%

3-4% (g)

4%
8%

(b)

(c) Applicable capital rules do not apply a CET1 or leverage capital standard for determining whether a bank holding company is well

capitalized.

(d) On a fully phased-in basis, we expect to satisfy a minimum CET1 ratio of at least 7%, expected to rise to 8% or more, assuming an

(e)

additional G-SIB buffer of at least 1%.
The estimated fully phased-in SLR as of Dec. 31, 2014 is based on our interpretation of the Final Capital Rules, as supplemented by the
Federal Reserve’s final rules on the SLR.

(f) When fully phased-in, we expect to maintain an SLR of over 5%, 3% attributable to the minimum required SLR, and greater than 2%

attributable to a buffer applicable to U.S. G-SIBs.

(g) The required leverage capital ratio for state member banks to be adequately capitalized is 3% or 4%, depending on factors specified in

regulations.

Our estimated Basel III CET1 ratio (Non-GAAP)
calculated under the Advanced Approach on a fully
phased-in basis was 9.8% at Dec. 31, 2014 and 11.3%
at Dec. 31, 2013. Our estimated Basel III CET1 ratio
(Non-GAAP) calculated under the Standardized
Approach on a fully phased-in basis was 10.6% at
both Dec. 31, 2014 and Dec. 31, 2013. The decrease
in the estimated Basel III CET1 ratio (Non-GAAP)
calculated under the Advanced Approach from Dec.
31, 2013 was primarily driven by increases in
estimated risk-weighted assets which more than offset
an increase in the estimated Basel III CET1 capital.
The increase in risk-weighted assets was primarily
related to the impact of including the total
consolidated assets of certain consolidated investment
management funds and increases in credit risk RWA.
The increase in capital was driven by earnings
retention and stock awards, partially offset by a
decrease in accumulated other comprehensive income
primarily related to foreign currency translation
adjustments and the higher pension obligation.

The estimated fully phased-in SLR of 4.4% (Non
GAAP) at Dec. 31, 2014 was based on our
interpretation of the Final Capital Rules, as
supplemented by the Federal Reserve’s final rules on
the SLR.

For information regarding various factors that could
impact our capital ratios, see “Supplemental
Information - Explanation of GAAP and Non-GAAP
financial measures.” For additional information on
the Final Capital Rules, see “Supervision and
Regulation - Capital Requirement - Existing U.S.
Requirements”. The Basel III Advanced Approach
capital ratios are significantly impacted by
operational losses. Our operational loss risk model is
informed by external losses, including fines and
penalties levied against institutions in the financial
services industry, particularly those that relate to
businesses in which we operate, and as a result

BNY Mellon 63

Results of Operations (continued)

external losses have and could in the future impact
the amount of capital that we are required to hold.
The table below presents the factors that impacted
fully phased-in Basel III CET1 in 2014.

Estimated Basel III CET1 generation presented on
a fully phased-in basis – Non-GAAP
(in millions)
Estimated fully phased-in Basel III CET1 – Non-
GAAP – Beginning of year
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 CET1 generated

Capital deployed:

Dividends
Common stock repurchased
Total capital deployed

Other comprehensive income (loss):

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

Additional paid-in capital (a)
Other additions (deductions):
Net pension fund assets
Deferred tax assets
Cash flow hedges
Embedded goodwill
Investment in unconsolidated subsidiaries
Other (b)

Total other additions
Net Basel III CET1 generated

Other (primarily net pension fund assets)

2014

$14,810

2,494

491
2,985

(763)
(1,669)
(2,432)

(681)
355
(401)
(15)
(742)
624

(3)
31
15
37
7
(30)
57
492
629

Estimated fully phased-in Basel III CET1 – Non-
GAAP – End of year

$15,931

(a) Primarily related to stock awards, the exercise of stock
options and stock issued for employee benefit plans.
(b) Includes the restatement of retained earnings due to the

retrospective application of adopting new accounting
guidance related to our investments in qualified affordable
housing projects (ASU 2014-01).

The table below presents estimated fully phased-in
risk-weighted assets under the Standardized and
Advanced Approaches.

The following table presents the components of our
transitional Basel III CET1, Tier 1 and Tier 2 capital,
the Basel III risk-weighted assets determined under
the Standardized and Advanced Approaches, the
average assets used for leverage capital purposes and
the leverage exposure for estimated SLR purposes at
Dec. 31, 2014.

Components of transitional Basel III capital (a)
(in millions)
CET1:

Common shareholders’ equity
Goodwill and intangible assets
Net pension fund assets
Equity method investments
Deferred tax assets
Other

Total CET1

Other Tier 1 capital:

Preferred stock
Trust preferred securities
Disallowed deferred tax assets
Net pension fund assets
Other

Total Tier 1 capital

Tier 2 capital:

Trust preferred securities
Subordinated debt
Allowance for credit losses
Other

Dec. 31,
2014

$ 36,326
(17,111)
(17)
(314)
(4)
4
18,884

1,562
156
(14)
(69)
(17)
20,502

156
298
280
(11)
723
13
280
456

Total Tier 2 capital - Standardized Approach

Excess of expected credit losses
Less: Allowance for credit losses

Total Tier 2 capital - Advanced Approach

Total capital:

Standardized Approach
Advanced Approach

Risk-weighted assets:

Standardized Approach
Advanced Approach:

Credit Risk
Market Risk
Operational Risk

Total Advanced Approach

Average assets for leverage capital purposes
Total leverage exposure for estimated SLR
purposes - Non-GAAP (b)

$ 21,225
$ 20,958

$ 125,562

$ 120,122
3,046
45,112
$ 168,280

$ 368,140

$ 398,813

Estimated fully phased-in Basel III
risk-weighted assets - Non-GAAP
(in millions)
Determined under the:

Dec. 31,

2014

2013

Standardized Approach
Advanced Approach

$
$

150,881 $ 139,865
162,263 $ 130,849

(a) On a regulatory basis as determined under the Final Capital

Rules.

(b) See “Supplemental information – Explanation of GAAP and
Non-GAAP financial measures” beginning on page 128 for
additional information.

64 BNY Mellon

Results of Operations (continued)

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.

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 intangible assets (b)
Pensions/cash flow hedges
Securities valuation allowance
Merchant banking investments

Total Tier 1 capital

Tier 2 capital:

Dec. 31,
2013

35,959
1,562
330

(20,001)

891

(387)

(19)

18,335

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

1
550
344
895
Total Tier 2 capital
19,230
$
Total risk-based capital
Total risk-weighted assets
$ 113,322
Average assets for leverage capital purposes $ 336,787

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

The following table presents the amount of capital by
which BNY Mellon and our largest bank subsidiary,
The Bank of New York Mellon, exceeded the capital
thresholds determined under the transitional rules at
Dec. 31, 2014.

Capital above thresholds at Dec. 31, 2014

Consolidated
$

(in millions)
CET1
Tier 1 capital (b)
Total capital (b)
Leverage capital
(a) Based on 4.0% respective minimum required ratios under

12,153 (a)
10,405
4,130
5,776 (a)

551 (b)

The Bank of
New York
Mellon
N/A
8,305
3,834

the Final Capital Rules.

(b) Based on well capitalized standards.

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, 2014.

Potential impact to capital ratios at Dec. 31, 2014

Increase or decrease of

$100 million

$1 billion in
risk-weighted
in common assets/quarterly
average assets

equity

(basis points)
CET1:

Standardized Approach
Advanced Approach

8 bps
6

Tier 1 capital:

Standardized Approach
Advanced Approach

Total capital:

Standardized Approach
Advanced Approach

Leverage capital

Estimated CET1 ratio, fully
phased-in – Non-GAAP:
Standardized Approach
Advanced Approach

Estimated SLR, fully
phased-in – Non-GAAP

8
6

7
6

12 bps

13
7

14
7

7
6

At Dec. 31, 2014, we had $312 million of trust
preferred securities outstanding, of which 50%
currently qualify as Tier 1 capital and 50% as Tier 2
capital. Under the Final Capital Rules, these trust
preferred securities may continue to be included in
Tier 1 capital up to the following percentages:
calendar year 2014 - 50%; calendar year 2015 - 25%;
and calendar year 2016 and beyond - 0%. Certain
amounts of trust preferred securities that are excluded
from additional Tier 1 capital due to this phase-in
schedule may be eligible for inclusion in Tier 2
capital, pursuant to the standards established in the
Final Capital Rules. Any decision to take action with
respect to these trust preferred securities will be based
on several considerations including interest rates and
the availability of cash and capital.

BNY Mellon 65

Results of Operations (continued)

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.”

Issuer purchases of equity securities

Share repurchases - fourth quarter of 2014

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.

repurchased as part
of a publicly
announced plan or

Total shares Maximum approximate dollar
value of shares that may yet
be purchased under the
publicly announced plans or

Average price

(dollars in millions, except per share
information; common shares in thousands)
October 2014
November 2014
December 2014

programs at Dec. 31, 2014
749
$
432
432
425 (b)
(a) Includes 84 thousand shares repurchased at a purchase price of $3 million from employees, primarily in connection with the employees’

Total shares
repurchased
3,009
8,016
9
11,034

per share
38.02
39.59
39.86
39.16

program
3,009
8,016
9
11,034

Fourth quarter of 2014 (a)

payment of taxes upon the vesting of restricted stock. The average price per share of open market purchases was $39.16.

(b) Represents the maximum value of the shares authorized to be repurchased through the first quarter of 2015, including employee benefit

plan repurchases, in connection with the Federal Reserve’s non-objection to our 2014 capital plan.

On March 14, 2013, in connection with the Federal
Reserve’s non-objection to our 2013 capital plan, the
Board of Directors authorized a 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. On March 26, 2014, in
connection with the Federal Reserve’s non-objection
to our 2014 capital plan, the Board of Directors
authorized a new stock purchase program providing
for the repurchase of an aggregate of $1.74 billion of
common stock beginning in the second quarter of
2014 and continuing through the first quarter of 2015.
Share repurchases may be executed through
repurchase plans designed to comply with Rule
10b5-1 and through derivative, accelerated share
repurchase and other structured transactions.

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,
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.

66 BNY Mellon

Results of Operations (continued)

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

2014

Average Minimum Maximum
$

6.8 $
1.0
1.6
(2.3)
7.1

3.8 $
0.4
0.6
N/M
4.0

Dec. 31,
3.8

0.7

0.8

(1.3)

4.0

13.4 $
2.7
4.0
N/M
13.0

2013

Average Minimum Maximum
$

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

6.8 $
0.4
1.1
N/M
7.0

14.8 $
2.4
4.4
N/M
14.8

10.7 $
1.1
2.5
(3.0)
11.3

Dec. 31,
7.7

0.6

2.3

(2.4)

8.2

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 minimum and maximum 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 2014, interest rate risk generated 72% of
average VaR, equity risk generated 17% of average
VaR and foreign exchange risk accounted for 11% of
average VaR. During 2014, our daily trading loss
exceeded our calculated VaR amount of the overall
portfolio on one occasion.

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 year-over
year and sequential increases in the number of days
when the daily trading revenue exceeded $5 million
were primarily driven by higher foreign exchange
trading volatility and volumes.

Distribution of trading revenue (loss) (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,
2013

—
6
30
24
2

Quarter ended
June 30,
2014

March 31,
2014

Sept. 30,
2014

Number of days
—
9
25
24
3

—
6
31
26
1

—
3
34
20
7

Dec. 31,
2014

—
7
28
18
9

(a) Trading revenue (loss) includes realized and unrealized gains and
losses primarily related to spot and forward foreign exchange
transactions, derivatives, and securities trades for our customers
and excludes any associated commissions, underwriting fees and net
interest revenue.

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 $10 billion at Dec.
31, 2014 compared with $12 billion at Dec. 31, 2013.

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 both Dec. 31, 2014 and Dec. 31,
2013.

BNY Mellon 67

Results of Operations (continued)

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

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, 2014, our OTC derivative assets of $6.2
billion included a CVA deduction of $49 million. Our
OTC derivative liabilities of $7.2 billion included a
DVA of $6 million related to our own credit spread.

Net of hedges, the CVA decreased $8 million and the
DVA increased $1 million in 2014. The net impact of
these adjustments increased foreign exchange and
other trading revenue by $9 million in 2014.

At Dec. 31, 2013, our OTC derivative assets of $4.2
billion included a CVA deduction of $26 million. Our
OTC derivative liabilities of $5.6 billion included a
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.

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.

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

Quarter ended

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.

Dec. 31, March 31,
2014

2013

June 30,
2014

Sept. 30,
2014

Dec. 31,
2014

32%
47
16
5
100%

41%
38
16
5
100%

44%
35
16
5
100%

37%
45
14
4
100%

37%
46
14
3
100%

Asset/liability management

Our diversified business activities include processing
securities, accepting deposits, investing in securities,
lending, raising money as needed to fund assets, and
other transactions. The market risks from these
activities are interest rate risk and foreign exchange
risk. Our primary market risk is exposure to
movements in U.S. dollar interest rates and certain
foreign currency interest rates. We actively manage
interest rate sensitivity and use earnings simulation
and discounted cash flow models to identify interest
rate exposures.

An earnings simulation model is the primary tool
used to assess changes in pre-tax net interest revenue.
The model incorporates management’s assumptions
regarding interest rates, balance changes on core
deposits, market spreads, changes in the prepayment

68 BNY Mellon

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

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

Results of Operations (continued)

relies on certain critical assumptions regarding the
balance sheet and depositors’ behavior related to
interest rate fluctuations and the prepayment and
extension risk in certain of our assets. To the extent
that actual behavior is different from that assumed in
the models, there could be a change in interest rate
sensitivity.

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

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

Estimated changes in net interest revenue

June 30,
2014
426
364
47
(40)
In the parallel rate ramp, both short-term and long-term rates move in four equal quarterly increments.
Long-term is equal to or greater than one year.

(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)
(b)

March 31,
2014
447
376
50
(46)

Dec. 31,
2013
677
466
44
(47)

Sept. 30,
2014
457
365
37
(44)

Dec. 31,
2014
363
326
28
(54)

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,
2014

(9.4)%
(4.3)%

During 2014, we modified our EVE computation
methodology and no longer assign an implied equity
duration in our calculations. At Dec. 31, 2014, using
our previous methodology, we estimated a 2.7%
decrease in EVE when interest rates increased 200
basis points versus the baseline and a 1.1% decrease
in EVE when interest rates increased 100 basis points
versus the baseline.

The asymmetrical accounting treatment of the impact
of a change in interest rates on our balance sheet may
create a situation in which an increase in interest rates
can adversely affect reported equity and regulatory
capital, even though economically there may be no
impact on our economic capital position. For
example, an increase in rates will result in a decline
in the value of our available-for-sale securities
portfolio, which will be reflected through a reduction
in accumulated other comprehensive income in our

BNY Mellon 69

Results of Operations (continued)

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, 2014,
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,
2014
(97)
(47)

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

To manage foreign exchange risk, we fund foreign
currency-denominated assets with liability
instruments denominated in the same currency. We
utilize various foreign exchange contracts if a liability
denominated in the same currency is not available or
desired, and to minimize the earnings impact of
translation gains or losses created by investments in
foreign markets. The foreign exchange risk related to
the interest rate spread on foreign currency-
denominated asset/liability positions is managed as
part of our trading activities. We use forward foreign
exchange contracts to protect the value of our net
investment in foreign operations. At Dec. 31, 2014,
net investments in foreign operations totaled $12
billion and were spread across 12 foreign currencies.

70 BNY Mellon

Risk Management

Risk management overview

Governance

Risk management and oversight begins with the
Board of Directors and two key Board committees:
the Risk Committee and the Audit Committee.

The Risk Committee is comprised entirely of
independent directors and meets on a regular basis to
review and assess the control processes with respect
to the Company’s inherent risks. They also review
and assess the risk management activities of the
Company and the Company’s fiduciary risk policies
and activities. Policy formulation and day-to-day
oversight of the Risk Management Framework is
delegated to the Chief Risk Officer, who, together
with the Chief Auditor and Chief Compliance Officer,
helps ensure an effective risk management
governance structure. The roles and responsibilities
of the Risk Committee are described in more detail in
its charter, a copy of which is available on our
website, www.bnymellon.com.

The Audit Committee is also comprised entirely of
independent directors, all of whom are financially
literate within the meaning of the NYSE listing
standards, and two of whom have 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
interest 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 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 30 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 as liquid, with
strong 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 the best within our peer group,
which comprises other trust and investment firms. 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;

BNY Mellon 71

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 letters 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 that our risk appetite principles permeate
the Company’s culture and are incorporated into
our strategic decision-making processes;
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

72 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, 2014 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
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
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.

• The Operational Risk Management 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
Operational Risk Management Group are to
promote effective risk management, identify
emerging risks, create incentives for generating
continuous improvement in controls, and to
optimize capital.

• The Information Risk Management Group is

responsible for developing policies, methods and
tools for identifying, assessing, measuring,

BNY Mellon 73

Risk Management (continued)

monitoring and governing information and
technology risk for BNY Mellon. The
Information Risk Management 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 Global Markets 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.

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

74 BNY Mellon

risk, most often on the size of the exposure and the
maximum maturity of credit extended. For credit
exposures driven by changing market rates and
prices, exposure measures include an add-on for such
potential changes.

We manage credit risk at both the individual exposure
level as well as 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 requisite approvals are based upon
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
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

Risk Management (continued)

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

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.

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.

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 LCR, as well as various internal liquidity
limits as part of our standard analysis to monitor
depositor and market funding concentration, liability
maturity profile and potential liquidity draws due to
off-balance sheet exposure. Our performance with
our internal liquidity limits demonstrates our strong
ongoing liquidity.

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.

BNY Mellon 75

Risk Management (continued)

Stress Testing

It is the policy of the Company to perform Enterprise-
wide Stress Testing at regular intervals as part of its
Internal Capital Adequacy Assessment Process
(“ICAAP”). Additionally, the Company performs an
analysis of capital adequacy in a stressed
environment in its Enterprise-Wide Stress Test
Framework, as required by the enhanced prudential
standards issued pursuant to the Dodd-Frank Act.

Enterprise-Wide Stress Testing performs analysis
across the Company’s Lines of Business, products,
geographic areas, and risk types incorporating the
results from the different underlying models and
projections given a certain stress-test scenario. It is
an important component of assessing the adequacy of
capital (as in the ICAAP) as well as identifying any
high risk touch points in business activities.
Furthermore, by integrating enterprise-wide stress
testing into the Company’s capital planning process,
the results provide a forward-looking evaluation of
the ability to complete planned capital actions in a
more-adverse-than-anticipated economic
environment.

Economic capital required

BNY Mellon has implemented a methodology to
quantify economic capital. We define economic
capital as the capital required to protect against
unexpected economic losses over a one-year period at
a level consistent with the solvency of a target debt
rating. We quantify economic capital requirements
for the risks inherent in our business activities using
statistical modeling techniques and then aggregate
them at the consolidated level. A capital reduction, or
diversification benefit, is applied to reflect the
unlikely event of experiencing an extremely large loss
in each type of risk at the same time. Economic
capital requirements are directly related to our risk
profile. As such, they have 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

76 BNY Mellon

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, 2014, on a consolidated basis.

Economic capital required at Dec. 31, 2014
(in millions)
Credit
Market
Operational
Other (a)

Economic capital required - consolidated

CET1

Capital cushion

$
(a) Includes interest rate risk, reputational risk and

diversification benefit.

4,489
2,714
4,510
655
12,368

18,884

6,516

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.

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.

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 in the jurisdictions in
which it operates. 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, 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
shareholders 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 a significant number
of new global reform measures. In particular, the
Dodd-Frank Wall Street Reform and Consumer
Protection Act of 2010 (the “Dodd-Frank Act”) and
its implementing regulations are significantly
restructuring the financial regulatory regime in the
United States and enhancing supervision and
prudential standards for large BHCs like BNY
Mellon. The implications of the Dodd-Frank Act for
our businesses depend to a large extent on the manner
in which its implementing regulations are established
and interpreted 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 are also dependent on changes in market
practices and structures in response to the
requirements of the Dodd-Frank Act and financial
reforms in other jurisdictions. Although a large
number of rules have been proposed and some have
been finalized, 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. In addition, other national and global reform
measures that have been adopted by various policy
makers or are being considered may materially

impact us. Relevant regulatory initiatives 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 and early remediation requirements
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 “SIFIs”). The Dodd-Frank Act
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”).

In addition, in the release accompanying the Proposed
SIFI Rules, the Federal Reserve indicated it would
consider whether to institute limits on short-term
debt. 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’ rules regarding the LCR, discussed below
and described by the Federal Reserve as being
“complementary” to those liquidity standards.

BNY Mellon 77

Supervision and Regulation (continued)

The Final SIFI Rules do not address single
counterparty credit limits or early remediation
provisions. The Federal Reserve noted that it is still
developing the single-counterparty credit limit rule,
and that, in finalizing that rule, it would take into
account the Basel Committee’s framework for large
exposure limits.

The Basel Committee’s proposed framework for
measuring and controlling large exposures was
released in March 2013 and finalized by the Basel
Committee in April 2014. Once it becomes effective
on Jan. 1, 2019, the final large exposures framework
is expected to:

• Limit exposures between a banking

organization and a single counterparty or a
group of connected counterparties to 25% of
Tier 1 capital;

• Limit exposures between G-SIBs to 15% of

Tier 1 capital;

• Exclude from the limit intraday interbank
exposures and sovereign and central bank
exposures; and

• Allow banking organizations to use risk-

based capital measurements for securities
financing transactions until the Basel
Committee finalizes a revised exposure
measurement methodology.

The framework is conceptually analogous to the
single-counterparty exposure limits in the Proposed
SIFI Rules. It will become binding on U.S. banking
organizations only to the extent that the U.S.
banking agencies implement the framework,
including through the Federal Reserve’s adoption of
final single counterparty credit limits implementing
section 165(e) of the Dodd-Frank Act.

The Basel Committee’s large exposures framework
does not specify a methodology to measure exposures
from securities financing transactions (“SFTs”), such
as securities lending and repurchase agreements.
Instead, the Basel Committee expects to use the
forthcoming revised comprehensive approach and
supervisory haircuts or an equivalent method that
does not rely on internal models-to measure SFT
exposures. The Basel Committee expects to finish its
review of this revised approach before the 2019
deadline, but in the event of a delay, banks may
continue to use the method they currently use to
calculate their risk-based capital requirements for
SFTs.

78 BNY Mellon

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 our U.S. banking subsidiaries 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

Supervision and Regulation (continued)

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
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 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 stressed 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 31% for 2014, or 25% after
adjusting for litigation expense.

In October 2014, the Federal Reserve revised aspects
of its rules pertaining to CCAR and Dodd Frank Act
stress tests (“DFAST”). These revisions include,

among other changes, proposals to limit the ability of
a BHC subject to CCAR to make capital distributions
in a given quarter if its actual capital issuances in that
quarter are less than the amount indicated in its
capital plan and to eliminate the need to obtain prior
approval for accretive issuances of capital
instruments that would qualify for inclusion in the
numerator of regulatory capital ratios. In addition,
these rules will revise the timeline for the submission
of capital plans and stress tests for BHCs subject to
CCAR. Under these rules, for the 2015 capital plan
cycle, these BHCs were required to submit capital
plans on or before Jan. 5, 2015, unchanged from prior
years. For subsequent cycles, beginning in 2016,
BHCs will be required to submit their capital plans
and stress testing results to the Federal Reserve one
quarter later (on or before April 5).

In order to provide a transition to this timing, the
Federal Reserve’s objection or non-objection to
capital plans submitted in January 2015, including
BNY Mellon’s, will cover a five-quarter period
commencing with the second quarter of 2015 and
extending through the second quarter of 2016. The
objection or non-objection will switch to a four-
quarter period in years thereafter.

We submitted our 2015 capital plan to the Federal
Reserve on Jan. 5, 2015. 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, in March 2015. We anticipate
announcing our 2015 capital plan shortly thereafter.

Regulatory Stress-Testing Requirements

In addition to the CCAR stress testing requirements,
Federal Reserve regulations also include DFAST,
which was adopted in final form in October 2012.
The CCAR and DFAST requirements substantially
overlap, and the Federal Reserve implements them at
the BHC level on a coordinated basis. 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 involve both company-run and

BNY Mellon 79

Supervision and Regulation (continued)

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 most recent company-run annual stress test on
March 26, 2014, and the results of our company-run
mid-year stress test on Sept. 15, 2014.

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 exposures.

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

•

risk-based capital rules applicable to all banking
organizations based on the Basel Committee’s
1988 agreement, International Convergence of
Capital and Measurement Standards (“Basel I”).
The U.S. 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
measurement approach for operational risk based
on the Basel Committee’s comprehensive June
2006 release, International Convergence of
Capital Measurement and Capital Standards: A
Revised Framework (“Basel II”). The agencies
generally refer to these rules as modified by the
Final Capital 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

80 BNY Mellon

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.

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). Under these
rules, the required minimum ratio of total capital (the
sum of Tier 1 and Tier 2 capital) to risk-adjusted
assets was 8.0%. The required minimum ratio of Tier
1 capital to risk-weighted assets was 4.0%. These
minimum required ratios were applicable to us
through Dec. 31, 2013.

The general risk-based capital rules based on Basel I
provide that voting common shareholders’ 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.

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 effective starting in the
second quarter of 2014, subject to ongoing
qualification. We were required to comply with
Advanced Approaches reporting and public
disclosures commencing on June 30, 2014. Under the
Final Capital Rules (as defined below), this means,
among other things, for purposes of determining
whether we meet minimum risk-based capital

Supervision and Regulation (continued)

requirements, starting with the second quarter of 2014
our CET1 ratio, Tier 1 capital ratio, and total capital
ratio is 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,
replaced the calculation of risk-weighted assets under
the general risk-based capital rules based on Basel I.
The Final Capital Rules, among other changes:

•

•
•

•

redefine the components of capital in the
numerator of regulatory capital ratios in a more
narrow way than the previous capital standards;
introduce a new minimum CET1 risk-based
capital ratio and increase the minimum Tier1 risk-
based capital ratio 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 new “Standardized
Approach,” so that the Standardized Approach is
the new “generally applicable 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;
establish a capital conservation buffer;
introduce a countercyclical capital buffer for
banking organizations subject to the Advanced
Approaches (“Advanced Approaches banking
organizations”); and
establish 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, the
Final Capital Rules looked 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.

•

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 organizations
to satisfy three minimum risk-based capital ratios
using both the new Standardized Approach risk-
weightings on Jan. 1, 2015 (during 2014, the Final
Capital Rules used the Basel I-based risk weightings
in lieu of the Standardized Approach) and the
Advanced Approach (for BNY Mellon, commencing
with the second quarter of 2014):

•

a CET1 ratio of 4.0% as of Jan. 1, 2014, which
was increased to 4.5% beginning Jan. 1, 2015;
a Tier 1 capital ratio of 5.5% on Jan. 1, 2014,
which was increased to 6.0% beginning Jan. 1,
2015; and
a Total capital ratio of 8.0% (unchanged from the
earlier 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. The capital conservation buffer can
only be satisfied with CET1 capital.

The capital conservation buffer is designed to absorb
losses during periods of economic stress and applies
to all banking organizations. Banking organizations
with a CET1 ratio above the minimum but below the
conservation buffer (or below the combined capital
conservation buffer and countercyclical capital buffer,
when the latter is applied) will face constraints on
dividends, equity repurchases and compensation
based on the amount of the shortfall.

BNY Mellon 81

Supervision and Regulation (continued)

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.

The Final Capital Rules’ buffers are also expected
to be supplemented by a risk-based capital
surcharge on G-SIBs. In December 2014, the
Federal Reserve issued a notice of proposed
rulemaking (the “Proposed U.S. G-SIB Rule”) to
establish risk-based capital surcharges for
systemically important U.S. BHCs.

The Proposed U.S. G-SIB Rule retains the
surcharge calculation from the Basel G-SIB
framework (which is referred to as “method 1”).
However, it introduces an additional calculation
approach (which is referred to as “method 2”) that
uses a new indicator designed to address perceived
risks of short-term wholesale funding. Under the
Proposed U.S. G-SIB Rule, a G-SIB’s surcharge is
determined by taking the higher of the G-SIB’s
surcharge determined under the two methods.

The capital surcharge under the Proposed U.S. G
SIB Rule would be implemented as an extension
of the capital conservation buffer and can only be
satisfied with CET1 capital. Consistent with the
phase-in of the capital conservation buffer, the G
SIB capital surcharge would be phased in
beginning on Jan. 1, 2016 and become fully
effective on Jan. 1, 2019.

The Proposed U.S. G-SIB Rule, if adopted in its
current form, would result in higher surcharges for
certain U.S. G-SIBs than would the Basel G-SIB
framework. BNY Mellon could be subject to a
surcharge that is greater than the prior estimate of
1.0% under the Basel G-SIB framework.

At Dec. 31, 2014, calculated on a transitionally
phased-in basis and under the Advanced Approaches,
BNY Mellon’s CET1 ratio was 11.2%, the Tier 1
capital ratio was 12.2%, the Total capital ratio was
12.5% and its leverage ratio was 5.6%.

82 BNY Mellon

At Dec. 31, 2014, our estimated fully phased-in CET
1 ratio was 9.8% under the Advanced Approaches and
10.6% under the Standardized Approach, based on
our current interpretations, expectations and
understanding of the Final Capital Rules and the final
market risk rules.

New Measure of Capital

The Final Capital Rules, like Basel III, provide for a
number of new deductions from and adjustments to
CET1 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 CET1 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, 2014, BNY Mellon had $312 million of
outstanding trust preferred securities.

New Generally Applicable Risk-Based Capital Rules:
Standardized Approach

As discussed, the Final Capital Rules amend the
agencies’ generally applicable 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 generally

Supervision and Regulation (continued)

range from 0% to 1,250% compared with the risk-
weights of 0% to 100% in the Basel I-based rules.
Higher risk-weights under the Standardized Approach
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 the
Basel I-based rules, 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.

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 exception for certain banking organization to
maintain only a 3% minimum). At Dec. 31, 2014,

the Tier 1 leverage ratio for The Bank of New York
Mellon Corporation was 5.6% and the Tier 1 leverage
ratio for our primary banking subsidiary, The Bank of
New York Mellon, was 5.2%.

The Final Capital Rules also implement a new 3%
Basel III-based SLR for Advanced Approaches
banking organizations, including BNY Mellon, to
become effective Jan. 1, 2018. Unlike the Tier 1
leverage ratio, the SLR 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 cancelable commitments.

Subsequent to the U.S. banking agencies’ adoption of
the Final Capital Rules, the Basel Committee
finalized (in January 2014) modifications to the Basel
III SLR. Those modifications would adjust the SLR’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 SLR requirement of
3%. In September 2014, the U.S. federal banking
agencies issued a final rule modifying the SLR
denominator in the U.S. to align with the final Basel
III changes to the SLR denominator.

In April 2014, the U.S. banking agencies adopted an
“enhanced” SLR for banking organizations with total
consolidated assets of more than $700 billion or
assets under custody of more than $10 trillion, as well
as their depository institution subsidiaries. The
enhanced SLR would apply to the eight U.S. banking
organizations that have been identified as G-SIBs by
the Financial Stability Board (including BNY
Mellon) and their insured depository institution
subsidiaries. The enhanced SLR requires BNY
Mellon and other U.S. G-SIBs to maintain an SLR of
greater than 5% (composed of the current minimum
requirement of 3% plus a greater than 2% buffer) and
requires bank subsidiaries of those bank holding
companies to maintain a 6% SLR in order to qualify
as “well capitalized” under the prompt corrective
action regulations discussed below. The final
enhanced SLR rule for U.S. G-SIBs, like the SLR
more generally applicable to all Advanced
Approaches banking organizations, will become
effective on Jan. 1, 2018.

BNY Mellon 83

Supervision and Regulation (continued)

Total Loss-Absorbing Capacity Proposal

In November 2014, the Financial Stability Board
issued a consultative document (“TLAC Proposal”)
regarding a proposal to institute a Total Loss-
Absorbing Capacity (“TLAC”) requirement on G-
SIBs. The TLAC Proposal would be effective no
earlier than Jan. 1, 2019. Some key features of the
TLAC Proposal include:

• The TLAC Proposal would set an external TLAC
risk-based ratio requirement within the range of
16% to 20% of risk-weighted assets, and at a
minimum twice relevant the Basel III SLR
requirement. Regulatory buffers are expected to
be additive to these levels.
Instruments eligible for external TLAC would
generally include long-term senior unsecured
debt instruments, as well as regulatory capital
instruments. However, eligible TLAC that are
not regulatory capital instruments must account
for at least 33% of the minimum TLAC
requirement.

•

• G-SIBs subject to the TLAC requirement,

including BNY Mellon, would also be required to
maintain a minimum amount of internal TLAC at
certain material foreign subsidiaries. Under the
TLAC Proposal, these material foreign
subsidiaries would be required to maintain
internal TLAC equal to 75%-90% of the
minimum external TLAC requirement that would
apply to it if it were a stand-alone resolution
entity.

The U.S. banking agencies have not acted on this
proposal.

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.

84 BNY Mellon

Prior to Jan. 1, 2015, a depository institution was
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
separately define “well capitalized” for BHCs to
require 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 BHC
that is not well capitalized and well managed (or
whose bank subsidiaries are not well capitalized and
well managed under applicable prompt corrective
action standards) may not become a financial holding
company or, if it is already a financial holding
company but fails to maintain well-capitalized status,
may be restricted in certain of its activities and
ultimately may lose financial holding company status.
Applicable capital rules do not apply a CET1 or
leverage capital standard for determining whether a
BHC is well capitalized.

Effective Jan. 1, 2015, 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 CET1 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 banking
organization to maintain a SLR of at least 3% to
qualify for the “adequately capitalized” status.

In addition, as noted above, the U.S. federal banking
agencies’ revisions to the enhanced SLR establish a
SLR “well capitalized” threshold of 6% for covered
insured depository institutions, including The Bank of
New York Mellon and BNY Mellon N.A.

At Dec. 31, 2014, 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

Supervision and Regulation (continued)

action rules and may not be an accurate
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 quantitative
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,
the 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 the final
NSFR document in October 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 U.S. banking agencies finalized rules
implementing the LCR (as discussed below) but have
not yet proposed rules implementing the NSFR.

In October 2013, the U.S. banking agencies issued an
NPR to implement the Basel III LCR in the U.S. and
on Sept. 3, 2014, they issued a final rule (the “Final
LCR Rule”). Consistent with the Proposed LCR
Rule, the Final LCR Rule is more stringent than the
Basel III LCR in several respects, including, the
eligibility of HQLA and having an accelerated
implementation timeline as compared with the Basel
III LCR.

The Final LCR Rule also contains several changes
from the Proposed LCR Rule, including:

•

a transition period for compliance with the daily
LCR calculation requirement (during which
monthly calculation is permitted);
total net stressed cash outflows will be
calculated based on net outflows over a 30-day
period, plus a maturity mismatch add-on (rather
than the peak day approach of the Proposed
LCR Rule); and
a definition of operational deposits that does not
exclude all deposits of registered investment
companies and registered investment advisers.

Since Jan. 1, 2015, covered companies, including
BNY Mellon, The Bank of New York Mellon and
BNY Mellon, N.A., have been required to meet an
LCR of 80%, increasing annually by 10% increments
until Jan. 1, 2017, at which time covered companies
would be required to meet an LCR of 100%.

Separately, as noted above, the Final SIFI Rules
address liquidity requirements for BHCs with $50
billion or more in total assets, including BNY Mellon.
These enhanced liquidity requirements became
effective on Jan. 1, 2015 and 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 imposed broad prohibitions and
restrictions on proprietary trading and investments in
or sponsorship of hedge funds and private equity
funds by banking organizations and their affiliates,
commonly referred to as the “Volcker Rule.”

BNY Mellon 85

Supervision and Regulation (continued)

On Dec. 10, 2013, final rules to implement the
Volcker Rule were adopted. Banks, including BNY
Mellon, and affiliates generally 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 Federal Reserve extended
this conformance period by one year (until July 21,
2016) for investments in and relationships with
covered funds and foreign funds that were in place
prior to Dec. 31, 2013. The Federal Reserve also
stated that it intends to act in 2015 to grant an
additional one-year extension of this conformance
period until July 21, 2017. 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, subject to certain exceptions,
prohibits “banking entities,” including BNY Mellon,
from engaging in proprietary trading and limits our
sponsorship of, and investments in, private equity and
hedge funds (“covered funds”), including our ability
to own or provide seed capital to covered funds and
the ability for a covered fund to share the same or
similar name with a BNY Mellon affiliate. In
addition, the Volcker Rule restricts us from engaging
in certain transactions with covered funds (including,
without limitation, certain U.S. funds for which BNY
Mellon acts as both sponsor/manager and custodian).

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 number or value of the
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
(when combined with ownership interests in covered
funds held under the Volcker Rule’s ABS issuer
exemption and underwriting and market-making
exemption), 3% of the banking organization’s Tier 1
capital. Moreover, a banking entity relying on the

86 BNY Mellon

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.

In the European Union, structural reform proposals
are likely to be further develop during 2015.
European and Member State regulators (for example,
the Prudential Regulation Authority in the UK)
continue to develop proposals in regard to bank
structural reform. The details of such structural
reform proposals continue to be developed, and at
this stage the final outcome of such proposals is not
certain. Bank structural reform proposals, if
implemented, may require BNY Mellon to review its
existing corporate structure, and may impact upon the
business activities that BNY Mellon subsidiaries and
branches can undertake. It is not clear whether bank
structural reforms in the European Union will operate
on the basis of changes to corporate structure or
prohibitions on certain forms of trading (including
proprietary trading), or a combination of these
approaches.

Derivatives

U.S., EU and APAC 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. The Dodd-Frank Act, the European
Market Infrastructure Regulation (“EMIR”), and
APAC regulations each require or impose, or will
likely impose, as the case may be, 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 The Dodd-Frank Act, EMIR and
APAC regulations 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 MMFs may
pose to financial stability. In November 2012, the
Financial Stability Oversight Council proposed

Supervision and Regulation (continued)

several alternative 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 July 2014, the SEC finalized rules (the “MMF
Rules”) that will require institutional prime money
market funds (including institutional municipal
money market funds) to maintain a floating NAV
based on the current market value of the securities in
their portfolios rounded to the fourth decimal place.

Previously, such funds could maintain a stable NAV
of $1.00. Government MMFs and retail MMFs are
exempt from these requirements and may continue to
maintain a stable NAV, provided each type of fund
continues to satisfy certain definitional requirements
under the new rule. The MMF Rules also provide
new tools to MMFs’ boards of directors to address
high net redemption activity during periods of
market stress. In particular the MMF Rules allow a
MMF’s board of directors to impose liquidity fees or
temporarily suspend redemptions if a MMF’s level
of weekly liquid assets falls below certain thresholds.
Government MMFs are not required to adopt the
liquidity fees and redemption gates provision, but
they may opt to do so. In addition, there is a two
year transition period before implementation of the
floating NAV and fees and gating structures is
required.

Beyond these primary reforms, the MMF Rules also
expand disclosure requirements, tighten the
diversification requirements and impose additional
stress testing requirements. There is a transition
period concluding in April 2016 before mandatory
implementation is required. The MMF Rules also
introduce a new Form N-CR, which will require
MMFs to disclose certain events (for example, the
imposition or removal of fees or gates, the primary
consideration or factors taken into account by a
board of directors, in its decision related to fees and
gates, and portfolio security defaults). The MMF
Rules establish a transition period concluding in July
2015 before reporting on Form N-CR is required.

The final MMF Rules are highly complex, and we
are continuing to evaluate their impact. It is possible
that the MMR Rules could result in changes to the
size and composition of our AUM, AUC/A, and total
deposits.

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, or alternatively, a fees and gate
structure; (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.

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 and currently has
approximately 85% of the market share of the U.S.
tri-party repo market. As agent, we facilitate
settlement between sellers (cash borrowers) and
buyers (cash lenders). Our involvement in a
transaction commences after a seller and buyer
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 re-examined
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
final report regarding the tri-party repo market in
2012.

BNY Mellon has reduced the amount of secured
intraday credit it provides to sellers in connection

BNY Mellon 87

Supervision and Regulation (continued)

with their tri-party repo trades in a number of ways,
including limiting the collateral eligible to secure
intraday credit to certain more liquid asset classes,
reducing the amount of time during which we extend
intraday credit, 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 sellers to prefund their
repayment obligations in connection with trades
collateralized by DTC sourced securities.

This combination of measures, together with the
technological enhancements put in place in 2014,
have practically eliminated (defined as a 90%
reduction) intraday credit related to tri-party repo
processing.

Recovery and Resolution Planning

As required by the Dodd-Frank Act, the Federal
Reserve and FDIC have jointly issued a final rule
requiring certain organizations, including each BHC
with consolidated assets of $50 billion or more, such
as BNY Mellon, to submit annually to the Federal
Reserve and the FDIC a plan for its rapid and orderly
resolution in the event of material financial distress or
failure. In addition, the FDIC has 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 annually to the FDIC a
plan for resolution in the event of the institution’s
failure.

The two resolution plan rules are complementary, and
we have been submitting our resolution plans in
conformity with both rules since 2012. The public
portions of our resolution plan are available on the
FDIC’s website.

In August 2014, the regulators notified the 11 “first
wave” filers, including BNY Mellon, that certain
shortcomings in the 2013 resolution plans must be
addressed in the 2015 resolution plans. The FDIC
determined that the plans submitted by the first-wave
filers are not credible and do not facilitate an orderly
resolution under the U.S. Bankruptcy Code. The
Federal Reserve was silent as to its determination
regarding credibility of the plans, but did state that
the first-wave filers, including BNY Mellon, must
take immediate action to improve their resolvability
and reflect those improvements in their 2015 plans.
If the FDIC and the Federal Reserve jointly

88 BNY Mellon

determine that the plan we will submit on or before
July 1, 2015 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. If
we continue to fail to adequately remedy any
deficiencies, we could be required to divest assets or
operations that the regulators determine necessary to
facilitate our orderly resolution.

In January 2014, the Federal Reserve issued
heightened supervisory expectations for recovery and
resolution preparedness. The expectations apply to
eight domestic bank holding companies designated by
the Federal Reserve, including BNY Mellon, and
cover the following five topics: collateral
management; payment, clearing and settlement
activities; liquidity and funding; management
information systems; and shared and outsourced
services.

European legislators implemented European bank
recovery and resolution legislation to operate in the
European Union. The European Union Bank
Recovery and Resolution Directive (“BRRD”)
commenced in EU Member States on Jan. 1, 2015.
Various BNY Mellon subsidiaries and branches fall
within the scope of BRRD.

BRRD requires EU-domiciled credit institutions, and
certain other firms, to prepare recovery plans. We
prepared a recovery plan for The Bank of New York
Mellon (International) Limited (“BNYMIL”) in June
2014 and Phase 1a and 1b of the UK resolution pack
in August 2014, which were both submitted to the
Prudential Regulation Authority (“PRA”). In
Belgium, we submitted our second recovery plan with
respect to The Bank of New York Mellon SA/NV to
the National Bank of Belgium in November 2014.
We expect to submit updated recovery plans with
respect to BNYMIL and The Bank of New York
Mellon SA/NV during 2015. We also expect to
develop recovery plans for certain additional BNY
Mellon entities in the EMEA region during 2015 and
2016.

Risk Data Aggregation and Risk Reporting

The Basel Committee on Banking Supervision
requires identified global systemically important
banks, including BNY Mellon, to complete an annual
self-assessment questionnaire developed by the

Supervision and Regulation (continued)

BCBS concerning principles for effective risk data
aggregation and risk reporting. The BCBS developed
these principles upon recommendation of the FSB,
and they are designed to strengthen risk data
aggregation and reporting practices, enhance bank
risk management and decision-making processes, and
contribute to improving resolvability. The
questionnaire allows financial institutions to gauge
current level of compliance and identify areas that
will need additional work. BNY Mellon continues to
work towards full implementation of the BCBS
principles.

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 circumstances, 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
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 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’s orderly
liquidation authority provisions, and not under the
insolvency law that would otherwise apply. The
powers of the receiver under the orderly liquidation
authority were based on the powers of the FDIC as
receiver for depository institutions under the FDI Act.
However, the provisions governing the rights of
creditors under the orderly liquidation authority were
modified in certain respects to reduce disparities with
the treatment of creditors’ claims under the U.S.
Bankruptcy Code as compared to the treatment of
those claims under the new authority. Nonetheless,
substantial differences in the rights of creditors exist
as between these two regimes, including the right of
the FDIC to disregard the strict priority of creditor
claims in some circumstances, the use of an
administrative claims procedure to determine
creditors’ claims (as opposed to the judicial procedure
utilized in bankruptcy proceedings), and the right of
the FDIC to transfer claims to a “bridge” entity.

The orderly liquidation authority provisions of the
Dodd-Frank Act became effective upon enactment.
However, a number of rulemakings are required
under the terms of Dodd-Frank, and a number of
provisions of the new authority require clarification.
The FDIC has completed its initial phase of
rulemaking under the orderly liquidation authority,
but additional rules are under consideration. These
rules may affect the manner in which the new
authority is applied, particularly with respect to
broker-dealer and futures commission merchant
subsidiaries of BHCs.

BNY Mellon 89

Supervision and Regulation (continued)

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 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.

In September 2014, the UK PRA, as the successor to
the prudential functions of the FSA, published
“Supervisory Statement SS10/14 - Supervising
international banks: the PRA’s approach to branch
supervision”. In SS10/14, the PRA expressed
concern with non-EEA national depositor preference
regimes, and stated that the PRA would consider a
range of options, such as liaising with non-EEA
regulatory authorities in regard to the non-EEA
institution’s recovery plan and the adequacy of the
recovery plan from the perspective of the UK branch,
or to require certain non-EEA institutions to convert
their UK branch into a UK subsidiary.

Transactions with Affiliates

Transactions between BNY Mellon’s bank
subsidiaries, on the one hand, and the Parent and

90 BNY Mellon

its non-bank subsidiaries and affiliates, on the other,
are subject to certain restrictions, limitations and
requirements, which include limits on the types and
amounts of transactions (including loans due and
extensions of credit from the bank subsidiaries) that
may take place and generally require those
transactions to be on arm’s-length terms. In general,
extensions of credit by a BNY Mellon banking
subsidiary to any nonbank affiliate, including the
Parent, must be secured by designated amounts of
specified collateral and are limited in the aggregate to
10% of the relevant bank’s capital and surplus for
transactions with a single affiliate and to 20% of the
relevant bank’s capital and surplus for transactions
with all affiliates. Effective in July 2012, the Dodd-
Frank Act expanded the scope of the limitations on
affiliate transactions to include credit exposure
arising from derivative transactions and securities
lending and borrowing transactions.

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

Supervision and Regulation (continued)

low-risk 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. Currently, under the FDIC’s regulations, a
custody bank may deduct 100% of cash and balances
due from depository institutions, securities, federal
funds sold, and securities purchased under agreement
to resell with a Standardized Approach risk-weight of
0% and may deduct 50% of such asset types with a
Standardized Approach risk-weight of greater than
0% and up to and including 20%. This assessment
base deduction may not exceed the average value of
deposits that are classified as transaction accounts
and are identified by the bank as being directly linked
to a fiduciary or custodial and safekeeping account.

Source of Strength and Liability of Affiliates

Federal Reserve policy historically has required
BHCs to act as a source of strength to their bank
subsidiaries and to commit capital and financial
resources to support those subsidiaries. The Dodd-
Frank Act codified this policy as a statutory
requirement. Such support may be required by the
Federal Reserve at times when we might otherwise
determine not to provide it. In addition, any loans by
BNY Mellon to its bank subsidiaries would be
subordinate in right of payment to depositors and to
certain other indebtedness of its banks. In the event
of a BHC’s bankruptcy, any commitment by the BHC
to a federal bank regulator to maintain the capital of a
subsidiary bank will be assumed by the bankruptcy
trustee and entitled to a priority of payment. In
addition, in certain circumstances BNY Mellon’s
insured depository institutions could be assessed for
losses incurred by another BNY Mellon insured
depository institution. In the event of impairment of
the capital stock of one of BNY Mellon’s national
banks or The Bank of New York Mellon, BNY
Mellon, as the banks’ stockholder, could be required
to pay such deficiency.

Incentive Compensation Arrangements Proposal

The Dodd-Frank Act requires federal regulators to
prescribe regulations or guidelines regarding
incentive-based compensation practices at certain
financial institutions. On April 14, 2011, federal
regulators including, among other agencies, the
FDIC, the Federal Reserve and the SEC, issued a

proposed rule which, among other things, would
require certain executive officers of covered financial
institutions with total consolidated assets of $50
billion or more, such as ours, to defer at least 50% of
their annual incentive-based compensation for a
minimum of three years. The comment period on the
proposed rule closed May 31, 2011. Final regulations
have not been issued as of this date.

Anti-Money Laundering and the USA Patriot Act

A major focus of governmental policy on financial
institutions has been aimed at combating money
laundering and terrorist financing. The USA
PATRIOT Act of 2001 contains numerous anti-money
laundering requirements for financial institutions that
are applicable to BNY Mellon’s bank, broker-dealer
and investment adviser subsidiaries and mutual funds
and private investment companies advised or
sponsored by our subsidiaries. Those regulations
impose obligations on financial institutions to
maintain appropriate policies, procedures and
controls to detect, prevent and report money
laundering and terrorist financing and to verify the
identity of their customers. Certain of those
regulations impose specific due diligence
requirements on financial institutions that maintain
correspondent or private banking relationships with
non-U.S. financial institutions or persons.

Privacy

The privacy provisions of the Gramm-Leach-Bliley
Act generally prohibit financial institutions, including
BNY Mellon, from disclosing nonpublic personal
financial information of consumer customers to third
parties for certain purposes (primarily marketing)
unless customers have the opportunity to “opt out” of
the disclosure. The Fair Credit Reporting Act
restricts information sharing among affiliates for
marketing purposes.

Acquisitions/Transactions

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

BNY Mellon 91

Supervision and Regulation (continued)

regulatory authorities will consider, among other
things, the competitive effect of the transaction,
financial and managerial resources including the
capital position of the combined organization,
convenience and needs of the community 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), the effectiveness of the
subject organizations in combating money laundering
activities and the risk to the stability of the U.S.
banking or financial system. 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 registered 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

92 BNY Mellon

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 banking subsidiary, is a New York
state-chartered bank, and a member of the Federal
Reserve System and is subject to regulation,
supervision and examination by the Federal Reserve,
the FDIC and the New York State Department of
Financial Services (“DFA”). 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
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 became
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. The Bank of New York Mellon
is provisionally registered as a Swap Dealer (as
defined in the Dodd-Frank Act) with the CFTC,
through the National Futures Association (“NFA”).
As a Swap Dealer, The Bank of New York Mellon is
subject to regulation, supervision and examination by
the CFTC and NFA. 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.

Supervision and Regulation (continued)

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 (“DOL”). ERISA imposes certain statutory
duties, liabilities, disclosure obligations, and
restrictions on fiduciaries, as applicable, related to the
services being performed and fees being paid.
Certain proposed expansions of the definition of a
fiduciary could require certain BNY Mellon
businesses to modify their practices, which could
adversely affect results of such businesses.

Operations and Regulations Outside 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
(“NBB”), is authorized to carry out all banking and
savings activities as a credit institution. On Nov. 4,
2014, the ECB assumed responsibility for the
supervision of 120 significant banks and banking
groups in the euro area, including BNY Mellon SA/
NV. The ECB’s supervision is performed in
conjunction with the relevant national prudential
regulator (NBB in BNY Mellon SA/NV’s case).
BNY Mellon SA/NV conducts its activities in
Belgium as well as through branch offices in the
United Kingdom, Ireland, Luxembourg, the
Netherlands, France and Germany.

Certain of our financial services operations in the UK
are subject to regulation and supervision by the FCA
and PRA. 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.

The PRA regulates The Bank of New York Mellon
(International) Limited, our UK incorporated bank, as
well as the UK branch of The Bank of New York
Mellon and, to a more limited extent, 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 European Union’s
(“EU”) 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.

The BRRD commenced on Jan. 1, 2015. This
directive provides for recovery and 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

BNY Mellon 93

Supervision and Regulation (continued)

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 entered into force on
Nov. 4, 2014 in most EU jurisdictions. The UK is not
participating in the Banking Union. The key
components of the Banking Union include a single
resolution mechanism (“SRM”) and a single
supervisory mechanism (“SSM”).

The SRM approach endorses the bail-in rules
established in the BRRD. The SRM provides for a
Single 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. Various
BNY Mellon subsidiaries and branches will fall
within the scope of the SRM.

In addition, the Capital Requirements Directive IV
(and related Regulation) (“CRD IV”) affects 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 also 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
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.

94 BNY Mellon

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 and regulations will impact our provision
of these services, including revisions to the Markets
in Financial Instruments Directive II (“MiFID II”),
the Alternative Investment Fund Managers Directive
(“AIFMD”), the Directive on Undertakings for
Collective Investments in Transferable Securities
(“UCITSV”), the Central Securities Depository
Regulation (“CSDR”), and the European Market
Infrastructure Regulation (“EMIR”). These new and
revised European directives and regulations 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, 2014, 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 is composed of the
ECB and the supervisory authorities of the member
states. It covers the prudential supervision of all
major banks in the 19 countries comprising the
Eurozone and non-Eurozone countries that choose to
participate through close cooperation agreements.

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

Supervision and Regulation (continued)

will be conducted in conjunction with the European
Banking Authority. This assessment continued until
November 2014. The Bank of New York Mellon SA/
NV, our Belgian banking subsidiary, was 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.

European Resolution Legislation and Structural
Reform Proposals

BRRD. European legislators have initiated proposals
to establish European bank recovery and resolution
mechanisms to operate in the European Union. The
BRRD commenced in EU Member States on Jan. 1,
2015. Various BNY Mellon subsidiaries and
branches fall within the scope of BRRD. BRRD
requires EU-domiciled credit institutions, and certain
other firms, to prepare recovery plans. BRRD
includes bail-in rules, which will commence EU-wide
by January 1, 2016, although EU member states may
choose to commence the bail-in rules earlier. For
example, the UK implementation of bail-in
commenced on Jan. 1, 2015.

MREL. BRRD also includes a minimum requirement
for own funds and eligible liabilities (“MREL”) to
ensure that institutions maintain enough capital
capable of being written down and/or bailed-in. The
European Banking Authority (“EBA”) intends to
finalize the MREL requirements after public
consultation. It is expected that MREL will be set on
a case-by-case basis for each institution, based on six
criteria: resolvability, capital, exclusions from bail-in,
deposit guarantee schemes, institution-specific risk,
and systemic risk. However, it is not yet clear how
the MREL requirement will align with the global
TLAC requirement.

Resolution Fund. The EU proposals also require each
EU Member State (either individually, or collectively
with other EU Member States) to establish a
resolution fund, which is to be funded by the banking

industry. Most EU Member States will participate in
a Single Resolution Fund (“SRF”), under the control
of a Single Resolution Board (“SRB”). The SRB
commenced operation on Jan. 1, 2015, and has broad
powers in case of bank resolution. Contributions to
the SRF start in 2016, and the SRF will build up over
eight years, to a target level of 1% of covered
deposits. Certain BNY Mellon entities will be subject
to contributions to the SRF, most notably The Bank of
New York Mellon SA/NV. The Bank of New York
Mellon SA/NV believes that its contributions to the
SRF will constitute a meaningful cost for The Bank
of New York Mellon SA/NV during the calendar
years 2016 to 2023. The UK is not participating in
the SRB or SRF. The Bank of England is the
equivalent resolution authority in the UK, with
similarly board powers in case of bank resolution.

Deposit Guarantee Scheme Directive. Under the
recast Deposit Guarantee Scheme Directive
(“DGSD”), the scope of deposit protection in the EU
is being extended to cover most corporate entities,
and contributions to deposit guarantee schemes are
expected to move to a risk-based calculation method.
BNY Mellon expects that the extension of deposit
protection to most corporate entities will require
certain BNY Mellon entities to contribute to relevant
deposit protection schemes. The contributions and
required systems enhancements may constitute a
meaningful cost for those BNY Mellon entities.

Structural Reform. In addition, European and
Member State regulators (for example, the PRA in the
UK) continue to develop proposals in regard to bank
structural reform. The details of such structural
reform proposals continue to be developed, and at
this stage the final outcome of such proposals is not
certain. Bank structural reform proposals, if
implemented, may require BNY Mellon to review its
existing corporate structure, and may impact upon the
business activities that BNY Mellon subsidiaries and
branches can undertake.

European Financial Markets and Market
Infrastructure

The EU continues to develop proposals and
regulations in relation to financial markets and
market infrastructures. The MiFID II, Markets in
Financial Instruments Regulation (“MiFIR”) and
European Market Infrastructure Regulation (“EMIR”)
are at the detailed rule-making stage, and involve a
significant volume of change to be implemented in

BNY Mellon 95

Supervision and Regulation (continued)

relatively short timeframes. MiFID II / MiFIR /
EMIR may create new business opportunities in
European markets, but will also require existing
business activities and processes to be reviewed. The
volume of change required may result in some
implementation / execution risk. A key policy
objective of the 2014-19 European Commission is to
develop a Capital Markets Union in the EU. This is
likely to create new business opportunities and alter
the competitive landscape for European capital
markets.

Investment Services in Europe

The Alternative Investment Fund Managers Directive
(“AIFMD”), which came 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 V, which
was adopted in September 2014 with rules to take
effect in March 2016.

96 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

A technology disruption or information security
event that results in a loss of confidential client
information or impacts our ability to provide
services to our clients may adversely affect our
business and results of operations.

We rely on communications and information systems
to conduct our business. Our businesses that rely
heavily on technology, including our Investment
Services business, are vulnerable to attacks and
technology disruptions, which are occurring globally
with greater frequency. Our information systems
have been subjected to cyber threats, including hacker
attacks, computer viruses or other malicious software,
denial of service efforts, limited unavailability of
service, phishing attacks, and unauthorized access
attempts. We deploy a broad range of sophisticated
defenses, but notwithstanding these efforts, it is
possible we could suffer a material impact or
disruption. 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, or detect all such threats, especially because
the techniques used change frequently or are not
recognized until launched, and because attacks can
originate from a wide variety of sources, including
outside third parties such as persons who are involved

with organized crime 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.

Security events 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, vendors and customers, as well as
hackers. An event that results in the loss of
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
business, results of operations and reputation.
Additionally, security events 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 business, damage our reputation,
subject us to regulatory scrutiny or expose us to
litigation, any of which could have a material adverse
effect on our business, financial condition and results
of operations. In addition, the failure to upgrade or
maintain our computer systems, software and
networks, as necessary, could also make us vulnerable
to attack and unauthorized access and misuse. There
can be no assurance that any such failures,
interruptions or security events 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, their service providers or
industry utilities 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 -

BNY Mellon 97

Risk Factors (continued)

Operational/business risk” and “Business Continuity”
in the MD&A section in this Annual Report.

If we fail to update our technology, develop and
market new technology to meet our clients’ needs or
protect our intellectual property, our business may
be adversely affected.

We are dependent on technology because many of our
products and services involve processing large
volumes of data requiring global capabilities and
scale from our technology platforms. Rapid
technological changes, together with competitive
pressures, require us to make significant and ongoing
investments in technology to develop competitive
new products and services or adopt new technologies.
Our financial performance depends in part on our
ability to develop and market these new products and
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. The
unsuccessful implementation of technological
upgrades and new products and services 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.

The failure to maintain an adequate technology
infrastructure commensurate with the size and scope
of our business could impact operations and impede
our productivity and growth, which could cause our
earnings to decline or could impact our ability to
comply with regulatory obligations leading to
regulatory fines and sanctions. In addition, the 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 could 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

98 BNY Mellon

infringement or misappropriation of its proprietary
rights, obtained through patents or otherwise, against
us, 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.

We are subject to extensive government regulation
and supervision and have been impacted by the
significant amount of rulemaking since the 2008
financial crisis. These rules and regulations have,
and could in the future, compel us to change how
we manage our businesses which could have a
material adverse effect on our business, financial
condition and results of operations. In addition,
these rules and regulations have increased our
compliance and operational risks and costs.

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. Since the 2008 financial crisis, domestic and
international policy makers and regulators have
substantially increased their focus on the financial
services industry. New or modified regulations and
related regulatory guidance and supervisory oversight
are significantly altering the regulatory framework in
which we operate and have affected how we analyze
certain business opportunities, increased our
regulatory capital requirements, altered the revenue
profile of certain of our core activities and imposed
additional costs on us. In addition, they could
otherwise adversely affect our business, financial
condition and results of operations and have other
negative consequences. 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 investors in our securities 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 or highly
liquid assets.

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 directly affected and will
continue to be affected by the changes to the

Risk Factors (continued)

regulatory environment that those regulators are
driving.

The evolving regulatory environment, including
changes to existing regulations and the introduction
of new regulations, may also contribute to decisions
we may make to suspend, reduce or withdraw from
existing businesses, activities or initiatives, which
may result in potential lost revenue or significant
restructuring or related costs or exposures.

Provisions in recent legislative and regulatory
changes or proposals that impact or are likely to
impact BNY Mellon include the following, which
should be read together with our Supervision and
Regulation section in this Annual Report:

• Leverage and Risk-Based Capital Standards. The

Final Capital Rules subject U.S. BHCs 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 the Advanced Approach
framework. As discussed in additional detail in
“Supervision and Regulation,” the Federal
Reserve recently issued the Proposed U.S. G-SIB
Rule, which will result in higher surcharges for
certain U.S. G-SIBs than under the Basel G-SIB
Framework. Under the Proposed U.S. G-SIB
Rule, which has not yet been finalized, we could
be subject to a CET1 ratio surcharge that is
greater than the prior BCBS estimate of 1.0%.
Failure to meet current or future capital
requirements could materially adversely affect
our financial condition. Additional impacts
relating to compliance with these rules could
include, but are not limited to, potential dilution
of existing shareholders and competitive
disadvantage compared to financial institutions
not under the same regulatory framework.

•

Supplementary Leverage Ratio. The
supplementary leverage ratio subjects BNY
Mellon to a more stringent leverage requirement,
which could restrict growth, activities, operations
or could result in certain restrictions on capital
distributions and discretionary bonus payments.

• TLAC Proposal. In November 2014, the Financial

Stability Board issued the TLAC Proposal
regarding a proposal to institute a TLAC
requirement on G-SIBs. Depending on how the
TLAC Proposal is ultimately finalized and
implemented by the U.S. agencies, it could lead
to increased cost of funds, place us at a
competitive disadvantage compared to financial
institutions not subject to this requirement,
require us to issue more long-term debt, capital
instruments, or other instruments, and have a
negative impact on our revenue, among other
potential impacts.

• The Volcker Rule. The Volcker Rule generally

prohibits us from engaging in proprietary trading
and from sponsoring and investing in hedge funds
and private equity funds (“covered funds”)
subject to certain exceptions. We could incur
losses when disposing of investments in covered
funds to comply with the Volcker Rule
notwithstanding the recent extension of the
conformance period. 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 may likewise be 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 may not exceed 3% of the total
number or value of the 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 (when
combined with ownership interests in covered
funds held under the Volcker Rule’s ABS issuer
exemption and underwriting and market-making
exemption), 3% of our Tier 1 capital. Moreover,
we will be required to deduct from Tier 1 capital
the value of our ownership interests in such
permitted covered funds, calculated in accordance
with the final regulations. The Volcker Rule also
contains extensive compliance and recordkeeping

BNY Mellon 99

Risk Factors (continued)

requirements, which will likely increase our costs
of operations.

• Liquidity Risk Management. The LCR will

potentially have an adverse effect on our business
and results of operations and will likely require
us to increase our holdings of high-quality and
potentially lower-yielding liquid assets. For
example, in response to the Final LCR Rule,
BNY Mellon reduced its interbank placement
assets and increased its securities portfolio
inventory of high-quality liquid assets. When the
final rule regarding the NSFR is ultimately
implemented in the U.S., those requirements
could also 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. To the extent that these
and other reforms differ from BNY Mellon’s
current funding profile, we may need to increase
our aggregate long-term debt levels and/or alter
the composition and terms of our debt, which
could lead to increased costs of funds and have a
negative impact on net interest revenue, among
other potential impacts.

• Orderly Liquidation Authority “Single Point of
Entry”. The Dodd-Frank Act established an
orderly liquidation process in the event of the
failure of a large systemically important financial
institution. Specifically, when a systemically
important financial institution such as BNY
Mellon is in default or danger of default, the
FDIC may be appointed receiver under the
orderly liquidation authority instead of the U.S.
Bankruptcy Code. In certain circumstances under
the orderly liquidation authority, the FDIC could
permit payment of obligations it determines to be
systemically significant (e.g., short-term creditors
or operating creditors) in lieu of paying other
obligations (e.g., long-term senior and
subordinated creditors, among others) without the
need to obtain creditors’ consent or prior court
review. The insolvency and resolution process
could also lead to a large reduction in or total
elimination of the value of a BHC’s outstanding
equity. Additionally, under the orderly liquidation
authority, amounts owed to the U.S. government
generally receive a statutory payment priority. A
“single point of entry” approach would replace a
distressed BHC with a bridge holding company,
which could continue subsidiary bank operations.

100 BNY Mellon

The U.S. banking 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. To the extent
that these future requirements differ from our
current funding profile, we may need to alter the
composition and terms of our debt, which could
lead to increased costs of funds and have a
negative impact on our net interest revenue,
among other potential impacts.

• Money Market Mutual Fund Reform. In July

2014, the SEC finalized the MMF Rules that will
require institutional prime money market funds
(including institutional municipal money market
funds) to maintain a floating NAV based on the
current market value of the securities in their
portfolios rounded to the fourth decimal place.
The final MMF Rules are highly complex, and
we are continuing to evaluate their impact. It is
possible that the MMF Rules could result in
changes to the size and composition of our AUM,
AUC/A, and total deposits.

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, has increased our compliance
costs and has required us to implement several
measures to change how tri-party repo
transactions are conducted. See “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” in this Risk Factors section.

• 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. In August 2014, the
Federal Reserve and FDIC notified the 11 “first
wave” filers, including BNY Mellon, that certain
shortcomings in the 2013 resolution plans must
be addressed in the 2015 resolution plans. The
FDIC determined that the plans submitted by the

Risk Factors (continued)

first-wave filers are not credible and do not
facilitate an orderly resolution under the U.S.
Bankruptcy Code. The Federal Reserve was
silent as to its determination regarding credibility
of the plans, but did state that the first-wave
filers, including BNY Mellon, must take
immediate action to improve their resolvability
and reflect those improvements in their 2015
plans. If the FDIC and the Federal Reserve
jointly determine that the plan we will submit on
or before July 1, 2015 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. If we continue to
fail to adequately remedy any deficiencies, we
could be required to divest assets or operations
that the regulators determine necessary to
facilitate our orderly resolution.

• 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 in 2014 could increase our
operational, compliance and risk management
costs. We are required 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. This
liquidity buffer is in addition to the LCR
discussed above and has been described by the
Federal Reserve as being “complementary” to
those liquidity standards. 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 cap certain business volumes to be
able to comply with such limits.

• Third Party Vendors. Recent regulatory guidance
has focused on the need for financial institutions
to perform increased due diligence and ongoing
monitoring of third party vendor relationships,
thus increasing the scope of management
involvement and decreasing the efficiency
otherwise resulting from these relationships.

• European Resolution and Structural Reform

Proposals. European legislators have initiated
proposals to establish European bank resolution
mechanisms to operate across the Eurozone,
including one or more resolution funds to be
funded by the banking industry. BNY Mellon
expects that the extension of deposit protection to
most corporate entities will require certain BNY
Mellon entities to contribute to relevant deposit
protection schemes. The contributions and
required systems enhancements may constitute a
meaningful cost for those BNY Mellon entities.
In addition, European and Member State
regulators (for example, the PRA in the UK)
continue to develop proposals in regard to bank
structural reform. The details of such structural
reform proposals continue to be developed, and at
this stage the final outcome of such proposals is
not certain. Bank structural reform proposals, if
implemented, may require BNY Mellon to review
its existing corporate structure, and may impact
upon the business activities that BNY Mellon
subsidiaries and branches can undertake. It is not
yet clear whether bank structural reforms in the
European Union will operate on the basis of
changes to corporate structure or prohibitions on
certain forms of trading (including proprietary
trading), or a combination of these approaches.

• European Financial Markets and Market
Infrastructures. The Markets in Financial
Instruments Directive II (“MiFID II”), Markets in
Financial Instruments Regulation (“MiFIR”) and
European Market Infrastructure Regulation
(“EMIR”) will require existing business activities
and processes to be reviewed. The volume of
change required may result in risk. The EU
continues to develop proposals and regulations in
relation to financial markets and market
infrastructures which may alter the competitive
landscape for European capital markets.

•

Investment Services in Europe. The Alternative
Investment Fund Managers Directive (“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 V, which was adopted in September 2014
with rules to take effect in March 2016.

BNY Mellon 101

Risk Factors (continued)

In addition to the direct effects on us, many of our
clients are subject to significant regulatory
requirements and retain our services in order for us to
assist them in complying with those legal
requirements. Changes in these regulations can
significantly affect the services that we are asked to
provide, as well as our costs.

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 Financial 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
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.

102 BNY Mellon

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. bank 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. Our U.S. 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 and could have reputational and
associated business consequences. A further failure
by BNY Mellon or one of our U.S. bank subsidiaries
to maintain its status as “adequately capitalized”
would lead to regulatory sanctions and limitations
and could lead the federal banking agencies to take
“prompt corrective action.”

If our company or our subsidiary banks failed to meet
the minimum capital rules and other regulatory

Risk Factors (continued)

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 additional,
more stringent, capital adequacy standards that were
recently promulgated, 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. Once the
more stringent capital requirements applicable to G-
SIBs are fully effective, as a G-SIB, we and certain of
our banking subsidiaries will be subject to higher
capital requirements than many of our U.S. and non-
U.S. competitors, leading to a potential competitive
disadvantage and negative impact on our businesses
and results of operations. Failure to meet current or
future capital requirements, including those imposed
by the Final Capital Rules or by regulators in
implementing other portions of the Basel III
framework, could materially adversely affect our
financial condition.

Although we expect to continue to satisfy our
regulatory capital requirements, there can be no
assurances that we will not need to hold significantly
more regulatory capital than we currently estimate in
order to satisfy an applicable minimum capital ratio,
plus any buffers. An inability to meet regulatory
expectations regarding our compliance with
applicable capital adequacy rules may also negatively
impact the assessment of BNY Mellon and its U.S.
banking subsidiaries by U.S. banking regulators and
our ability to make capital distributions.

Finally, our estimated capital ratios and related
components are based on our current interpretation,
expectations and understanding of the regulatory
capital rules and are subject to, among other things,
ongoing regulatory review, regulatory approval of
certain risk models, additional refinements,
modifications or enhancements (whether required or
otherwise) to our models, and further implementation
guidance in the United States. Any modifications or
requirements resulting from these ongoing reviews or
the continued implementation of Basel III and related
amendments to the regulatory capital framework in
the United States could result in changes in our risk-
weighted assets or other elements involved in the
calculation of BNY Mellon’s capital ratios, which
could negatively impact our capital ratios and ability
to achieve the capital requirements as we project or as
required. Further, because operational risk is

measured based not only upon our historical loss
experience but also upon ongoing events in the
banking industry generally, our level of operational
risk-weighted assets could significantly increase or
otherwise remain elevated for the foreseeable future
and may potentially be subject to significant
volatility.

New lines of business, new products and services or
strategic project initiatives may subject us to
additional risks, and the failure to implement these
initiatives 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. Regulatory requirements can affect whether
initiatives are able to be brought to market in a
manner that is timely and attractive to our customers.
Initial timetables for the development and
introduction of new lines of business and/or new
products or services may not be achieved and price
and profitability targets may not be met. Furthermore,
our revenues and costs may fluctuate because new
businesses or products and services generally require
startup costs while revenues may take time to
develop, which may adversely impact our results of
operations.

Additionally from time to time we undertake strategic
project initiatives. Significant effort and resources
are necessary to manage and oversee the successful
completion of these initiatives. These initiatives often
place significant demands on a limited number of
employees with subject matter expertise and
management and may involve significant costs to
implement as well as increase operational risk as
employees learn to process transactions under new
systems. The failure to properly execute on these
strategic initiatives could adversely impact our
business and 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 heightened regulatory
restrictions. Competition for the best employees in

BNY Mellon 103

Risk Factors (continued)

most activities in which we engage can be intense,
and we may not be able to recruit and retain key
personnel. We may also rely on certain employees
with subject matter expertise to assist in the
implementation of important initiatives. 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. These
regulations, which include and are expected to
include mandatory deferrals, clawback requirements
and other limits on incentive compensation, may not
apply to some of our competitors and to other
institutions with which we compete for talent. Our
ability to recruit and retain key talent may be
adversely affected by these regulations. In addition,
aspects of our compensation programs are
performance-based. If we do not achieve applicable
performance thresholds for a relevant period,
employee compensation may be adversely affected,
which could impact retention. The loss of employees’
skills, knowledge of the market, industry experience,
and the cost of finding replacements may hurt our
business. If we are unable to continue to attract and
retain highly qualified employees, our performance,
including our competitive position, could be
adversely affected.

Regulatory actions or litigation could materially
adversely affect our results of operations or harm
our businesses or reputation.

Like many major financial institutions, we and our
affiliates 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 heightened
regulatory scrutiny, inquiries or investigations, and
potentially client-related inquiries or claims, relating

104 BNY Mellon

to broad, industry-wide concerns that could lead to
increased expenses or reputational damage. For
example, many 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. Recently, significant settlements
by several large financial institutions with
governmental entities have been publicly announced.
The trend of large settlements with governmental
entities may adversely affect the outcomes for other
financial institutions in similar actions, especially
where governmental officials have announced that the
large settlements will be used as the basis or a
template for other settlements. The complexity of the
federal and state regulatory and enforcement regimes
in the U.S., coupled with the global scope of our
operations and the increasing aggressiveness of the
regulatory environment worldwide, also means that a
single event may give rise to a large number of
overlapping investigations and regulatory
proceedings, either by multiple federal and state
agencies in the U.S. or by multiple regulators and
other governmental entities in different jurisdictions.
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.

Certain of our subsidiaries are subject to periodic
examination, special inquiries and potential
proceedings by regulatory authorities, including the
Federal Reserve, SEC, OCC, DOL, DFS, CFTC,
NFA, ECB, NBB and FCA. These examinations,
inquiries and proceedings could, if compliance
failures or other violations are found, cause a
regulatory agency to institute proceedings and impose
sanctions for violations, including, for example,
regulatory agreements, cease and desist orders, civil
monetary penalties or termination of a license and
could lead to litigation by investors or clients, any of
which could cause our earnings to decline.

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

Risk Factors (continued)

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, or in excess of any loss contingencies
disclosed as reasonably possible. Such loss
contingencies may not be probable and reasonably
estimable until the proceedings have progressed
significantly, which could take several years and
occur close to resolution of the matter.

Any or all of the risks outlined above 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.

Our businesses may be negatively affected by
adverse publicity, government scrutiny or other
reputational harm.

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 and perceived
conflicts of interest. Our reputation could also be
harmed by the failure of an affiliate, joint venture or a
vendor or other third party with which we do
business, to comply with laws or regulations.
Damage to our reputation could affect the confidence
of clients, rating agencies, regulators, stockholders
and other stakeholders and could in turn have an
impact on our business and results of operations.

Additionally, governmental scrutiny from regulators,
legislative bodies and law enforcement agencies with
respect to financial services companies has increased
dramatically in the past several years. Press coverage
and other public statements that assert some form of
wrongdoing often result in some type of investigation
by regulators, legislators and law enforcement
officials or in lawsuits. Certain regulators, including
the SEC, have announced policies that make it more
likely that they will seek an admission of wrongdoing
as part of any settlement of a matter brought by them
against a regulated entity or individual, which could
lead to increased exposure to civil litigation and could
adversely affect our reputation and ability to do
business in certain jurisdictions with so-called “bad
actor” disqualification laws and could have other
negative effects.

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. 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

BNY Mellon 105

Risk Factors (continued)

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. We
cannot predict the ultimate outcome of the pending
matters involving our foreign exchange standing
instruction program. 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.

Our risk management framework may not be effective
in mitigating risk and reducing the potential for losses.

Our risk management framework seeks to mitigate
risk and loss to us. We have established
comprehensive policies and procedures and an
internal control framework designed to provide a
sound operational environment for the types of risk to
which we are subject, including operational risk,
market risk, credit risk and liquidity risk. However, as
with any risk management framework, there are
inherent limitations to our current and future risk
management strategies, including risks that we have
not appropriately anticipated or identified. In certain
instances, we rely on models to measure, monitor and
predict risks. However, these models 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. There is no assurance that
these models will appropriately capture all relevant
risks or accurately predict future events or exposures.
The recent financial crisis and resulting regulatory
reform highlighted both the importance and some of
the limitations of managing unanticipated risks, and
our regulators remain focused on ensuring that
financial institutions build and maintain robust risk
management policies. Accurate and timely enterprise-
wide risk information is necessary to enhance
management’s decision-making in times of crisis. If
our risk management framework proves ineffective or

106 BNY Mellon

if our enterprise-wide management information is
incomplete or inaccurate, we could suffer unexpected
losses, which could materially adversely affect our
results of operations or financial condition.

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.

An important aspect of our risk management
framework 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. For more information on how we
monitor and manage our risk management
framework, see “Risk Management - Risk
management overview” 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
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; failed transaction processing
or process management; unsuccessful or difficult
implementation of computer systems upgrades; loss
or damage to physical assets from natural disasters or
other events; and 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

Risk Factors (continued)

information systems resulting from unauthorized
access to confidential information or from internal or
external threats, such as cyber attacks. Operational
risk also includes fiduciary risk and 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 having been conducted by the FCA in the
UK with regard to the UK CASS regime and by the
Central Bank of Ireland with regard to
implementation of a new regime in Ireland. As
previously disclosed, the FCA is conducting an
investigation into compliance by BNY Mellon,
London Branch and an affiliate with the FCA’s Client
Assets Sourcebook, and discussions with the FCA are
ongoing. The resolution of this matter could have a
material adverse effect on our results of operations.
We continue to assess our operational models and
risks in light of these priorities.

Third parties with which we do business or that
facilitate our business activities, including exchanges,
clearing houses, financial intermediaries or vendors
that provide services or security solutions for our
operations, could also be sources of operational risk
to us, including from breakdowns or failures of their
own systems or capacity constraints.

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.

Operational losses can impact our capital ratios and
results of operations. For example, our operational
loss risk model is informed by external losses,
including certain fines and penalties levied against

other institutions in the financial services industry,
particularly those that relate to businesses in which
we operate, and as a result such external losses could
impact the amount of capital that we are required to
hold to account for operational risk. In addition,
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
results of operations in the period in which such
actions or matters are resolved or when a loss
contingency otherwise becomes probable and
reasonably estimable. 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, reputation, 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 will be 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, reputation,
results of operations and financial condition. If we
identify material weaknesses in our internal control
over financial reporting or are otherwise required to
restate our financial statements, we could be required
to implement expensive and time-consuming
remedial measures and could lose investor confidence
in the accuracy and completeness of our financial
reports. In addition, there are risks that individuals,
either employees or contractors, may circumvent
established control mechanisms in order to, for
example, exceed trading or investment management
limitations, or commit fraud.

Change or uncertainty in monetary, tax and other
governmental policies may impact our profitability
and ability to compete.

BNY Mellon 107

Risk Factors (continued)

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, waivers of money market fund
fees in addition to reductions in our spread-based
income and net interest revenue. The actions of the
Federal Reserve also could materially affect the value
of financial instruments we hold, activity levels,
liquidity and volatility in the financial markets, and
impact 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 these 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 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. We compete on the basis of
several factors, including transaction execution,
capital or access to capital, products and services,
innovation, reputation, and price. Larger and more
geographically diverse companies may be able to
offer financial products and services at more
competitive prices than we are able to offer. Pricing
pressures, as a result of the willingness of competitors

108 BNY Mellon

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. In addition, technological
advances have made it possible for other types of
non-depository institutions, such as outsourcing
companies and data processing companies, to offer a
variety of products and services competitive with
certain areas of our business. Additionally,
competitors may develop technological advances that
could negatively impact the pricing of our clearing,
settlement, payments and trading activities. Increased
competition in any of these areas may require us to
make additional capital investments in our businesses
in order to remain competitive.

Furthermore, recently implemented and proposed
regulations may impact our ability to conduct certain
of our businesses in a cost-effective manner or at all.
The regulatory objectives underlying several
provisions of the Dodd-Frank Act have not been
enacted by governments and regulatory agencies
outside the United States and may not be
implemented into law in most countries. The more
restrictive laws and regulations applicable to U.S.
financial services institutions can put us at a
competitive disadvantage to our non-U.S.
competitors. 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 could adversely affect our
ability to maintain or increase our profitability.

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, which includes
vendors and other third parties, 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, capital and exchange
controls, unfavorable tax rates and tax court rulings
and changes in laws and regulations.

Risk Factors (continued)

Our international clients accounted for 38% of our
revenue in 2014. 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, economic sanctions
and embargo programs administered by the U.S.
Office of Foreign Assets Control and similar multi
national bodies and governmental agencies
worldwide, and laws relating to doing business with
certain individuals, groups and countries, such as the
U.S. Foreign 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. In addition, such
rules could impact our ability to engage in business
with certain individuals, entities, groups and
countries, which could materially adversely affect
certain of our businesses and results of operations.
For example, if recent events in Russia and Ukraine
trigger broad sanctions against Russian entities, our
businesses with those clients, including depositary

receipts and investments by certain of our boutiques,
could be negatively impacted.

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, which could negatively impact our
business and results of operation. 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 lead to an increase in delinquencies,
bankruptcies or defaults that could result in our
experiencing higher levels of nonperforming assets,
net charge-offs and provisions for credit losses,
negatively impacting our business and operations. For

BNY Mellon 109

Risk Factors (continued)

example, if recent events in Russia and Ukraine result
in wide-reaching sanctions against Russian entities
which are our clients, we could experience defaults
by those clients, primarily in trade finance and
syndicated loans that are not collateralized. At Dec.
31, 2014, the total amount of our uncollateralized on
and off-balance sheet exposure to Russia was $243
million.

Our strategic transactions 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, disposed of, or invested in
(including through joint venture relationships)
companies and businesses, and may do so in the
future. Our ability to pursue or complete strategic
transactions is in certain instances subject to
regulatory approval and we cannot be certain when or
if, or on what terms and conditions, any required
regulatory approvals would be granted and whether
they could have an adverse effect on our business,
results of operations and financial condition.
Moreover, to the extent we pursue a strategic
transaction, there can be no guarantee that the
transaction will close when anticipated, or at all. If a
strategic transaction does not close, or if the strategic
transaction fails to maximize shareholder value, our
stock price could decline.

Each acquisition poses integration challenges,
including successfully retaining and assimilating
clients and key employees, capitalizing on certain
revenue synergies and integrating the acquired
company’s systems and technology. In some cases,
acquisitions involve entry into new businesses or new
geographic or other markets, and these situations also
present risks and uncertainties in instances where we
may be inexperienced in these new areas. We may be
required to spend a significant amount of time and
resources to integrate these acquisitions. The
anticipated integration benefits may take longer to
achieve than projected and the time and cost needed
to convert off of legacy systems may significantly
exceed our estimates. 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,

110 BNY Mellon

losses, and other liabilities in connection with 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.

Each disposition also poses challenges, including
separating the disposed businesses and systems in a
way that is cost-effective and is not disruptive to our
customers. In addition, the inherent uncertainty
involved in the process of evaluating, negotiating or
executing a potential sale of one of our companies or
businesses may cause the loss of key clients,
employees, and business partners which could have
an adverse impact on our business, financial
condition and results of operations.

Joint ventures and non-controlling investments
contain potentially increased financial, legal,
reputational, operational, regulatory and/or
compliance risks. Notwithstanding our controls and
risk management framework, which are designed to
manage these risks, we may be dependent on joint
venture partners, controlling shareholders or
management who may have business interests,
strategies or goals that are inconsistent with ours.
Business decisions or other actions or omissions of
the joint venture partner, controlling shareholders or
management may adversely affect the value of our
investment, impacting our results of operations, result
in litigation or regulatory action against us and
otherwise damage our reputation and brand.

Market Risk

Ongoing concerns about the financial stability of
some countries in Europe, the failure or instability
of any of our significant counterparties in Europe,
or a breakup of the Eurozone could have a material
adverse effect on our business and results of
operations.

Despite improved financial market conditions, there
remain ongoing concerns about the possibility of
sovereign debt defaults of one or more European
countries, bank failures and/or the exit of Greece and
other countries from the Eurozone. This has led to,
and could continue to lead to, declines in market
liquidity, a contraction of available credit, and
diminished economic growth and business confidence
in the Eurozone. We are primarily exposed to
disruptions in European markets in three principal
areas - on our balance sheet, in certain interest

Risk Factors (continued)

bearing deposits with banks, loans, trading assets and
investment securities, as well as our Investment
Management and Investment Services fee revenue.
Additionally, continued disruptions in Europe could
lead to a “flight to safety,” triggering increased client
deposits and alter the size and composition of our
balance sheet, which could adversely impact our
leverage-based regulatory capital measures and
reduce net interest margin. For additional information
regarding this exposure, please see “International
operations - Exposure in Ireland, Italy, Spain,
Portugal, Greece, Russia and Ukraine” in the MD&A
- Results of operations section in this Annual Report.
The partial or full break-up of the Eurozone would be
unprecedented and its impact highly uncertain. The
exit of Greece or other countries from the Eurozone
or the dissolution of the Eurozone 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 could 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 Greece or another country to
abandon the Euro, the failure of a significant
European financial institution, even if not an

immediate counterparty to us, or persistent weakness
in the Euro could have a material adverse impact on
our business or results of operations.

Continuing uncertainty in financial markets and
weakness in the economy generally may materially
adversely affect our business, results of operations
and financial condition.

Our results of operations may be materially affected
by conditions in the 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
and strengthening over the past few years, a variety of
factors raise concern over the course and strength of
the economic recovery, including commodity pricing,
such as the recent decline in oil prices, instability of
certain emerging markets, volatile debt and equity
market values, high unemployment and 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:

• A continuing low interest rate environment,
geopolitical tension, declining oil prices,
deflationary trends in Europe and Japan have
increased the demand for low-risk investments,
particularly in U.S. Treasuries and the dollar. A
potential exit by Greece from the Euro, along
with quantitative easing measures taken by the
ECB and Japan may compound the “flight to
safety”. A “flight to safety” has historically
increased BNY Mellon’s balance sheet, which
would negatively impact our leverage ratio. A
sustained “flight to safety” has historically
triggered a decline in trading, capital markets and
cross-border activity. Declining volumes in these
activities would likely decrease our revenue,
which would negatively impact our results of

BNY Mellon 111

Risk Factors (continued)

operations, financial condition and, if sustained in
the long term, our business.

• The fees earned by our Investment Management
business 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, 2014, 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.

• Market conditions resulting in lower transaction
volumes could have an adverse effect on the
revenues and profitability of certain of our
businesses such as clearing, settlement, payments
and trading.

• Uncertain and volatile capital markets,

particularly declines, could reduce the value of
our investments in securities, including pension
and other post-retirement plan assets.

• Derivative instruments we hold to hedge and
manage exposure to market risks including:
interest rate risk, equity price risk, foreign
currency risk, as well as credit risk associated
with our products and businesses might not
perform as intended or expected resulting in
higher realized losses and unforeseen stresses on
liquidity. Our derivative-based hedging strategies
also rely on the performance of counterparties to
such derivatives. These counterparties may fail to
perform for various reasons resulting in losses on
undercollateralized positions.

• 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

112 BNY Mellon

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 in order
to prevent clients’ yields on such funds from
becoming uneconomic, which would have an
adverse impact on our revenue and results of
operations.

• Continuing declines in oil prices may impact the
ability of certain of our clients, including oil
companies and sovereign funds in oil-exporting
countries to continue using our services or repay
outstanding loans.

• 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.

Continuing 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.

Risk Factors (continued)

The global market crisis triggered a series of cuts in
interest rates and the tentative recovery has kept U.S.
interest rates low. A continuing low short-term rate
environment will likely adversely impact our revenue
and results of operations by:

•

further compressing our net interest spreads,
depending on our balance sheet position at the
time of change; and

reducing our spread-based revenues, resulting in
continued voluntary waiving of fees on certain
money market mutual funds and related
distribution fees by us in order to prevent the
yields on such funds from becoming uneconomic.

A rise in interest rates could trigger one or more of
the following, which could impact our business,
results of operations and financial condition,
including:

•

less liquidity in bonds and fixed income funds in
the case of a sharp rise in interest rates resulting
in lower performance, yield and fees;

increased number of delinquencies, bankruptcies
or defaults and more nonperforming assets and
net charge-offs, as borrowers may have more
difficulty making higher interest payments;

decreases in deposit levels and higher
redemptions from our fixed income funds or
separate accounts, as clients move funds into
investments with higher rates of return;

a decline in our capital ratios;

reduction in other comprehensive income in our
shareholders’ equity and therefore our tangible
common equity due to the impact of rising long
term rates on our largely fixed-income securities
portfolio; and

•

higher 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, our businesses, including
our Investment Management, Global Markets,
Corporate Trust, Depositary Receipts and Securities
Lending businesses, are particularly sensitive to
economic and market conditions, including in 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 and equity investments, including
seed capital. Market volatility may be caused by
concerns about the liquidity of the global financial
markets; the level and volatility of debt and equity
prices, interest rates and currency and commodities
prices; investor sentiment; events that reduce
confidence in the financial markets; inflation and
unemployment; the economic effects of natural
disasters, severe weather conditions, acts of war or
terrorism; monetary policies and actions taken by the
Federal Reserve and other central banks and the
health of U.S. or international economies. 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, while the costs of
providing the related services remain constant due to
the high fixed costs associated with these businesses.
Fluctuations in global market activity could also
impact the flow of investment capital into or from
assets under custody and/or administration and the
way customers allocate capital among money market,
equity, fixed income or other investment alternatives,
which could negatively impact our results of
operations. 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.

We use various models and strategies to assess and
control our market risk exposures but those are
subject to inherent limitations. Our models, which
rely on historical trends and assumptions, may not be
sufficiently predictive of future results due to limited
historical patterns, extreme or unanticipated market
movements and illiquidity, especially during severe

BNY Mellon 113

Risk Factors (continued)

market downturns or stress events. The models that
we use to assess and control our market risk
exposures also reflect assumptions about the degree
of correlation among prices of various asset classes or
other market indicators. In addition, market
conditions in recent years have involved
unprecedented dislocations and highlight the
limitations inherent in using historical data to manage
risk. In times of market stress or other unforeseen
circumstances, such as the market conditions
experienced in 2008 and 2009, previously
uncorrelated indicators may become correlated, or
previously correlated indicators may move in
different directions. These types of market
movements have at times limited the effectiveness of
our hedging strategies and have caused us to incur
significant losses, and they may do so in the future. 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 write-downs of securities that we
own and other losses related to volatile and illiquid
market conditions, reducing our earnings and
impacting our financial condition.

We maintain an investment securities portfolio of
various holdings, types and maturities. These
securities are primarily classified as available-for
sale, which 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. At Dec. 31, 2014, approximately
18% of this portfolio was classified as held to
maturity and recorded on our balance sheet at
amortized cost.

Our investment securities portfolio includes U.S.
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 subdivision debt,
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. The
low interest-rate environment that has persisted since
the financial crisis began in mid-2007, which may

114 BNY Mellon

continue in 2015 and beyond, constrains our ability to
achieve a net interest margin consistent with
historical averages. Many of these securities
experienced significant liquidity, valuation and credit
quality deterioration during the 2008 financial crisis.
Non-U.S. mortgage-backed and asset-backed
securities with exposures to European countries,
whose sovereign-debt markets have experienced
increased stress since 2011, may continue to
experience stress in the future. U.S. state and
municipal bonds have also experienced stress in light
of the fiscal concerns that a number of states and
municipalities face. If these or any of the other
available-for-sale securities experience an other-than
temporary impairment, it would negatively impact
our earnings. If our held-to-maturity securities
experience a loss in fair value, it would negatively
impact the fair value of our securities portfolio,
although it would not impact our earnings unless a
credit event occurred.

Our investment securities portfolio represents a
greater proportion of our consolidated total assets
(approximately 31% at Dec. 31, 2014), and our loan
and lease portfolios represent a smaller proportion of
our consolidated total assets (approximately 15% at
Dec. 31, 2014), in comparison to many other major
U.S. financial institutions due to our custody and trust
bank business model. As such, our capital levels and
results of operations and financial condition are
materially exposed to the risks associated with our
investment portfolio. For example, the accounting
and regulatory treatment of our investment securities
portfolio in an available-for-sale accounting
environment may have more volatility than a more
traditional held-for-investment loan portfolio, or a
securities portfolio comprised exclusively U.S.
Treasury securities. Under the Final Capital Rules,
after-tax changes in the fair value of available-for
sale investment securities will be included in Tier 1
capital. For example, decreases in the general level
of interest rates, and corresponding increases in
mortgage prepayment speeds, which can be caused by
refinancing activity, could adversely impact the value
of fixed-rate mortgage-backed securities we hold.
Conversely, increases in the general level of interest
rates may adversely impact the fair value of fixed-rate
debt securities we hold and, accordingly, for debt
securities classified as available-for-sale, may
adversely affect accumulated other comprehensive
income and, thus, capital levels. Since loans held for
investment, or securities in a held-to-maturity
accounting environment, are not subject to a fair

Risk Factors (continued)

value accounting framework, changes in the fair
value of these instruments (other than incurred credit
losses) are not similarly included in the determination
of Tier 1 capital under the Final Capital Rules. As a
result, we may experience increased variability in our
Tier 1 capital relative to other major financial
institutions who maintain a lower proportion of their
consolidated total assets in an available-for-sale
accounting environment.

Generally, the fair value of securities in the securities
investment portfolio held as available-for-sale is
determined based upon market values available from
third party sources. During periods of market
disruption, it may be difficult to value certain of our
investment securities, if trading becomes less
frequent and/or market data becomes less observable.
As a result, valuations may include inputs and
assumptions that are less observable or require
greater estimation and judgment as well as valuation
methods which are more complex. These values may
not be ultimately realizable in a market transaction,
and such values may change very rapidly as market
conditions change and valuation assumptions are
modified. Decreases in value may have a material
adverse effect on our results of operations or financial
condition. If any of our securities suffer credit losses,
as we experienced with some of our investments in
2009, we may recognize the credit losses as an other
than-temporary impairment which could impact our
revenue in the quarter in which we recognize the
losses. The decision on whether to record an other
than-temporary impairment or write-down is
determined in part by management’s assessment of
the financial condition and prospects of a particular
issuer, projections of future cash flows and
recoverability of the particular security.
Management’s conclusions on such assessments are
highly judgmental and include assumptions and
projections of future cash flows which may ultimately
prove to be incorrect as assumptions, facts and
circumstances change. On the other hand, securities
held in a held-to-maturity accounting environment are
limited in the actions we can take absent a significant
deterioration in the issuer’s creditworthiness.
Therefore we may be constrained in our ability to
liquidate a held-to-maturity security that is
deteriorating in value, which would negatively impact
the fair value of our securities portfolio. If our
assertions change about our intention or ability to not
sell securities that have experienced a reduction in
fair value below its amortized cost we could be
required to recognize an other-than-temporary loss in

earnings for the entire difference between fair value
and amortized cost.

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 market activity, weak financial markets,
underperformance and/or negative trends in savings
rates or in 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, which are highly
competitive businesses.

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 due to weak
financial markets or otherwise, our revenues will also
decrease, which would negatively impact our results
of operations.

In addition, poor investment returns in our investment
management business, due to either weak market
conditions or underperformance (relative to our
competitors or to benchmarks) by funds or accounts
that we manage or investment products that we
design or sell, result in reduced market values of
portfolios that we manage and/or administer and
affect our ability to retain existing assets and to attract

BNY Mellon 115

Risk Factors (continued)

new clients or additional assets from existing clients.
This could affect the management and incentive fees
that we earn on assets under management. 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. Continuing low interest
rates have also resulted in, and may continue to result
in, waivers of money market fund fees.

Our business generally benefits when individuals
invest their savings in mutual funds and other
collective funds, unit investment trusts or exchange
traded funds, or contribute more to defined
contribution plans. 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 or other collective funds, or a shift to
lower fee investment products, our revenues could be
adversely affected. In addition, to the extent that we
are forced to compete on the basis of price with other
financial institutions, fee reductions on existing or
future new business could cause revenues and profit
margins to decline.

The profitability of certain of our businesses has
declined since the financial crisis. For example, due
to changes in fee structures, the margins on our
clearing and corporate trust businesses have lowered,
and we do not expect those margins to return to their
historically high levels.

Our FX revenue may be adversely affected by
decreases in the cross-border investment activity of
our clients.

Our clients’ cross-border investing activity could
decrease in reaction to economic and political
uncertainties, including changes in laws or
regulations governing cross-border transactions, such
as currency controls. Uncertainties resulting from
terrorist attacks and/or military actions may also
negatively affect cross-border investments activity.

Client volume and our ability to generate revenue on
such volume may also be affected by market
volatility levels. Volumes and/or spreads in some of
our products tend to benefit from currency volatility
and are likely to decrease during times of lower
currency volatility.

116 BNY Mellon

Our FX revenue is also impacted by changes in our
product mix. A shift by custody clients from our
foreign exchange programs to other execution options
could negatively impact our FX revenue.
Furthermore, continued growth of electronic FX
trading capabilities may accelerate a shift of volume
to lower margin channels.

Credit and Liquidity Risk

Any material reduction in our credit ratings or the
credit ratings of our bank 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 bank
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, performance,
prospects and operations 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. For example, in
September 2014 Moody’s issued a proposal regarding
potential material changes to their global bank rating
methodology. In addition, in November 2014, S&P
proposed adding an additional loss-absorbing
capacity component to its framework for rating banks
globally. If adopted, Moody’s or S&P’s proposed
changes to its bank rating methodology could impact
our or our rated subsidiaries’ credit ratings or outlook.
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,

Risk Factors (continued)

and have adjusted upward the requirements employed
in their models for maintenance of rating levels. In
June 2013, S&P indicated that it is reconsidering its
inclusion of assumed government support in the
ratings of eight U.S. BHCs that they view as having
high systemic importance, including BNY Mellon.
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 or our rated subsidiaries 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. A
downgrade by any one rating agency, depending on
the agency’s relative ratings of the firm at the time of
the downgrade, may have an impact which is
comparable to the impact of a downgrade by all
rating agencies. 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 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. Our and our subsidiaries’ ratings could be
downgraded at any time and without any notice by
any of the rating agencies. 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 or other
transactions could be adversely affected by the
actions and commercial soundness of other financial
institutions or sovereign entities. 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, insurance companies, sovereigns
and other governmental or quasi-governmental
entities, 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 that 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. In addition to our exposure to
financial institutions, we are from time to time
exposed to concentrated credit risk at the industry or

BNY Mellon 117

Risk Factors (continued)

country level, potentially exposing us to a single
market or political event or a correlated set of events.
For example, defaults by companies in the oil and gas
industry may increase meaningfully as a result of the
recent decline in the price of oil.

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, 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
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.

118 BNY Mellon

From time to time, we assume concentrated credit
risk at the individual obligor, counterparty or group
level. Such concentrations may be material. Our
material counterparty exposures change daily, and the
counterparties or groups of related counterparties to
which our risk exposure is material also varies during
any reported period; however, our largest exposures
tend to be to governmental entities, clearing
organizations, and other financial institutions.

Concentration of counterparty exposure presents
significant risks to us and to our clients because the
failure or perceived weakness of our counterparties
(or in some cases of our clients’ counterparties) has
the potential to expose us to risk of financial loss.
Changes in market perception of the financial
strength of particular financial institutions or
sovereign issuers can occur rapidly, are often based
on a variety of factors and are difficult to predict.

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. We are also generally not
able to net exposures across counterparties that are
affiliated entities and may not be able in all
circumstances to net exposures to the same legal
entity across multiple products. As a consequence, we
may incur a loss in relation to one entity or product
even though our exposure to an entity’s affiliates or
across product types is over-collateralized.

Under evolving regulatory restrictions on credit
exposure, which include a broadening of the measure
of credit exposure, we may be required to limit our
exposures to specific issuers or groups, including
financial institutions, to levels that we may currently
exceed. These credit exposure restrictions under such
evolving regulations may adversely affect our
businesses and may require that we modify our
operating models or the policies and practices we use.

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.

Risk Factors (continued)

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 tri
party repurchase, or repo, market and currently has
approximately 85% of the market share of the U.S.
tri-party repo market. As agent, we facilitate
settlement between sellers (cash borrowers) and
buyers (cash lenders). Our involvement in a
transaction commences after a seller and buyer 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 payment and delivery instructions 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. 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 has reduced the amount of secured
intraday credit it provides to sellers in connection
with their tri-party repo trades in a number of ways,
including limiting the collateral eligible to secure
intraday credit to certain more liquid asset classes,
reducing the amount of time during which we extend
intraday credit, 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 sellers to prefund their
repayment obligations in connection with trades
collateralized by DTC sourced securities.

In connection with our tri-party repo reforms, we are
in the process of implementing new platforms and
systems. As with the implementation of any new
technology, we may experience operational errors that
could lead to system failures and business
interruptions and adversely impact our business.

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.

Additionally, in the event that a significant number of
tri-party repo transactions are cleared through a
central clearinghouse, our revenues associated with
tri-party repo transactions could be negatively
impacted.

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 the safety of those
deposits or other 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

BNY Mellon 119

Risk Factors (continued)

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 the debt capital markets is a
significant source of liquidity.

Events or circumstances often outside of our control,
such as market disruptions, government fiscal and
monetary policies, 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. In addition, clearing organizations, regulators,
clients and financial institutions with which we
interact may exercise the right to require additional
collateral based on market perceptions or market
conditions, which could further impair our access to
and cost of funding. Market perception of sovereign
default risks can also lead to inefficient money
markets and capital markets, which could further
impact BNY Mellon’s availability and cost of
funding. Conversely, if we experience too much
liquidity, it could increase interest expense, limit our
financial flexibility, and increase the size of our total
assets in a manner that could have a negative impact
on our capital ratios.

Recently adopted and proposed regulations have been
designed to address certain liquidity risks of large
banking organizations, including BNY Mellon. The
LCR and the Dodd-Frank Act’s enhanced prudential
standards impose liquidity management requirements
on us that will likely require us to increase our
holdings of highly liquid, but potentially lower-
yielding assets. These regulations could also impact
our ability to hold certain deposits deemed to pose a
higher risk of runoff in the event of financial distress.
Under the Proposed U.S. G-SIB Rule, the size of the
capital surcharge that will apply to large U.S. banking
organizations is based in part on a banking
organization’s reliance on short-term wholesale
funding, including certain types of deposit funding,
which effectively may increase the cost of such
funding. Furthermore, certain non-U.S. regulators
have proposed legislation or regulations requiring
large banks to incorporate a separate subsidiary in
countries in which they operate, and to maintain
independent capital and liquidity for such
subsidiaries. If adopted, these requirements could

120 BNY Mellon

hinder our ability to efficiently manage our funding
and liquidity in a centralized manner. There can be
no assurances that these measures will be successful
in limiting BNY Mellon’s liquidity risk.

As a holding company, we also rely on dividends and
interest from our subsidiaries for funding. The
Parent’s policy is to have sufficient unencumbered
cash and cash equivalents at its holding company on
hand to meet its forecasted debt redemptions, net
interest payments and net tax payments over a
minimum of the next 18 months without the need to
receive dividends from its bank subsidiaries or issue
debt. As of Dec. 31, 2014, the Parent was in
compliance with this policy. However, there are
various legal limitations on the extent to which our
bank and other subsidiaries can finance or otherwise
supply funds to us (by dividend or otherwise) and
certain of our affiliates. 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.

If we are unable to continue to fund our assets
through deposits or access capital markets on
favorable terms or if we suffer an increase in our
borrowing costs or otherwise fail to manage our
liquidity effectively, our liquidity, net interest margin,

Risk Factors (continued)

financial results and condition may be materially
adversely affected. In certain cases, this could require
us to raise additional capital through the issuance of
common stock, which could dilute the ownership of
existing stockholders, or reduce our common stock
dividend to preserve capital or in order to raise
additional capital. For a further discussion of our
liquidity, see “Liquidity and dividends” in the MD&A
- Results of Operations in this Annual Report.

We could incur charges through provision expense
if our reserves for credit losses, including loan
reserves, are inadequate.

When we loan money, commit to loan money or
provide credit or enter into another contract with a
counterparty, we incur credit risk, or the risk of losses
if our borrowers do not repay their loans or our
counterparties fail to perform according to the terms
of their agreements. Our credit exposure is comprised
of six classes of financing receivables: financial
institutions, commercial, commercial real estate, lease
financings, wealth management loans and mortgages,
and other residential mortgages. Though credit risk is
inherent in lending activities, our revenues and
profitability are adversely affected when our
borrowers default in whole or in part on their loan
obligations to us or when there is a significant
deterioration 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 probable losses which are
inherently uncertain. As is the case with any such
assessments, there is always the chance that we will
fail to identify 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. See “Critical accounting estimates” in
the MD&A - Results of Operations section in this
Annual Report.

Other Risks

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 the extent to
which it will negatively affect us or our business. In
addition, new tax laws or the expiration of or changes
in existing tax laws, or the interpretation of those
laws worldwide, could have a material impact on our
business or net income. Our actions taken in response
to, or reliance upon, such changes in the tax laws may
impact our tax position in a manner that may result in
lower earnings. 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 future
events could have a material impact on our reported
financial condition, results of operations, cash flows
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
standards. See “Recent Accounting Developments”
in the MD&A section and Note 2 to Consolidated
Financial Statements in this Annual Report. These

BNY Mellon 121

Risk Factors (continued)

changes are difficult to predict and can materially
impact how we record and report our financial
condition, results of operations, cash flows and other
financial data. In some cases, we may be required to
apply a new or revised standard retroactively or to
apply an existing standard differently, also
retroactively, in each case potentially resulting in us
restating prior period financial statements.

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, such as 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, that may affect
the reported value of our assets or liabilities and
results of operations. These estimates and
assumptions 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, future results may be materially
different than estimated.

The Parent is a non-operating holding company,
and as a result, is dependent on dividends from its
subsidiaries, including its principal subsidiary
banks, to meet its obligations, including its
obligations with respect to its securities, and to
provide funds for payment of dividends to its
stockholders and stock repurchases.

The Parent is a non-operating holding company,
whose principal assets and sources of income are its
principal U.S. bank subsidiaries - The Bank of New
York Mellon and BNY Mellon, N.A. - and its other
subsidiaries. The Parent is a legal entity separate and
distinct from its banks and other subsidiaries and,
therefore, it relies primarily on dividends, interest,
distributions, and other payments from these bank
and other subsidiaries to meet its obligations,
including its obligations with respect to its securities,
and to provide funds for payment of common and
preferred dividends to its stockholders, to the extent
declared by the Board of Directors. At the same time,
Federal Reserve rules provide that a BHC is expected
to serve as a source of financial strength to its bank
subsidiaries and to commit resources to support such
banks if necessary.

122 BNY Mellon

There are various legal limitations on the extent to
which our bank and other subsidiaries can finance or
otherwise supply funds to the Parent (by dividend or
otherwise) and certain of our affiliates. Many of our
subsidiaries, including our bank subsidiaries, are
subject to laws and regulations 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. These
restrictions can reduce the amount of funds available
to meet the Parent’s obligations. In addition, our
bank subsidiaries would not be permitted to distribute
a dividend if doing so would constitute an unsafe and
unsound practice or if the payment would reduce their
capital to an inadequate level. 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.

We evaluate and manage liquidity on a legal entity
basis. Legal entity liquidity is an important
consideration as there are legal and other limitations
on our ability to utilize liquidity from one legal entity
to satisfy the liquidity requirements of another,
including the Parent.

Although we maintain cash positions for liquidity at
the holding company level, if our bank subsidiaries or
other subsidiaries were unable to supply the Parent
with cash over time, the Parent could be unable to
meet its obligations (including its obligations with
respect to its securities), declare or pay dividends in
respect of its capital stock, or perform stock
repurchases. See “Supervision and Regulation” and
“Liquidity and dividends” in the MD&A - Results of
Operations and Note 19 of the Notes to Consolidated
Financial Statements in this Annual Report.

Because the Parent is a holding company, its rights
and the rights of its creditors, including the holders of
its 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 the Parent may itself be a creditor with
recognized claims against the subsidiary. The rights
of holders of securities issued by the Parent to benefit
from those distributions will also be junior to those
prior claims. Consequently, securities issued by the

Risk Factors (continued)

Parent 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 U.S. banking laws and
regulations, including those governing capital and
the approval of our capital plan, 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 on, among other
things, 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 as well as the Federal Reserve’s
assessment of the robustness of our capital adequacy
qualitative process and the assumptions and analysis
underlying the capital plan. There can be no
assurance that the Federal Reserve will respond
favorably to our future capital plans. If the Federal
Reserve objects to our proposed capital actions, we
may be required to revise our stress-testing or capital
management approaches, resubmit our capital plan or
postpone, cancel or alter our planned capital actions
and will not be permitted to make any capital
distributions other than those to which the Federal
Reserve has indicated in writing its non-objection. In
addition, if there have been or will be changes in our
risk profile (including a material change in business

strategy or risk exposure), financial condition or
corporate structure, we may be required to resubmit
our capital plan to the Federal Reserve.

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
available to common shareholders under certain
baseline scenarios 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
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 addition, regulatory capital rules that are or will be
applicable to us including the Final Capital Rules, the
SLR, or the Proposed U.S. G-SIB Rule may limit or
otherwise restrict how we utilize our capital,
including common stock dividends and stock
repurchases, and may require us to increase or alter
the mix of our outstanding regulatory capital
instruments. Any requirement to increase our
regulatory capital ratios or alter the composition of
our capital could require us to liquidate assets or
otherwise change our business and/or investment
plans, which may negatively affect our financial
results. Further, any requirement to maintain higher
levels of capital may constrain our ability to return
capital to shareholders either in the form of common
stock dividends or share repurchases.

BNY Mellon 123

Recent Accounting Developments

Recently Issued Accounting Standards

ASU - 2015-02 - Consolidation (Topic 810):
Amendments to the Consolidation Analysis

In February 2015, the FASB issued an ASU,
“Consolidations (Topic 810): Amendments to the
Consolidation Analysis”. This new ASU:
• Rescinds the indefinite deferral of FAS 167 for
certain investment management funds therefore
establishing one consolidation model;

• Eliminates the presumption that a general partner

should consolidate a limited partnership;

• Clarifies that some fees paid to a decision maker,
such as an asset manager, are excluded from the
evaluation of the economics criterion when
determining a variable interest entities (VIEs)
primary beneficiary. This clarification puts
greater emphasis on principal risk of loss when
assessing consolidation risk;

• Amends the guidance for assessing how
relationships of related parties affect the
consolidation analysis of VIEs; and

• Scopes certain money market funds out of the

consolidation guidance.

Based on our preliminary review of the new ASU, we
do not expect to be required to consolidate a material
amount of additional investment funds (e.g., mutual
funds, hedge funds, mortgage real estate investment
funds, private equity funds, and venture capital
funds). In addition, we expect to deconsolidate
substantially all of the CLOs we currently
consolidate.

The final guidance is effective for reporting periods
beginning after Dec. 15, 2015. Early adoption is
permitted, including adoption in an interim period.
BNY Mellon has not finalized assessing the impact of
the new standard.

ASU - 2014-11 - Transfers and Servicing (Topic 860):
Repurchase-to-Maturity Transactions, Repurchase
Financings, and Disclosures

In June 2014, the FASB issued an ASU, “Transfers
and Servicing (Topic 860): Repurchase-to-Maturity
Transactions, Repurchase Financing, and
Disclosures,” which amends the accounting guidance
for “repo-to-maturity” transactions and repurchase
agreements executed as repurchase financings. This
ASU requires public entities to apply the accounting
changes and comply with the enhanced disclosure

124 BNY Mellon

requirements for the first interim or annual reporting
period beginning after Dec. 15, 2014. However, for
repurchase and securities lending transactions
reported as secured borrowings, the ASU’s enhanced
disclosures are effective for annual periods beginning
after Dec. 15, 2014 and interim periods beginning
after March 15, 2015. Early adoption is not
permitted.

ASU - 2014-09 - Revenue from Contracts with
Customers

In May 2014, the FASB issued an ASU, “Revenue
from Contracts with Customers,” which requires an
entity to recognize the amount of revenue to which it
expects to be entitled for the transfer of promised
goods or services to customers. The ASU will
replace most existing revenue recognition guidance in
U.S. GAAP when it becomes effective. The new
standard is effective for the Company on Jan. 1, 2017.
Early adoption is not permitted. The standard permits
the use of either the retrospective or cumulative effect
transition method. The Company is evaluating the
effect that this ASU will have on its consolidated
financial statements and related disclosures. The
Company has not yet selected a transition method nor
has it determined the effect of the standard on its
ongoing financial reporting.

ASU - 2014-08 - Reporting Discontinued Operations
and Disclosures of Disposals of Components of an
Entity

In April 2014, the FASB issued an ASU, “Reporting
Discontinued Operations and Disclosures of
Disposals of Components of an Entity,” which
changes the criteria for determining which future
disposals can be presented as discontinued operations
and modifies related disclosure requirements. This
ASU is effective for periods beginning on or after
Dec. 15, 2014. Early adoption is permitted.

Proposed Accounting Standards

Proposed ASU - Leases

In May 2013, the FASB and the 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. In March
2014, the FASB and IASB re-deliberated the ASU
and were unable to reach a consensus on certain key
issues. Deliberations are expected to continue over
the coming months. An effective date is not expected
before 2018.

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 FASB has decided on a
current expected credit loss model for financial assets
measured at amortized cost. Currently, the FASB is
re-deliberating based on comments received. An
effective date has not been determined.

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 FASB is currently re-deliberating based on the
comments received and is expected to issue a final
standard in mid-2015. An effective date is not
expected before 2017.

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

BNY Mellon 125

Recent Accounting Developments (continued)

would allow for streamlined reporting, allow for
easier access to foreign capital markets and
investments, and facilitate cross-border acquisitions,
ventures or spin-offs.

In 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, 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 remained available
during the transition period, which extended to Dec.
15, 2014. 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.
BNY Mellon utilizes the COSO 2013 Framework for
our Internal Control over Financial Reporting.

126 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 12,700 employees on a global basis
of which over 6,800 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, where available.
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, where available, 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 Vendor Risk
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 127

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
fully phased-in Basel III CET1 and other risk-based
capital ratios, SLR, Basel I CET1 and tangible
common shareholders’ equity. BNY Mellon believes
that the Basel III CET1 and other risk-based capital
ratios on a fully phased-in basis, the SLR on a fully
phased-in basis, the ratio of Basel I CET1 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 capital ratios which are, or were,
utilized by regulatory authorities. The tangible
common shareholders’ equity ratio includes 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 reconciliation has excluded certain assets which
are given a zero percent risk-weighting for regulatory
purposes and the assets of consolidated investment
management funds to which BNY Mellon has limited
economic exposure. 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 those
assets that can generate income. BNY Mellon has
provided a measure of tangible book value per share,
which it believes provides additional useful
information as to the level of such assets in relation to
shares of common stock outstanding.

BNY Mellon has presented revenue measures which
exclude the effect of net securities gains,
noncontrolling interests related to consolidated
investment management funds, a gain on the sale of
our investment in Wing Hang and a gain on the sale
of the One Wall Street building; and expense
measures which exclude M&I expenses, litigation
charges, restructuring charges, the charge related to
investment management funds, net of incentives, and
amortization of intangible assets. Earnings per share,
return on equity measures and operating margin
measures, which exclude some or all of these items,
are also presented. Earnings per share and return on
equity measures also exclude the tax benefit benefit

128 BNY Mellon

primarily related to a tax carryback claim and the net
charge related to the disallowance of certain foreign
tax credits. Operating margin measures may also
exclude amortization of intangible assets and the net
negative impact of money market fee waivers, net of
distribution and servicing expense. BNY Mellon
believes that these measures are useful to investors
because they permit a focus on period-to-period
comparisons, which relate to the ability of BNY
Mellon to enhance revenues and limit expenses in
circumstances where such matters are within BNY
Mellon’s control. The excluded items, in general,
relate to certain ongoing charges as a result of prior
transactions or where we have incurred charges.
M&I expenses primarily relate to acquisitions and
generally continue for approximately three years after
the transaction. M&I expenses can vary on a year-to
year basis depending on the stage of the integration.
BNY Mellon believes that the exclusion of M&I
expenses provides investors with a focus on BNY
Mellon’s business as it would appear on a
consolidated going-forward basis, after such M&I
expenses have ceased. Future periods will not reflect
such M&I expenses, and thus may be more easily
compared to our current results if M&I expenses are
excluded. Litigation charges represent accruals for
loss contingencies that are both probable and
reasonably estimable, but exclude standard business-
related legal fees. Restructuring charges relate to our
streamlining actions, Operational Excellence
Initiatives and migrating positions to Global Delivery
Centers. Excluding these charges permits investors to
view expenses on a basis consistent with how
management views the business.

The presentation of income from consolidated
investment management funds, net of net income
attributable to noncontrolling interests 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 that 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 that this
presentation provides comparability of amounts
arising from both taxable and tax-exempt sources,
and is consistent with industry practice. The
adjustment to an FTE basis has no impact on net
income. Each of these measures as described above
is used by management to monitor financial

Supplemental Information (unaudited) (continued)

performance, both on a company-wide and on a
business-level basis.

Results for the years prior to 2014 were restated to
reflect the retrospective application of adopting new

accounting guidance in 2014 related to our
investments in qualified affordable housing projects
(ASU 2014-01). See Note 2 of the Notes to
Consolidated Financial Statements for additional
information.

The following table presents the reconciliation of net income and diluted earnings per common share.

Reconciliation of net income and diluted EPS – GAAP to Non-GAAP

(in millions, except per common share amounts)
Net income applicable to common shareholders of The Bank of New York Mellon

Corporation – GAAP
Less: Gain on the sale of our investment in Wing Hang
Gain on the sale of the One Wall Street building
Benefit primarily related to a tax carryback claim

Add: Litigation and restructuring charges

Charge related to investment management funds, net of incentives
Net charge related to the disallowance of certain foreign tax credits

Net income applicable to common shareholders of The Bank of New York Mellon
Corporation – Non-GAAP

(a) Does not foot due to rounding.

2014

2013

Net Diluted
EPS

income

Net Diluted
EPS

income

$ 2,494 $ 2.15
0.27
0.18
0.13
0.74
0.07
—

315
204
150
860
81
—

$ 2,040 $ 1.73
—
—
—
0.04
0.01
0.50

—
—
—
45
9
593

$ 2,766 $ 2.39 (a) $ 2,687 $ 2.28

The following table presents the reconciliation of the pre-tax operating margin ratio.

Reconciliation of income before income taxes – pre-tax operating margin
(dollars in millions)
Income before income taxes – GAAP
Less: Net securities gains

Net income attributable to noncontrolling interests of consolidated

investment management funds

Gain on the sale of our investment in Wing Hang
Gain on the sale of the One Wall Street building

Add: Amortization of intangible assets

M&I, litigation and restructuring charges
Charge related to investment management funds, net of incentives

Income before income taxes, as adjusted – Non-GAAP (a)

Fee and other revenue – GAAP
Income from consolidated investment management funds – GAAP
Net interest revenue – GAAP

Total revenue – GAAP
Less: Net securities gains

Net income attributable to noncontrolling interests of consolidated

investment management funds

Gain on the sale of our investment in Wing Hang
Gain on the sale of the One Wall Street building

Total revenue, as adjusted – Non-GAAP (a)

2014

2013

2012

2011

2010

$ 3,563

N/A

84
490
346
298
1,130
104
$ 4,175

$12,649
163
2,880
15,692

N/A

84
490
346
$14,772

$ 3,777 $ 3,357 $ 3,685 $ 3,754
27

N/A

80
—
—
342
70
12

59
—
—
421
384
—
$ 4,121 $ 4,240 $ 4,453 $ 4,473

76
—
—
384
559
16

50
—
—
428
390
—

$ 11,856 $ 11,448 $ 11,614 $ 10,784
226
2,925
13,935

189
2,973
14,610

183
3,009
15,048

200
2,984
14,798

N/A

80
—
—

59
—
—
$ 14,968 $ 14,534 $ 14,748 $ 13,849

76
—
—

50
—
—

Pre-tax operating margin (b)
Pre-tax operating margin – Non-GAAP (a)(b)
(a) Non-GAAP excludes net securities gains, net income attributable to noncontrolling interests of consolidated investment management

25%
28%

25%
30%

23%
29%

23%
28%

27%
32%

funds, the gains on the sales of our investment in Wing Hang and the One Wall Street building, amortization of intangible assets, M&I,
litigation and restructuring charges and the charge related to investment management funds, net of incentives, if applicable.

(b) Income before taxes divided by total revenue.

BNY Mellon 129

Supplemental Information (unaudited) (continued)

The following table presents the reconciliation 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 (loss) from discontinued operations
Net income from continuing operations applicable to common shareholders of

The Bank of New York Mellon Corporation – GAAP

Add: Amortization of intangible assets, net of tax

Net income applicable to common shareholders of The Bank of New York
Mellon Corporation excluding amortization of intangible assets – Non-
GAAP

Less: Net securities gains

Gain on the sale of our investment in Wing Hang
Gain on the sale of the One Wall Street building
Benefit primarily related to a tax carryback claim

Add: M&I, litigation and restructuring charges

Charge related to investment management funds, net of incentives
Net charge related to the disallowance of certain foreign tax credits

Net income applicable to common shareholders of The Bank of New York

Mellon Corporation, as adjusted – Non-GAAP (a)

2014

2013

2012

2011

2010

$ 2,494
—

$ 2,040 $ 2,419 $ 2,510 $ 2,513
(66)

—

2,494
194

2,040
220

2,419
247

2,510
269

2,688

2,260

2,666

2,779

N/A
315
204
150
860
81
—

N/A
—
—
—
45
9
593

N/A
—
—
—
339
12
—

N/A
—
—
—
240
—
—

2,579
264

2,843
17
—
—
—
240
—
—

$ 2,960

$ 2,907 $ 3,017 $ 3,019 $ 3,066

Average common shareholders’ equity
Less: Average goodwill

Average intangible assets

Add: Deferred tax liability – tax deductible goodwill (b)
Deferred tax liability – intangible assets (b)

Average tangible common shareholders’ equity – Non-GAAP

$ 36,618
18,063
4,305
1,340
1,216
$ 16,806

$ 34,832 $ 34,333 $ 33,519 $ 31,100
17,029
5,664
816
1,625
$ 14,749 $ 13,824 $ 12,318 $ 10,848

18,129
5,498
967
1,459

17,988
4,619
1,302
1,222

17,967
4,982
1,130
1,310

Return on common equity, net income basis – GAAP
Return on common equity, continuing operations basis – GAAP
Return on common equity – Non-GAAP (a)

6.8%
6.8%
8.1%

5.9%
5.9%
8.3%

7.0%
7.0%
8.8%

7.5%
7.5%
9.0%

8.1%
8.3%
9.9%

Return on tangible common equity, net income basis – Non-GAAP (a)
Return on tangible common equity, continuing operations basis – Non-GAAP (a)
Return on tangible common equity – Non-GAAP adjusted (a)
(a) Non-GAAP excludes amortization of intangible assets, net securities gains, the gains on the sales of our investment in Wing Hang and
the One Wall Street building, the benefit primarily related to a tax carryback claim, M&I, litigation and restructuring charges, the
charge related to investment management funds, net of incentives, and the net charge related to the disallowance of certain foreign tax
credits, if applicable.

19.3%
19.3%
21.8%

15.3%
15.3%
19.7%

22.6%
22.6%
24.5%

16.0%
16.0%
17.6%

25.6%
26.2%
28.3%

(b) Deferred tax liabilities are based on fully phased-in Basel III rules. Beginning in 2014, includes deferred tax liabilities on tax deductible

intangible assets permitted under Basel III rules.

130 BNY Mellon

Supplemental Information (unaudited) (continued)

The following table presents the reconciliation of the equity to assets ratio and book value per common share.

Equity to assets and book value per common share
(dollars in millions, unless otherwise noted)
BNY Mellon shareholders’ equity at period end – GAAP
Less: Preferred stock

BNY Mellon common shareholders’ equity at period end – GAAP

Less: Goodwill

Intangible assets

Add: Deferred tax liability – tax deductible goodwill (a)
Deferred tax liability – intangible assets (a)
BNY Mellon tangible common shareholders’ equity at period
end – Non-GAAP

Dec. 31,

2014

2013

2012

2011

2010

$ 37,441
1,562
35,879
17,869
4,127
1,340
1,216

$ 37,497
1,562
35,935
18,073
4,452
1,302
1,222

$ 36,414
1,068
35,346
18,075
4,809
1,130
1,310

$ 33,408
—
33,408
17,904
5,152
967
1,459

$ 32,350
—
32,350
18,042
5,696
816
1,625

$ 16,439

$ 15,934

$ 14,902

$ 12,778

$ 11,053

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 (b)

Tangible total assets of operations at period end – Non-GAAP

$ 385,303
9,282
376,021
17,869
4,127

$ 374,516
11,272
363,244
18,073
4,452

$ 359,226
11,481
347,745
18,075
4,809

$ 325,425
11,347
314,078
17,904
5,152

$ 247,463
14,766
232,697
18,042
5,696

99,901
$ 254,124

105,384
$ 235,335

90,040
$ 234,821

90,230
$ 200,792

18,566
$ 190,393

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

9.7%
9.3%

10.0%
9.6%

10.1%
9.8%

10.3%
10.3%

13.1%
13.1%

6.5%

6.8%

6.3%

6.4%

5.8%

Period-end common shares outstanding (in thousands)

1,118,228

1,142,250

1,163,490

1,209,675

1,241,530

Book value per common share – GAAP
Tangible book value per common share – Non-GAAP
(a) Deferred tax liabilities are based on fully phased-in Basel III rules. Beginning in 2014, includes deferred tax liabilities on tax deductible

31.46
13.95

30.38
12.81

27.62
10.56

26.06
8.90

32.09
14.70

$
$

intangible assets permitted under Basel III rules.

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

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

2014
163 $

investment management funds

2013

183 $

2012
189 $

2011
200 $

2010
226

Income from consolidated investment management funds, net of

noncontrolling interests

79 $

103 $

113 $

150 $

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)

66 $
13

2014

2013

2012

80 $
23

81 $
32

2011
107 $
43

2010
125
42

Income from consolidated investment management funds, net of
noncontrolling interests

79 $

103 $

113 $

150 $

167

BNY Mellon 131

Supplemental Information (unaudited) (continued)

The following table presents the reconciliation of the pre-tax operating margin for the Investment Management
business.

Pre-tax operating margin - Investment Management business
(dollars in millions)
Income before income taxes – GAAP
Add: Amortization of intangible assets
Money market fee waivers
Charge related to investment management funds, net of incentives

2014
901
123
126
104

2013
968 $
148
108
12

2012
896
192
81
16

Income before income taxes excluding amortization of intangible assets, money market fee waivers

and the charge related to investment management funds, net of incentives – Non-GAAP

1,254

1,236 $

1,185

Total revenue – GAAP
Less: Distribution and servicing expense

Money market fee waivers benefiting distribution and servicing expense

Add: Money market fee waivers impacting total revenue
Total revenue net of distribution and servicing expense and excluding money market fee waivers –

Non-GAAP

4,007
424
149
275

3,928
429
147
255

3,678
415
150
231

3,709

3,607

3,344

Pre-tax operating margin (a)

22%

25%

24%

Pre-tax operating margin, excluding amortization of intangible assets, money market fee waivers, the

charge related to investment management funds, net of incentives and net of distribution and
servicing expense – Non-GAAP (a)

34%

35%

(a) Income before taxes divided by total revenue.

Capital Ratios

BNY Mellon has presented its estimated fully phased-
in Basel III CET1 and other risk-based capital ratios
and SLR based on its interpretation of the Final
Capital Rules, which are being gradually phased-in
over a multi-year period, as supplemented by the
Federal Reserve’s final rules concerning the SLR
published on Sept. 3, 2014, and on the application of
such rules to BNY Mellon’s businesses as currently
conducted. Management views the estimated fully
phased-in Basel III CET1 and other risk-based capital
ratios and SLR as key measures in monitoring BNY
Mellon’s capital position and progress against future
regulatory capital standards. Additionally, the
presentation of the estimated fully phased-in Basel III
CET1 and other risk-based capital ratios and SLR are
intended to allow investors to compare these ratios
with estimates presented by other companies. The
estimated fully phased-in Basel III CET1 and other
risk-based capital ratios assume all relevant
regulatory approvals. The Final Capital Rules require
approval by banking regulators of certain models
used as part of risk-weighted asset calculations. If
these models are not approved, the estimated fully
phased-in Basel III CET1 and other risk-based capital
ratios would likely be adversely impacted.

Risk-weighted assets at Dec. 31, 2014 for credit risk
under the transitional Advanced Approach do not

132 BNY Mellon

reflect the use of a simple value-at-risk methodology
for repo-style transactions (including agented
indemnified securities lending transactions), eligible
margin loans, and similar transactions. BNY Mellon
has requested written approval to use this
methodology.

Our capital ratios are necessarily subject to, among
other things, BNY Mellon’s further review of
applicable rules, anticipated compliance with all
necessary enhancements to model calibration,
approval by regulators of certain models used as part
of risk-weighted asset calculations, other refinements,
further implementation guidance from regulators,
market practices and standards and any changes BNY
Mellon may make to its businesses. Consequently,
our capital ratios remain subject to ongoing review
and revision and may change based on these factors.

The following are the primary differences between
risk-weighted assets determined under fully phased-in
Basel III-Standardized Approach and Basel I. 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 fully phased-in
Basel III, the Standardized Approach uses a broader
range of predetermined risk-weights and asset classes
and certain alternatives to external credit ratings.

Supplemental Information (unaudited) (continued)

Securitization exposure receives a higher risk-
weighting under fully phased-in Basel III than Basel
I, and fully phased-in 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,
whereas the Advanced Approach permits the VaR

approach but requires certain model qualifications
and approvals, for determining risk-weighted assets
on certain repo-style transactions. In 2014,
Standardized Approach and Advanced Approach risk-
weighted assets include transitional adjustments for
intangible assets, other than goodwill, and equity
exposures.

The table presented below compares the fully phased-in Basel III capital components and ratios to those amounts
determined under the currently effective rules using the transitional phase-in requirements.

Basel III capital components and ratios at Dec. 31, 2014

(dollars in millions)
CET1:

Common shareholders’ equity
Goodwill and intangible assets
Net pension fund assets
Equity method investments
Deferred tax assets
Other

Total CET1

Other Tier 1 capital:

Preferred stock
Trust preferred securities
Disallowed deferred tax assets
Net pension fund assets
Other

Total Tier 1 capital

Tier 2 capital:

Trust preferred securities
Subordinated debt
Allowance for credit losses
Other

Total Tier 2 capital - Standardized Approach

Excess of expected credit losses
Less: Allowance for credit losses

Total Tier 2 capital - Advanced Approach

Total capital:

Standardized Approach
Advanced Approach

Risk-weighted assets:

Standardized Approach
Advanced Approach

Standardized Approach:
Estimated Basel III CET1 ratio
Tier 1 capital ratio
Total (Tier 1 plus Tier 2) capital ratio

Fully
phased-in
Basel III Adjustments (a)

Transitional
Approach

35,879 $
(19,440)
(87)
(401)
(18)
(2)
15,931

1,562
—
—
—
(12)
17,481

—
298
280
(11)
567
24
280
311 $

447 (b) $

2,329 (c)
70 (d)
87 (c)
14 (d)
6 (e)

2,953

—

156 (f)
(14) (d)
(69) (d)
(5)
3,021

156 (f)

—
—
—
156
(11)
—
145

$
$

18,048 $
17,792 $

3,177
3,166

$ 150,881 $
$ 162,263 $

(25,319)
6,017

10.6%
11.6
12.0

36,326

(17,111)

(17)

(314)

(4)

18,884

1,562

156

(14)

(69)

(17)

20,502

156
298
280
(11)
723
13
280
456

21,225

20,958

125,562

168,280

15.0%
16.3
16.9

11.2%
12.2
12.5

BNY Mellon 133

Advanced Approach:
Estimated Basel III CET1 ratio
Tier 1 capital ratio
Total (Tier 1 plus Tier 2) capital ratio
(a) Reflects transitional adjustments to CET1, Tier 1 capital and Tier 2 capital required in 2014 under the Final Capital Rules.
(b) Represents the portion of accumulated other comprehensive (income) loss excluded from common shareholders’ equity.
(c) Represents intangible assets, other than goodwill, net of the corresponding deferred tax liabilities.
(d) Represents the deduction for net pension fund assets and disallowed deferred tax assets in CET1 and Tier 1 capital.
(e) Represents the transitional adjustments related to cash flow hedges and debit valuation adjustment.
(f) During 2014, 50% of outstanding trust preferred securities are included in Tier 1 capital and 50% in Tier 2 capital.

9.8%
10.8
11.0

Supplemental Information (unaudited) (continued)

The following table presents the reconciliation of our estimated fully phased-in Basel III CET1 ratio under the
Standardized Approach and Advanced Approach.

Estimated fully phased-in Basel III CET1 ratio – Non-GAAP
(dollars in millions)
Total Tier 1 capital (b)
Adjustments to determine estimated fully phased-in Basel III CET1:
Deferred tax liability – tax deductible intangible assets
Intangible deduction
Preferred stock
Trust preferred securities
Other comprehensive income (loss) and net pension fund assets:

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 fully phased-in Basel III CET1 – Non-GAAP

Under the Standardized Approach:

Dec. 31,

2014

2013

2012 (a)

$ 20,502

$ 18,335 $ 16,694

—
(2,329)
(1,562)
(156)

70
—
(1,562)
(330)

78
—
(1,068)
(623)

594
(1,041)
—
(447)
(87)
—
10
$ 15,931

387
(900)
(713)
(1,226)
(445)
(49)
17

1,350
(1,453)
(249)
(352)
(501)
(47)
18
$ 14,810 $ 14,199

Estimated fully phased-in Basel III risk-weighted assets – Non-GAAP

$ 150,881

$ 139,865

Estimated fully phased-in Basel III CET1 ratio – Non-GAAP (c)

10.6%

N/A

Under the Advanced Approach:

Estimated fully phased-in Basel III risk-weighted assets – Non-GAAP

$ 162,263

$ 130,849 $ 144,284

Estimated fully phased-in Basel III CET1 ratio – Non-GAAP (c)

9.8%

11.3%

9.8%

(a) At Dec. 31, 2012, the estimated fully phased-in Basel III CET1 ratio was estimated using our interpretation of the NPRs dated June 7,

2012, on a fully phased-in basis.

(b) Tier 1 capital at Dec. 31, 2014 is based on Basel III rules, as phased-in. Tier 1 capital at Dec. 31, 2013 and Dec. 31, 2012 is based on

Basel I rules.

(c) Risk-based capital ratios at Dec. 31, 2014 include the net impact of the total consolidated assets of certain consolidated investment

management funds in risk-weighted assets. These assets were not included in Dec. 31, 2013 risk-based ratios.

The following table presents the reconciliation of our Basel I CET1 ratio.

Basel I CET1 ratio
(dollars in millions)
Total Tier 1 capital – Basel I
Less: Trust preferred securities
Preferred stock

Total CET1 – Basel I

Dec. 31,

2013

2012

2011

2010

(a)

$ 18,335 $ 16,694 $ 15,389 $ 13,597
1,676
—
$ 16,443 $ 15,003 $ 13,730 $ 11,921

1,659
—

623
1,068

330
1,562

Total risk-weighted assets – Basel I

$ 113,322 $ 111,180 $ 102,255 $ 101,407

Basel I CET1 ratio – Non-GAAP
(a) The period ended Dec. 31, 2010 includes discontinued operations.

14.5%

13.5%

13.4%

11.8%

134 BNY Mellon

Supplemental Information (unaudited) (continued)

The following table presents the components of our fully phased-in estimated SLR.

Estimated fully phased-in SLR – Non-GAAP (a)
(dollars in millions)
Total estimated fully phased-in Basel III CET1 – Non-GAAP
Additional Tier 1 capital
Total Tier 1 capital

Total leverage exposure:

Quarterly average total assets
Less: Amounts deducted from Tier 1 capital
Total on-balance sheet assets, as adjusted

Off-balance sheet exposures:

Potential future exposure for derivatives contracts (plus certain other items)
Repo-style transaction exposures included in SLR
Credit-equivalent amount of other off-balance sheet exposures (less SLR exclusions)

Total off-balance sheet exposures
Total leverage exposure

Estimated fully phased-in SLR – Non-GAAP

Dec. 31,
2014

$ 15,931

1,550

$ 17,481

$ 385,232

19,947

365,285

11,678

—

21,850

33,528

$ 398,813

4.4%

(a) The estimated fully phased-in SLR is based on our interpretation of the Final Capital Rules, as supplemented by the Federal Reserve’s
final rules on the SLR. When fully phased-in, we expect to maintain an SLR of over 5%, 3% attributable to the minimum required SLR,
and greater than 2% attributable to a buffer applicable to U.S. G-SIBs.

BNY Mellon 135

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:

2014 over (under) 2013

2013 over (under) 2012

Due to change in
Average
balance

Average
rate

Net
change

Due to change in
Average
balance

Average
rate

Net
change

(38) $
46
37
34

(3) $
11
2
(12)

(41)
57
39
22

22 $
7
17
14

(131) $
(9)
(5)
(22)

(109)
(2)
12
(8)

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 liabilities:
Interest-bearing deposits:

Domestic offices:

Money market rate accounts
Savings
Demand deposits
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

$
$

14
23
13
50

53
9
(10)

(7)
(17)
(3)
(27)

(35)
(87)
6

(26)
30
4
(26)
30
159 $

(251)
127
(124)
(9)
(249)
(278) $

(5) $
—
2
(3)
(6)

(12)
(11)
(23)
(29)
11
(8)

(1) $
1
—
—
—

5
2
7
7
(8)
(5)

(2)
—
(2)
2
1
16
11 $
148 $

7
6
10
23

18
(78)
(4)

(277)
157
(120)
(35)
(219)
(119)

(6)
1
2
(3)
(6)

(7)
(9)
(16)
(22)
3
(13)

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)

(2) $
—
2
5
5

— $
1
(1)
(16)
(16)

(4)
6
2
7
—
17

(12)
(28)
(40)
(56)
(16)
(3)

(2)
1
1
(11)
(11)

(16)
(22)
(38)
(49)
(16)
14

—
1
1
—
—
25
— $
(278) $

(2)
1
(1)
2
1
41
11
(130)

$
$

(2)
—
(2)
—
1
(12)
11 $
323 $

(2)
(5)
(7)
(2)
(1)
(117)
(202) $
(279) $

(4)
(5)
(9)
(2)
—
(129)
(191)
44

(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.

136 BNY Mellon

Selected Quarterly Data (unaudited)

Selected Quarterly Data

(dollar amounts in millions,

except per share amounts)

Consolidated income statement

Total fee and other revenue (a)
Income from consolidated investment

management funds

Net interest revenue
Total revenue (a)

Provision for credit losses

Noninterest expense

Income before taxes (a)

(Benefit) provision for income taxes (a)

Net income (loss) (a)

Net (income) attributable to noncontrolling

interests

Net income (loss) applicable to shareholders of

The Bank of New York Mellon Corporation (a)

Preferred stock dividends

Net income (loss) applicable to common

shareholders of The Bank of New York Mellon
Corporation (a)

Basic earnings (loss) per common share

Diluted earnings (loss) per common share
Average balances

Quarter ended

2014

2013

Dec. 31

Sept. 30

June 30 March 31

Dec. 31

Sept. 30

June 30 March 31

2,935

3,851

2,980

2,883

2,814 $

2,979 $

3,203 $

2,860

712

3,689

3,524

164

(93)

257

(24)

233

(24)

721

4,611

(19)

2,968

1,662

556

1,106

(23)

1,083

(13)

719

3,745

(12)

2,946

811

217

594

(17)

577

(23)

728

3,647

(18)

2,739

926

232

694

(20)

674

(13)

761

772

3,611

3,783

2,877

728

172

556

(17)

539

(26)

2,779

1,002

983

(8)

975

(13)

757

4,025

(19)

2,822

1,222

339

883

(40)

843

(12)

719

3,629

(24)

2,828

825

1,062

(237)

(16)

(253)

(13)

209

0.18

1,070

0.93

554

0.48

661

0.57

513 $

962 $

831 $

(266)

0.44 $

0.82 $

0.71 $

(0.23)

0.44

0.82

0.71

(0.23)

Interest-bearing deposits with banks

$ 122,063

$ 123,595

$ 126,970

$ 116,016

$ 122,795 $ 107,301 $ 98,683 $ 104,207

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 (a)(b)
Pre-tax operating margin (a)
Common stock data (b)

Market price per share range:

117,243

112,055

101,420

100,534

96,640

101,206

107,138

101,912

3,922

56,844

318,608

375,609

385,232

248,479

21,187

1,562

5,435

54,835

311,603

370,167

380,409

246,567

20,429

1,562

5,532

53,449

300,758

357,807

369,212

240,494

20,361

1,562

5,217

51,647

284,532

343,638

354,992

234,416

20,420

1,562

6,173

50,768

285,779

344,629

5,523

48,256

6,869

47,913

271,150

268,481

329,887

325,931

5,878

46,279

265,754

322,161

356,135

341,750

337,455

333,664

237,019

225,622

221,867

218,065

19,501

1,562

19,025

1,562

19,002

1,350

18,878

1,068

36,859

36,751

36,565

36,289

35,698

34,264

34,467

34,898

0.91%

2.2%

0.94%

11.6%

36%

0.98%

1.05%

6.1%

22%

7.4%

25%

1.09%

5.7%

20%

1.16%

11.1%

26%

1.15%

9.7%

30%

1.11%

N/M

23%

High

Low

Average

Period end close

Cash dividends per common share
Market capitalization (c)

41.79

40.80

37.95

35.88

34.99 $

32.36 $

30.85 $

29.13

35.06

39.13

40.57

0.17

37.12

38.88

38.73

0.17

32.66

34.60

37.48

0.17

30.82

33.03

35.29

0.15

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

45,366

43,599

42,412

40,244

39,910

34,674

32,271

32,487

(a) Results for the quarters ended in 2013 were restated to reflect the retrospective application of adopting new accounting guidance in 2014 related to our
investments in qualified affordable housing projects (ASU 2014-01). See Note 2 of the Notes to Consolidated Financial Statements for additional
information.

(b) At Dec. 31, 2014, there were 30,525 shareholders registered with our stock transfer agent, compared with 29,231 at Dec. 31, 2013 and 31,486 at Dec. 31,
2012. In addition, there were 44,505 of BNY Mellon’s current and former employees at Dec. 31, 2014 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.

BNY Mellon 137

any of our significant counterparties in Europe, or a
breakup of the Eurozone; continuing uncertainty in
financial markets and weakness in the economy
generally; continuing low or volatile interest rates;
market volatility; write-downs of securities 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 market
activity, weak financial markets, underperformance
and/or negative trends in savings rates or in
investment preferences; the impact of decreased
cross-border investment activity on our foreign
exchange revenues; any material reduction in our
credit ratings or the credit ratings of certain of our
bank 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
collateral agency 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 subsidiaries; and
the impact of provisions of U.S. banking laws and
regulations, Delaware law or failure to pay full and
timely dividends on our preferred stock on our ability
to return capital to shareholders.

Investors should consider all risks in our 2014 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.

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, our businesses, financial and capital
condition, results of operations, goals, strategies,
outlook, objectives, expectations (including those
regarding regulatory, market, economic or accounting
developments, legal proceedings and other
contingencies), estimates (including those regarding
capital ratios), intentions, targets, opportunities and
initiatives.

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.

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: a
technology disruption or information security event
that results in a loss of confidential client information
or impacts our ability to provide services to our
clients; failure to update our technology, develop and
market new technology or protect our intellectual
property; government regulation and supervision, and
recent legislative and regulatory actions; failure to
satisfy regulatory standards, including capital
adequacy rules; the risks relating to new lines of
business, new products and services or strategic
project initiatives; failure to attract and retain
employees; regulatory actions or litigation; adverse
publicity, government scrutiny or other reputational
harm; continued litigation and regulatory
investigations and proceedings involving our foreign
exchange standing instruction program; failure of our
risk management framework to be effective;
operational risk; failure or circumvention of our
controls and procedures; change or uncertainty in
monetary, tax and other governmental policies;
competition in all aspects of our business; political,
economic, legal, operational and other risks inherent
in operating globally; acts of terrorism, natural
disasters, pandemics and global conflicts; the risks
and uncertainties relating to our strategic transactions;
ongoing concerns about the financial stability of
some countries in Europe, the failure or instability of

138 BNY Mellon

Acronyms

ABO
Accumulated benefit obligation
ABS
Asset-backed security
ALM
Asset/liability management
APAC
Asia-Pacific region
ASC
Accounting Standards Codification
ASU
Accounting Standards Update
AUC/A Assets under custody and/or administration
AUM
BHC
bps
CCAR
CCO
CD
CET1
CFTC
CLO
COSO

Assets Under Management
Bank holding companies
basis points
Comprehensive Capital Analysis and Review
Chief Credit Officer
Certificates of deposit
Common Equity Tier 1 capital
Commodity Futures Trading Commission
Collateralized loan obligation
The Committee of Sponsoring Organizations
of the Treadway Commission
Central securities depository
Credit valuation adjustment

CSD
CVA
DARTS Daily average revenue trades
DR
Depositary receipts
DVA
Debit valuation adjustment
EC
European Commission
ECB
European Central Bank
EMEA
Europe, the Middle East and Africa
ERISA
Employee Retirement Income Security Act of
1974
ESOP
Employee Stock Ownership Plan
EVE
Economic Value of Equity
FASB
Financial Accounting Standards Board
FCA
Financial Conduct Authority
FDIC
Federal Deposit Insurance Corporation
FHC
Financial holding company
FINRA
Financial Industry Regulatory Authority, Inc.
FSA
Financial Services Authority
FTE
Fully taxable equivalent
GAAP
Generally Accepted Accounting Principles
GDP
Gross domestic product
G-SIBs Global systemically important banks

GSE
HQLA
IASB
IFRS
IRS
LIBOR
LCR
MD&A

M&I
MBS
MMF
N/A
NAV
N/M
NPR
NSFR
NYSE
OCC
OCI
OIS
OTC
OTTI
PBO
PSU
REIT
RMBS
RSU
RWA
S&P
SBIC
SBLC
SEC
SIFIs
SLR
TCE
TDR
TLAC
VaR
VIE

Government-sponsored enterprise
High-quality liquid assets
International Accounting Standards Board
International Financial Reporting Standards
Internal Revenue Service
London Interbank Offered Rate
Liquidity coverage ratio
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
Merger and integration
Mortgage-backed security
Money market funds
Not applicable or Not available
Net asset value
Not meaningful
Notice of proposed rulemaking
Net stable funding ratio
New York Stock Exchange
Office of the Comptroller of the Currency
Other comprehensive income
Overnight indexed swap
Over-the-counter
Other-than-temporary impairment
Projected benefit obligation
Performance units
Real estate investment trust
Residential mortgage-backed security
Restricted stock units
Risk-weighted assets
Standard & Poor’s
Small Business Investment Company
Standby letters of credit
Securities and Exchange Commission
Systemically important financial institutions
Supplementary leverage ratio
Tangible common equity
Troubled debt restructuring
Total loss-absorbing capacity
Value-at-risk
Variable interest entity

BNY Mellon 139

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.

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.

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.

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.

140 BNY Mellon

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 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.

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.

Glossary (continued)

Depositary Receipts (“DR”) - A negotiable security
that generally represents a non-U.S. company’s
publicly traded equity.

Foreign currency options - Similar to interest rate
options except they are based on foreign exchange
rates. Also, see interest rate options in this glossary.

Derivative - A contract or agreement whose value is
derived from changes in interest rates, foreign
exchange rates, prices of securities or commodities,
credit worthiness for credit default swaps or financial
or commodity indices.

Discontinued operations - The operating results of a
component of an entity, as defined by ASC 205, that
are removed from continuing operations when that
component has been disposed of or it is
management’s intention to sell the component.

Double leverage - The situation that exists when a
holding company’s equity investments in wholly
owned subsidiaries (including goodwill and
intangibles) exceed its equity capital. Double
leverage is created when a bank holding company
issues debt and downstreams the proceeds to a
subsidiary as an equity investment.

Earnings allocated to participating securities
Amount of undistributed earnings, after payment of
taxes, preferred stock dividends and the required
adjustment for common stock dividends declared,
that is allocated to securities that are eligible to
receive a portion of the Company’s earnings.

Economic capital - The amount of capital required to
absorb potential losses and reflects the probability of
remaining solvent over a one-year time horizon.

Economic value of equity (“EVE”) - An
aggregation of discounted future cash flows of assets
and liabilities over a long-term horizon.

Eurozone - An economic and monetary union of 19
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. Lithuania
joined as of Jan. 1, 2015.

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 swaps - An agreement to exchange
stipulated amounts of one currency for another
currency at one or more future dates.

Foreign exchange contracts - Contracts that provide
for the future receipt or delivery of foreign currency
at previously agreed-upon terms.

Forward rate agreements - Contracts to exchange
payments on a specified future date, based on a
market change in interest rates from trade date to
contract settlement date.

Fully taxable equivalent (“FTE”) - Basis for
comparison of yields on assets having ordinary
taxability with assets for which special tax
exemptions apply. The FTE adjustment reflects an
increase in the interest yield or return on a tax-exempt
asset to a level that would be comparable had the
asset been fully taxable.

Generally accepted accounting principles
(“GAAP”) - Accounting rules and conventions
defining acceptable practices in preparing financial
statements in the U.S. The FASB is the primary
source of accounting rules.

Grantor Trust - A legal, passive entity through
which pass-through securities are sold to investors.

Hedge fund - A fund which is allowed to use diverse
strategies that are unavailable to mutual funds,
including selling short, leverage, program trading,
swaps, arbitrage and derivatives.

High-quality liquid assets (“HQLA”) - Assets that
can be converted into cash at little or no loss of value
in private markets and are considered unencumbered.

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

BNY Mellon 141

Glossary (continued)

instrument or currency at predetermined terms in the
future.

contracts through a single payment in the event of
default or termination of any one contract.

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 - Tier 1 capital divided by quarterly
average total assets, as defined by the regulators.

Liquidity coverage ratio (“LCR”) - A Basel III
framework requirement for banks and BHCs to
measure liquidity. It is designed to ensure that certain
banking organizations, including BNY Mellon,
maintain a minimum amount of unencumbered
HQLA sufficient to withstand the net cash outflow
under a hypothetical standardized acute liquidity
stress scenario for a 30-day time horizon.

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.

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.

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.

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 U.S. Government wishes to add,
remove, or change a rule or regulation as part of the
rulemaking process.

Operating leverage - The rate of increase in revenue
to the rate of increase in expenses.

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

Other-than-temporary impairment (“OTTI”) - An
impairment charge taken on a security whose fair
value has fallen below the carrying value on the
balance sheet and its value is not expected to recover
through the holding period of the security.

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.

Master netting agreement - An agreement between
two counterparties that have multiple contracts with
each other that provides for the net settlement of all

Prime securities - A classification of securities
collateralized by loans to borrowers who have a high-
value and/or a good credit history.

142 BNY Mellon

Glossary (continued)

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.

Return on tangible common equity - Net income
applicable to common shareholders, excluding
amortization of intangible assets, divided by average
tangible common shareholders’ equity.

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.

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.

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.

Supplementary leverage ratio (“SLR”) - Tier 1
capital divided by total leverage exposure, as defined
by the regulators.

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.

Unfunded commitments - Legally binding
agreements to provide a defined level of financing
until a specified future date.

Value-at-risk (“VaR”) - A measure of the dollar
amount of potential loss at a specified confidence
level from adverse market movements in an ordinary
market environment.

Variable interest entity (“VIE”) - An entity that: (1)
lacks enough equity investment at risk to permit the
entity to finance its activities without additional
financial support from other parties; (2) has equity
owners that lack the right to make significant
decisions affecting the entity’s operations; and/or (3)
has equity owners that do not have an obligation to
absorb or the right to receive the entity’s losses or
return.

BNY Mellon 143

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,
2014. 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 (2013).
Based upon such assessment, management believes
that, as of December 31, 2014, 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 2014
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 145.

144 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, 2014, based on criteria established in Internal Control - Integrated Framework (2013)
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, 2014, based on criteria established in Internal Control - Integrated Framework (2013) 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, 2014 and 2013, 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, 2014, and our report dated February 27, 2015 expressed an unqualified
opinion on those consolidated financial statements.

/s/ KPMG LLP

New York, New York
February 27, 2015

BNY Mellon 145

Item 1. Financial Statements

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 (a)
Total fee revenue (a)

Net securities gains — including other-than-temporary impairment
Noncredit-related portion of other-than-temporary impairment

(recognized in other comprehensive income)

Net securities gains
Total fee and other revenue (a)

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
Software
Net occupancy
Distribution and servicing
Furniture and equipment
Sub-custodian
Business development
Other
Amortization of intangible assets
Merger and integration, litigation and restructuring charges

Total noninterest expense

Income
Income before income taxes (a)
Provision for income taxes (a)

Net income (a)

Net (income) attributable to noncontrolling interests (includes $(84), $(80) and $(76) related to
consolidated investment management funds, respectively)

Net income applicable to shareholders of The Bank of New York Mellon Corporation (a)

Preferred stock dividends

Year ended Dec. 31,

2014

2013

2012

4,075 $
1,335
968
564
6,942
3,492
570
173
169
1,212
12,558
92

3,905 $
1,264
1,090
554
6,813
3,395
674
180
172
481
11,715
146

1
91
12,649

5
141
11,856

503
340
163

3,234
354
2,880
(48)
2,928

5,845
1,339
620
610
428
322
286
268
1,031
298
1,130
12,177

3,563
912
2,651

(84)
2,567
(73)

548
365
183

3,352
343
3,009
(35)
3,044

6,019
1,252
596
629
435
337
280
317
1,029
342
70
11,306

3,777
1,592
2,185

(81)
2,104
(64)

3,780
1,193
1,052
549
6,574
3,174
692
192
172
482
11,286
242

80
162
11,448

593
404
189

3,507
534
2,973
(80)
3,053

5,761
1,222
524
593
421
331
269
275
994
384
559
11,333

3,357
842
2,515

(78)
2,437
(18)

Net income applicable to common shareholders of The Bank of New York Mellon
Corporation (a)

2,494 $

2,040 $

2,419

(a) Results for years ended Dec. 31, 2013 and Dec. 31, 2012 were restated to reflect the retrospective application of adopting new

accounting guidance in 2014 related to our investments in qualified affordable housing projects (ASU 2014-01). See Note 2 of the Notes
to Consolidated Financial Statements for additional information.

146 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 (a)
Less: Earnings allocated to participating securities (a)

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 (a)

Average common shares and equivalents outstanding
of The Bank of New York Mellon Corporation
(in thousands)
Basic
Common stock equivalents
Less: Participating securities
Diluted

Year ended Dec. 31,

2014
2,494 $
43
N/A

2013
2,040 $
37
1

2012
2,419
35
(5)

2,451 $

2,002 $

2,389

Year ended Dec. 31,

2014

2013

2012
1,129,897 1,150,689 1,176,485
10,970
(9,025)
1,137,480 1,154,441 1,178,430

20,037
(12,454)

16,874
(13,122)

Anti-dilutive securities (b)

43,735

75,847

91,347

Earnings per share applicable to the common shareholders
of The Bank of New York Mellon Corporation (a)(c)
2013
(in dollars)
Basic
1.74 $
1.73 $
Diluted
(a) Results for years ended Dec. 31, 2013 and Dec. 31, 2012 were restated to reflect the retrospective application of adopting new

2014
2.17 $
2.15 $

Year ended Dec. 31,

$
$

2012
2.03
2.03

accounting guidance in 2014 related to our investments in qualified affordable housing projects (ASU 2014-01). See Note 2 of the Notes
to Consolidated Financial Statements for additional information.

(b) 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.

(c) 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, if applicable.

See accompanying Notes to Consolidated Financial Statements.

BNY Mellon 147

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

Consolidated Comprehensive Income Statement

(in millions)
Net income (a)
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 (loss) on cash flow hedges

Total other comprehensive income (loss), net of tax (b)
Net (income) attributable to noncontrolling interests
Other comprehensive (income) loss attributable to noncontrolling interests
Net comprehensive income

Year ended Dec. 31,

2014
2,651 $

2013
2,185 $

2012
2,515

(806)

192

130

413
(58)
355

2
(479)
(1)

(889)
(74)
(963)

(1)
429
—

77
(401)
(15)
(867)
(84)
125
1,825 $

126
554
9
(208)
(81)
(41)
1,855 $

1,007
(106)
901

57
(190)
—

104
(29)
1
1,003
(78)
(19)
3,421

(a) Results for both years ended Dec. 31, 2013 and Dec. 31, 2012 were restated to reflect the retrospective application of adopting new

accounting guidance in 2014 related to our investments in qualified affordable housing projects (ASU 2014-01). See Note 2 of the Notes
to Consolidated Financial Statements for additional information.

(b) Other comprehensive income (loss) attributable to The Bank of New York Mellon Corporation shareholders was $(742) million for the

year ended Dec. 31, 2014, $(249) million for the year ended Dec. 31, 2013 and $984 million for the year ended Dec. 31, 2012.

See accompanying Notes to Consolidated Financial Statements.

148 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 $21,127 and $19,443)
Available-for-sale

Total securities

Trading assets
Loans (includes $21 and $ -, at fair value)
Allowance for loan losses

Net loans

Premises and equipment
Accrued interest receivable
Goodwill
Intangible assets
Other assets (includes $1,916 and $1,728, at fair value) (a)

Subtotal assets of operations (a)

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 (a)

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 (a)
Other liabilities (including allowance for lending-related commitments of $89 and $134, also includes $451 and $503,

at fair value) (a)

Long-term debt (includes $347 and $321, at fair value)
Subtotal liabilities of operations (a)

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 (a)

Temporary equity
Redeemable noncontrolling interests
Permanent equity
Preferred stock – par value $0.01 per share; authorized 100,000,000 shares; issued 15,826 and 15,826 shares
Common stock – par value $0.01 per share; authorized 3,500,000,000 shares; issued 1,290,222,821 and

1,268,036,220 shares
Additional paid-in capital
Retained earnings (a)
Accumulated other comprehensive loss, net of tax
Less: Treasury stock of 171,995,262 and 125,786,430 common shares, at cost

Total The Bank of New York Mellon Corporation shareholders’ equity (a)

Nonredeemable noncontrolling interests of consolidated investment management funds

Total permanent equity (a)
Total liabilities, temporary equity and permanent equity (a)

Dec. 31,

2014

2013

6,970
96,682
19,495
20,302

20,933
98,330
119,263
9,881
59,132
(191)
58,941
1,394
607
17,869
4,127
20,490
376,021

6,460
104,359
35,300
9,161

19,743
79,309
99,052
12,098
51,657
(210)
51,447
1,655
621
18,073
4,452
20,566
363,244

8,678
604
9,282
$ 385,303

10,397
875
11,272
$ 374,516

$ 104,240
53,236
108,393
265,869
11,469
7,434
21,181
—
786
6,903

5,025
20,264
338,931

7,660
9
7,669
346,600

229

1,562

95,475
56,640
109,014
261,129
9,648
6,945
15,707
96
663
6,996

4,827

19,864
325,875

10,085
46
10,131
336,006

230

1,562

13
24,626
17,683
(1,634)
(4,809)
37,441
1,033
38,474
$ 385,303

13
24,002
15,952
(892)
(3,140)
37,497
783
38,280
$ 374,516

(a) Prior year balances were restated to reflect the retrospective application of adopting new accounting guidance in 2014 related to our

investments in qualified affordable housing projects (ASU 2014-01). See Note 2 of the Notes to Consolidated Financial Statements for additional
information.

See accompanying Notes to Consolidated Financial Statements.

BNY Mellon 149

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

Consolidated Statement of Cash Flows

(in millions)
Operating activities
Net income (a)
Net (income) attributable to noncontrolling interests
Net income applicable to shareholders of The Bank of New York Mellon Corporation (a)
Adjustments to reconcile net income to net cash provided by (used for) operating activities:

Year ended Dec. 31,

2014

2013

2,651 $
(84)
2,567

2,185 $
(81)
2,104

Provision for credit losses
Pension plan contributions
Depreciation and amortization
Deferred tax (benefit) (a)
Net securities (gains) and venture capital (income)

Change in trading activities
Change in accruals and other, net (a)

Net cash provided by (used for) 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 of 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

(48)
(72)
1,292
(853)
(97)
2,636
(941)
4,484

16,010
7,677
(3,498)
1,885
102
(69,101)
31,254
7,253
11,012
(7,904)
312
(11,141)
(253)
(791)
585
(28)
64
4,887
(11,675)

2,247
1,821
5,474
135
(96)
4,686
(4,376)
370
26
—
(1,669)
(760)
(73)
44
7,829
(128)

(35)
(68)
1,389
526
(147)
(3,946)
(465)
(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)

510
6,460
6,970 $

344 $

1,363
144

1,733
4,727
6,460 $

347 $
400
29

2012

2,515
(78)
2,437

(80)
(441)
1,246
244
(170)
(1,412)
(195)
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

(a) Cash flows for both years ended Dec. 31, 2013 and Dec. 31, 2012 were restated to reflect the retrospective application of adopting new

accounting guidance in 2014 related to our investments in qualified affordable housing projects (ASU 2014-01). See Note 2 of the Notes
to Consolidated Financial Statements for additional information.

See accompanying Notes to Consolidated Financial Statements.

150 BNY Mellon

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

Consolidated Statement of Changes in Equity

(in millions, except per
share amounts)

Balance at Dec. 31, 2013 (a)
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 $0.66 per
share
Preferred stock

Repurchase of common stock
Common stock issued under:
Employee benefit plans
Direct stock purchase and

dividend reinvestment plan

Stock awards and options

exercised

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

$ 1,562 $

13 $ 24,002 $ 15,952 $

(892) $ (3,140) $

783 $ 38,280 (b) $

—

—
—

—

—
—

—

(31)

—

—
—

600

—

2,567

—

(763)

(73)
—

—

(742)

—

—
—

—

—
(1,669)

—

277

—

(31)

287

2,651

(111)

(853)

—

—
—

—

(763)

(73)
(1,669)

600

230

(103)

—

(14)

—

—
—

—

229

Balance at Dec. 31, 2014

$ 1,562 $

13 $ 24,626 $ 17,683 $

(1,634) $ (4,809) $

1,033 $ 38,474 (b) $

(a) Retained earnings and total permanent equity were restated to reflect the retrospective application of adopting new accounting guidance in 2014 related
to our investments in qualified affordable housing projects (ASU 2014-01). See Note 2 of the Notes to Consolidated Financial Statements for additional
information.
Includes total The Bank of New York Mellon Corporation common shareholders’ equity of $35,935 million at Dec. 31, 2013 and $35,879 million at Dec.
31, 2014.

(b)

BNY Mellon 151

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

Consolidated Statement of Changes in Equity (continued)

(in millions, except per
share amounts)

Balance at Dec. 31, 2012 (a)
Shares issued to shareholders of

noncontrolling interests

Redemption of subsidiary shares
from noncontrolling interests

Other net changes in

noncontrolling interests

Net income (a)
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

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

$ 1,068 $

13 $ 23,485 $ 14,605 $

(643) $ (2,114) $

833

37,247 (b) $

—

—
—

—

494

—

—
—

—

—
—

—

451

—

2,104

—

(12)

(249)

(681)

(64)
—

—

—
—

—

—
(1,026)

—

(161)

—

—
—

—

(140)

2,184

(230)

(681)

(64)
(1,026)
—
25

494

451

178

(81)

—

—
—

—

230

Balance at Dec. 31, 2013 (a)

$ 1,562 $

13 $ 24,002 $ 15,952 $

(892) $ (3,140) $

783 $ 38,280 (a) $

(a) Retained earnings, total permanent equity and net income were restated to reflect the retrospective application of adopting new accounting guidance in

2014 related to our investments in qualified affordable housing projects (ASU 2014-01). See Note 2 of the Notes to Consolidated Financial Statements for
additional information.
Includes total The Bank of New York Mellon Corporation common shareholders’ equity of $35,346 million at Dec. 31, 2012 and $35,935 million at Dec.
31, 2013.

(b)

152 BNY Mellon

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

Consolidated Statement of Changes in Equity (continued)

(in millions, except per
share amounts)

Balance at Dec. 31, 2011 (a)
Shares issued to shareholders of

noncontrolling interests

Redemption of subsidiary shares
from noncontrolling interests

Other net changes in

noncontrolling interests

Net income (a)
Other comprehensive income
Dividends:

Common stock at $0.52 per
share
Preferred stock

Repurchase of common stock
Common stock issued under:
Employee benefit plans
Direct stock purchase and

dividend reinvestment plan

Preferred stock issued
Stock awards and options

exercised

The Bank of New York Mellon Corporation shareholders

Preferred
stock

Common
stock

Additional
paid-in
capital

Retained
earnings

Accumulated
other
comprehensive
income (loss),
net of tax

Treasury
stock

Non-
redeemable
noncontrolling
interests of
consolidated
investment
management
funds

Total
permanent
equity

Redeemable

non
controlling
interests/
temporary
equity

— $

12 $ 23,185 $ 12,803 $

(1,627) $

(965) $

670 $ 34,078 (b) $

—

—
—

—

—
—

—

1,068

—

—
—

—

—
—

—

(2)

—
—

—

—
—

—

255

—

2,437
—

(623)

(18)
—

—

—
984

—

—
—

—

—
—

—

—
(1,148)

—

(1)

—

76
15

—

—
—

—

2,513
999

(623)

(18)
(1,148)

1,068

255

114

(10)

2
4

—

—
—

—

178

Balance at Dec. 31, 2012 (a)

$ 1,068 $

13 $ 23,485 $ 14,605 $

(643) $ (2,114) $

833 $ 37,247 (a) $

(a) Retained earnings, total permanent equity and net income were restated to reflect the retrospective application of adopting new accounting guidance in

2014 related to our investments in qualified affordable housing projects (ASU 2014-01). See Note 2 of the Notes to Consolidated Financial Statements for
additional information.
Includes total The Bank of New York Mellon Corporation common shareholders’ equity of $33,408 million at Dec. 31, 2011 and $35,346 million at Dec.
31, 2012.

(b)

See accompanying Notes to Consolidated Financial Statements.

BNY Mellon 153

Notes to Consolidated Financial Statements

Note 1 - Summary of significant accounting
and reporting policies

commitments as well as changes in pension and post-
retirement expense.

Basis of presentation

Subsequent event

The accounting and financial reporting policies of
BNY Mellon, a global financial services company,
conform to U.S. 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 periods
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,
2014. 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

154 BNY Mellon

As disclosed in February 2015, our financial results
for the fourth quarter ended Dec. 31, 2014 were
impacted by an additional after-tax litigation expense
of $598 million in anticipation of the resolution of
several previously disclosed matters, including
substantially all of the foreign exchange-related
actions. This impact has been reflected throughout
these financial statements as a result of developments
in our litigation that occurred subsequent to Dec. 31,
2014 which required that we increase our estimated
accrual for probable and reasonably estimable losses.
In addition, these developments resulted in a
substantial decline in our aggregate range of
reasonably possible losses for legal proceedings as of
Dec. 31, 2014. See Note 22 of the Notes to
Consolidated Financial Statements for additional
information.

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, 2014
Percentage
ownership Book value
550
272
105 (a)

(dollars in millions)
CIBC Mellon
Siguler Guff
ConvergEx
(a) In addition to the common ownership interest noted, BNY

50.0%
20.0%
33.9%

$
$
$

Mellon also holds an interest in ConvergEx nonvoting Series
B preferred units. The book value at Dec. 31, 2014 is
reflective of our combined common and preferred interests in
ConvergEx.

Notes to Consolidated Financial Statements (continued)

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
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 VIEs is
included in ASC 810 Consolidation, ASU 2009-17
“Improvements to Financial Reporting by Enterprises
Involved with Variable Interest Entities”, and ASU
2010-10 “Amendments for Certain Investment
Funds,” which defers ASU 2009-17 for certain asset
managers’ interests in entities that apply the
specialized accounting guidance for investment
companies or that have the attributes of investment
companies and for interests in money market funds.

VIEs are defined as certain entities in which the
equity investors:

• 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 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

BNY Mellon 155

Notes to Consolidated Financial Statements (continued)

determined to be VIEs, primary beneficiary
calculations are prepared in accordance with ASC
810 to determine whether or not BNY Mellon is the
primary beneficiary and required to consolidate the
VIE. The primary beneficiary of a VIE is the party
that absorbs a majority of the VIE’s expected losses,
receives a majority of its expected residual returns or
both.

BNY Mellon has two securitizations and several
CLOs, which are assessed for consolidation in
accordance with ASU 2009-17. The primary
beneficiary of these VIE’s is the party that has both:
(1) the power to direct the activities of the VIE that
most significantly impact that entity’s economic
performance, and (2) the obligation to absorb losses,
or the right to receive benefits, from the VIE that
could potentially be significant to the VIE.

Voting interest entities

If BNY Mellon can exert control over the financial
and operating policies of an investee, which generally
can occur if there is a 50% or more voting interest or
if partners or members of an investee do not have
certain substantive rights, BNY Mellon consolidates
the investee.

Investees structured as limited partnerships or limited
liability companies for which BNY Mellon is either
the general partner or managing member are
presumed to be controlled by BNY Mellon. In
accordance with ASC 810-20 Control of Partnerships
and Similar Entities, we review the rights of the
limited partners and members to determine whether
that presumption can be overcome. The presumption
of control is overcome when the limited partners or
managing members have the ability to dissolve the
entity, can remove BNY Mellon, as the general
partner or managing member without cause based on
a simple majority vote of unaffiliated limited partners
or members or have other substantive participating
rights. If the presumption of control is not overcome,
the entity is consolidated.

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.

156 BNY Mellon

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 OCI, unless a
security is deemed to have 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 amortized
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;

Notes to Consolidated Financial Statements (continued)

• Whether the decline in fair value is attributable to
specific conditions, such as conditions in an
industry or in a geographic area;

Consolidated Financial Statements for these
disclosures.

• Whether a debt security has been downgraded by

Loans and leases

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.

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, the credit component of an OTTI of a debt
security is recognized in earnings and the non-credit
component is recognized in OCI

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.

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.

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

Loans are reported net of any unearned income and
deferred fees and costs. 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. Loans held for sale are carried at
the lower of cost or fair value.

Unearned revenue on direct financing leases is
accreted over the lives of the leases in decreasing
amounts to provide a constant rate of return on the net
investment in the leases. Revenue on leveraged
leases is recognized on a basis to achieve a constant
yield on the outstanding investment in the lease, net
of the related deferred tax liability, in the years in
which the net investment is positive. Gains and
losses on residual values of leased equipment sold are
included in investment 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.

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. TDRs are accounted for as impaired loans (see
the Nonperforming assets policy).

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

BNY Mellon 157

Notes to Consolidated Financial Statements (continued)

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 when it is
probable that we will be unable to collect all principal
and interest amounts due according to the contractual
terms of the loan agreement. An impairment
allowance on loans $1 million or greater is required
to be measured based upon the loan’s market price,
the present value of expected future cash flows,
discounted at the loan’s initial effective interest rate,
or at fair value of the collateral if the loan is collateral
dependent. If the loan valuation is less than the
recorded value of the loan, an impairment allowance
is established by a provision for credit loss.
Impairment allowances are not needed when the
recorded investment in an impaired loan is less than
the loan valuation.

Allowance for loan losses and allowance for lending-
related commitments

The allowance for loan losses, shown as a valuation
allowance to loans, and the allowance for lending-
related commitments recorded in other liabilities are
referred to as BNY Mellon’s allowance for credit
losses. The accounting policy for the determination
of the adequacy of the allowances has been identified
as a “critical accounting estimate” as it requires us to
make numerous complex and subjective estimates
and assumptions relating to amounts which are
inherently uncertain.

The allowance for loan losses is maintained to absorb
losses inherent in the loan portfolio as of the balance
sheet date based on our judgment. The allowance
determination methodology is designed to provide
procedural discipline in assessing the appropriateness
of the allowance. Credit losses are charged against

158 BNY Mellon

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.

Notes to Consolidated Financial Statements (continued)

databases, to ensure ongoing consistency and validity.
Higher risk-rated credits are reviewed quarterly. In
the fourth quarter of 2014, we adopted the probable
loss model to calculate the allowance for the Wealth
Management mortgage portfolio. In prior periods,
the allowance was calculated using a delinquency
pool approach as described below in the third element
for the allowance for residential mortgage loans.

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.

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 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

BNY Mellon 159

Notes to Consolidated Financial Statements (continued)

and amortized to operating expense over their
identified useful lives.

Software

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.

BNY Mellon capitalizes costs relating to acquired
software and internal-use software development
projects that provide new or significantly improved
functionality. We capitalize projects that are expected
to result in longer-term operational benefits, such as
replacement systems or new applications that result in
significantly increased operational efficiencies or
functionality. All other costs incurred in connection
with an internal-use software project are expensed as
incurred. Capitalized software is recorded in other
assets.

Identified intangible assets and goodwill

Identified intangible assets with estimable lives are
amortized in a pattern consistent with the assets’
identifiable cash flows or using a straight-line method
over their remaining estimated benefit periods if the
pattern of cash flows is not estimable. Intangible
assets with estimable lives are reviewed for possible
impairment when events or changed circumstances
may affect the underlying basis of the asset.
Goodwill and intangibles with indefinite lives are not
amortized, but are assessed 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
and carried at fair value. 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

160 BNY Mellon

Fee revenue

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 collectability is
reasonably assured.

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, which
are subject to a clawback if future performance
thresholds in current or future 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.

Notes to Consolidated Financial Statements (continued)

Net interest revenue

Revenue on interest-earning assets and expense on
interest-bearing liabilities is recognized based on the
effective yield of the related financial instrument.

Foreign currency translation

Assets and liabilities denominated in foreign
currencies are translated to U.S. dollars at the rate of
exchange on the balance sheet date. Transaction
gains and losses are included in the income statement.
Translation gains and losses on investments in foreign
entities with functional currencies that are not the
U.S. dollar are recorded as foreign currency
translation adjustments in other comprehensive
income (loss). Revenue and expense transactions are
translated at the applicable daily rate or the weighted
average monthly exchange rate when applying the
daily rate is not practical.

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. As a result of an
amendment adopted on Jan. 29, 2015 to freeze benefit
accrual under the U.S. pension plans effective Jun.
30, 2015, future unrecognized actuarial gains and
losses for the U.S. plans that exceed a threshold
amount will be amortized over the average future life

expectancy of plan participants with a maximum of
15 years.

The market-related value utilized to determine the
expected return on plan assets is based on the fair
value of plan assets adjusted for the difference
between expected returns and actual performance of
plan assets. The difference between actual experience
and expected returns on plan assets is included as an
adjustment in the market-related value over a five-
year period.

BNY Mellon’s accounting policy regarding pensions
has been identified as a “critical accounting estimate”
as it 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

BNY Mellon 161

Notes to Consolidated Financial Statements (continued)

year. Deferred tax assets and liabilities are recorded
for future tax consequences attributable to differences
between the financial statement carrying amounts of
assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income
in the years in which those temporary differences are
expected to be recovered or settled. A deferred tax
valuation allowance is established if it is more likely
than not that all or a portion of the deferred tax assets
will not be realized. A tax position that fails to meet a
more-likely-than-not recognition threshold will result
in either reduction of current or deferred tax assets,
and/or recording of current or deferred tax liabilities.
Interest and penalties related to income taxes are
recorded as income tax expense.

Derivative financial instruments

Derivative contracts, such as futures contracts,
forwards, interest rate swaps, foreign currency swaps
and options and similar products used in trading
activities are recorded at fair value. Gains and losses
are included in foreign exchange and other trading
revenue in fee and other revenue. Unrealized gains
are recognized as trading assets and unrealized losses
are recognized as trading liabilities, after taking into
consideration master netting agreements.

We enter into various derivative financial instruments
for non-trading purposes primarily as part of our
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 in the same period the
hedged item impacts earnings. 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.

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 as the hedged item impacts earnings.
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.

We formally assess, both at the hedge’s inception and
on an ongoing basis, whether the derivatives that are

Certain of our stock compensation grants vest when
the employee retires. New grants with this feature are

162 BNY Mellon

Notes to Consolidated Financial Statements (continued)

expensed by the first date the employee is eligible to
retire.

Note 2 - Accounting changes and new
accounting guidance

ASU - 2014-01 - Accounting for Investments in
Qualified Affordable Housing Projects - a Consensus
of the FASB Emerging Issues Task Force

In January 2014, FASB issued 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 make an
accounting policy election to account for investments
using the proportional amortization method if certain
conditions are met. Under the proportional

amortization method, the initial cost of the investment
is amortized in proportion to the tax credits and other
tax benefits received and the net investment
performance is recognized in the income statement as
a component of income tax expense. Previously,
investments in qualified affordable housing projects
were accounted for as equity method investments,
which reflected the operating losses of the affordable
housing project partnerships in the income statement
as investment and other income and the tax benefits
as a reduction to income tax expense. In addition,
under the new proportional amortization method, the
value of the commitments to fund qualified affordable
housing projects is included in other assets on the
balance sheet and a liability is recorded for the
unfunded portion. In 2014, we restated the prior
period financial statements to reflect the impact of the
retrospective application of the new accounting
guidance.

The table below presents the impact of the new accounting guidance on our previously reported earnings per share
applicable to the common shareholders.

Earnings per share applicable to the common shareholders of The

Bank of New York Mellon Corporation

(in dollars)
Basic
Diluted

As previously reported
YTD13
1.75
1.74

YTD12
2.04
2.03

$
$

As revised

YTD13
1.74
1.73

$
$

YTD12
2.03
2.03

$
$

The table below presents the impact of the new accounting guidance on our previously reported income statements.

Adjustments

As revised

Income statement
(in millions)
Investment and other income
Total fee revenue
Total fee and other revenue
Income before income taxes
Provision for income taxes
Net income (loss)
Net income (loss) applicable to shareholders of The
Bank of New York Mellon Corporation
Net income (loss) applicable to common shareholders
of The Bank of New York Mellon Corporation

As previously reported
YTD12
YTD13
427
416
11,231
11,650
11,393
11,791
3,302
3,712
779
1,520
2,523
2,192

YTD13
65
65
65
65
72
(7)

YTD12
55
55
55
55
63
(8)

2,111

2,047

2,445

2,427

(7)

(8)

YTD13
481
11,715
11,856
3,777
1,592
2,185

2,104

2,040

YTD12
482
11,286
11,448
3,357
842
2,515

2,437

2,419

BNY Mellon 163

Notes to Consolidated Financial Statements (continued)

The table below presents the impact of the new guidance on our previously reported balance sheet.

Balance sheet at Dec. 31, 2013
(in millions)
Other assets
Total assets of operations
Total assets
Accrued taxes and other expenses
Other liabilities
Total liabilities of operations
Total liabilities
Retained earnings
The Bank of New York Mellon Corporation shareholders’ equity
Permanent equity
Total liabilities, temporary equity and permanent equity

As previously
reported

20,360 $

363,038
374,310
6,985
4,608
325,645
335,776
15,976
37,521
38,304
374,310

Adjustment

206 $
206
206
11
219
230
230
(24)
(24)
(24)
206

As revised
20,566
363,244
374,516
6,996
4,827
325,875
336,006
15,952
37,497
38,280
374,516

Note 3 - Acquisitions and dispositions

Dispositions in 2013

We sometimes structure our acquisitions with both an
initial payment and later contingent payments tied to
post-closing revenue or income growth. Contingent
payments totaled $4 million in 2014.

At Dec. 31, 2014, we have no remaining obligation to
pay additional consideration for any of our acquired
companies or joint ventures, based on contractual
agreements. The acquisitions and dispositions
described below did not have a material impact on
BNY Mellon’s results of operations.

Acquisitions in 2014

On May 1, 2014, BNY Mellon acquired the
remaining 65% interest of HedgeMark International,
LLC for $26 million. Since 2011, BNY Mellon held
a 35% ownership stake in HedgeMark. Goodwill
related to this acquisition totaled $47 million and is
included in the Investment Services business. The
customer relationship intangible asset related to this
acquisition is included in our Investment Services
business and totaled $1 million at acquisition.

Dispositions in 2014

On April 23, 2014, BNY Mellon sold the subsidiary
that conducts corporate trust business in Mexico that
was part of our Investment Services business, for $65
million. As a result of this sale, we recorded an after-
tax gain of $4 million. In addition, goodwill of $8
million and customer relationship intangible assets of
$1 million were removed from the balance sheet as a
result of this sale.

164 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 8 years, and
totaled $23 million at acquisition.

Notes to Consolidated Financial Statements (continued)

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, 2014, 2013 and 2012.

Securities at
Dec. 31, 2014
(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
(c)

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

Amortized

Gross
unrealized

cost Gains Losses

Fair

value

$ 19,592 $ 420 $

15 $ 19,997

342

343

5,176

32,568
942
1,551
1,927

3,105

2,128

3,241

2,788
1,747
19,224
94
763
1,747

357
37
25
39

80
45
231
1
—
471

325
26
25
7

—
7
2
—
—
4

5,247

32,600
953
1,551
1,959

3,132

2,130

3,240

2,868
1,785
19,453 (a)
95
763
2,214

$ 96,935 $ 1,854 $ 459 $ 98,330

5,047

344

14,006
153
315
13
1,031

—

200
9
2
—
24

5,063

44
2
8
—
—

341

14,162
160
309
13
1,055

Total securities held-

to-maturity
Total securities

$ 20,933 $ 268 $

74 $ 21,127

$ 117,868 $ 2,122 $ 533 $ 119,457

(a)

Includes $17.3 billion, at fair value, of government-sponsored and
guaranteed entities, and sovereign debt.

(b) Previously included in the Grantor Trust. The Grantor Trust was

(c)

dissolved in 2011.
Includes gross unrealized gains of $60 million and gross unrealized
losses of $282 million recorded in accumulated other comprehensive
income primarily related to agency RMBS that were transferred
from available-for-sale to held-to-maturity in 2013. The unrealized
gains and losses will be amortized into net interest revenue over the
estimated lives of the securities.

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

(c)

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
cost

Gross
unrealized

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

—

20
10
3
1
—

—

236
3
20
—
6

3,268

406

14,352
193
449
17
714

$ 19,743 $

62 $

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

(c)

dissolved in 2011.
Includes gross unrealized gains of $74 million and gross unrealized
losses of $343 million recorded in accumulated other comprehensive
income primarily related to agency RMBS that were transferred
from available-for-sale to held-to-maturity in 2013. The unrealized
gains and losses will be amortized into net interest revenue over the
estimated lives of the securities.

BNY Mellon 165

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

Total securities held

to-maturity

Amortized
cost

Gross
unrealized

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

8,205 $

246 $

62 $ 8,389

Total securities

$ 98,332 $ 3,039 $

363 $101,008

(a)

Includes $9.4 billion, at fair value, of government-sponsored and
guaranteed entities, and sovereign debt.

(b) Previously included in the Grantor Trust. The Grantor Trust was

dissolved in 2011.

The following table presents the gross securities
gains, losses and impairments.

Net securities gains (losses)
(in millions)
Realized gross gains
Realized gross losses
Recognized gross impairments

Total net securities gains

2014
114 $
(4)
(19)
91 $

2013
186 $
(10)
(35)
141 $

2012
296
(10)
(124)
162

Temporarily impaired securities

At Dec. 31, 2014, substantially all of the unrealized
losses on the investment securities portfolio were
attributable to credit spreads widening since purchase
or otherwise relate to an increase in interest rates
from date of purchase to the date they were
transferred to held-to-maturity. Specifically, $282
million of the unrealized losses at Dec. 31, 2014 and
$343 million at Dec. 31, 2013 reflected in the
available-for-sale sections of the tables below relate
to certain securities (primarily agency RMBS) that
were transferred in 2013 from available-for-sale to
held-to-maturity. The unrealized losses will be
amortized into net interest revenue over the estimated
lives of the securities. The transfer created a new cost
basis for the securities. As a result, if these securities
have experienced unrealized losses since the date of
transfer, the corresponding fair value and unrealized
losses would be reflected in the held-to-maturity
sections of the following tables. We do not intend to
sell these securities and it is not more likely than not
that we will have to sell these securities.

166 BNY Mellon

Notes to Consolidated Financial Statements (continued)

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, 2014

Less than 12 months

12 months or more

Total

(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
Corporate bonds
Other debt securities
Non-agency RMBS (a)

Total securities available-for-sale (b)

Fair Unrealized
losses

value

Fair Unrealized
losses

value

Fair Unrealized
losses

value

6,049 $
32
410
3,385
143
—
175
719
1,376
1,078
51
2,536
42
15,996 $

15 $
—
18
13
1
—
1
1
7
2
—
2
1
61 $

— $
100
393
5,016
382
449
394
550
—
539
230
—
34
8,087 $

— $

2
6
312
25
25
6
8
—
4
7
—
3
398 $

6,049 $
132
803
8,401
525
449
569
1,269
1,376
1,617
281
2,536
76
24,083 $

15
2
24
325
26
25
7
9
7
6
7
2
4
459

Held-to-maturity:
U.S. Treasury
U.S. Government agencies
State and political subdivisions
Agency RMBS
Non-agency RMBS
Other RMBS

6 $
—
1
3
—
—
10 $
71 $
(a) Previously included in the Grantor Trust. The Grantor Trust was dissolved in 2011.
(b) Includes gross unrealized losses for 12 months or more of $282 million recorded in accumulated other comprehensive income primarily
related to agency RMBS that were transferred from available-for-sale to held-to-maturity in 2013. The unrealized gains and losses will
be amortized into net interest revenue over the estimated lives of the securities.

2,625 $
340
5
4,359
73
219
7,621 $
31,704 $

1,559 $
340
—
3,808
33
219
5,959 $
14,046 $

1,066 $
—
5
551
40
—
1,662 $
17,658 $

Total securities held-to-maturity
Total temporarily impaired securities

3
—
41
2
8
64 $
462 $

16
3
1
44
2
8
74
533

10 $

$
$

BNY Mellon 167

Notes to Consolidated Financial Statements (continued)

Temporarily impaired securities at Dec. 31, 2013

Less than 12 months

12 months or more

Total

(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 (b)

Fair
value

Unrealized
losses

Fair
value

Unrealized
losses

Fair
value

Unrealized
losses

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 $

— $
—
222
83
592
614
174
—
38
—
—
22
1,745 $

— $
—
37
324
43
43
6
—
—
—
—
2
455 $

7,719 $
97
2,596
12,094
694
707
691
1,390
1,567
612
2,976
81
31,224 $

605
5
92
550
50
57
27
34
9
25
18
3
1,475

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.
(b) Includes gross unrealized losses for 12 months or more of $343 million recorded in accumulated other comprehensive income primarily
related to agency RMBS that were transferred from available-for-sale to held-to-maturity in 2013. The unrealized gains and losses will
be amortized into net interest revenue over the estimated lives of the securities.

2,278 $
406
12,639
10
—
641
15,974 $
45,453 $

2,278 $
406
12,639
75
261
641
16,300 $
47,524 $

— $
—
—
65
261
—
326 $
2,071 $

Total securities held-to-maturity
Total temporarily impaired securities

— $
—
—
3
20
—
23 $
478 $

84
13
236
3
20
6
362
1,837

$
$

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, 2014.

Maturity distribution and yield
on investment securities at
Dec. 31, 2014

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

$ 1,002
12,322
2,160
4,513
—
—
—
$ 19,997

150
3,207
1,690
—
—
$ 5,047

0.65% $
0.85
2.54
3.12
—
—
—

1.53% $

160
183
—
—
—
—
—
343

0.28% $ —
233
1.24
111
2.18
—
—
—
—
344

1.53% $

1.85% $
1.84
—
—
—
—
—

372
2,990
1,648
237
—
—
—
1.84% $ 5,247

—% $

1.03
1.61
—
—

1.22% $

1
—
8
15
—
24

1.39% $ 7,041
14,582
2.23
2,473
3.73
10
1.94
—
—
—
—
—
—
2.63% $ 24,106

2.37% $ —
803
228
—
—
4.88% $ 1,031

—
7.04
3.77
—

0.82% $ —
—
1.03
—
2.39
—
2.22
42,409
—
5,370
—
858
—
1.10% $ 48,637

—% $ —
—
—
—
14,487
0.74% $ 14,487

0.58
1.29
—
—

—% $ 8,575
30,077
—
6,281
—
4,760
—
42,409
2.67
5,370
1.05
858
—
2.45% $ 98,330

151
—% $
4,243
—
2,037
—
15
—
14,487
2.69
2.69% $ 20,933

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

Includes money market funds.

168 BNY Mellon

Notes to Consolidated Financial Statements (continued)

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
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,
2014 and Dec. 31, 2013.

Projected weighted-average default rates and loss severities

Dec. 31, 2014

Dec. 31, 2013

Default rate Severity Default rate Severity

Alt-A
Subprime
Prime

38%
55%
23%

58%
74%
42%

40%
58%
22%

57%
71%
42%

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

Net securities gains (losses)

Total net securities gains

2014

2013

25 $
17

13
7
4
3
2
1
1
18
91 $

60 $
(1)

13
—
4
8
2
8
16
31
141 $

2012

83
(68)

—
—
29
7
96
(34)
11
38
162

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

2014
119 $
2
10
38
93 $

2013
288
23
12
204
119

Pledged assets

At Dec. 31, 2014, BNY Mellon had pledged assets of
$99 billion, including $74 billion pledged as
collateral for potential borrowings at the Federal
Reserve Discount Window. The components of the
assets pledged at Dec. 31, 2014 included $90 billion
of securities, $6 billion of loans, $2 billion of trading
assets and $1 billion of interest-bearing deposits with
banks.

If there has been no borrowing at the Federal Reserve
Discount Window, the Federal Reserve generally
allows banks to freely move assets in and out of their
pledged assets account to sell or repledge the assets
for other purposes. BNY Mellon regularly moves

BNY Mellon 169

Notes to Consolidated Financial Statements (continued)

assets in and out of its pledged asset account at the
Federal Reserve.

Note 5 - Loans and asset quality

Loans

At Dec. 31, 2013, BNY Mellon had pledged assets of
$81 billion, including $64 billion pledged as
collateral for potential borrowing at the Federal
Reserve Discount Window. The components of the
assets pledged at Dec. 31, 2013 included $70 billion
of securities, $5 billion of trading assets, $5 billion of
loans and $1 billion of interest-bearing deposits with
banks.

At Dec. 31, 2014 and Dec. 31, 2013, pledged
assets included $9 billion and $5 billion, respectively,
for which the recipients were permitted to sell or
repledge the assets delivered.

We also obtain securities as collateral including
receipts under resale agreements, securities borrowed,
derivative contracts and custody agreements on terms
which permit us to sell or repledge the securities to
others. At Dec. 31, 2014 and Dec. 31, 2013, the
market value of the securities received that can be
sold or repledged was $47 billion and $31 billion,
respectively. We routinely sell or repledge these
securities through delivery to third parties. As of
Dec. 31, 2014 and Dec. 31, 2013, the market value of
securities collateral sold or repledged was $19 billion
and $13 billion, respectively.

170 BNY Mellon

The table below provides the details of our loan
portfolio and industry concentrations of credit risk at
Dec. 31, 2014 and 2013.

Loans
(in millions)
Domestic:

Financial institutions
Commercial
Wealth management loans and
mortgages
Commercial real estate
Lease financings
Other residential mortgages
Overdrafts
Other
Margin loans

Total domestic

Foreign:

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

Dec. 31,

2014

5,603 $
1,390

2013

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

11,095
2,524
1,282
1,222
1,348
1,113
20,034
45,611

7,716
252

89
6
889
4,569
13,521
59,132 $

Total foreign
Total loans (a)

(a) Net of unearned income of $866 million at Dec. 31, 2014

and $1,020 million at Dec. 31, 2013 primarily on domestic
and foreign lease financings.

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,
2014, $3 million at Dec. 31, 2013 and $5 million at
Dec. 31, 2012. These loans are primarily extensions
of credit under revolving lines of credit established
for such entities.

Our loan portfolio consists of three portfolio
segments: commercial, lease financings and
mortgages. We manage our portfolio at the class
level which consists 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

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, 2014

Commercial

Other
residential
Lease
real estate institutions financings mortgages mortgages

Financial

Wealth
management
loans and

Commercial

All
Other

Foreign

Total

83 $
(12)
1
(11)
(12)
60 $

17 $
43

41 $
(2)
—
(2)
11
50 $

32 $
18

49 $
—
1
1
(19)
31 $

17 $
14

37 $
—
—
—
(5)
32 $

32 $
—

24 $
(1)
—
(1)
(1)
22 $

17 $
5

54 $ —
—
(2)
—
2
—
—
(13)
—
41 $ —

41 $ —
—
—

— $
—

8 $
1

— $ —
—
—

56 $
(3)
—
(3)
(9)
44 $

344
(20)
4
(16)

(48)

280

35 $
9

191
89

— $
—

8
1

1,390 $
17

2,503 $
32

5,603 $
17

1,282 $
32

11,087 $
16

1,222 $ 22,495 (a) $ 13,521 $ 59,103
190

—

(a)

Includes $1,348 million of domestic overdrafts, $20,034 million of margin loans and $1,113 million of other loans at Dec. 31, 2014.

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

—

(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) 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

(a)

Includes $1,314 million of domestic overdrafts, $15,652 million of margin loans and $768 million of other loans at Dec. 31, 2013.

BNY Mellon 171

Notes to Consolidated Financial Statements (continued)

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

(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

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

(a)

Includes $2,228 million of domestic overdrafts, $13,397 million of margin loans and $639 million of other loans at Dec. 31, 2012.

2014

2013

2012

1 $
—

2 $
—

5
—

7 $
—

9 $
—

15
—

Nonperforming assets

Lost interest

The table below presents the distribution of our
nonperforming assets.

Lost interest
(in millions)
Amount by which interest income recognized
on nonperforming loans exceeded reversals

Nonperforming assets
(in millions)
Nonperforming loans:
Domestic:

Dec. 31,
2014

Dec. 31,
2013

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

112 $

117

Other residential mortgages
Wealth management loans and
mortgages

Foreign

Total domestic

Other assets owned

Total nonperforming loans

Total nonperforming assets (a)

Commercial real estate
Commercial

12
1
—
125
—
125
3
128 $

11
4
15
147
6
153
3
156
(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 $53 million at Dec. 31, 2014 and
$16 million at Dec. 31, 2013. These loans are recorded at
fair value and therefore do not impact the provision for
credit losses and allowance for loan losses, and accordingly
are excluded from the nonperforming assets table above.

At Dec. 31, 2014, undrawn commitments to
borrowers whose loans were classified as nonaccrual
or reduced rate were not material.

172 BNY Mellon

Notes to Consolidated Financial Statements (continued)

Impaired loans

The tables below provide 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

2014

2013

2012

Average
recorded
investment

Interest
income
recognized

Average
recorded
investment

Interest
income
recognized

Average
recorded
investment

Interest
income
recognized

11 $

2
—
8
3
24

—
1
—
2
3
27 $

— $
—
—
—
—
—

—
—
—
—
—
— $

37 $

1 $

5
1
17
8
68

2
6
1
3
12
80 $

—
—
—
—
1

—
—
—
—
—

1 $

54 $
27
7
28
10
126

—
3
2
4
9
135 $

4
—
—
—
—
4

—
—
—
—
—
4

(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
Wealth management loans and mortgages

Total impaired loans without an

allowance (b)

Total impaired loans (c)

Dec. 31, 2014
Unpaid
principal
balance

Recorded
investment

Related
allowance (a)

Recorded
investment

Dec. 31, 2013
Unpaid
principal
balance

Related
allowance (a)

— $
—
—
6
—
6

1
2

3
9 $

— $
—
—
6
—
6

3
2

5
11 $

— $
—
—
1
—
1

N/A
N/A

N/A

1 $

15 $
2
—
9
6
32

1
3

4
36 $

20 $
4
—
9
17
50

1
3

4
54 $

2
1
—
3
1
7

N/A
N/A

N/A
7

(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 less than $1 million of impaired loans in amounts individually less than $1 million at both Dec. 31, 2014 and
Dec. 31, 2013. The allowance for loan loss associated with these loans totaled less than $1 million at both Dec. 31, 2014 and Dec. 31,
2013.

BNY Mellon 173

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, 2014

Days past due

30-59

60-89

>90

Total
past due

Dec. 31, 2013

Days past due

30-59

60-89

>90

Total
past due

Financial institutions
Other residential mortgages
Commercial real estate
Wealth management loans and mortgages
Total domestic

Foreign

Total past due loans

— $
23
79
45
147
—
147 $

— $
3
—
—
3
—
3 $

— $
5
—
1
6
—
6 $

— $
31
79
46
156
—
156 $

37 $
32
22
45
136
—
136 $

— $
6
2
3
11
—
11 $

— $
6
—
1
7
—
7 $

37
44
24
49
154
—
154

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 2014 and 2013.

TDRs

(dollars in millions)

Other residential mortgages
Wealth management loans and mortgages
Foreign

Total TDRs

2014

Outstanding
recorded investment

2013

Outstanding
recorded investment

Number of
contracts
108
1
1
110

Pre

modification
17
$
—
5
22

Post-
modification
20
$
—
4
24

Number of
contracts
123
—
—
123

Pre

modification
24
$
—
—
24

Post-
modification
30
$
—
—
30

Other residential mortgages

The modifications of the other residential mortgage
loans in 2014 and 2013 consisted of reducing the
stated interest rates and in certain cases, a forbearance
of default and extending the maturity dates. The
modified loans are primarily collateral dependent for
which the value is based on the fair value of the
collateral.

TDRs that subsequently defaulted

There were 24 residential mortgage loans that had
been restructured in a TDR during the previous 12
months and have subsequently defaulted in 2014.

The total recorded investment of these loans was $5
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,
if possible, based upon a number of dimensions
which are continually evaluated and may change over
time.

174 BNY Mellon

Notes to Consolidated Financial Statements (continued)

The following tables set forth information about credit quality indicators.

Commercial loan portfolio

Commercial loan portfolio – Credit risk profile by creditworthiness category

(in millions)
Investment grade
Non-investment grade

Total

Commercial

Commercial real estate

Dec. 31,
2014
1,381
261
1,642

Dec. 31,
2013
1,323
324
1,647

Dec. 31,
2014
1,641
889
2,530

Dec. 31,
2013
1,444
566
2,010

Financial institutions
Dec. 31,
2014
11,576
1,743
13,319

Dec. 31,
2013
12,598
1,761
14,359

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.

Wealth management loans and mortgages

Wealth management loans and mortgages – Credit risk
profile by internally assigned grade

(in millions)
Wealth management loans:

Investment grade
Non-investment grade

Wealth management mortgages

Total

Dec. 31,
2014

Dec. 31,
2013

5,621 $
29
5,534
11,184 $

4,920
64
4,834
9,818

Wealth management non-mortgage loans are not
typically rated by external rating agencies. A
majority of the wealth management loans are secured
by the customers’ investment management accounts
or custody accounts. Eligible assets pledged for these
loans are typically investment grade, fixed-income
securities, equities and/or mutual funds. Internal
ratings for this portion of the wealth management
portfolio, therefore, would equate to investment grade
external ratings. Wealth management loans are
provided to select customers based on the pledge of
other types of assets, including business assets, fixed
assets or a modest amount of commercial real estate.
For the loans collateralized by other assets, the credit
quality of the obligor is carefully analyzed, but we do

not consider this portfolio of loans to be investment
grade.

Credit quality indicators for wealth management
mortgages are not correlated to external ratings.
Wealth management mortgages are typically loans to
high-net-worth individuals, which are secured
primarily by residential property. These loans are
primarily interest-only adjustable rate mortgages with
a weighted-average loan-to-value ratio of 60% at
origination. In the wealth management portfolio, less
than 1% of the mortgages were past due at Dec. 31,
2014.

At Dec. 31, 2014, the wealth management mortgage
portfolio consisted of the following geographic
concentrations: California - 22%; New York - 20%;
Massachusetts - 15%; Florida - 8%; and other - 35%.

Other residential mortgages

The other residential mortgage portfolio primarily
consists of 1-4 family residential mortgage loans and
totaled $1,222 million at Dec. 31, 2014 and $1,385
million at Dec. 31, 2013. These loans are not
typically correlated to external ratings. Included in
this portfolio at Dec. 31, 2014 are $350 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, 2014, the purchased loans in this
portfolio had a weighted-average loan-to-value ratio
of 76% at origination and 18% 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.

BNY Mellon 175

Notes to Consolidated Financial Statements (continued)

Overdrafts

Note 6 - Goodwill and intangible assets

Overdrafts primarily relate to custody and securities
clearance clients and totaled $5,882 million at Dec.
31, 2014 and $3,715 million at Dec. 31, 2013.
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.

Margin loans

We had $20,034 million of secured margin loans on
our balance sheet at Dec. 31, 2014 compared with
$15,652 million at Dec. 31, 2013. 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.

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.

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 consists of two reporting units.
The investment Services segment is comprised of
four reporting units. One reporting unit is included in
the Other segment.

BNY Mellon conducted an annual goodwill
impairment test on a quantitative basis on all seven
reporting units in the second quarter of 2014. 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.

176 BNY Mellon

Notes to Consolidated Financial Statements (continued)

Goodwill

Total goodwill decreased in 2014 compared with
2013 primarily resulting from the impact of foreign

exchange translation on non-U.S. dollar denominated
goodwill. The tables below provide a breakdown of
goodwill by business.

Goodwill by business
(in millions)
Balance at Dec. 31, 2012 (a)
Dispositions (a)
Foreign currency translation (a)
Other (b)

Consolidated
18,075
(69)
50
17
18,073
39
(245)
2
17,869
(a) Includes the reclassification of goodwill associated with the Newton Private Clients business from Investment Management to the Other

Investment
Management
9,440
—
16
17
9,473
—
(121)
—
9,352

Investment
Services
8,517
—
33
—
8,550
39
(124)
2
8,467

Acquisitions/dispositions
Foreign currency translation
Other (b)

Other
118
(69)
1
—
50
—
—
—
50

Balance at Dec. 31, 2014

Balance at Dec. 31, 2013

segment.

(b) Other changes in goodwill include purchase price adjustments and certain other reclassifications.

Intangible assets

The decrease in intangible assets in 2014 compared
with 2013 primarily resulted from amortization.
Amortization of intangible assets was $298 million in
2014, $342 million in 2013 and $384 million in 2012.
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 tables below
provide a breakdown of intangible assets by business.

Intangible assets – net carrying amount by business
(in millions)
Balance at Dec. 31, 2012 (a)
Disposition (a)
Amortization (a)
Foreign currency translation (a)
Other (c)

Balance at Dec. 31, 2013

Amortization
Foreign currency translation
Balance at Dec. 31, 2014

Investment
Management
2,220
—
(148)
7
(14)
2,065
(123)
(19)
1,923

Investment
Services
1,732
(1)
(194) (b)
2
(1)
1,538
(175)
(8)
1,355

Other
857
(7)
—
(1)
—
849
—
—
849

Consolidated
4,809
(8)
(342)
8
(15)
4,452
(298)

(27)

4,127

(a) Includes the reclassification of intangible assets associated with the Newton Private Clients business from Investment Management to

the Other segment.

(b) Includes an $8 million intangible asset impairment recorded in 2013.
(c) Other changes in intangible assets include purchase price adjustments and certain other reclassifications.

BNY Mellon 177

Notes to Consolidated Financial Statements (continued)

The table below provides a breakdown of intangible assets by type.

Intangible assets

Dec. 31, 2014

Dec. 31, 2013

(in millions)
Subject to amortization:

Gross
carrying
amount

Accumulated
amortization

Net
carrying
amount

Remaining
weighted-
average
amortization
period

Gross
carrying
amount

Accumulated
amortization

Net
carrying
amount

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

1,945 $
2,328
81
4,354

1,360
1,315
2,675
7,029 $

(1,481) $
(1,354)
(67)
(2,902)

N/A
N/A
N/A
(2,902) $

464
974
14
1,452

1,360
1,315
2,675
4,127

11 years $ 2,043 $
11 years
4 years
11 years

2,352
76
4,471

N/A
N/A
N/A
N/A $ 7,163 $

1,369
1,323
2,692

(1,449) $
(1,202)
(60)
(2,711)

594
1,150
16
1,760

N/A
N/A
N/A

1,369
1,323
2,692
(2,711) $ 4,452

(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:

Certain seed capital and private equity investments
valued using net asset value per share

The fair value of certain of these investments has
been estimated using the 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 that have been valued using NAV.

For the year ended
Dec. 31,
2015
2016
2017
2018
2019

Estimated amortization expense
(in millions)
268
240
216
181
107

Note 7 - Other assets

Other assets
(in millions)
Corporate/bank owned life insurance
Accounts receivable
Equity in joint venture and other
investments (a)(b)
Income taxes receivable (b)
Fails to deliver
Software
Fair value of hedging derivatives
Prepaid pension assets
Prepaid expenses
Due from customers on acceptances
Other

Total other assets (b)

Dec. 31,

2014
4,598 $
4,166

2013
4,482
3,479

3,287
2,142
1,351
1,332
851
708
451
247
1,357

3,357
2,499
864
1,251
1,282
1,209
451
379
1,313
$ 20,490 $ 20,566

(a) Includes Federal Reserve Bank stock of $447 million and

$441 million, respectively, at cost.

(b) Prior year balances were restated to reflect the retrospective
application of adopting new accounting guidance in 2014
related to our investments in qualified affordable housing
projects (ASU 2014-01). See Note 2 of the Notes to
Consolidated Financial Statements for additional
information.

178 BNY Mellon

Notes to Consolidated Financial Statements (continued)

Seed capital and private equity investments valued using NAV
Dec. 31, 2014

Dec. 31, 2013

(dollar amounts in millions)

Fair
value

Unfunded
commitments

Seed capital and other funds (a) $ 307
Private equity investments (b)(c)
35
$ 342

Total

$ —
45
$ 45

Redemption
frequency
Daily-
quarterly
N/A

Redemption
notice period

Fair
value

Unfunded
commitments

0-180 days
N/A

$ 275
86
$ 361

23
31
54

Redemption
frequency
Monthly-
yearly
N/A

Redemption
notice period

3-45 days
N/A

(a) Other funds include various hedge funds, leveraged loans 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.

(c) Includes investments and unfunded commitments related to SBICs, which are compliant with the Volcker Rule, of $18 million and $45

million, respectively, at Dec. 31, 2014 and $7 million and $20 million, respectively, at Dec. 31, 2013.

We invest in affordable housing projects primarily to
satisfy the company’s CRA requirements. Our total
investment in qualified affordable housing projects
totaled $853 million at Dec. 31, 2014 and $754
million at Dec. 31, 2013. Commitments to fund
future investments in qualified affordable housing
projects totaled $358 million at Dec. 31, 2014 and
$220 million at Dec. 31, 2013. A summary of the
commitments to fund future investments is as
follows: 2015—$154 million; 2016—$110 million;
2017—$82 million; 2018—$2 million; 2019—$1
million and 2020 and thereafter—$9 million.

Tax credits and other tax benefits recognized were
$128 million in 2014, $118 million in 2013 and $108
million in 2012. Amortization expense included in
the provision for income taxes was $96 million in
2014, $88 million in 2013 and $79 million in 2012.

Qualified affordable housing project investments

In 2014, BNY Mellon adopted 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 make an
accounting policy election to account for investments
using the proportional amortization method if certain
conditions are met. Under the proportional
amortization method, the initial cost of the investment
is amortized in proportion to the tax credits and other
tax benefits received and the net investment
performance is recognized in the income statement as
a component of income tax expense. In addition,
under the new proportional amortization method, the
value of the commitments to fund qualified affordable
housing projects is included in other assets on the
balance sheet and a liability is recorded for the
unfunded portion. See Note 2 for the impact of the
retrospective application of this new accounting
guidance.

Note 8 - Deposits

Total time deposits in denominations of $100,000 or
greater was $46.5 billion at Dec. 31, 2014, and $51.8
billion at Dec. 31, 2013. At Dec. 31, 2014, the
scheduled maturities of all time deposits are as
follows: 2015 – $47.4 billion; 2016 – $2 million;
2017 – $28 million; 2018 – $2 million; 2019 – $-
million; and 2020 and thereafter – $70 million.

BNY Mellon 179

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.

2014

2013

2012

697 $
182

674 $
160

671

168

1,603

1,782

1,913

100
1,703
238

103
1,885
279

1,997

388

207

150

152

86
121
3,234

47
157
3,352

3,507

29
54

35
70

108

(13)
25
6
2
9
242
354

—

330

534

$ 2,880 $ 3,009 $ 2,973

(16)
38
7
—
8
201
343

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

180 BNY Mellon

Noninterest expense

(in millions)
Staff:

Compensation
Incentives
Employee benefits
Total staff

Professional, legal and other

purchased services

Software
Net occupancy
Distribution and servicing
Furniture and equipment
Sub-custodian
Business development
Clearing
Communications
Other
Amortization of intangible assets
Litigation
Merger and integration and

restructuring charges
Total noninterest expense

2014

2013

2012

$ 3,630 $ 3,620 $ 3,531

1,280

950

5,761

1,331
884
5,845

1,384
1,015
6,019

1,339
620
610
428
322
286
268
129
119
783
298
953

1,252
596
629
435
337
280
317
130
131
768
342
24

1,222

524

593

421

331

269

275

127

141

726

384

488

177

$ 12,177 $ 11,306 $ 11,333

Note 11 - Restructuring charges

Aggregate restructuring charges are included in M&I,

litigation and restructuring charges on the income

statement. Restructuring charges recorded in 2014

relate to corporate-level initiatives and were therefore

recorded in the Other segment. 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. Severance payments are primarily paid

over the salary continuance period in accordance with

the separation plan.

Streamlining actions

In 2014, we disclosed streamlining actions which
included rationalizing our staff and simplifying and
automating global processes primarily related to
actions taken across investment services, technology,
and operations. The initial restructuring charge
consisted of $125 million of severance costs. We
recorded total restructuring charges of $184 million in
2014 primarily related to severance. The following

Notes to Consolidated Financial Statements (continued)

table presents the activity in the reserve through Dec.
31, 2014.

The table below presents the restructuring charge if it
had been allocated by business.

Streamlining actions 2014 – restructuring reserve activity
(in millions)
Original restructuring charge
Net additional charges
Utilization

Balance at Dec. 31, 2014

Total
125
59
(92)
92

The table below presents the restructuring charge if it
had been allocated by business.

Streamlining actions 2014 – restructuring charge
by business

(in millions)
Investment Management
Investment Services
Other segment (including Business Partners)

Total restructuring charge (recovery)

2014
23
83
78
184

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 consisted of $78
million of severance costs and $29 million primarily
for operating lease-related items and consulting costs.
In 2014, we recorded a recovery of $7 million. The
following table presents the activity in the
restructuring reserve related to the Operational
Excellence Initiatives through Dec. 31, 2014.

Operational Excellence Initiatives 2011 – restructuring
reserve activity
(in millions)
Original restructuring charge
Net additional charges (net
recovery/gain)
Utilization

Severance Other
78 $
$

Total
29 $ 107

Balance at Dec. 31, 2012

Net additional charge
Utilization

Balance at Dec. 31, 2013

Net additional charge (recovery)
Utilization

Balance at Dec. 31, 2014

55
(41)
92
45
(57)
80
(7)
(45)
28 $ — $

(57)
28
—
—
—
—
—
—

(2)
(13)
92
45
(57)
80
(7)

(45)

Operational Excellence Initiatives 2011 –
restructuring charge (recovery) by business

(in millions)
Investment Management
Investment Services
Other segment (including
Business Partners)
Total restructuring charge
(recovery)

Total
charges
since
2014 2013 2012 inception
$
51
84

4 $ 31 $
25

(1) $
(1)

(5)

(52)

(7) $ 45 $

(2) $

143

Note 12 - Income taxes

The components of the income tax provision are as
follows:

Provision (benefit) for
income taxes
(in millions)
Current taxes:

Federal
Foreign
State and local

Total current tax expense
Deferred tax expense (benefit):

Year ended Dec. 31,
2014 2013 (a) 2012 (a)

1,273 $
337
155
1,765

714 $
286
66
1,066

348
236
14
598

536
(30)
20
526

Federal
Foreign
State and local

Total deferred tax expense
Provision for income taxes

(672)
(98)
(83)
(853)
912 $ 1,592 $
(a) Results for 2013 and 2012 were restated to reflect the
retrospective application of adopting new accounting
guidance in 2014 related to our investments in qualified
affordable housing projects (ASU 2014-01). See Note 2 of
the Notes to Consolidated Financial Statements for
additional information.

123
39
82
244
842

The components of income before taxes are as
follows:

Components of income before
taxes
(in millions)
Domestic
Foreign

Income before taxes

Year ended Dec. 31,
2014 2013 (a) 2012 (a)
$ 2,456 $ 2,428 $ 2,017
1,340
$ 3,563 $ 3,777 $ 3,357

1,349

1,107

(a) Results for 2013 and 2012 were restated to reflect the
retrospective application of adopting new accounting
guidance in 2014 related to our investments in qualified
affordable housing projects (ASU 2014-01). See Note 2 of
the Notes to Consolidated Financial Statements for
additional information.

BNY Mellon 181

Notes to Consolidated Financial Statements (continued)

The components of our net deferred tax liability are
as follows:

The statutory federal income tax rate is reconciled to
our effective income tax rate below:

Net deferred tax liability
(in millions)
Depreciation and amortization
Lease financings
Securities valuation
Pension obligation
Equity investments
Net operating loss carryover
Credit losses on loans
Reserves not deducted for tax
Employee benefits
Other assets
Other liabilities
Valuation allowance

Net deferred tax liability

Dec. 31,

2014 2013 (a)
$ 2,646 $ 2,680
859
493
362
266
(166)
(163)
(295)
(632)
(141)
361
—
$ 2,782 $ 3,624

761
230
117
115
(12)
(113)
(536)
(616)
(99)
277
12

(a) Results for 2013 were restated to reflect the retrospective
application of adopting new accounting guidance in 2014
related to our investments in qualified affordable housing
projects (ASU 2014-01). See Note 2 of the Notes to
Consolidated Financial Statements for additional
information.

As of Dec. 31, 2014, we have an available German
net operating loss carryforward of $39 million with
an indefinite life for which we have recorded a full
valuation allowance.

As of Dec. 31, 2014, we had approximately $6 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, 2014 would be up to $1.2 billion. Management
has no intention of repatriating these earnings to the
U.S. in the foreseeable future.

182 BNY Mellon

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
Carryback claim
Leverage lease adjustment
Nondeductible litigation
expense
Other – net

Effective tax rate

Year ended Dec. 31,
2013 (a)
35.0%

2014
35.0%

2012 (a)
35.0%

1.3
(3.3)
(3.0)
(0.8)
—
(4.7)
(1.1)

2.1

1.6
(3.1)
(4.4)
(2.0)
16.5
—
(2.1)

—

2.0
(3.1)
(5.3)
(3.4)
—
—
(0.2)

—

0.1
25.6%

0.6
42.1%

0.1
25.1%

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

2014 2013 (a) 2012 (a)

866 $

340 $

250

58
(257)
19
(17)
—

570
(19)
21
(46)
—

163
(66)
21
(28)
—

669 $

866 $

340

Our total tax reserves as of Dec. 31, 2014 were $669
million compared with $866 million at Dec. 31, 2013.
If these tax reserves were unnecessary, $669 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,
2014 is accrued interest, where applicable, of $199
million. The additional tax expense related to interest
for the year ended Dec. 31, 2014 was $1 million
compared with $192 million for the year ended Dec.
31, 2013.

Notes to Consolidated Financial Statements (continued)

It is reasonably possible the total reserve for uncertain
tax positions could decrease within the next 12
months by an amount up to $38 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 IRS’s 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. On March 5, 2014, BNY Mellon appealed the
decision to the Second Circuit Court of Appeals. On
Sept. 25, 2014, the government filed its response to
our appeal. In addition to requesting that the denial
of foreign tax credits be upheld, the government also
requested a reversal of the interest deduction allowed
by the Tax Court in the amended decision. If the
interest deduction is ultimately disallowed, further
income tax expense of approximately $100 million
may be required. See Note 22 of the Notes to
Consolidated Financial Statements for additional
information.

Our federal income tax returns are closed to
examination through 2010. 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 2012.

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, 2014

Rate

Maturity Amount

Dec. 31, 2013
Rate

Amount

0.70 - 6.92%
0.06 - 0.82%
4.95 - 7.50%
6.37%

2015 - 2025 $ 16,122
2,178
2015 - 2038
1,655
2016 - 2033
309
2036
$ 20,264

0.70 - 6.92% $ 13,946
3,079
0.05 - 1.10%
2,514
4.75 - 7.50%
325
6.37%
$ 19,864

Total long-term debt that matures during the next five
years for BNY Mellon is as follows: 2015 – $3.65
billion, 2016 – $2.45 billion, 2017 – $1.25 billion,
2018 – $2.85 billion and 2019 – $4.25 billion.

Trust-preferred securities

Mellon Capital III, a Delaware statutory trust owned
by BNY Mellon, issued trust preferred securities in
2006. At Dec. 31, 2014, the sole assets of Mellon
Capital III are junior subordinated debentures of BNY
Mellon with maturities and interest rates that match
the trust preferred securities. BNY Mellon's
obligations provide a full and unconditional guarantee
of payment of distributions and other amounts due on
the trust preferred securities. The guarantee does not
guarantee payment of distributions or other amounts
due when Mellon Capital III does not have funds
available to make such payments.

Mellon Capital IV, a Delaware statutory trust owned
by BNY Mellon, issued trust preferred securities in
June 2007. The sole assets of Mellon Cap IV
originally were 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, 2014, 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.

BNY Mellon 183

Notes to Consolidated Financial Statements (continued)

The following tables set forth a summary of the trust
preferred securities issued by the Trusts as of Dec. 31,
2014 and Dec. 31, 2013:

Trust-preferred
securities issued
by the trust
312
$
—
312

Trust-preferred
securities issued
by the trust
330
$
—
330

309
500
809

325
500
825

Trust preferred securities at Dec. 31, 2014
(dollar amounts in millions)
MEL Capital III (b)
MEL Capital IV
Total

Interest
rate
6.37% $
—%

Assets of
the trust (a) Due date Call date
2016
—

2036
—

Call
price
Par
—

$
(a) Represents junior subordinated deferrable interest debentures of BNY Mellon in the case of MEL Capital III and BNY Mellon’s Series A

preferred stock in the case of MEL Capital IV.

(b) Amount was translated from Sterling into U.S. dollars on a basis of U.S. $1.56 to £1, the rate of exchange on Dec. 31, 2014.

Trust preferred securities at Dec. 31, 2013
(dollar amounts in millions)
MEL Capital III (b)
MEL Capital IV
Total

Interest
rate
6.37% $
—%

Assets of
the trust (a) Due date Call date
2016
—

2036
—

Call
price
Par
—

$
(a) Represents junior subordinated deferrable interest debentures of BNY Mellon in the case of MEL Capital III and BNY Mellon’s Series A

preferred stock in the case of MEL Capital IV.

(b) 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.

Note 14 - Securitizations and variable interest
entities

BNY Mellon’s VIEs generally include certain 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, which
defers the application of ASU 2009-17 for certain
investment funds, and are reviewed for consolidation
based on the guidance in ASC 810, Consolidation.

BNY Mellon has other VIEs, including securitization
trusts and CLOs, in which BNY Mellon serves as the
investment manager. In addition, we provide trust
and custody services for a fee to entities sponsored by
other corporations in which we have no other interest.
These VIEs are evaluated under the guidance
included in ASU 2009-17. BNY Mellon has two
securitizations and several CLOs, which were
assessed and consolidated in accordance with ASU
2009-17.

184 BNY Mellon

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, 2014 and Dec. 31, 2013,
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, 2014

(in millions)

Available-for-sale

securities
Trading assets
Other assets

Total assets

Trading liabilities
Other liabilities

Total liabilities
Nonredeemable
noncontrolling
interests

Investment
Management

funds Securitizations

Total
consolidated
investments

—
8,678
604
$ 9,282 (a) $
$
$ 7,660
9
$ 7,669 (a) $

414 $
—
—
414 $
— $

363
363 $

414
8,678
604
9,696
7,660

372

8,032

$ 1,033 (a) $

— $

1,033

(a)

Includes voting interest entities with assets of $855 million,
liabilities of $148 million and nonredeemable noncontrolling
interests of $544 million.

Notes to Consolidated Financial Statements (continued)

Investments consolidated under ASC 810 and ASU 2009-17

Note 15 - Shareholders’ equity

Investment
Management

funds Securitizations

Total
consolidated
investments

Common stock

at Dec. 31, 2013

(in millions)

Available-for-sale

securities
Trading assets
Other assets

Total assets

Trading liabilities
Other liabilities

Total liabilities
Nonredeemable
noncontrolling
interests

—

10,397
875
$ 11,272 (a) $
$ 10,085
$
46
$ 10,131 (a) $

487 $

—
—
487 $
— $
438
438 $

487

10,397
875
11,759
10,085
484
10,569

783 (a) $

— $

783

(a)

Includes voting interest entities with assets of $920 million,
liabilities of $208 million and nonredeemable noncontrolling
interests of $576 million.

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, 2014 and Dec. 31, 2013, 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, 2014

(in millions)
Other

Assets

Liabilities

148 $

— $

Maximum
loss exposure
148

Non-consolidated VIEs at Dec. 31, 2013

(in millions)
Other

Assets

Liabilities

134 $

— $

Maximum
loss exposure
134

The maximum loss exposure indicated in the above
tables relates solely to BNY Mellon’s seed capital or
residual interests invested in the VIEs.

BNY Mellon has 3.5 billion authorized shares of
common stock with a par value of $0.01 per share.
At Dec. 31, 2014, 1,118,227,559 shares of common
stock were outstanding.

Common stock repurchase program

On March 14, 2013, in connection with the Federal
Reserve’s non-objection to our 2013 capital plan, the
Board of Directors authorized a stock purchase
program providing for the repurchase of an aggregate
of $1.35 billion of common stock. On March 26,
2014, in connection with the Federal Reserve’s non-
objection to our 2014 capital plan, the Board of
Directors authorized a new stock purchase program
providing for the repurchase of an aggregate of $1.74
billion of common stock beginning in the second
quarter of 2014 and continuing through the first
quarter of 2015. Share repurchases may be executed
through repurchase plans designed to comply with
Rule 10b5-1 and through derivative, accelerated share
repurchase and other structured transactions. In
2014, we repurchased 46.2 million common shares at
an average price of $36.13 per common share for a
total of $1.67 billion. At Dec. 31, 2014, the
maximum dollar value of shares that may yet be
purchased under the March 26, 2014 program,
including employee benefit plan repurchases, totaled
$425 million.

BNY Mellon 185

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, 2014 and Dec. 31, 2013.

Preferred stock summary

(dollars in millions, unless
otherwise noted)
Series A

Noncumulative
Perpetual Preferred
Stock
Noncumulative
Perpetual Preferred
Stock
Noncumulative
Perpetual Preferred
Stock

Series C

Series D

Total

Liquidation
preference
per share
(in dollars)

100,000

Total shares issued
and outstanding
Dec. 31,
2014
5,001

Dec. 31,
2013
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,
2014
500 $

Dec. 31,
2013
500

5.2% $

100,000

5,825

568

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%

100,000

5,000

494

15,826

1,562 $

1,562

(a) The carrying value of the Series C and Series D preferred stock is recorded net of issuance costs.

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.
Holders of the Series D preferred stock are entitled to
receive dividends, if declared by our board of
directors, on each June 20 and December 20, to but
excluding June 20, 2023; and on each March 20, June
20, September 20 and December 20, from and
including June 20, 2023. 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.

186 BNY Mellon

On Dec. 22, 2014, The Bank of New York Mellon
Corporation paid the following dividends for the
noncumulative perpetual preferred stock for the
dividend period ending in December 2014 to holders
of record as of the close of business on Dec. 5, 2014:

•

$1,011.11 per share on the Series A Preferred
Stock (equivalent to $10.1111 per Normal
Preferred Capital Security of Mellon Capital IV,
each representing 1/100th interest in a share of
Series A Preferred Stock);
$1,300.00 per share on the Series C Preferred
Stock (equivalent to $0.3250 per depositary
share, each representing a 1/4,000th interest in a
share of the Series C Preferred Stock); and
$2,250.00 per share on the Series D Preferred
Stock (equivalent to $22.50 per depositary share,
each representing a 1/100th interest in a share of
the 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.

Notes to Consolidated Financial Statements (continued)

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, 2014.

Temporary equity

Temporary equity was $229 million at Dec. 31, 2014
and $230 million at Dec. 31, 2013. 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

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

Consolidated and largest bank
subsidiary regulatory capital ratios (a)
Consolidated regulatory capital

ratios: (b)
CET1
Tier 1 capital ratio
Total (Tier 1 plus Tier 2) capital ratio
Leverage capital ratio

Dec. 31,

2014

2013

11.2%
12.2
12.5
5.6

N/A
16.2%
17.0
5.4

The Bank of New York Mellon
regulatory capital ratios:
Tier 1 capital ratio
Total (Tier 1 plus Tier 2) capital ratio
Leverage capital ratio

13.0%
13.2
5.2

14.6%
15.1
5.3

(a) At Dec. 31, 2014, the CET1, Tier 1 and Total risk-based

regulatory capital ratios are based on Basel III components
of capital, as phased-in, and asset risk-weightings using the
Advanced Approach framework. At Dec. 31, 2014, the
leverage capital ratio is based on Basel III components of
capital and quarterly average total assets, as phased-in. At
Dec. 31, 2013, the regulatory capital ratios are 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 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 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,” its Tier 1, Total and leverage capital ratios
must be at least 4%, 8% and 3%, respectively.

(b) Risk-based capital ratios at Dec. 31, 2014 include the net

impact of the total consolidated assets of certain
consolidated investment management funds in risk-weighted
assets. These assets were not included in Dec. 31, 2013 risk-
based ratios. The leverage capital ratio was not impacted.

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.

BNY Mellon 187

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 intangible assets (b)
Pensions/cash flow hedges
Securities valuation allowance
Merchant banking investments

Total Tier 1 capital

Tier 2 capital:

Dec. 31,
2013

$ 35,959
1,562
330

(20,001)

891

(387)

(19)

18,335

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

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

Capital above thresholds at Dec. 31, 2014

Consolidated
$

(in millions)
CET1
Tier 1 capital (b)
Total capital (b)
Leverage capital
(a) Based on 4.0% respective minimum required ratios under

12,153 (a)
10,405
4,130
5,776 (a)

551 (b)

The Bank of
New York
Mellon
N/A
8,305
3,834

the Final Capital Rules.

(b) Based on well capitalized standards.

Notes to Consolidated Financial Statements (continued)

The following table presents the components of our
transitional Basel III CET1, Tier 1 and Tier 2 capital,
the Basel III risk-weighted assets determined under
the Standardized and Advanced Approaches and the
average assets used for leverage capital purposes at
Dec. 31, 2014.

Components of transitional Basel III capital (a)
(in millions)
CET1:

Common shareholders’ equity
Goodwill and intangible assets
Net pension fund assets
Equity method investments
Deferred tax assets
Other

Total CET1

Other Tier 1 capital:

Preferred stock
Trust preferred securities
Disallowed deferred tax assets
Net pension fund assets
Other

Total Tier 1 capital

Tier 2 capital:

Trust preferred securities
Subordinated debt
Allowance for credit losses
Other

Dec. 31,
2014

$ 36,326
(17,111)
(17)
(314)
(4)
4
18,884

1,562
156
(14)
(69)
(17)
20,502

156
298
280
(11)
723
13
280
456

Total Tier 2 capital - Standardized Approach

Excess of expected credit losses
Less: Allowance for credit losses

Total Tier 2 capital - Advanced Approach

Total capital:

Standardized Approach
Advanced Approach

Risk-weighted assets:

Standardized Approach
Advanced Approach:

Credit Risk
Market Risk
Operational Risk

Total Advanced Approach

$ 21,225
$ 20,958

$ 125,562

$ 120,122

3,046

45,112

$ 168,280

$ 368,140
Average assets for leverage capital purposes
(a) On a regulatory basis as determined under the Final Capital

Rules.

188 BNY Mellon

Notes to Consolidated Financial Statements (continued)

Note 16 - Other comprehensive income (loss)

Components of other comprehensive income (loss)

(in millions)

Foreign currency translation:

Foreign currency translation adjustments arising

during the period (a)
Total foreign currency translation

Unrealized gain (loss) on assets available-for-sale:

Unrealized gain (loss) arising during period
Reclassification adjustment (b)

Net 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 (b)
Total defined benefit plans

Unrealized gain (loss) on cash flow hedges:
Unrealized hedge gain (loss) arising during

period

Reclassification adjustment (b)

Net unrealized gain (loss) on cash flow hedges
Total other comprehensive income (loss)

Dec. 31, 2014

Year ended
Dec. 31, 2013

Dec. 31, 2012

Pre-tax
amount

Tax
(expense)
benefit

After-tax
amount

Pre-tax
amount

Tax
(expense)
benefit

After-tax
amount

Pre-tax
amount

Tax
(expense)
benefit

After-tax
amount

(715) $

(91) $

(806) $

130 $

62 $

192 $

80 $

50 $

(715)

(91)

(806)

130

192

130

582
(91)

(169)
33

413
(58)

(1,466)
(129)

491

(136)

355

(1,595)

3
(766)
(2)

127

(638)

(1)
287
1

(50)

237

2
(479)
(1)

(401)

(2)
732
—

209

939

577
55

632

1
(303)
—

(83)

(385)

(13)

136

(41)
(18)
(880) $

16
3
13 $

(25)
(15)
(867) $

(124)
12
(514) $

(54)

51
(3)
306 $

(889)
(74)

1,611
(162)

(604)
56

1,007
(106)

(963)

1,449

(548)

901

(1)
429
—

126

554

(73)
9

98
(298)
—

173

(27)

242

(239)
3

(208) $ 1,505 $

(41)
108
—

(69)

(2)

57
(190)
—

104

(29)

(99)

143

97
(2)

(142)
1
(502) $ 1,003

Includes the impact of hedges of net investments in foreign subsidiaries. See Note 23 for additional information.

(a)
(b) 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)

2011 ending balance
Change in 2012

2012 ending balance

Change in 2013

2013 ending balance

Change in 2014

2014 ending balance

Foreign
currency
translation

(651) $
112
(539) $
151
(388) $
(681)
(1,069) $

Pensions

(1,329) $
(65)
(1,394) $
554
(840) $
(396)
(1,236) $

(96) $
36
(60) $
—
(60) $
(5)
(65) $

450 $
900
1,350 $
(963)
387 $
355
742 $

Total
accumulated
other
comprehensive
income (loss), net
of tax
(1,627)
984
(643)
(249)
(892)
(742)
(1,634)

(1) $
1
— $
9
9 $

(15)
(6) $

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,
2014, under the Long-Term Incentive Plan approved
in April 2014, we may issue 48,342,374 new stock-

based awards. Of this amount, 33,967,536 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 $88
million in 2014, $65 million in 2013 and $64 million
in 2012.

BNY Mellon 189

Notes to Consolidated Financial Statements (continued)

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 2014 and 2013.

The compensation cost that has been charged against
income was $28 million for 2014 (including $1
million recorded in restructuring expense), $49
million for 2013 and $70 million for 2012. The total
income tax benefit recognized in the income
statement was $11 million for 2014, $20 million for
2013 and $29 million for 2012.

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)

2014
N/A
N/A
N/A
N/A

2013
N/A
N/A
N/A
N/A

2012
3.0%
34
1.38
6.9

For 2012, 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, 2014, and changes during the year, is presented below:

Stock option activity

Balance at Dec. 31, 2013
Granted
Exercised
Canceled/Expired
Balance at Dec. 31, 2014
Vested and expected to vest at Dec. 31, 2014
Exercisable at Dec. 31, 2014

Stock options outstanding at Dec. 31, 2014

Shares subject
to option
65,796,322 $

—
(12,990,193)
(4,385,874)
48,420,255 $
48,384,788
42,137,574

Weighted-average
exercise price
32.30
—
28.46
35.27
33.06
33.07
34.38

Weighted-
average remaining

contractual term
(in years)
4.9

4.2
4.2
3.9

Options outstanding
Weighted-average
remaining
contractual life
(in years)
5.8
1.8
3.0
4.2
(a) At Dec. 31, 2013 and 2012, 52,130,525 and 57,710,802 options were exercisable at an average price per common share of $34.00 and

Range of exercise prices
$ 18 to 31
$ 31 to 41
$ 41 to 51
$ 18 to 51

Weighted-average
exercise price
25.73
38.47
44.44
33.06

Weighted-average
exercise price
26.21
38.47
44.44
34.38

Outstanding at
Dec. 31, 2014
26,058,747
10,629,833
11,731,675
48,420,255

Exercisable at
Dec. 31, 2014
19,776,342
10,629,557
11,731,675
42,137,574

Options exercisable (a)

$33.95, respectively.

190 BNY Mellon

Notes to Consolidated Financial Statements (continued)

Aggregate intrinsic value of
options
(in millions)
Outstanding at Dec. 31,
Exercisable at Dec. 31,

2014
409 $
307 $

$
$

2013

336 $
212 $

2012
123
64

The weighted-average fair value of options at grant
date was $5.50 in 2012.

The total intrinsic value of options exercised was
$118 million in 2014, $67 million in 2013 and $8
million in 2012.

As of Dec. 31, 2014, $14 million of total
unrecognized compensation cost related to nonvested
options is expected to be recognized over a weighted-
average period of less than one year.

Cash received from option exercises totaled $370
million in 2014, $263 million in 2013 and $40 million
in 2012. The actual tax benefit realized for the tax
deductions from options exercised totaled $17 million
in 2014, $8 million in 2013 and less than $1 million
in 2012.

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 $243 million in 2014 (including $13
million recorded in restructuring expense), $201
million in 2013 and $185 million in 2012. The total
income tax benefit recognized in the income
statement was $94 million for 2014, $79 million for
2013 and $76 million for 2012.

BNY Mellon’s Executive Committee members were
granted a target award of 719,947 performance units
(“PSUs”) in 2014 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. Certain of the awards are
granted to three FSA code-staff individuals and are
required to be marked to market due to discretionary
claw-back language contained in their grants.

The following table summarizes our nonvested PSU,
restricted stock and RSU activity for 2014.

Nonvested PSU, restricted stock
and RSU activity

Nonvested PSUs, restricted stock
and RSUs at Dec. 31, 2013

Granted
Vested
Forfeited
Nonvested PSUs, restricted stock
and RSUs at Dec. 31, 2014

Number of
shares

Weighted-
average
fair value

21,541,377 $
8,497,823
(8,082,216)
(556,693)

26.59
31.58
29.06
27.37

21,400,291 $

27.72

As of Dec. 31, 2014, $192 million of total
unrecognized compensation costs related to
nonvested restricted stock and RSUs is expected to be
recognized over a weighted-average period of 1.7
years.

The total fair value of restricted stock and RSUs that
vested was $229 million in 2014, $117 million in
2013 and $84 million in 2012.

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.

BNY Mellon 191

Notes to Consolidated Financial Statements (continued)

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.

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
Special termination benefits
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

Pension Benefits

Healthcare Benefits

Domestic
2014

Foreign

2013

2014

2013

Domestic
2014

Foreign

2013

2014

2013

4.13%
3.00

4.99%
3.00

3.33%
3.29

4.29%
3.71

4.13%
3.00

4.99%
3.00

3.10%
—

4.21%
—

$ (3,712) $ (4,093)
(63)
(170)
—
—
443
—
—
171
N/A
(3,712)

(58)
(180)
—
—
(687)
—
(1)
178
N/A
(4,460)

$ (1,021) $
(33)
(43)
(1)
3
(169)
—
—
19
68
(1,177)

(880)
(36)
(38)
(1)
(2)
(66)
1
—
21
(20)
(1,021)

4,721
383
16
—
—
(178)
N/A

4,278
589
25
—
—
(171)
N/A

4,942
482

4,721
$ 1,009

930
88
56
1
—
(19)
(59)
997
$ (180) $

782
107
43
1
(1)
(21)
19
930
(91)

$ (224) $
(1)
(11)
—
—
(8)
—
—
34
N/A
(210)

86
7
34
—
—
(34)
N/A
93
$ (117) $

(226)
(2)
(9)
—
—
(5)
—
—
18
N/A
(224)

78
8
18
—
—
(18)
N/A
86
(138)

(7) $
—
—
—
—
(1)
—
—
—
—
(8)

—
—
—
—
—
—
—
—
(8) $

Amounts recognized in accumulated other comprehensive
(income) loss consist of:

Net loss (gain)
Prior service cost (credit)

Total (before tax effects)

$ 1,668
(31)
$ 1,637

$ 1,174
(46)
$ 1,128

382
1
383

256
5
261

146
(79)
67

150
(89)
61

$ —
—
$ —

(a) The benefit obligation for pension benefits is the projected benefit obligation and for healthcare benefits, it is the accumulated benefit obligation.

192 BNY Mellon

(6)
—
—
—
—
—
—
—
—
(1)
(7)

—
—
—
—
—
—
—
—
(7)

(1)
—
(1)

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
2013

2014

2012

2014

Foreign
2013

2012

2014

Domestic
2013

2012

2014

Foreign
2013

2012

Market-related value of plan assets $ 4,430
Discount rate
Expected rate of return on plan
assets

7.25

4.99%

$ 4,121 $ 3,763

4.25%

4.75%

$ 790 $ 698

$ 898
4.29% 4.49% 4.97%

$ 86

80 $

4.99%

4.25%

78
4.75%

N/A

N/A
N/A
4.21% 4.50% 5.00%

7.25

3.00

7.38

3.00

6.26

3.71

6.04

3.49

6.30

3.57

7.25

3.00

7.25

3.00

7.38

3.00

N/A

3.00

Rate of compensation increase
Components of net periodic
benefit cost (credit):

Service cost
Interest cost
Expected return on assets
Amortization of:

Net initial obligation (asset)
Prior service cost (credit)
Net actuarial (gain) loss

Settlement (gain) loss
Special termination benefit charge

Net periodic benefit cost (credit) $

58
180
(315)

63
170
(292)

59
169
(272)

$ 33
43
(58)

$ 36 $ 32
35
(45)

38
(46)

—
(15)
125
—
1
34

—
(16)
205
3
—

—
(16)
167
—
—
$ 133 $ 107

—
1
15
—
—
$ 34

—
—
15
—
—

—
—
12
—
—
$ 43 $ 34

1
11
(6)

—
(10)
11
—
—
7

2
9
(6)

—
(10)
12
—
—
7

2
12
(6)

3
(2)
9
—
—
18

$ —
—
—

$ — $ —
—
—

—
—

—
—
—
—
—
$ —

—
—
—
—
—

—
—
—
—
—
$ — $ —

Changes in other comprehensive (income) loss in 2014
(in millions)
Net loss (gain) arising during period
Recognition of prior years’ net (loss)
Prior service cost (credit) arising during period
Recognition of prior years’ service (cost) credit
Foreign exchange adjustment

Total recognized in other comprehensive (income) loss (before tax effects)

Pension Benefits

Domestic
619
(125)
—
15
N/A
509

Foreign
139
(15)
(3)
(1)
2
122

Amounts expected to be recognized in net periodic benefit
cost (income) in 2015 (before tax effects)
(in millions)
Loss recognition
Prior service (credit) recognition

Pension Benefits

Domestic
111
(31)

Foreign
23
—

Healthcare Benefits
Domestic
7
(11)
—
10
N/A
6

Foreign
1
—
—
—
—
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
2014

2013

Foreign

2014

2013

$ 708 $1,209 $ — $ —
(91)
$ 482 $1,009 $ (180) $ (91)

(226)

(200)

(180)

Plans with obligations in
excess of plan assets
(in millions)
Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets

Foreign

Domestic
2014

2014

2013

2013
$ 227 $ 200 $ 392 $ 304
294
242

199
—

225
—

375
313

$ (117) $ (138) $
$ (117) $ (138) $

(8) $
(8) $

(7)
(7)

For information on pension assumptions see “Critical
accounting estimates.”

The accumulated benefit obligation for all defined
benefit plans was $5.4 billion at Dec. 31, 2014 and
$4.5 billion at Dec. 31, 2013.

BNY Mellon 193

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 2015 is 6.75%
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
$15 million, or 7%, and the sum of the service and
interest costs by $1 million, or 7%. Conversely, a
decrease in this rate of one percentage point for each
year would decrease the benefit obligation by $13
million, or 6%, and the sum of the service and interest
costs by $1 million, or 6%.

Assumed healthcare cost trend - Foreign post-
retirement healthcare benefits

An increase in the healthcare cost trend rate of one
percentage point for each year would increase the
accumulated post-retirement benefit obligation by
less than $1 million and the sum of the service and
interest costs by less than $1 million. Conversely, a
decrease in this rate of one percentage point for each
year would decrease the benefit obligation by less
than $1 million and the sum of the service and
interest costs by less than $1 million.

194 BNY Mellon

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 2015
2016
2017
2018
2019
2020-2024

Total pension benefits
Healthcare benefits:
Year 2015
2016
2017
2018
2019
2020-2024
Total healthcare benefits

Plan contributions

Domestic

Foreign

238
255
256
252
253
1,276
2,530

14
14
15
15
15
68
141

13
15
16
19
18
120
201

—
—
—
—
1
1
2

BNY Mellon expects to make cash contributions to
fund its defined benefit pension plans in 2015 of $19
million for the domestic plans and $42 million for the
foreign plans.

BNY Mellon expects to make cash contributions to
fund its post-retirement healthcare plans in 2015 of
$14 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

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, 2014 and 2013:

Asset allocations

Equities
Fixed income
Private equities
Alternative investment
Real estate
Cash

Domestic
2014
63%
31
2
3
—
1

2013
63%
30
2
3
—
2

Foreign

2014
56%
36
—
2
5
1

2013
63%
29
—
4
4
—

Total pension benefits

100% 100%

We held no The Bank of New York Mellon
Corporation stock in our pension plans at Dec. 31,
2014 and 2013. 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
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.

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

BNY Mellon 195

Notes to Consolidated Financial Statements (continued)

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, 2014 and
Dec. 31, 2013, 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, 2014

(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

$ 1,468 $ — $ — $ 1,468
132

132

—

—
—

—

438
—

—

—
—
70
—

342
1,344

—

—
59

724
32
—
—

—
—

—

—
—
—
151

342
1,344

438
59

724
32
70
151

Total domestic plan assets, at

fair value

$ 2,108 $ 2,592 $ 242 $ 4,942

Plan assets measured at fair value on a recurring basis—
foreign plans at Dec. 31, 2014

(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
$ 432 $ 125 $ — $ 557

Level 1 Level 2 Level 3

60
13

—

130

74
—

—

20
—

205

154
13

$ 580 $ 329 $

88 $ 997

Plan assets measured at fair value on a recurring basis—
domestic plans at Dec. 31, 2013

(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

$ 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

196 BNY Mellon

Total domestic plan assets, at

fair value

$ 1,868 $ 2,624 $ 229 $ 4,721

Notes to Consolidated Financial Statements (continued)

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

$ 540 $ 327 $

63 $ 930

Changes in Level 3 fair value measurements

The table below includes a rollforward of the plan assets for the years ended Dec. 31, 2014 and 2013 (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, 2014

(in millions)
Fair value at Dec. 31, 2013
Total gains or (losses) included in earnings (or changes in net assets)
Purchases and sales:

Purchases
Sales

Fair value at Dec. 31, 2014
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

143 $
9

—
(1)
151 $

7 $

86 $
25

1
(21)
91 $

11 $

at fair value
229
34

1
(22)
242

Fair value measurements using significant unobservable inputs—foreign plans—for the year ended Dec. 31, 2014

(in millions)
Fair value at Dec. 31, 2013
Transfers into Level 3
Total gains or (losses) included in earnings (or changes in net assets)

Fair value at Dec. 31, 2014

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

19 $
—
1
20 $

1 $

44 $
24
—
68 $

— $

63
24
1
88

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

130 $
13

—
—
143 $

11 $

105 $
—

3
(22)
86 $

(14) $

Funds of funds

Venture capital and
partnership interests

Total plan assets

at fair value
235
13

3
(22)
229

(3)

BNY Mellon 197

Notes to Consolidated Financial Statements (continued)

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

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, 2014

(dollar amounts
in millions)

Venture capital and

partnership
interests (a)

Funds of funds (b)

Total

Fair

value commitments

Unfunded Redemption
frequency

Redemption
notice
period

$ 159 $

151
$ 310 $

—
11

N/A

Monthly

30-45 days

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

(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.

198 BNY Mellon

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, 2014 and Dec. 31, 2013, the ESOP
owned 6.4 million and 6.6 million shares of our
common stock, respectively. The fair value of total
ESOP assets was $263 million at Dec. 31, 2014 and
$236 million at Dec. 31, 2013.

We recorded $198 million in 2014, $192 million in
2013 and $180 million in 2012 primarily for
contributions to our defined contribution plans.
There were no contributions to the ESOP in 2014,
2013 and 2012.

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.

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

Notes to Consolidated Financial Statements (continued)

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, 2014, BNY Mellon’s bank subsidiaries
exceeded these minimum requirements.

Subsequent to Dec. 31, 2014, our bank subsidiaries
could declare dividends to the Parent of
approximately $2.0 billion without the need for a
regulatory waiver. In addition, at Dec. 31, 2014, non-
bank subsidiaries of the Parent had liquid assets of
approximately $1.4 billion.

The bank subsidiaries declared dividends of $809
million in 2014, $1.0 billion in 2013 and $679 million
in 2012. 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
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
CET1 ratio of at least 5% on a pro forma basis under
expected and stressed 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 CET1
ratio 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. 5, 2015. 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, in March 2015.

The Federal Reserve Act limits and requires collateral
for extensions of credit by our insured subsidiary
banks to BNY Mellon and certain of its non-bank
affiliates. Also, there are restrictions on the amounts
of investments by such banks in stock and other
securities of BNY Mellon and such affiliates, and
restrictions on the acceptance of their securities as
collateral for loans by such banks. Extensions of
credit by the banks to each of our affiliates are limited
to 10% of such bank’s regulatory capital, and in the
aggregate for BNY Mellon and all such affiliates to
20%, and collateral must be between 100% and 130%
of the amount of the credit, depending on the type of
collateral.

Our insured subsidiary banks are required to maintain
reserve balances with Federal Reserve Banks under
the Federal Reserve Act and Regulation D. Required
balances averaged $6.3 billion and $5.7 billion for the
years 2014 and 2013, respectively.

BNY Mellon 199

Notes to Consolidated Financial Statements (continued)

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, $62, $50, $30, 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 (a)

Net income (a)
Preferred stock dividends
Net income applicable to common

shareholders of The Bank of New York
Mellon Corporation (a)

Year ended Dec. 31,

2014

2013

775 $ 1,010 $
44
67

210
60

2012

645

199

120

1
24
1,009

257

71
328

101

32
26
1,439

245

94
339

126

1,148

340

103

443

681

1,100

(155)

(93)

705

(83)

910
821
2,567
(73)

184
727
2,104
(64)

936

713

2,437

(18)

$ 2,494 $ 2,040 $ 2,419

(a) Results for years ended Dec. 31, 2013 and Dec. 31, 2012

were restated to reflect the retrospective application of
adopting new accounting guidance in 2014 related to our
investments in qualified affordable housing projects (ASU
2014-01). See Note 2 of the Notes to Consolidated Financial
Statements for additional information.

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.

200 BNY Mellon

Notes to Consolidated Financial Statements (continued)

Condensed Balance Sheet—The Bank of New

York Mellon Corporation (Parent Corporation)

Condensed Statement of Cash Flows—The Bank
of New York Mellon Corporation (Parent
Corporation)

(in millions)
Assets:
Cash and due from banks
Securities
Loans, net of allowance
Investment in and advances to subsidiaries and

associated companies: (a)

Banks (a)
Other (a)
Subtotal (a)

Corporate-owned life insurance
Other assets (a)

Total assets (a)

Liabilities:
Deferred compensation
Commercial paper
Affiliate borrowings
Other liabilities (a)
Long-term debt

Total liabilities (a)

Shareholders’ equity (a)

Total liabilities and shareholders’ equity (a)

Dec. 31,

2014

2013

$ 7,517 $ 6,959
34
19

30
76

28,600
26,471
55,071
712
1,361

27,888
24,420
52,308
699
2,469
$ 64,767 $ 62,488

501 $
—
6,120
1,194
19,511
27,326
37,441

500
96
3,416
2,175
18,804
24,991
37,497
$ 64,767 $ 62,488

(a) Prior year balances were restated to reflect the retrospective

application of adopting new accounting guidance in 2014
related to our investments in qualified affordable housing
projects (ASU 2014-01). See Note 2 of the Notes to
Consolidated Financial Statements for additional information.

(in millions)
Operating activities:
Net income (b)
Adjustments to reconcile net income to net

cash provided by/ (used in) operating
activities:
Amortization
Equity in undistributed net (income) of

subsidiaries (b)

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,
2014

2013

2012

$ 2,567 $ 2,104 $ 2,437

—

(1,731)

(911)

(1,649)

23
18
91
2

21
(5)
63
(22)

13
(16)
177
(179)

970

1,251

796

—
7
(57)

—
67
(6)

(1,603)

107

722

(1,546)

794

—
86
7

175

285

(96)
4,686
(4,071)
2,704
396
(1,669)
—
(833)

(242)
3,892
(2,023)
78
288
(1,026)
494
(744)

328

2,761

(4,163)

(53)

(1,148)

1,068

(641)

—

1,134

732

(1,783)

558

2,777

(702)

6,959

4,182

4,884

$ 7,517 $ 6,959 $ 4,182

$
$
$

275 $ 241 $ 324
946 $
94 $ 401
54 $
1
14 $

(a)

Includes payments received from subsidiaries for taxes of $452
million in 2014, $192 million in 2013 and $648 million in 2012.

(b) Cash flows for both years ended Dec. 31, 2013 and Dec. 31, 2012

were restated to reflect the retrospective application of adopting new
accounting guidance in 2014 related to our investments in qualified
affordable housing projects (ASU 2014-01). See Note 2 of the Notes
to Consolidated Financial Statements for additional information.

BNY Mellon 201

Notes to Consolidated Financial Statements (continued)

Note 20 - Fair value measurement

Fair value is defined 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. A three-level hierarchy for
fair value measurements is utilized based upon the
transparency of inputs to the valuation of an asset or
liability as of the measurement date. BNY Mellon’s
own creditworthiness is considered when valuing
liabilities.

Fair value 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.

202 BNY Mellon

Most derivative contracts are valued using internally
developed models which are calibrated to observable
market data and employ standard market pricing
theory for their valuations. An initial “risk-neutral”
valuation is performed on each position assuming
time-discounting based on an AA credit curve. Then,
to arrive at a fair value that incorporates 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

A three-level valuation hierarchy is used for
disclosure of fair value measurements based upon the
transparency of inputs to the valuation of an asset or

Notes to Consolidated Financial Statements (continued)

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,
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
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.

BNY Mellon 203

Notes to Consolidated Financial Statements (continued)

At Dec. 31, 2014, 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-
binding dealer quotes, and are included in Level 3 of
the valuation 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 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 composes less than 1% of our derivative
financial instruments. Additional disclosures of
derivative instruments are provided in Note 23 of the
Notes to Consolidated Financial Statements.

204 BNY Mellon

Loans and unfunded lending-related commitments

Where quoted market prices are not available, we
generally base the fair value of loans and unfunded
lending-related commitments on observable market
prices of similar instruments, including bonds, credit
derivatives and loans with similar characteristics. If
observable market prices are not available, we base
the fair value on estimated cash flows adjusted for
credit risk which are discounted using an interest rate
appropriate for the maturity of the applicable loans or
the unfunded 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

Notes to Consolidated Financial Statements (continued)

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 investments 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, 2014 and Dec. 31,
2013, by caption on the consolidated balance sheet
and by 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 2014.

BNY Mellon 205

Notes to Consolidated Financial Statements (continued)

Assets measured at fair value on a recurring basis at Dec. 31, 2014

(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

Loans
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

$ 19,997 $

— $

—
40
—
—
—
—
—
—
—
—
95
763
—
—
2,250
—
23,145

343
17,244
5,236
32,600
953
1,551
1,959
3,132
2,130
3,240
—
—
1,785
2,169
618
2,214
75,174

2,204

2,217

7
—
96
103
2,307
—

17,137
6,280
278
23,695
25,912
21

—
—
—
250
250
25,702

477
374
851
745
1,596
102,703

20%

80%

100
457
557

8,578
147
8,725

$ 26,259 $111,428 $

19%

81%

— $
—
—
11
—
—
—
—
—
—
—
—
—
—
—
—
—
11

—

6
—
3
9
9
—

—
—
—
70
70
90
—%

—
—
—
90 $
—%

— $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—

—

(13,942)
(4,246)
(159)
(18,347)
(18,347)
—

—
—
—
—
—
(18,347)

19,997
343
17,284
5,247
32,600
953
1,551
1,959
3,132
2,130
3,240
95
763
1,785
2,169
2,868
2,214
98,330

4,421

3,208
2,034
218
5,460
9,881
21

477
374
851
1,065
1,916
110,148

—
—
—
(18,347) $

8,678
604
9,282
119,430

206 BNY Mellon

Notes to Consolidated Financial Statements (continued)

Liabilities measured at fair value on a recurring basis at Dec. 31, 2014

(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 derivative liabilities designated as hedging

Other liabilities

Total other 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

367 $

294 $

— $

661

3
—
47
50
417
—

—
—
—
4
4
421

17,645
6,367
499
24,511
24,805
347

385
62
447
—
447
25,599

98%

—
1
1

7,660
8
7,668

422 $ 33,267 $

99%

6
—
3
9
9
—

—
—
—
—
—
9
—%

(14,467)
(3,149)
(181)
(17,797)
(17,797)
—

—
—
—
—
—
(17,797)

—
—
—
9 $
—%

—
—
—
(17,797) $

3,187
3,218
368
6,773
7,434
347

385
62
447
4
451
8,232

7,660
9
7,669
15,901

(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 and seed capital.

BNY Mellon 207

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:

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
—
—
2,238
—
16,087

948
11,314
6,663
25,321
1,142
2,285
2,357
1,789
1,562
2,891
—
—
1,815
1,796
633
2,695
63,211

4,559

4,338

4
—
274
278
4,837

—
—
—
148
148
21,072

14,702
3,609
395
18,706
23,044

1,206
76
1,282
193
1,475
87,730

19%

81%

61
739
800

10,336
136
10,472

— $
—
—
11
—
—
—
—
—
—
—
—
—
—
—
—
—
11

6
1
15
22
23

—
—
—
105
105
139
—%

—
—
—

$ 21,872 $ 98,202 $

18%

82%

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

208 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 designated as hedging

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

(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 and seed capital.

BNY Mellon 209

Notes to Consolidated Financial Statements (continued)

Details of certain items measured at fair value

on a recurring basis

(dollar amounts in millions)
Non-agency RMBS, originated in:

2007
2006
2005
2004 and earlier

Total non-agency RMBS

Commercial MBS - Domestic, originated in:

2009-2014
2008
2007
2006
2005
2004 and earlier

Total commercial MBS - Domestic

Foreign covered bonds:

Canada
United Kingdom
Netherlands
Other

Total foreign covered bonds

European floating rate notes - available-for-sale:

Dec. 31, 2014

Ratings

AAA/
AA

A+/
A

BBB+/
BBB

BB+ and
lower

Total
carrying
value (a)

Dec. 31, 2013

Ratings

AAA/
AA

A+/
A

BBB+/
BBB

BB+ and
lower

78 —% —% —%

138 —
284 —
3
453
1%
953

—
21
5
9%

—
19
27
19%

100% $
100
156
60
330
65
566
71% $ 1,142

90 —% —%
—
—
3
1%

—
24
6
10%

41%
—
16
30
23%

59%
100
60
61
66%

639
19
353
599
271
6
$ 1,887

$ 1,266
690
244
668
$ 2,868

83%

100
65
83
100
100
82%

17% —%
—
21
17
—
—
15%

—
14
—
—
—
3%

—% $
466
—
22
—
457
—
683
—
486
—
153
—% $ 2,267

81%
59
69
84
100
93
84%

19% —%
41
20
16
—
7
14%

—
11
—
—
—
2%

100% —% —%
100
—
100
—
—
100
100% —% —%

—
—
—

—% $
851
—
803
—
298
—
919
—% $ 2,871

100% —% —%
—
100
100
—
—
100
100% —% —%

—
—
—

United Kingdom
Netherlands
Ireland
Italy
Other

$ 1,172
296
100
144 —
— —
99
25
79%
Total European floating rate notes - available-for-sale $ 1,637

83%

17% —%
—
—
—
1

—
—
—
—

12% —%

—% $ 1,668
—
434
100
165
—
104
—
42
9% $ 2,413

79%

100
10
—
89
75%

21% —%
—
—
100
5
19% —%

—
—
—
—

Sovereign debt:

United Kingdom
France
Spain
Netherlands
Germany
Italy
Ireland
Other

Total sovereign debt

Non-agency RMBS (b), originated in:

2007
2006
2005
2004 and earlier

100% —% —%
$ 5,076
3,550
100
1,978 —
100
1,800
1,522
100
1,427 —
672 —
93
76% —%

—
100
—
—
100
100
7
24%

—
—
—
—
—
—
—

1,259
$ 17,284

—% $ 4,709
—
1,568
—
137
—
2,105
—
2,182
—
171
—
—
—
482
—% $ 11,354

100% —% —%
—
100
—
—
—
100
—
100
—
—
—
—
100
—
97% —%

—
100
—
—
100
—
—
3%

620 —% —% —%
653 —
727 —
214 —

—
3
4
1%

1
1
7
1%

100% $
812 —% —% —%
99
780
96
854
89
249
98% $ 2,695

—
3
4
1%

—
—
—
—%

1
—
16
2%

Total non-agency RMBS (b)

$ 2,214 —%

(a) At Dec. 31, 2014 and Dec. 31, 2013, 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.

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

210 BNY Mellon

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.

—%
—
—
—
—
—
—%

—%
—
—
—
—%

—%
—
90
—
6
6%

—%
—
—
—
—
—
—
—
—%

100%
99
97
80
97%

Notes to Consolidated Financial Statements (continued)

The tables below include a roll forward of the balance sheet amounts for the years ended Dec. 31, 2014 and 2013
(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, 2014

(in millions)
Fair value at Dec. 31, 2013
Transfers into Level 3
Transfers out of Level 3
Total gains or (losses) for the period:

Available-for
sale securities
State and
political
subdivisions
11
—
—

Trading assets

Debt and equity

Derivative

instruments
1
—
—

assets (a)
22
—
(12)

Other
assets
$ 105
18
—

Included in earnings (or changes in net assets)

— (b)

— (c)

12 (c)

(8) (d)

Purchases, sales and settlements:

Purchases
Sales
Settlements

Fair value at Dec. 31, 2014
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

—
—
—
11

—
—
(1)
—

—

—
—
(13)
9

16
(61)
—
$ 70

$ —

Total
assets
139
18
(12)

16
(61)
(14)
90

(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).

Fair value measurements for liabilities using significant unobservable inputs for the year ended Dec. 31, 2014
Trading liabilities
Derivative liabilities (a)
$

(in millions)
Fair value at Dec. 31, 2013
Transfers out of Level 3
Total (gains) or losses for the period:

Total liabilities
75
(39)

75
(39)

Included in earnings (or changes in net liabilities)

Purchases and settlements:

Purchases
Settlements

Fair value at Dec. 31, 2014
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

(a) Derivative liabilities are reported on a gross basis.
(b) Reported in foreign exchange and other trading revenue.

(14) (b)

3
(16)
9

(14)

3
(16)
9

BNY Mellon 211

Notes to Consolidated Financial Statements (continued)

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

Other
assets (a) assets
$ 120
—

58
(19)

Total

Assets of
consolidated
investment
assets of management
funds
44
—

271 $
(19)

operations
$

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) $

—

(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.

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,
2014 and Dec. 31, 2013, for which a nonrecurring
change in fair value has been recorded during the
years ended Dec. 31, 2014 and Dec. 31, 2013.

212 BNY Mellon

Notes to Consolidated Financial Statements (continued)

Assets measured at fair value on a nonrecurring basis at Dec. 31, 2014
(in millions)
Loans (a)
Other assets (b)

Total assets at fair value on a nonrecurring basis

Level 1

— $
—
— $

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

Level 1

— $
—
— $

Level 2
112
6
118

Level 3
2
—
2

Total carrying
value
114
6
120

Level 2
128
15
143 $

Level 3
9
—

9 $

Total carrying
value
137
15
152

(a) During the years ended Dec. 31, 2014 and Dec. 31, 2013, the fair value of these loans decreased less than $6 million and $3 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 fair value.

Level 3 unobservable inputs

The following tables present the unobservable inputs used in the 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, 2014

Valuation techniques

Unobservable input

Range

State and political subdivisions

Discounted cash flow

Expected credit loss

Trading assets:

Derivative assets:

Interest rate contracts:

Structured foreign exchange swaptions

6 Option pricing model

(a)

Correlation risk
Long-term foreign exchange volatility

0%-25%
15%-16%

Equity:

Equity options

Measured on a nonrecurring basis:
Loans

3 Option pricing model

(a)

Long-term equity volatility

23%-24%

Discounted cash flows

Timing of sale
Cap rate
Cost to complete/sell

0-12 months
8%
0%-238%

Quantitative information about Level 3 fair value measurements of liabilities

(dollars in millions)
Measured on a recurring basis:
Trading liabilities:

Derivative liabilities:

Interest rate contracts:

Fair value at
Dec. 31, 2014

Valuation techniques

Unobservable input

Range

Structured foreign exchange swaptions

Option pricing model (a)

Correlation risk
Long-term foreign exchange volatility

0%-25%
15%-16%

Equity:

Equity options

Option pricing model (a)

Long-term equity volatility

23%-24%

(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.

BNY Mellon 213

Notes to Consolidated Financial Statements (continued)

Estimated fair value of financial instruments

Securities held-to-maturity

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 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
agreements are classified as Level 2 within the
valuation hierarchy.

214 BNY Mellon

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, including our term loan program, 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 and is included as Level 2 within the
valuation hierarchy. 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, 2014 and Dec. 31, 2013, by caption on the
consolidated balance sheet and by the valuation
hierarchy (as described above).

BNY Mellon 215

Notes to Consolidated Financial Statements (continued)

Summary of financial instruments

Dec. 31, 2014

(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

— $ 96,682 $
—
—
5,063
—
6,970

19,505
20,302
16,064
56,840
1,121

$ 12,033 $ 210,514 $

— $ 104,240 $
—
—
—
—
—
— $ 318,935 $

160,688
11,469
21,181
956
20,401

— $ 96,682 $ 96,682
19,495
—
20,302
—
20,933
—
56,749
—
—
8,091
— $ 222,547 $ 222,252

19,505
20,302
21,127
56,840
8,091

— $ 104,240 $ 104,240
161,629
—
11,469
—
21,181
—
956
—
—
19,917
— $ 318,935 $ 319,392

160,688
11,469
21,181
956
20,401

Dec. 31, 2013

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

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)
Dec. 31, 2014

Securities available-for-sale
Long-term debt

Dec. 31, 2013

Interest-bearing deposits with banks
Securities available-for-sale
Long-term debt

216 BNY Mellon

Carrying amount

Notional amount
of hedge

Unrealized
Gain

(Loss)

7,294 $

16,469

1,396 $
5,914
15,036

7,045 $

16,100

1,396 $
6,647
14,755

4 $

470

30 $
721
483

(370)
(14)

(19)
(95)
(72)

Notes to Consolidated Financial Statements (continued)

Note 21 - Fair value option

We elected 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

Dec. 31,
2014

Dec. 31,
2013

8,678 $
604

10,397
875

Total assets of consolidated
investment management funds $

Liabilities of consolidated investment
management funds:
Trading liabilities
Other liabilities

Total liabilities of consolidated
investment management funds $

9,282 $

11,272

7,660 $
9

10,085
46

7,669 $

10,131

BNY Mellon values assets in consolidated CLOs
using observable market prices 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 and in the interest of investment management
fund noteholders, respectively.

We have elected the fair value option on $21 million
of loans. The fair value of these loans was $21
million at Dec. 31, 2014. There were no loans at fair
value at Dec. 31, 2013. The loans were valued using
observable market inputs to discount expected loan
cash flows. These loans are included in Level 2 of
the valuation hierarchy.

We have elected the fair value option on $240 million
of long-term debt. The fair value of this long-term
debt was $347 million at Dec. 31, 2014 and $321
million at Dec. 31, 2013. The long-term debt is
valued using observable market inputs and is
included in Level 2 of the valuation 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

Year ended
Dec. 31,

(in millions)
Changes in fair value of long-term debt (a)
(a) The changes in fair value of long-term debt are

2014

26 $

2013
24

approximately offset by economic hedges 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,
2014 are disclosed in the financial institutions
portfolio exposure table and the commercial portfolio
exposure table below.

BNY Mellon 217

Notes to Consolidated Financial Statements (continued)

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

Total

Commercial portfolio

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

Total

Dec. 31, 2014
Total
Unfunded
Loans commitments exposure
9.3
6.8
4.2
4.1
3.0
1.4
28.8

1.7 $
4.8
1.1
4.0
2.9
1.0
15.5 $

7.6 $
2.0
3.1
0.1
0.1
0.4
13.3 $

Dec. 31, 2014
Total
Unfunded
Loans commitments exposure
6.7
6.1
6.0
1.6
20.4

5.9 $
5.6
5.7
1.5
18.7 $

0.8 $
0.5
0.3
0.1
1.7 $

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) There were no participations at Dec. 31, 2014. Net of
participations totaling $6 million at Dec. 31, 2013.

Dec. 31, Dec. 31,
2013
33,273 $ 34,039
5,767
6,721
255
310
304,386 244,382

2014

(b) Net of participations totaling $894 million at Dec. 31, 2014

and $720 million at Dec. 31, 2013.

(c) Excludes the indemnification for securities for which BNY
Mellon acts as an agent on behalf of CIBC Mellon clients,
which totaled $64 billion at Dec. 31, 2014 and $60 billion at
Dec. 31, 2013.

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

218 BNY Mellon

equal to the total notional amount if drawn upon,
which does not consider the value of any collateral.

Since many of the commitments are expected to
expire without being drawn upon, the total amount
does not necessarily represent future cash
requirements. A summary of lending commitment
maturities is as follows: $10.4 billion in less than one
year, $22.7 billion in one to five years and $200
million over five years.

Standby letters of credit (“SBLC”) principally
support corporate obligations and were collateralized
with cash and securities of $421 million and $418
million at Dec. 31, 2014 and Dec. 31, 2013,
respectively. At Dec. 31, 2014, $3.4 billion of the
SBLCs will expire within one year and $2.4 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. 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 $89
million at Dec. 31, 2014 and $134 million at Dec. 31,
2013.

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
Non-investment grade

Dec. 31,
2014
88%
12%

Dec. 31,
2013
86%
14%

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

Notes to Consolidated Financial Statements (continued)

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 $255 million at Dec. 31, 2014 compared
with $310 million at Dec. 31, 2013.

A securities lending transaction is a fully
collateralized transaction in which the owner of a
security agrees to lend the security (typically through
an agent, in our case, The Bank of New York
Mellon), to a borrower, usually a broker-dealer or
bank, on an open, overnight or term basis, under the
terms of a prearranged contract, which normally
matures in less than 90 days.

We typically lend securities with indemnification
against 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 $316 billion at Dec. 31,
2014 and $252 billion at Dec. 31, 2013.

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, 2014 and Dec.
31, 2013, $64 billion and $60 billion, respectively, of
borrowings at CIBC Mellon for which BNY Mellon
acts as agent on behalf of CIBC Mellon clients, were
secured by collateral of $67 billion and $64 billion,
respectively. 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
$328 million in 2014, $335 million in 2013 and $313
million in 2012.

At Dec. 31, 2014, 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:
2015—$354 million; 2016—$346 million; 2017—
$313 million; 2018—$210 million; 2019—$195
million and 2020 and thereafter—$938 million.

Exposure for certain administrative errors

In connection with certain offshore tax-exempt funds
that we manage, we may be liable to the funds for
certain administrative errors. The errors relate to the
resident status of such 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. With the charge
recorded in 2014 for this matter, we believe we are
appropriately accrued and the additional reasonably
possible exposure is not significant.

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

BNY Mellon 219

Notes to Consolidated Financial Statements (continued)

believe, however, that the possibility that we will
have to make any material payments for these
indemnifications is remote. At Dec. 31, 2014 and
Dec. 31, 2013, we have not recorded any material
liabilities under these arrangements.

Clearing and settlement exchanges

We are a noncontrolling 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 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, 2014
and Dec. 31, 2013, 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.

220 BNY Mellon

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
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 $200 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

Notes to Consolidated Financial Statements (continued)

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
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. On Dec. 10, 2014, the district court
issued a decision in favor of The Bank of New York
Mellon holding that the transfers from Sentinel
cannot be avoided and that The Bank of New York
Mellon’s lien is valid and not subject to equitable
subordination. On Jan. 8, 2015, the bankruptcy
trustee filed a notice of appeal.

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 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 in 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, 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 refiled
their claims and, on May 1, 2014, the court again
dismissed the California False Claims Act claims,
along with certain other claims. Plaintiffs sought
leave to file an amended complaint that would
reassert some of those claims, but the court denied
their motion.

BNY Mellon has also been named as a defendant in
several putative class action federal lawsuits filed on
various dates in 2011, 2012 and 2014. The
complaints, which assert claims including breach of
contract and ERISA and securities laws violations, all
allege that the prices BNY Mellon charged for

BNY Mellon 221

Notes to Consolidated Financial Statements (continued)

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. On Oct. 1,
2013, the court in the consolidated state derivative
action dismissed all of plaintiffs’ claims. One of the
plaintiffs appealed and the dismissal was affirmed on
Dec. 11, 2014. To the extent the lawsuits are pending
in federal court, they are being coordinated for pre
trial purposes in federal court in New York.

On Feb. 17, 2015, BNY Mellon announced an
additional after-tax litigation expense in anticipation
of, among other things, the anticipated resolution of
substantially all foreign exchange-related matters.

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.
Following a trial, the Tax Court upheld the IRS’s
Notice of Deficiency and disallowed BNY Mellon’s
tax credits and associated transaction costs on Feb.
11, 2013. 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 a decision formally
implementing its prior rulings on Feb. 20, 2014.
BNY Mellon appealed the decision to the Second
Circuit Court of Appeals on March 5, 2014. See Note
12 of the Notes to Consolidated Financial Statements
for additional information.

Mortgage-Securitization Trusts Proceedings
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 investors in certain Countrywide
residential mortgage-securitization trusts. The New
York and Delaware Attorneys General intervened in
this proceeding. The trial in this matter ended on

222 BNY Mellon

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. On
Feb. 21, 2014, The Bank of New York Mellon
appealed the court’s decision to exempt loan
modification claims from the settlement approval and
several objectors to the settlement cross-appealed.
The Bank of New York Mellon has also been named
as a defendant in a lawsuit brought in New York State
court on June 18, 2014, and later re-filed in federal
court, by a group of institutional investors. This
lawsuit is one of a number of legal actions brought by
MBS investors against The Bank of New York
Mellon alleging that the trustee has expansive duties
under the governing agreements, including to
investigate and pursue breach of representation and
warranty claims against other parties to the MBS
transactions.

Matters Related to R. Allen Stanford
As previously disclosed, 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 three pending
lawsuits against Pershing in Texas. In addition,
alleged purchasers have filed nearly forty FINRA
arbitration claims against Pershing in Texas, Florida,
Louisiana, Mississippi, Tennessee, Arkansas, North
Carolina 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. On Oct. 8, 2014 and Nov.
3, 2014, Pershing received awards in its favor from
two FINRA arbitration panels.

UK Financial Conduct Authority Matter
As previously disclosed, the UK Financial Conduct
Authority (the “FCA”) is conducting an investigation
into compliance by BNY Mellon, London Branch and
BNY Mellon (International) Limited (the “firms”)
with the FCA’s Client Assets Sourcebook, which sets
out the regime in the UK for the protection of client
interests. The matter is on-going and BNY Mellon
continues to engage with the FCA.

Notes to Consolidated Financial Statements (continued)

Brazilian Postalis Litigation
BNY Mellon Servicos Financeiros DTVM S.A.
(“DTVM”), a subsidiary that provides a number of
asset services in Brazil, acts as administrator for
certain investment funds in which the exclusive
investor is a public pension fund for postal workers
called Postalis-Instituto de Seguridade Social dos
Correios e Telégrafos (“Postalis”). On Aug. 22, 2014,
Postalis sued DTVM in Brazil for losses related to a
Postalis investment fund for which DTVM serves as
fund administrator. Postalis alleges that DTVM
failed properly to perform alleged duties, including
alleged duties to conduct due diligence of and exert
control over the fund manager, Atlântica
Administração de Recursos (“Atlântica”), and
Atlântica’s investments.

Sovereign Wealth Funds Inquiry
In January 2011, the Enforcement Division of the
U.S. Securities and Exchange Commission (the “SEC
Staff”) informed several financial institutions,
including BNY Mellon, that it had commenced an
inquiry into certain of their business practices and
relationships with sovereign wealth fund clients. In
the third quarter of 2014, the SEC Staff issued Wells
notices to certain current and former employees of
BNY Mellon, informing them that the SEC Staff has
made a preliminary determination to recommend
enforcement action against them for alleged
violations of the U.S. Foreign Corrupt Practices Act
in connection with the provision of a limited number
of internships to relatives of sovereign wealth fund
officials. BNY Mellon received a similar Wells
notice in the fourth quarter of 2014. On Jan. 23,
2015, BNY Mellon received an additional subpoena
from the SEC expanding the scope of the SEC’s
inquiry into the provision of internships and
employment opportunities offered to officials and
relatives of officials at government-related entities.
BNY Mellon has fully cooperated with the SEC
Staff’s investigation.

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. 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
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, net of
recoveries, were $4.7 million in 2014 and $2.1
million in 2013.

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, 2014, $6.9 billion face
amount of securities were hedged with interest rate
swaps that had notional values of $7.0 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 “receive fixed rate,
pay variable rate” swaps with similar maturity,
repricing and fixed rate coupon. 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, 2014, $16.1 billion par value of debt was

BNY Mellon 223

Notes to Consolidated Financial Statements (continued)

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, 2014, forward foreign exchange contracts
with notional amounts totaling $7.0 billion were
designated as hedges.

In addition to forward foreign exchange contracts, we
also designate non-derivative financial instruments as
hedges of our net investments in foreign subsidiaries.
Those non-derivative financial instruments
designated as hedges of our net investments in
foreign subsidiaries were all long-term liabilities of
BNY Mellon in various currencies, and, at Dec. 31,
2014, had a combined U.S. dollar equivalent value of
$497 million.

Ineffectiveness related to derivatives and hedging
relationships was recorded in income as follows:

Ineffectiveness
(in millions)
Fair value hedges of securities
Fair value hedges of deposits
and long-term debt
Cash flow hedges
Other (a)
Total

Year ended Dec. 31,
2014
(20.6) $ 14.1 $

2013

2012
(3.3)

(14.8)
3.7
(14.6)
0.1
0.1
(0.1)
(0.1)
1.6
0.1
(35.2) $ 17.8 $ (16.4)

(a) Includes ineffectiveness recorded on foreign exchange

hedges.

hedged with interest rate swaps that had notional
values of $16.1 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,
2014, the hedged forecasted foreign currency
transactions and designated forward foreign exchange
contract hedges were $243 million (notional), with a
pre-tax loss of $12 million recorded in accumulated
other comprehensive income. This loss 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 various
foreign currencies with respect to certain interest-
bearing assets 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
corresponding transaction. As of Dec. 31, 2014, the
hedged interest bearing assets and designated forward
foreign exchange contract hedges were $150 million
(notional), with a pre-tax loss of less than $1 million
recorded in accumulated other comprehensive
income. This loss 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

224 BNY Mellon

Notes to Consolidated Financial Statements (continued)

The following table summarizes the notional amount and credit exposure of our total derivative portfolio at Dec. 31,
2014 and Dec. 31, 2013.

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,
2014

Dec. 31,
2013

Dec. 31,
2014

Dec. 31,
2013

Dec. 31,
2014

Dec. 31,
2013

$ 23,145 $ 21,402 $

7,344

7,382

477 $
374
851 $

1,206 $
76
1,282 $

385 $
62
447 $

167
336
503

420,142
24,123
101

528,401
10,842
—

$ 731,628 $ 767,341 $ 17,150 $ 14,712 $ 17,654 $ 15,212
3,536
1,003
—
$ 23,807 $ 19,006 $ 24,570 $ 19,751
$ 24,658 $ 20,288 $ 25,017 $ 20,254
(14,421)
5,833

6,367
549
—

6,280
377
—

3,610
684
—

4,482 $

7,220 $

6,311 $

(18,347)

(15,806)

(17,797)

(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) Effect of master netting agreements includes cash collateral received and paid of $1,589 million and $1,039 million, respectively, at Dec.

31, 2014, and $1,841 million and $456 million, respectively, at Dec. 31, 2013.

At Dec. 31, 2014, $542 billion (notional) of interest rate contracts will mature within one year, $107 billion between
one and five years, and $106 billion after five years. At Dec. 31, 2014, $514 billion (notional) of foreign exchange
contracts will mature within one year, $15 billion between one and five years, and $7 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,

2014
(921) $

2013

2012

Location of gain or
(loss) recognized in
income on hedged
item

Gain or (loss) recognized
in hedged item
Year ended Dec. 31,

2014

2013

2012

Interest rate contracts

Net interest revenue

486 $

(47) Net interest revenue

886 $

(468) $

Gain or (loss)

recognized

in accumulated

OCI on derivatives

(effective portion)

Year ended Dec. 31,

2014

2013

2012

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,

2014

2013

2012

Location of gain or
(loss) recognized in
income on derivatives
(ineffective portion and
amount excluded from
effectiveness testing)

(2) $
(27) $
(6)
(3)
36
154
(6)
7
22 $ 131 $ 241

4 Net interest revenue
2 Other revenue
236 Trading revenue
(1) Salary expense

(2) $
(28) $
(3)
(1)
36
154
10
(1)
41 $ 124 $ 239

1 Net interest revenue
3 Other revenue
236 Trading revenue
(1) Salary expense

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,

2014

2012
2013
$ — $ — $ —

0.1
(0.1)

—

—
—

—
0.1

$ 0.1 $ (0.1) $

0.1
—
—

BNY Mellon 225

Notes to Consolidated Financial Statements (continued)

Gain or (loss)
recognized in
accumulated OCI
on derivatives
(effective portion)
Year ended Dec. 31,

2014
$ (367) $

2013

2012

Derivatives in net
investment hedging
relationships

FX contracts

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,

2014

2013

2012

Location of gain or
(loss) recognized in
income on derivative
(ineffective portion and
amount excluded from
effectiveness testing)

(50) $ (181) Net interest revenue

(1) $

2 $ — Other revenue

$ (0.1) $ 0.1 $

Gain or (loss)

recognized in income on

derivatives
(ineffectiveness portion

and amount excluded from

effectiveness testing)

Year ended Dec. 31,

2014

2013

2012
1.6

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 historical 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.

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
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.

Revenue from foreign exchange and other trading
included the following:

Disclosure of contingent features in over-the-counter
(“OTC”) derivative instruments

Foreign exchange and other
trading revenue
(in millions)
Foreign exchange
Other trading revenue (loss):

Fixed income
Equity/other

Total other trading revenue
(loss)

Total foreign exchange and
other trading revenue

226 BNY Mellon

2014

2012
$ 578 $ 608 $ 520

2013

(16)
8

(8)

38
28

142
30

172

$ 570 $ 674 $ 692

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

Notes to Consolidated Financial Statements (continued)

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,
2014, existing collateral arrangements would have
required us to have posted an additional $367 million
of collateral.

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, 2014 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)
89 million
A3/A-
1,143 million
Baa2/BBB
2,764 million
Ba1/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.

$
$
$

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.

Offsetting of derivative assets and financial assets at Dec. 31, 2014

Gross
amounts
offset in the
balance

sheet (a)

Gross assets
recognized

Net assets Gross amounts not offset in
recognized
on the
balance
sheet

Financial
instruments

the balance sheet

Cash
collateral
received Net amount

15,457 $
5,291
303

13,942
4,246
159

21,051

18,347

1,515 $
1,045
144

2,704

408 $
176
6

590

— $
—
—

—

1,107
869
138

2,114

(in millions)
Derivatives subject to netting
arrangements:
Interest rate contracts
Foreign exchange contracts
Equity contracts

Total derivatives subject to netting
arrangements

Total derivatives not subject to netting
arrangements

Total derivatives
Reverse repurchase agreements
Securities borrowing
Total

434 (b)
—
18,781
(a) Includes the effect of netting agreements and net cash collateral received. The offset related to the over-the-counter derivatives was

3,607
6,311
11,200
9,033
26,544 $

—
590
11,198
8,733
20,521 $

3,607
24,658
11,634
9,033
45,325 $

—
—
—
—
— $

—
18,347

3,607
5,721
2
300
6,023

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.

BNY Mellon 227

Notes to Consolidated Financial Statements (continued)

Offsetting of derivative assets and financial assets at Dec. 31, 2013

Gross
amounts
offset in the
balance

Net assets
recognized
on the
sheet (a) balance sheet

Gross amounts not offset in
the balance sheet

Financial
instruments

Cash
collateral
received

Gross assets
recognized

Net amount

(in millions)
Derivatives subject to netting
arrangements:
Interest rate contracts
Foreign exchange contracts
Equity contracts

Total derivatives subject to netting
arrangements

18,183

15,806

14,798 $
2,778
607

13,231
2,294
281

1,567 $
484
326

2,377

599 $
18
3

620

— $
—
—

—

968
466
323

1,757

Total derivatives not subject to netting
arrangements

—
15,806
1,096 (b)
—
16,902
(a) Includes the effect of netting agreements and net cash collateral received. The offset related to the over-the-counter derivatives was

Total derivatives
Reverse repurchase agreements
Securities borrowing
Total

2,105
20,288
5,511
4,669
30,468 $

2,105
4,482
4,415
4,669
13,566 $

—
620
4,413
4,555
9,588 $

—
—
—
—
— $

2,105
3,862
2
114
3,978

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 derivative liabilities and financial liabilities at Dec. 31, 2014

(in millions)
Derivatives subject to netting
arrangements:
Interest rate contracts
Foreign exchange contracts
Equity contracts

Total derivatives subject to netting
arrangements

Total derivatives not subject to netting
arrangements

Total derivatives
Repurchase agreements
Securities lending
Total

Gross
amounts
offset in the
balance

sheet (a)

Net liabilities
recognized
on the
balance sheet

Gross
liabilities
recognized

Gross amounts not offset in
the balance sheet

Financial
instruments

Cash
collateral

pledged Net amount

16,884 $
4,241
481

14,467
3,149
181

2,417 $
1,092
300

1,815 $
399
250

21,606

17,797

3,809

2,464

3,411
25,017
9,160
2,571
36,748 $

—
17,797

434 (b)
—
18,231

3,411
7,220
8,726
2,571
18,517 $

—
2,464
8,722
2,494
13,680 $

— $
—
—

—

—
—
—
—
— $

602
693
50

1,345

3,411
4,756
4
77
4,837

(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 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.

228 BNY Mellon

Notes to Consolidated Financial Statements (continued)

Offsetting of derivative liabilities and financial liabilities at Dec. 31, 2013

(in millions)
Derivatives subject to netting
arrangements:
Interest rate contracts
Foreign exchange contracts
Equity contracts

Total derivatives subject to netting
arrangements

Total derivatives not subject to netting
arrangements

Total derivatives
Repurchase agreements
Securities lending
Total

Gross
amounts
offset in the
balance

sheet (a)

Net liabilities
recognized on
the balance
sheet

Gross amounts not offset in
the balance sheet

Financial
instruments

Cash
collateral
pledged

Gross
liabilities
recognized

Net amount

14,914 $
2,292
800

12,429
1,711
281

2,485 $
581
519

1,686 $
382
269

18,006

14,421

3,585

2,337

2,248
20,254
8,581
1,947
30,782 $

—
14,421

1,096 (b)
—
15,517

2,248
5,833
7,485
1,947
15,265 $

—
2,337
7,482
1,884
11,703 $

— $
—
—

—

—
—
—
—
— $

799
199
250

1,248

2,248
3,496
3
63
3,562

(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 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

Business results are subject to reclassification when
organizational changes are made or whenever
improvements are made in the measurement
principles. 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.
In 2014, we reclassified the results of Newton’s
private client business from the Investment
Management business to the Other segment. The
reclassifications did not impact consolidated results.
All prior periods have been restated.

The accounting policies of the businesses are the
same as those described in Note 1 of the Notes to
Consolidated Financial Statements.

BNY Mellon 229

Notes to Consolidated Financial Statements (continued)

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.

• 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

230 BNY Mellon

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.

• Restructuring charges recorded in 2014 relate to
corporate-level initiatives and were therefore
recorded in the Other segment. 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
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
2014, $2.3 billion in 2013 and $2.3 billion in 2012 of
international operations domiciled in the UK which
comprised 15%, 15% and 16% of total revenue,
respectively.

Notes to Consolidated Financial Statements (continued)

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

For the year ended Dec. 31, 2014
(dollar amounts in millions)
Fee and other revenue
Net interest revenue

Total revenue

Provision for credit losses
Noninterest expense

Income before taxes

Investment
Management
$

3,733
274
4,007
—
3,106
901
22%

Investment
Services
7,719
2,340
10,059
—
8,124
1,935

(a) $

(a)

(a) $

Consolidated
$

12,728
2,880
15,608
(48)
12,177
3,479

(a)

Pre-tax operating margin (b)
Average assets
(a) Both total fee and other revenue and total revenue include income from consolidated investment management funds of $163 million, net
of noncontrolling interests of $84 million, for a net impact of $79 million. Income before taxes is net of noncontrolling interests of $84
million.

266,483

372,566

37,783

19%

22%

(b) Income before taxes divided by total revenue.

For the year ended Dec. 31, 2013
(dollar amounts in millions)
Fee and other revenue (a)
Net interest revenue
Total revenue (a)

Provision for credit losses
Noninterest expense

Investment
Management
3,668
$
260
3,928
—
2,960
968
25%

(b) $

(b)

Investment
Services
7,640
2,515
10,155
1
7,402
2,752

Consolidated
11,959
$
3,009
14,968
(35)
11,306
3,697

(b)

Income (loss) before taxes (a)
Pre-tax operating margin (a)(c)
Average assets
(a) Consolidated results and Other segment results have been restated to reflect the retrospective application of adopting new accounting
guidance in 2014 related to our investments in qualified affordable housing projects (ASU 2014-01). See Note 2 of the Notes to
Consolidated Financial Statements for additional information.

247,430

342,311

38,546

(b) $

27%

25%

Other
1,276
266
1,542
(48)
947
643
N/M
68,300

Other
651
234
885
(36)
944
(23)
N/M
56,335

For the year ended Dec. 31, 2012
(dollar amounts in millions)
Fee and other revenue (a)
Net interest revenue
Total revenue (a)

Provision for credit losses
Noninterest expense

Income before taxes (a)

Investment
Management
3,464
$
214
3,678
—
2,782
896
24%

Investment
Services
7,345
2,439
9,784
(3)
7,560
2,227

(b) $

(b)

(b) $

Consolidated
11,561
$
2,973
14,534
(80)
11,333
3,281

(b)

Other
752
320
1,072
(77)
991
158
N/M
56,028

Pre-tax operating margin (a)(c)
Average assets
(a) Consolidated results and Other segment results have been restated to reflect the retrospective application of adopting new accounting
guidance in 2014 related to our investments in qualified affordable housing projects (ASU 2014-01). See Note 2 of the Notes to
Consolidated Financial Statements for additional information.

315,381

223,233

36,120

23%

BNY Mellon 231

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)
2014

EMEA

International
APAC

Total
International

Total
Domestic

Other

2013

2012

Total assets at period end (a)
Total revenue
Income before income taxes
Net income

$ 86,189 (b) $ 16,812 $

3,931 (b)

985
775

1,383
913
719

Total assets at period end (a)
Total revenue
Income before income taxes
Net income

$ 70,046 (b) $ 20,498 $

3,821 (b)
1,015
822

936
493
399

Total assets at period end (a)
Total revenue
Income before income taxes
Net income

$ 78,912 (b) $ 18,064 $

3,727 (b)

936
761

902
429
349

1,516 $
645
365
287

1,808 $
738
414
335

1,816 $
646
326
265

104,517 $
5,959
2,263
1,781

280,786
9,733
1,300
870

Total

385,303
15,692
3,563
2,651

92,352 $

5,495
1,922
1,556

282,164 (c) $
9,553 (c)
1,855 (c)
629 (c)

374,516 (c)
15,048 (c)
3,777 (c)
2,185 (c)

98,792 $

5,275
1,691
1,375

260,434 (c) $
9,335 (c)
1,666 (c)
1,140 (c)

359,226 (c)
14,610 (c)
3,357 (c)
2,515 (c)

(a) Total assets include long-lived assets, which are not considered by management to be significant in relation to total assets. Long-lived

assets are primarily located in the United States.

(b) Includes revenue of approximately $2.3 billion, $2.3 billion and $2.3 billion and assets of approximately $46.2 billion, $36.4 billion and
$40.0 billion in 2014, 2013, and 2012, respectively, of international operations domiciled in the UK, which is 15%, 15% and 16% of
total revenue and 12%, 10%, and 11% of total assets, respectively.

(c) Results for years ended Dec. 31, 2013 and Dec. 31, 2012 were restated to reflect the retrospective application of adopting new

accounting guidance in 2014 related to our investments in qualified affordable housing projects (ASU 2014-01). See Note 2 of the Notes
to Consolidated Financial Statements for additional information.

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

Year ended Dec. 31,

2014

4 $

1,990
2,462
250

2013

5 $

209
50
50

2012
7
134
96
163

232 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, 2014 and 2013, 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, 2014. 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, 2014 and 2013, and the results of their operations and their
cash flows for each of the years in the three-year period ended December 31, 2014, 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, 2014, based on criteria
established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO), and our report dated February 27, 2015 expressed an
unqualified opinion on the effectiveness of BNY Mellon’s internal control over financial reporting.

/s/ KPMG LLP

New York, New York
February 27, 2015

BNY Mellon 233

Directors, Executive Committee and Other Executive Officers

Effective February 27, 2015

Directors
Nicholas M. Donofrio
Retired Executive Vice President,
Innovation and Technology
IBM Corporation
Developer, manufacturer and provider of
advanced information technologies and services Mark A. Nordenberg

John A. Luke, Jr.
Chairman and Chief Executive Officer
MeadWestvaco Corporation
Manufacturer of packaging and specialty
chemicals

Joseph J. Echevarria
Retired Chief Executive Officer
Deloitte LLP
Global provider of audit, consulting, financial
advisory, risk management, tax and related
services

Chancellor Emeritus
Chair of the University of Pittsburgh Institute of
Politics
University of Pittsburgh
Major public research university

Catherine A. Rein
Retired Senior Executive Vice President and
Chief Administrative Officer

Insurance and financial services company

Edward P. Garden
Chief Investment Officer and a founding partner, MetLife, Inc.
Trian Fund Management, L.P.
Alternative investment management firm

Jeffrey A. Goldstein
Managing Director, Hellman & Friedman LLC
Private equity firm

Gerald L. Hassell
Chairman and Chief Executive Officer
The Bank of New York Mellon Corporation

John M. Hinshaw
Executive Vice President of Technology and
Operations at Hewlett-Packard Company
Global provider of products, technologies,
software solutions and services

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
Ingredion Incorporated (formerly Corn Products
International, Inc.)
Global ingredient solutions provider

Richard F. Brueckner *
Chief of Staff

Michael Cole-Fontayn
Chairman,
Europe, the Middle East and Africa

Thomas P. (Todd) Gibbons *
Chief Financial Officer

Mitchell E. Harris
President,
Investment Management

Monique R. Herena *
Chief Human Resources Officer

Kurtis R. Kurimsky *
Acting Controller

Suresh Kumar
Chief Information Officer

Stephen D. Lackey
Chairman,
Asia Pacific

J. Kevin McCarthy *
General Counsel

John A. Park *
Controller

Wesley W. von Schack
Chairman
AEGIS Insurance Services, Inc.
Mutual liability and property insurance company Brian T. Shea *

Karen B. Peetz *
President

Executive Committee and Other Executive
Officers

Gerald L. Hassell *
Chairman and Chief Executive Officer

Curtis Y. Arledge *
Chief Executive Officer,
Investment Management and BNY Mellon
Markets Group

Chief Executive Officer,
Investment Services

Douglas H. Shulman
Head of Client Service Delivery

James S. Wiener *
Chief Risk Officer

Kurt D. Woetzel
President of BNY Mellon Markets Group

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

Designated as an Executive Officer.

234 BNY Mellon

Performance Graph

Cumulative shareholder returns (a)
2011
(in dollars)
73.5 $
The Bank of New York Mellon Corporation
93.0
S&P 500 Financial Index
117.5
S&P 500 Index
91.3
New Peer Group
83.0
Old Peer Group
(a) Returns are weighted by market capitalization at the beginning of the measurement period.

2009
100.0 $
100.0
100.0
100.0
100.0

2010
109.4 $
112.1
115.1
106.8
108.2

Dec. 31,

2012
97.1 $
119.7
136.3
115.6
113.3

2013
134.6 $
162.3
180.4
164.8
159.1

2014
159.2
187.0
205.1
190.3
179.8

This graph shows The Bank of New York Mellon Corporation’s cumulative total shareholder returns over the five-
year period from Dec. 31, 2009 to Dec. 31, 2014. In 2014, our peer group was updated to further align The Bank of
New York Mellon Corporation with those with a similar strategic direction and relative size. Our new 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 old
peer group and new peer group listed below. The comparison assumes a $100 investment on Dec. 31, 2009 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 each of the peer groups detailed below and assumes that all dividends were reinvested.

Old 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

New Peer Group
BlackRock, Inc.

The Charles Schwab Corporation

Franklin Resources, Inc.

JPMorgan Chase & Co.

Morgan Stanley

Northern Trust Corporation

The PNC Financial Services Group, Inc.

Prudential Financial, Inc.

State Street Corporation

U.S. Bancorp
Wells Fargo & Company

BNY Mellon 235

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 manage
ment and investment services in 35 countries and more than 100 markets. At December 31, 2014, BnY Mellon had $28.5 trillion in assets under custody
and/or administration, and $1.7 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 14, 2015.

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-Float
ing 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 1855.

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 the Investor
Relations at the Bank of new York Mellon Corporation,
one Wall Street, new York, nY 10286.

the 2014 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 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 or call +1 800 205 7699.

Direct Stock Purchase and Dividend
Reinvestment Plan
the Direct Stock purchase and Dividend Reinvestment plan provides
a way to purchase shares of common stock directly from BnY Mellon
at the current market value. nonshareholders may purchase their first
shares of BnY Mellon’s common stock through the plan, and sharehold
ers may increase their shareholding by reinvesting cash dividends and
through optional cash investments. plan details are in a prospectus,
which may be viewed online at www.computershare.com 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. to have dividends deposited electronically, go to

www.computershare.com to set up your account(s) for direct deposit.

If you prefer, you may also send a request 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

Shareholders can register to receive shareholder information
electronically. to enroll, visit www.computershare.com.

By phone
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. +1 800 952 9245
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