Edgar Filing: Bank of New York Mellon CORP

Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[ ü ] Quarterly Report Pursuant To Section 13 or 15(d)

of the Securities Exchange Act of 1934

For the Quarterly Period Ended June 30, 2009

[ ] Transition Report Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

Commission File No. 000-52710

THE BANK OF NEW YORK MELLON CORPORATION

(Exact name of registrant as specified in its charter)

Delaware

13-2614959

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer Identification No.)

One Wall Street

New York, New York 10286

(Address of principal executive offices)(Zip Code)

Registrant’s telephone number, including area code — (212) 495-1784

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ü No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ü No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.


		Large accelerated filer [ ü ]		Accelerated filer [ ]
		Non-accelerated filer [ ] (Do not check if a smaller reporting company)		Smaller reporting company [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No ü

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.


Class				Outstanding as of June 30, 2009
Common Stock, $0.01 par value				1,202,827,735

THE BANK OF NEW YORK MELLON CORPORATION

SECOND QUARTER 2009 FORM 10-Q

TABLE OF CONTENTS


		Page
Consolidated Financial Highlights (unaudited)		2

Part I – Financial Information

Items 2. and 3. Management’s Discussion and Analysis of Financial Condition and Results of Operations; Quantitative and Qualitative Disclosures About Market Risk:
General		4
Overview		4
Second quarter 2009 events		5
Highlights of second quarter 2009 results		6
Impact of the current market environment on our business		7
Fee and other revenue		9
Net interest revenue		12
Average balances and interest rates		14
Noninterest expense		16
Income taxes		17
Business segments review		17
Critical accounting estimates		35
Consolidated balance sheet review		41
Support agreements		50
Liquidity and dividends		51
Capital		54
Trading activities and risk management		56
Foreign exchange and other trading		58
Asset/liability management		58
Off-balance-sheet financial instruments		59
Supplemental information – Explanation of Non-GAAP financial measures		59
Recent accounting developments		65
Government monetary policies and competition		67
Website information		67

Item 1. Financial Statements:
Consolidated Income Statement (unaudited)		68
Consolidated Balance Sheet (unaudited)		70
Consolidated Statement of Cash Flows (unaudited)		71
Consolidated Statement of Changes in Equity (unaudited)		72

Notes to Consolidated Financial Statements		73

Item 4. Controls and Procedures		111

Forward-looking Statements		112

Part II—Other Information

Item 1. Legal Proceedings		113

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		113

Item 4. Submission of Matters to a Vote of Security Holders		113

Item 6. Exhibits		114

Signature		116

Index to Exhibits		117

The Bank of New York Mellon Corporation

Consolidated Financial Highlights (unaudited)


	Quarter ended									Six months ended
(dollar amounts in millions, except per share amounts and unless otherwise noted)	June 30, 2009			March 31, 2009			June 30, 2008			June 30, 2009			June 30, 2008
Reported results applicable to common shareholders of The Bank of New York Mellon Corporation:
Net income	$	176		$	322		$	309		$	498		$	1,055
Basic EPS		0.15			0.28			0.27			0.43			0.92
Diluted EPS		0.15			0.28			0.27			0.43			0.92

Results from continuing operations applicable to common shareholders of The Bank of New York Mellon Corporation:
Income from continuing operations	$	267		$	363		$	303		$	630		$	1,045
Basic EPS from continuing operations		0.23			0.31			0.26			0.54			0.91
Diluted EPS from continuing operations		0.23			0.31			0.26			0.54			0.91

Continuing operations:
Fee and other revenue	$	2,257		$	2,136		$	2,989		$	4,393		$	5,971
Net interest revenue		700			775			388			1,475			1,131

Total revenue	$	2,957		$	2,911		$	3,377		$	5,868		$	7,102

Return on common equity (annualized) ^(a)		4.0	%		5.8	%		4.3	%		4.9	%		7.2	%
Non-GAAP adjusted ^(b)		6.5	%		10.5	%		13.2	%		8.5	%		13.0	%

Return on tangible common equity (annualized) – Non-GAAP ^(a)		18.4	%		28.8	%		18.5	%		23.2	%		27.5	%
Non-GAAP adjusted ^(b)		23.8	%		43.9	%		45.9	%		33.0	%		43.1	%

Fee and other revenue as a percent of total revenue (FTE)		76	%		73	%		88	%		75	%		84	%
Non-GAAP adjusted ^(b)		78	%		76	%		80	%		77	%		80	%

Annualized fee revenue per employee (based on average headcount) (in thousands)	$	241		$	234		$	298		$	238		$	294

Percent of non-U.S. fee revenue and net interest revenue (FTE)		31	%		29	%		37	% ^(c)		30	%		35	% ^(c)

Pre-tax operating margin (FTE)		18	%		20	%		19	%		19	%		25	%
Non-GAAP adjusted ^(b)		31	%		33	%		37	%		32	%		37	%

Net interest margin (FTE) ^(d)		1.80	%		1.87	%		1.11	% ^(c)		1.84	%		1.61	% ^(c)

Assets under management (“AUM”) at period end (in billions)	$	926		$	881		$	1,113		$	926		$	1,113

Assets under custody and administration (“AUC”) at period end (in trillions)	$	20.7		$	19.5		$	23.0		$	20.7		$	23.0
Equity securities		27	%		25	%		25	%		27	%		25	%
Fixed income securities		73	%		75	%		75	%		73	%		75	%
Cross-border assets at period end (in trillions)	$	7.8		$	7.3		$	10.3		$	7.8		$	10.3

Market value of securities on loan at period end (in billions) ^(e)	$	290		$	293		$	588		$	290		$	588

Average common shares and equivalents outstanding (in thousands):
Basic		1,171,081			1,146,070			1,135,153			1,158,649			1,134,710
Diluted		1,174,466			1,146,943			1,142,936			1,160,620			1,143,312

Capital ratios ^(f)
Tier 1 capital ratio		12.5	%		13.8	% ^(g)		9.3	%		12.5	%		9.3	%
Tier 1 common to risk-weighted assets ratio – Non-GAAP ^(b)		11.1	%		10.0	%		7.9	%		11.1	%		7.9	%
Total (Tier 1 plus Tier 2) capital ratio		16.0	%		17.5	%		12.9	%		16.0	%		12.9	%
Common shareholders’ equity to assets ratio		13.4	%		12.5	%		14.2	%		13.4	%		14.2	%
Tangible common equity to tangible assets ratio – Non-GAAP ^(b)		4.8	%		4.2	%		4.6	%		4.8	%		4.6	%

2 The Bank of New York Mellon Corporation

The Bank of New York Mellon Corporation

Consolidated Financial Highlights (unaudited) (continued)


	Quarter ended									Six months ended
(dollar amounts in millions, except per share amounts and unless otherwise noted)	June 30, 2009			March 31, 2009			June 30, 2008			June 30, 2009			June 30, 2008
Return on average assets (annualized)^(a)		0.52	%		0.68	%		0.63	%		0.60	%		1.07%

Selected average balances
Interest-earning assets ^(h)	$	157,265		$	167,427		$	142,032		$	162,318		$	142,447
Total assets	$	208,533		$	220,119		$	195,997		$	214,294		$	198,394
Interest-bearing deposits ^(h)	$	98,896		$	101,983		$	93,932		$	100,430		$	92,969
Noninterest-bearing deposits ^(h)	$	32,852		$	43,051		$	24,300		$	37,924		$	25,013
Total shareholders’ equity	$	28,934		$	27,978		$	28,507		$	28,458		$	29,029

Other
Employees		41,800			41,700			42,700			41,800			42,700
Dividends per common share	$	0.09		$	0.24		$	0.24		$	0.33		$	0.48
Dividend yield (annualized)		1.2	%		3.4	%		2.5	%		2.3	%		2.5%
Closing common stock price per common share	$	29.31		$	28.25		$	37.83		$	29.31		$	37.83
Market capitalization	$	35,255		$	32,585		$	43,356		$	35,255		$	43,356

Book value per common share	$	22.68		$	22.03		$	24.93		$	22.68		$	24.93

Tangible book value per common share – Non-GAAP ^(b)	$	6.60		$	5.48		$	7.19		$	6.60		$	7.19
Period end common shares outstanding (in thousands)		1,202,828			1,153,450			1,146,070			1,202,828			1,146,070

^(a)

Return on common equity on a net income basis was 2.7% for the second quarter of 2009, 5.2% for the first quarter of 2009, 4.4% for the second quarter of 2008, 3.9% for the first six months of 2009 and 7.3% for the first six months of 2008. Return on average assets on a net income basis was 0.34% for the second quarter of 2009, 0.59% for the first quarter of 2009, 0.63% for the second quarter of 2008, 0.47% for the first six months of 2009 and 1.07% for the first six months of 2008. Return on average assets was calculated on a continuing operations basis even though the prior period balance sheets, in accordance with GAAP, have not been restated for discontinued operations.

^(b)

See Supplemental Information beginning on page 59 for a calculation of these ratios.

^(c)

Excluding the SILO charge, the percent of non-U.S. fee and net interest revenue was 33% for both the quarter and six months ended June 30, 2008, respectively, and the net interest margin was 2.17% and 2.13% for the quarter and six months ended June 30, 2008, respectively.

^(d)

Prior period calculated on a continuing operations basis, even though the balance sheet, in accordance with GAAP, is not restated for discontinued operations.

^(e)

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

^(f)

Includes discontinued operations.

^(g)

The Tier 1 capital ratio, excluding the TARP preferred stock, was 11.2% at March 31, 2009.

^(h)

Excludes the impact of discontinued operations.

The Bank of New York Mellon Corporation 3

Part I – Financial Information

Items 2. and 3. Management’s Discussion and Analysis of Financial Condition and Results of Operations; Quantitative and Qualitative Disclosures about Market Risk

General

In this Quarterly Report on Form 10-Q, references to “our,” “we,” “us,” the “Company,” and similar terms refer to The Bank of New York Mellon Corporation.

Certain business terms used in this document are defined in the glossary included in our 2008 Annual Report on

Form 10-K.

The following should be read in conjunction with the Consolidated Financial Statements included in this report. Investors should also read the section entitled Forward-looking Statements.

How we reported results

All information in this Quarterly Report on Form 10-Q is reported on a continuing operations basis, unless otherwise noted. For a description of discontinued operations, see Note 4 to the Notes to Consolidated Financial Statements.

Throughout this Form 10-Q, certain measures, which are noted, exclude certain items. The Company believes that these measures are useful to investors because they permit a focus on period-to-period comparisons which relate to the ability of the Company to enhance revenues and limit expenses in circumstances where such matters are within the Company’s control. The excluded items in general relate to situations where accounting/regulatory requirements require charges unrelated to operational initiatives. We also present certain amounts on a fully taxable equivalent (FTE) basis. We believe that this presentation allows for comparison of amounts arising from both taxable and tax-exempt sources and is consistent with industry practice. The adjustment to an FTE basis has no impact on net income. See the Supplemental information – Explanation of Non-GAAP financial measures beginning on page 59 for a reconciliation of amounts presented in accordance with GAAP to adjusted Non-GAAP amounts.

In the first quarter of 2009, we adopted Financial Accounting Standards Board (“FASB”) Staff Position No. 115-2 and FASB 124-2 (“SFAS 115-2”) (ASC 320-10) “Recognition and Presentation of

Other-Than-Temporary Impairments” and FASB Staff Position No. 157-4 (“SFAS 157-4”) (ASC 820-10), “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly”. The impact of adopting SFAS 115-2 (ASC 320-10) and SFAS 157-4 (ASC 820-10) is discussed in Critical Accounting Estimates and Notes 5 and 16 to the Notes to Consolidated Financial Statements.

Overview

The Bank of New York Mellon Corporation (NYSE symbol: BK) is a global leader in providing a comprehensive array of services that enable institutions and individuals to manage and service their financial assets in more than 100 markets worldwide. We strive to be the global provider of choice for asset and wealth management and institutional services and be recognized for our broad and deep capabilities, superior client service and consistent outperformance versus peers. Our global client base consists of financial institutions, corporations, government agencies, endowments and foundations and high-net-worth individuals. At June 30, 2009, we had $20.7 trillion in assets under custody and administration, $926 billion in assets under management, serviced $11.8 trillion in outstanding debt and, on average, processed $1.8 trillion global payments per day.

The Company’s businesses benefit during periods of global growth in financial assets and concentration of wealth, and also benefit from the globalization of the investment process. Over the long term, our financial goals are focused on deploying capital to accelerate the long-term growth of our businesses and on achieving superior total returns to shareholders by generating first quartile earnings per share growth over time relative to a group of peer companies.

Key components of our strategy include: providing superior client service versus peers (as measured through independent surveys); strong investment performance (relative to investment benchmarks); above median revenue growth (relative to peer

4 The Bank of New York Mellon Corporation

companies for each of our businesses); an increasing percentage of revenue and income derived from outside the U.S.; successful integration of acquisitions; competitive margins and positive operating leverage. We have established Tier 1 capital as our principal capital measure and have established a targeted minimum ratio of Tier 1 capital to risk-weighted assets of 10%.

Second quarter 2009 events

Repurchased preferred stock and warrant related to TARP

In June 2009, the Company repurchased the 3 million shares of its Series B preferred stock issued to the U.S. Treasury in October 2008 as part of the Troubled Asset Relief Program (“TARP”) Capital Purchase Program. The Company paid the U.S. Treasury $3.0 billion, which reflects the liquidation value of the preferred stock.

The Company recorded an after-tax redemption charge of $196.5 million in the second quarter of 2009 related to the repurchase of the preferred stock issued to the Treasury as part of TARP. During the second quarter, the Company also recorded $39.8 million for the final dividend/accretion on the Series B preferred stock. The repurchase premium and preferred stock dividends/accretion reduced earnings per common share by $0.23 in the second quarter of 2009.

On Aug. 5, 2009, the Company repurchased the warrant issued to the U.S. Treasury in connection with the TARP Capital Purchase Program. The repurchase price was $136 million.

Common stock and senior debt offerings

In the second quarter of 2009, the Company issued 48 million common shares, at a weighted-average price of $28.75 per common share, for a total of $1.4 billion. In addition to the common stock offering, the Company issued $1.5 billion of non-guaranteed senior debt comprised of $1.0 billion of 5-year notes and $500 million of 10-year notes. The proceeds from the equity and debt offerings were used for general corporate purposes, which included funding the repurchase of the preferred stock related to TARP.

Regulatory stress test

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

Special FDIC assessment on insured depository institutions

In the second quarter of 2009, the Company recorded a special emergency deposit assessment of 5 basis points on each FDIC-insured depository institution’s total assets, minus its Tier 1 capital, as of June 30, 2009 subject to a cap of 10 basis points of average assessable domestic deposits for the second quarter of 2009. The special assessment resulted in a charge of $61 million (pre-tax), or $0.03 per common share and was recorded as other expense. The special assessment will be used by the FDIC to rebuild the Deposit Insurance Fund and help maintain public confidence in the banking system.

Discontinued operations

In July 2009, we announced an agreement to sell Mellon United National Bank (“MUNB”) located in Florida. As a result, we adopted discontinued operations accounting for MUNB. This business no longer fits our strategic focus on our asset management and securities servicing businesses. The business was formerly included in the Other segment. The transaction is subject to regulatory approvals and is expected to close by the first quarter of 2010.

The income statements for all periods in this Form 10-Q have been restated to reflect the discontinued operations treatment of MUNB. The restatement resulted in a reduction to previously reported levels of net interest revenue and the net interest margin; a slight reduction in both treasury services and other fee revenue; a reduction in the provision for credit losses; a reduction in noninterest expense; and a change in continuing earnings per share.

The Bank of New York Mellon Corporation 5

Highlights of second quarter 2009 results

We reported continuing net income applicable to the common shareholders of The Bank of New York Mellon Corporation of $267 million and diluted earnings per common share of $0.23 in the second quarter of 2009, compared with $303 million, or diluted earnings per common share of $0.26, in the second quarter of 2008 and $363 million, or diluted earnings per common share of $0.31, in the first quarter of 2009.

Net income applicable to common shareholders, including discontinued operations, totaled $176 million, or $0.15 per diluted common share, in the second quarter of 2009, compared with $309 million, or $0.27 per diluted common share, in the second quarter of 2008 and $322 million, or $0.28 per diluted common share, in the first quarter of 2009.

Results for the second quarter of 2009 reflect the following:

•

Investment write-downs of $256 million (pre-tax), or $0.14 per diluted common share primarily reflecting continued deterioration in the credit quality of residential mortgage-backed securities. (See Consolidated balance sheet review beginning on page 41);

•

An after-tax redemption charge of $196.5 million related to the repurchase of the Series B preferred stock issued to the U.S. Treasury as part of the TARP Capital Purchase Program and $39.8 million for the final dividend/accretion on the Series B preferred stock. These items decreased earnings per share by $0.23 per diluted common share in the second quarter of 2009;

•

The special assessment imposed by the FDIC of $61 million (pre-tax), or $0.03 per diluted common share (See Noninterest expense beginning on page 16);

•

Merger and integration (“M&I”) expenses of $59 million (pre-tax), or $0.03 per diluted common share. (See Noninterest expense beginning on page 16); and

•

Tax benefits of $134 million, or $0.11 per diluted common share, primarily attributable to the final LILO/SILO tax settlement at an amount lower than originally recorded. (See Income taxes on page 17).

Highlights for the second quarter of 2009 include:

•

Assets under custody and administration totaled $20.7 trillion at June 30, 2009 compared with $23.0 trillion at June 30, 2008 and $19.5 trillion at March 31, 2009. The year-over-year decrease reflects the impact of new business converted which was more than offset by lower market values, while the sequential increase primarily reflects the impact of new business converted and higher market values. (See the Institutional Services sector beginning on page 27).

•

Assets under management totaled $926 billion at June 30, 2009 compared with $1.1 trillion at June 30, 2008 and $881 billion at March 31, 2009. The year-over-year decrease reflects the impact of market depreciation and net outflows, while the sequential increase primarily reflects the impact of market appreciation offset in part by long-term outflows. (See the Asset and Wealth Management sector beginning on page 22).

•

Securities lending assets stabilized at $290 billion at June 30, 2009 compared with $293 billion at March 31, 2009 and $588 billion at June 30, 2008. (See Asset Servicing beginning on page 28).

•

Securities servicing revenue totaled $1.293 billion compared with $1.581 billion in the second quarter of 2008. Continued strong new business wins in our securities servicing businesses were more than offset by the impact of lower volumes and spreads associated with securities lending in asset servicing, lower market values and lower levels of fixed income issuances globally. Securities lending fee revenue totaled $97 million in the second quarter of 2009 compared with $202 million in the second quarter of 2008. (See the Institutional Services sector beginning on page 27).

•

Asset and wealth management fees, including performance fees, totaled $637 million in the second quarter of 2009 compared with $860 million in the second quarter of 2008. The decrease reflects the global weakness in market values partially offset by higher performance fees. (See the Asset Management and Wealth Management segments beginning on page 24).

•

Foreign exchange and other trading activities revenue totaled $237 million in the second quarter of 2009 compared with $308 million in the second quarter of 2008. The decrease reflects lower trading revenue primarily due to the lower valuation of credit derivatives used to

6 The Bank of New York Mellon Corporation

hedge the loan portfolio, lower capital markets related fees, as well as lower foreign exchange revenue driven by lower volumes. (See Fee and other revenue beginning on page 9).

•

Net interest revenue totaled $700 million in the second quarter of 2009 compared with $388 million in the second quarter of 2008. The increase primarily reflects the SILO charge recorded in the second quarter of 2008. (See Net interest revenue beginning on page 12).

•

The provision for credit losses was $61 million in the second quarter of 2009 compared with $13 million in the second quarter of 2008. The increase primarily reflects continued deterioration in certain industry sectors. (See Asset quality and allowance for credit losses beginning on page 47).

•

Noninterest expense totaled $2.4 billion in the second quarter of 2009 compared with $2.7 billion in the second quarter of 2008. The decrease reflects lower staff expense, including lower incentives, as well as continued strong overall expense control. (See Noninterest expense beginning on page 16).

•

The unrealized net of tax loss on our available-for-sale securities portfolio was $4.4 billion at June 30, 2009. The unrealized net of tax loss was $4.5 billion at March 31, 2009 and $1.8 billion at June 30, 2008. (See Consolidated balance sheet review beginning on page 41).

•

The Tier 1 capital ratio was 12.5% at June 30, 2009 compared with 13.8% at March 31, 2009 and 9.3 % at June 30, 2008. Excluding the Series B preferred stock, the Tier 1 capital ratio was 11.2% at March 31, 2009. The increase in the Tier 1 capital ratio year-over-year primarily reflects the common stock issuance in the second quarter of 2009 and earnings retention. (See Capital beginning on page 54).

Impact of the current market environment on our business

The following section discusses the impact of the current market environment on the Company’s operations.

Impact on our business

Our Asset and Wealth Management businesses have been negatively impacted by global weakness in market values. The S&P 500 and the MSCI EAFE indices declined 28% and 34%, respectively, from

June 30, 2008, resulting in lower asset and wealth management fee revenue, and impacting performance fees and investment income related to seed capital investments.

Foreign exchange (“FX”) revenues returned to more normalized levels in the first half of 2009 from the record levels experienced in the fourth quarter of 2008, reflecting lower customer volumes and spreads.

Results in our securities lending business continue to be impacted by lower market valuations and spreads, as well as overall de-leveraging in the financial markets compared with 2008.

Market conditions continue to drive a lower volume of fixed income securities issuances globally, which has adversely impacted our Corporate Trust business.

The current low interest rate environment continues to adversely impact our net interest revenue and corresponding net interest margin and money market mutual fund related fees.

However, the market environment has also resulted in new opportunities for the Company, primarily through our Global Corporate Trust and Asset Servicing businesses. Among other things, these businesses continue to play a role in supporting governments’ stabilization efforts in North America and Europe to bring liquidity back to the financial markets.

Securities write-downs

The Company adopted SFAS 115-2 (ASC 320-10) and SFAS 157-4 (ASC 820-10) effective Jan. 1, 2009. Adopting these staff positions impacted both impairment charges and the unrealized loss on the securities portfolio. The continued disruption in the fixed income securities market has resulted in additional impairment charges. In the second quarter of 2009, we recorded write-downs of $256 million (pre-tax) reflecting the continued deterioration in credit quality of residential mortgage-backed securities. The unrealized loss on the securities portfolio was $4.4 billion at June 30, 2009, compared with $4.5 billion at March 31, 2009. The improvement in the net of tax loss on our securities portfolio reflects the tightening of spreads, partially offset by higher interest rates. See the Investment

The Bank of New York Mellon Corporation 7

securities discussion in Consolidated balance sheet review for additional information.

FDIC Temporary Liquidity Guarantee Program

In October 2008, the FDIC announced the Temporary Liquidity Guarantee Program (“TLGP”). This program, as amended by interim rules adopted in February and March 2009:

•

Guarantees certain types of senior unsecured debt issued by participating U.S. bank holding companies, U.S. savings and loan holding companies and FDIC-insured depositary institutions between Oct. 14, 2008 and Oct. 31, 2009, including promissory notes, commercial paper and any unsecured portion of senior debt. Prepayment of debt not guaranteed by the FDIC and replacement with FDIC-guaranteed debt is not permitted. The amount of debt covered by the guarantee may not exceed 125% of the par value of the issuing entity’s senior unsecured debt, excluding debt extended to affiliates or institution-affiliated parties, outstanding as of Sept. 30, 2008, that is scheduled to mature before June 30, 2009. In the first quarter of 2009, the Company issued approximately $600 million of

FDIC-guaranteed debt under this program, which was the maximum amount of the debt permissible for it under the TLGP. The Company is obligated to pay to the FDIC an assessment fee at a rate of 100 basis points per annum on the aggregate principal amount of its FDIC-guaranteed debt.

•

Provides full FDIC deposit insurance coverage for funds held by participating FDIC-insured depository institutions in noninterest-bearing transaction deposit accounts (“IDI”) until Dec. 31, 2009. For such accounts, a 10 basis point surcharge on the depository institution’s current assessment rate will be applied to deposits not otherwise covered by the existing deposit insurance limit of $250,000. In the second quarter of 2009, the FDIC proposed an extension of this program until June 30, 2010. IDIs currently participating in the program would be given a one-time opportunity to opt-out of the program. IDIs that continue to participate in the program would be subject to increased fees (25 basis points versus the current 10 basis points). At June 30, 2009, $29 billion of deposits with us were covered by the FDIC’s TLGP.

8 The Bank of New York Mellon Corporation

Fee and other revenue


Fee and other revenue										2Q09 vs.				Year-to-date						YTD09 vs.
(dollars in millions unless otherwise noted)	2Q09			1Q09			2Q08			1Q09		2Q08		2009			2008			YTD08
Securities servicing fees:
Asset servicing^(a)(b)	$	671		$	609		$	873		10	%	(23	)%	$	1,280		$	1,776		(28	)%
Issuer services		372			364			444		2		(16	)		736			820		(10	)
Clearing services		250			253			264		(1	)	(5	)		503			527		(5	)
Total securities servicing fees		1,293			1,226			1,581		5		(18	)		2,519			3,123		(19	)
Asset and wealth management fees		637			616			860		3		(26	)		1,253			1,722		(27	)
Foreign exchange and other trading activities		237			307			308		(23	)	(23	)		544			567		(4	)
Treasury services		132			125			129		6		2			257			253		2
Distribution and servicing		107			111			110		(4	)	(3	)		218			208		5
Financing-related fees		54			48			51		13		6			102			98		4
Investment income		44			(17	)		74		N/M		(41	)		27			115		(77	)
Other		9			15			28		(40	)	(68	)		24			110		(78	)
Total fee revenue (non-FTE)	$	2,513		$	2,431		$	3,141		3	%	(20	)%	$	4,944		$	6,196		(20	)%
Net securities gains (losses)		(256	)		(295	)		(152	)	N/M		N/M			(551	)		(225	)	N/M
Total fee and other revenue (non-FTE)	$	2,257		$	2,136		$	2,989		6	%	(24	)%	$	4,393		$	5,971		(26	)%
Fee and other revenue as a percentage of total revenue (FTE) ^(c)		76	%		73	%		88	%						75	%		84	%
Market value of AUM at period end (in billions)	$	926		$	881		$	1,113		5	%	(17	)%	$	926		$	1,113		(17	)%
Market value of AUC or administration at period end (in trillions)	$	20.7		$	19.5		$	23.0		6	%	(10	)%	$	20.7		$	23.0		(10	)%

^(a)

Includes securities lending revenue of $97 million in the second quarter of 2009, $90 million in the first quarter of 2009, $202 million in the second quarter of 2008, $187 million in the first six months of 2009 and $447 million in the first six months of 2008.

^(b)

In the second quarter of 2009, global custodian out-of-pocket expense related to client reimbursements was reclassified from sub-custodian expense to asset servicing revenue. This reclassification totaled $- million in the first quarter of 2009, $10 million in the second quarter of 2008 and $14 million in the first six months of 2008.

^(c)

Excluding investment write-downs and the second quarter 2008 SILO charge, fee and other revenue as a percentage of total revenue (FTE) was 78% in the second quarter of 2009, 76% in the first quarter of 2009, 80% in the second quarter of 2008, 77% in the first six months of 2009 and 80% in the first six months of 2008.

N/M

– Not meaningful.

Fee revenue

The results of many of our businesses are influenced by client and market activities that vary by quarter.

Fee revenue decreased 20% versus the year-ago quarter primarily due to decreases in asset and wealth management fees, asset servicing fees and foreign exchange and other trading activities. Sequentially, fee revenue increased 3% (unannualized) reflecting higher asset servicing fees, investment income, asset and wealth management fees, and treasury services fees, partially offset by a decrease in foreign exchange and other trading activities.

Securities servicing fees

Securities servicing fees were impacted by the following, compared with the second quarter of 2008 and first quarter of 2009:

•

Asset servicing fees – Year-over-year results reflect the impact of continued strong new business wins which were more than offset by lower securities lending revenue and lower market values. The sequential increase primarily

reflects the impact of new business, higher transaction volumes, higher market values and securities lending seasonality.

•

Issuer services fees – The decrease compared with the second quarter of 2008 reflects lower Depositary Receipts revenue due to a decline in transaction fees and lower Corporate Trust fees due to a lower level of fixed income issuances globally and lower money market fees, partially offset by new business. The increase sequentially primarily reflects new business and seasonality related to shareowner services revenue, partially offset by a lower level of corporate actions in Depositary Receipts.

•

Clearing services fees –Year-over-year results reflect higher trading volumes which were more than offset by lower money market related fees and lower asset valuations. The linked quarter decline was driven by lower money market related fees.

The Bank of New York Mellon Corporation 9

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

Asset and wealth management fees

Asset and wealth management fees, including performance fees, decreased from the second quarter of 2008, reflecting global weakness in market values, partially offset by higher performance fees. The sequential increase reflects improved market values and higher performance fees. Both periods were impacted by lower fees related to money market and alternative asset classes.

Total AUM for the Asset and Wealth Management sector were $926 billion at June 30, 2009 compared with $881 billion at March 31, 2009 and $1.1 trillion at June 30, 2008. The decrease compared with June 30, 2008 resulted from market depreciation as well as long-term outflows, including an outflow of $14 billion related to the termination of a unique and very low fee relationship (less than 1 basis point annually). The increase compared with March 31, 2009 resulted from market appreciation, partially offset by long-term outflows, including the previously discussed termination. The S&P 500 Index was 919 at June 30, 2009 compared with 798 at March 31, 2009 (a 15% increase) and 1280 at June 30, 2008 (a 28% decrease).

See the Asset and Wealth Management sector in Business segments review for additional details regarding the drivers of asset and wealth management fees.

Foreign exchange and other trading activities

Foreign exchange and other trading activities revenue, which is primarily reported in the Asset Servicing segment, decreased 23% compared with the second quarter of 2008, and 23% (unannualized) compared with the first quarter of 2009. The decrease compared with both periods reflects lower trading revenue primarily due to the lower valuation of credit derivatives used to hedge the loan portfolio. The year-over-year comparison also reflects lower foreign exchange revenue driven by lower volumes, partially offset by higher volatility, while sequentially, higher foreign exchange revenue was driven by higher volumes.

Treasury services

Treasury services fees, which are primarily reported in the Treasury Services segment, include fees related to funds transfer, cash management and liquidity management. Treasury services fees increased $3 million compared with the second quarter of 2008 and increased $7 million compared with the first quarter of 2009. The increases were driven by higher global payment fees.

Distribution and servicing fees

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

Distribution and servicing fee revenue decreased $3 million compared with the second quarter of 2008 and $4 million compared with the first quarter of 2009. These decreases primarily reflect higher redemptions in prior periods. The impact of these fees on income in any one period can be more than offset by distribution and servicing expense paid to other financial intermediaries to cover their cost for distribution and servicing of mutual funds. Distribution and servicing expense is recorded as noninterest expense on the income statement.

Financing-related fees

Financing-related fees, which are primarily reported in the Treasury Services segment, include capital markets fees, loan commitment fees and credit-related trade fees. Financing-related fees increased $3 million compared with the second quarter of 2008 and $6 million sequentially. The increase sequentially reflected higher fees on capital market products.

10 The Bank of New York Mellon Corporation

Investment income


Investment income									Year-to-date
(in millions)	2Q09			1Q09			2Q08		2009			2008
Corporate/bank-owned life insurance	$	31		$	41		$	39	$	72		$	74
Lease residual gains (losses)		(10	)		26			12		16			13
Seed capital gains (losses)		19			(10	)		3		9			(16	)
Private equity gains (losses)		(9	)		(20	)		3		(29	)		10
Equity investment income (loss)		13			(54	)		17		(41	)		34
Total investment income	$	44		$	(17	)	$	74	$	27		$	115

Investment income, which is primarily reported in the Other and Asset Management segments, includes income from insurance contracts, lease residual gains and losses, gains and losses on seed capital investments and private equity investments and equity investment revenue. The decrease compared with the second quarter of 2008 primarily reflects losses on leases of $10 million in the second quarter of 2009 compared with gains of $12 million in the second quarter of 2008. The decrease from the second quarter of 2008 also reflects a loss on private equity investments of $9 million in the second quarter of 2009 compared with revenue of $3 million in the second quarter of 2008, partially offset by higher seed capital gains. The increase compared to the first quarter of 2009 primarily related to the write-down of certain equity investments in the first quarter of 2009 and higher seed capital gains in the first quarter of 2009, partially offset by losses on leases in the second quarter of 2009.

Other revenue


Other revenue								Year-to-date
(in millions)	2Q09			1Q09		2Q08		2009			2008
Asset-related gains (losses)	$	16		$	6	$	13	$	22		$	59
Expense reimbursements from joint ventures		7			8		8		15			12
Other income (loss)		(14	)		1		7		(13	)		39
Total other revenue	$	9		$	15	$	28	$	24		$	110

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

Net securities gains (losses)

Net securities portfolio losses totaled $256 million in the second quarter of 2009, compared with losses of $152 million in the second quarter of 2008 and losses of $295 million in the first quarter of 2009.

The following table details securities write-downs by type of security. These write-downs primarily reflect continued deterioration in the credit quality of residential mortgage-backed securities. See Consolidated balance sheet review for further information on the investment portfolio.

As a result of adopting SFAS 115-2 (ASC 320-10), securities write-downs in the second and first quarters of 2009 primarily reflect credit related losses. Securities write-downs in the second quarter of 2008 reflect mark-to-market (both credit and non-credit) impairment write-downs.


Net securities losses (impairment charges)								Year-to-date
(in millions)	2Q09		1Q09			2Q08		2009			2008
Alt-A RMBS	$	114	$	125		$	72	$	239		$	72
European floating rate notes		66		4			-		70			-
Credit cards		26		2			-		28			-
Prime RMBS		9		3			-		12			-
Home equity lines of credit		4		18			30		22			58
Subprime RMBS		1		-			-		1			-
Other		36		143	^(a)		50		179	^(a)		95
Total net securities losses (impairment charges)	$	256	$	295		$	152	$	551		$	225

^(a)

Includes $95 million resulting from the adverse impact of low interest rates on a structured tax investment and $37 million of seed capital write-downs.

Year-to-date 2009 compared with year-to-date 2008

Fee and other revenue for the first six months of 2009 totaled $4.4 billion, a 26% decrease compared with the first six months of 2008. The decrease primarily reflects decreases in asset servicing fees, asset and wealth management fees, investment income, other revenue and higher securities write-downs.

The decrease in asset servicing fees primarily reflects lower securities lending revenue, lower market values and transaction volumes. The decrease in asset and wealth management fees reflects the global weakness in market values. The decrease in investment income primarily reflects the write-down of certain equity investments recorded in the first quarter of 2009. The decrease in other

The Bank of New York Mellon Corporation 11

revenue reflects the $42 million gain related to the initial public offering of VISA recorded in the first six months of 2008. The increase in securities write-downs primarily reflects the continued deterioration in the credit quality of residential mortgage-backed securities.

Net interest revenue


Net interest revenue										2Q09 vs.				Year-to-date						YTD09 vs.
(dollars in millions)	2Q09			1Q09			2Q08			2Q08		1Q09		2009			2008			YTD08
Net interest revenue (non-FTE)	$	700		$	775		$	388		80	%	(10	)%	$	1,475		$	1,131		30	%
Tax equivalent adjustment		4			4			4		N/M		N/M			8			10		N/M
Net interest revenue (FTE)		704			779			392		80		(10	)		1,483			1,141		30	%
SILO charge		-			-			377		N/M		N/M			-			377		N/M
Net interest revenue excluding SILO charge (FTE) – non-GAAP	$	704		$	779		$	769		(8	)%	(10	)%	$	1,483		$	1,518		(2	)%
Average interest earning assets	$	157,265		$	167,427		$	142,032		11	%	(6	)%	$	162,318		$	142,447		14	%
Net interest margin (FTE)		1.80	%		1.87	%		1.11	%	69 bps		(7	) bps		1.84	%		1.61	%	23 bps
Net interest margin excluding SILO charge (FTE) – non-GAAP		1.80			1.87			2.17		(37	) bps	(7	) bps		1.84			2.13		(29	) bps

N/M

– Not meaningful.

bps –

basis points.

Net interest revenue on an FTE basis totaled $704 million in the second quarter of 2009 compared with $392 million in the second quarter of 2008, which included a $377 million charge related to SILOs, and $779 million in the first quarter of 2009. The net interest margin was 1.80% in the second quarter of 2009, compared with 1.11% in the second quarter of 2008 and 1.87% in the first quarter of 2009. Net interest revenue and the related margin continued to be influenced by historically low interest rates, the return of the balance sheet to expected levels and our strategy to reinvest in high quality, longer duration assets.

The increase in net interest revenue compared with the second quarter of 2008 principally reflects the SILO charge recorded in the second quarter of 2008. Excluding the SILO charge, the decrease compared with the second quarter of 2008 reflects a decline in the value of interest free balances, offset in part by an increase in interest-earning assets. The decrease in net interest revenue compared with the first quarter of 2009 primarily reflects a decline in average interest earning assets resulting from a continued roll-off of deposits taken in from customers that sought a safe haven during the credit crisis, coupled with a decrease in the value and volume of interest free funds.

Average interest-earning assets were $157 billion in the second quarter of 2009 compared with $142 billion in the second quarter of 2008 and $167 billion in the first quarter of 2009. The increase compared with the second quarter of 2008 was primarily driven by client cash that sought a safe haven during the credit crisis. The decrease from the first quarter of 2009 reflects continued roll-off of deposits taken in during the credit crisis.

The net interest margin increased 69 basis points in the second quarter of 2009 compared with the second quarter of 2008 primarily due to the SILO charge. Excluding the SILO charge, the net interest margin in the second quarter of 2008 was 2.17%. The decrease of 37 basis points compared with the second quarter of 2008, excluding the SILO charge, was primarily due to lower spreads and a decline in the value of interest free balances. Sequentially, the net interest margin stabilized as a result of our decision to reduce cash held at the central banks and invest in securities issued by government-sponsored and guaranteed entities with a duration of approximately 2-4 years.

Average cash and interbank investments comprised 42% of average interest-earning assets in the second

12 The Bank of New York Mellon Corporation

quarter of 2009 compared with 50% in the first quarter of 2009.

Year-to-date 2009 compared with year-to-date 2008

Net interest revenue on an FTE basis totaled $1.5 billion in the first six months of 2009, an increase of 30% compared with $1.1 billion in the first six months of 2008. The increase primarily related to the second quarter 2008 SILO charge. Excluding the SILO charge, net interest revenue decreased 2% in the first six months of 2009 compared with the first six months of 2008. The net interest margin was 1.84% in the first six months of 2009 and 1.61% in the first six months of 2008. The increase in the net interest margin was primarily due to the SILO charge. Excluding the SILO charge, the net interest margin was 2.13% in the first six months of 2008. The decreases in net interest revenue and the net interest margin compared with the first half of 2008, excluding the SILO charge, were primarily due to the factors mentioned above.

The Bank of New York Mellon Corporation 13

Average balances and interest rates ^(a)


Average balances and interest rates	Quarter ended

	June 30, 2009					March 31, 2009					June 30, 2008
(dollar amounts in millions)	Average balance			Average rates		Average balance			Average rates		Average balance			Average rates
Assets
Interest-earning assets:
Interest-bearing deposits with banks (primarily foreign banks)	$	56,917		1.18	%	$	56,505		1.56	%	$	43,361		3.82	%
Interest-bearing deposits held at the Federal Reserve and other central banks		6,338		0.37			23,192		0.37			-		-
Other short-term investments – U.S. government-backed commercial paper		-		-			1,269		3.15			-		-
Federal funds sold and securities under resale agreements		2,899		1.29			2,310		0.81			6,736		2.21
Margin loans		4,134		1.62			4,219		1.63			5,802		3.36
Non-margin loans:
Domestic offices		20,740		3.18			21,630		2.91			26,550		(1.97	) ^(b)
Foreign offices		12,155		2.21			13,109		2.56			13,281		3.97

Total non-margin loans		32,895		2.82			34,739		2.78			39,831		0.01	^(b)
Securities:
U.S. government obligations		1,679		1.67			787		2.50			542		3.08
U.S. government agency obligations		14,748		3.74			12,063		3.71			10,433		4.29
Obligations of states and political subdivisions		710		6.92			767		6.71			654		5.74
Other securities		34,766		2.85			29,848		4.47			32,755		5.22
Trading securities		2,179		2.50			1,728		2.86			1,918		3.74

Total securities		54,082		3.10			45,193		4.22			46,302		4.93

Total interest-earning assets		157,265		2.16			167,427		2.37			142,032		3.02	^(b)
Allowance for loan losses		(426	)				(378	)				(295	)
Cash and due from banks		3,412					4,824					5,356
Other assets		45,975					45,880					46,504
Assets of discontinued operations		2,307					2,366					2,400
Total assets	$	208,533				$	220,119				$	195,997
Liabilities and equity
Interest-bearing liabilities:
Money market rate accounts	$	19,037		0.10	%	$	18,563		0.10	%	$	12,869		0.98	%
Savings		1,070		0.44			1,165		0.61			971		1.50
Certificates of deposit of $100,000 & over		942		1.00			1,479		1.11			2,116		2.60
Other time deposits		4,190		0.48			5,574		0.55			6,335		1.88
Foreign offices		73,657		0.14			75,202		0.31			71,641		2.22

Total interest-bearing deposits		98,896		0.16			101,983		0.30			93,932		2.03
Federal funds purchased and securities sold under repurchase agreements		2,485		(0.46	)		1,839		0.09			3,791		1.02
Other borrowed funds		2,756		1.04			3,785		1.57			2,840		3.21
Borrowings from Federal Reserve related to ABCP		-		-			1,269		2.25			-		-
Payables to customers and broker-dealers		4,901		0.13			3,797		0.20			5,550		1.32
Long-term debt		16,793		2.35			15,493		2.72			16,841		3.58

Total interest-bearing liabilities		125,831		0.46			128,166		0.64			122,954		2.21
Total noninterest-bearing deposits		32,852					43,051					24,300
Other liabilities		18,578					18,523					17,707
Liabilities of discontinued operations		2,307					2,366					2,400
Total liabilities		179,568					192,106					167,361
Total shareholders’ equity		28,934					27,978					28,507
Noncontrolling interest		31					35					129
Total equity		28,965					28,013					28,636
Total liabilities and equity	$	208,533				$	220,119				$	195,997
Net interest margin – Taxable equivalent basis				1.80	%				1.87	%				1.11	% ^(b)

^(a)

Presented on a continuing operations basis even though the balance sheet is not restated for discontinued operations.

^(b)

Second quarter of 2008 includes the impact of the SILO charge. Excluding this charge, the domestic offices’ non-margin loan rate would have been 3.71%, the total non-margin loan rate would have been 3.80% , the interest-earning assets rate would have been 4.08% and the net interest margin would have been 2.17% for the second quarter of 2008.

Note:

Interest and average rates were calculated on a taxable equivalent basis, at tax rates approximating 35%, using dollar amounts in thousands and actual number of days in the year.

14 The Bank of New York Mellon Corporation

Average balances and interest rates ^(a)


Average balances and interest rates	Year-to-date

	2009					2008
(dollar amounts in millions)	Average balance			Average rates		Average balance			Average rates
Assets
Interest-earning assets:
Interest-bearing deposits with banks (primarily foreign banks)	$	56,711		1.37	%	$	41,010		4.04	%
Interest-bearing deposits held at the Federal Reserve and other central banks		14,719		0.37			-		-
Other short-term investments – U.S. government-backed commercial paper		631		3.15			-		-
Federal funds sold and securities under resale agreements		2,606		1.08			7,463		2.73
Margin loans		4,177		1.62			5,529		3.89
Non-margin loans:
Domestic offices		21,183		3.04			27,569		1.31	^(b)
Foreign offices		12,629		2.39			13,230		4.28

Total non-margin loans		33,812		2.80			40,799		2.28	^(b)
Securities:
U.S. government obligations		1,236		1.93			469		3.27
U.S. government agency obligations		13,413		3.74			10,523		4.52
Obligations of states and political subdivisions		738		6.81			667		6.71
Other securities		32,320		3.59			34,298		5.24
Trading securities		1,955		2.66			1,689		4.44

Total securities		49,662		3.61			47,646		5.06

Total interest-earning assets		162,318		2.27			142,447		3.80	^(b)
Allowance for loan losses		(402	)				(296	)
Cash and due from banks		4,114					5,573
Other assets		45,928					48,144
Assets of discontinued operations		2,336					2,526
Total assets	$	214,294				$	198,394
Liabilities and equity
Interest-bearing liabilities:
Money market rate accounts	$	18,802		0.10	%	$	12,723		1.32	%
Savings		1,117		0.53			937		1.69
Certificates of deposit of $100,000 & over		1,208		1.07			2,215		3.28
Other time deposits		4,878		0.52			7,318		2.20
Foreign offices		74,425		0.23			69,776		2.53

Total interest-bearing deposits		100,430		0.23			92,969		2.35
Federal funds purchased and securities sold under repurchase agreements		2,164		(0.23	)		3,965		1.60
Other borrowed funds		3,268		1.34			3,091		3.36
Borrowings from Federal Reserve related to ABCP		631		2.25			-		-
Payables to customers and broker-dealers		4,352		0.16			5,247		1.61
Long-term debt		16,147		2.52			16,983		4.08

Total interest-bearing liabilities		126,992		0.55			122,255		2.55
Total noninterest-bearing deposits		37,924					25,013
Other liabilities		18,551					19,438
Liabilities of discontinued operations		2,336					2,526
Total liabilities		185,803					169,232
Total shareholders’ equity		28,458					29,029
Noncontrolling interest		33					133
Total equity		28,491					29,162
Total liabilities and equity	$	214,294				$	198,394
Net interest margin – taxable equivalent basis				1.84	%				1.61	% ^(b)

^(a)

Presented on a continuing operations basis even though the balance sheet is not restated for discontinued operations.

^(b)

Year-to-date 2008 includes the impact of the SILO charge. Excluding this charge, the domestic offices’ non-margin loan rate would have been 4.05%, the total non-margin loan rate would have been 4.12%, the interest-earning assets rate would have been 4.33% and the net interest margin would have been 2.13% for the first half of 2008.

Note:

Interest and average rates were calculated on a taxable equivalent basis, at tax rates approximating 35%, using dollar amounts in thousands and actual number of days in the year.

The Bank of New York Mellon Corporation 15

Noninterest expense


Noninterest expense
										2Q09 vs.				Year-to-date						YTD09 vs. YTD08
(dollars in millions)	2Q09			1Q09			2Q08			1Q09		2Q08		2009			2008			YTD09 vs. YTD08
Staff:
Compensation ^(a)	$	740		$	732		$	818		1	%	(10	)%	$	1,472		$	1,621		(9	)%
Incentives		241			247			385		(2	)	(37	)		488			750		(35	)
Employee benefits		172			190			200		(9	)	(14	)		362			390		(7	)
Total staff		1,153			1,169			1,403		(1	)	(18	)		2,322			2,761		(16	)
Professional, legal and other purchased services ^(a)		237			237			259		-		(8	)		474			497		(5	)
Net occupancy		142			139			138		2		3			281			266		6
Distribution and servicing		106			107			131		(1	)	(19	)		213			261		(18	)
Software		93			81			88		15		6			174			167		4
Sub-custodian and clearing ^(b)		91			66			93		38		(2	)		157			167		(6	)
Furniture and equipment		76			77			78		(1	)	(3	)		153			157		(3	)
Business development		49			44			75		11		(35	)		93			140		(34	)
Other		208			185			206		12		1			393			412		(5	)
Subtotal		2,155			2,105			2,471		2		(13	)		4,260			4,828		(12	)
FDIC special assessment		61			-			-		N/M		N/M			61			-		N/M
Amortization of intangible assets		108			107			123		1		(12	)		215			242		(11	)
Merger and integration expenses:
The Bank of New York Mellon Corporation		59			68			146		(13	)	(60	)		127			267		(52	)
Acquired Corporate Trust Business		-			-			3		N/M		N/M			-			8		N/M
Total noninterest expense	$	2,383		$	2,280		$	2,743		5	%	(13	)%	$	4,663		$	5,345		(13	)%
Total staff expense as a percent of total revenue (FTE)		39	%		40	%		41	%						39	%		39	%
Employees at period end		41,800			41,700			42,700		-		(2	)%		41,800			42,700		(2	)%

^(a) In the second quarter of 2009, certain temporary/consulting expenses were reclassified from professional, legal and other purchased services to staff expense. This reclassification totaled $24 million in the first quarter of 2009, $19 million in the second quarter of 2008 and $32 million in the first six months of 2008.

^(b) In the second quarter of 2009, global sub-custodian out-of-pocket expense related to client reimbursements was reclassified from sub-custodian expense to asset servicing revenue. This reclassification totaled $- million in the first quarter of 2009, $10 million in the second quarter of 2008 and $14 million in the first six months of 2008.

N/M—Not meaningful.

Total noninterest expense decreased $360 million compared with the second quarter of 2008 and increased $103 million compared with the first quarter of 2009. The year-over-year decrease reflects strong overall expense control. The sequential increase reflects lower staff expense which was more than offset by higher sub-custodian and clearing expenses, software expenses and a reserve for remediation of withholding tax documentation.

Staff expense

Given our mix of fee-based businesses, which are staffed with high quality professionals, staff expense comprised approximately 54% of total noninterest expense, excluding the FDIC special assessment, intangible amortization and M&I expenses.

Staff expense is comprised of:

•

compensation expense, which includes:

•

base salary expense, primarily driven by headcount;

•

the cost of temporary help and overtime; and

•

severance expense;

•

incentive expense, which includes:

•

additional compensation earned under a wide range of sales commission and incentive plans designed to reward a combination of individual, business unit and corporate performance goals; as well as

•

stock-based compensation expense; and

•

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

16 The Bank of New York Mellon Corporation

The decrease in staff expense compared with the second quarter of 2008 was driven by lower compensation, incentives and employee benefits and the continuing effect of merger-related synergies. The decrease sequentially resulted from lower employee benefits and incentive expenses partially offset by higher compensation expense.

Non-staff expense

Non-staff expense includes certain expenses that vary with the levels of business activity and levels of expensed business investments, fixed infrastructure costs and expenses associated with corporate activities related to technology, compliance, productivity initiatives and corporate development.

Non-staff expense excluding the FDIC special assessment, intangible amortization and M&I expenses totaled $1.0 billion in the second quarter of 2009 compared with $1.1 billion in the second quarter of 2008 and $936 million in the first quarter of 2009.

The decrease in non-staff expense compared with the second quarter of 2008 primarily reflects decreases in distribution and servicing, business development and professional, legal and other purchased services expenses. The increase in non-staff expense sequentially reflects higher sub-custodian and clearing expenses, software expenses and a reserve for the remediation of withholding tax documentation.

In the second quarter of 2009, we incurred $59 million of M&I expenses related to the merger with Mellon Financial Corporation, comprised of the following:

•

Integration/conversion costs—including consulting, system conversions and staff ($42 million);

•

Personnel related—including severance, retention, relocation expenses, accelerated vesting of stock options and restricted stock expense ($13 million); and

•

One-time costs—including facilities related costs, asset write-offs, vendor contract modifications, rebranding and net gain (loss) on disposals ($4 million).

Year-to-date 2009 compared with year-to-date 2008

Noninterest expense in the first six months of 2009 decreased $682 million, or 13%, compared with the first six months of 2008. The decrease primarily reflects declines in staff expense, distribution and servicing expense and business development expense driven by strong expense management in response to the operating environment and the continued impact of merger-related synergies. These decreases were partially offset by higher net occupancy and software expenses.

Income taxes

The effective tax rate for the second quarter of 2009 was 2.2% on a continuing operation basis compared with 50.3% in the second quarter of 2008 and 28.2% in the first quarter of 2009. In the second quarter of 2009, the Company recognized $134 million, or $0.11 per common share of tax benefits primarily attributable to the final LILO/SILO tax settlement agreement at an amount less than originally recorded. Results for the second quarter of 2009 included the FDIC special assessment, M&I expenses and investment write-downs. Excluding the impact of these items as well as the tax benefit, the effective tax rate was 32.4% in the second quarter of 2009. Excluding the impact of M&I expenses, investment write-downs and the second quarter 2008 SILO charge, the effective tax was 33.1% in the second quarter of 2008 and 32.1% in the first quarter of 2009.

Business segments review

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

Business segments accounting principles

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

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

The Bank of New York Mellon Corporation 17

The accounting policies of the business segments are the same as those described in Note 1 to the Consolidated Financial Statements in the Company’s 2008 Annual Report on Form 10-K, except that other fee revenue and net interest revenue differ from the amounts shown in the Consolidated Income Statement because amounts presented in Business segments are on an FTE basis.

In the second quarter of 2009, the financial results of MUNB were moved from the Other segment into discontinued operations. Historical results in the Other segment have been restated.

The operations of acquired businesses are integrated with the existing business segments soon after most acquisitions are completed. As a result of the integration of staff support functions, management of customer relationships, operating processes and the financial impact of funding acquisitions, we cannot precisely determine the impact of acquisitions on income before taxes and therefore do not report it.

We provide segment data for seven segments, with certain segments combined into sector groupings as shown below.


Sector/Segment		Primary types of revenue
Asset and Wealth Management sector
Asset Management segment		• Asset and wealth management fees from: Mutual funds Institutional clients Private clients Performance fees • Distribution and servicing fees
Wealth Management segment		• Wealth management fees from high-net-worth individuals and families, family offices and business enterprises, charitable gift programs, and foundations and endowments
Institutional Services sector
Asset Servicing segment		• Asset servicing fees, including: Institutional trust and custody fees Broker-dealer services Securities lending • Foreign exchange
Issuer Services segment		• Issuer services fees, including: Corporate trust Depositary receipts Employee investment plan services Shareowner services
Clearing Services segment		• Clearing services fees, including broker-dealer and registered investment advisor services
Treasury Services segment		• Treasury services fees, including: Global payment services Working capital solutions • Financing-related fees
Other segment		• Leasing operations • Corporate treasury activities • Global markets and institutional banking services • Business exits • M&I expenses

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

The results of our business segments are presented and analyzed on an internal management reporting basis:

18 The Bank of New York Mellon Corporation

•

Revenue amounts reflect fee and other revenue generated by each segment. Fee and other revenue transferred between segments under revenue transfer agreements is included within other revenue in each segment.

•

Revenues and expenses associated with specific client bases are included in those segments. For example, foreign exchange activity associated with clients using custody products is allocated to the Asset Servicing segment.

•

Net interest revenue is allocated to segments based on the yields on the assets and liabilities generated by each segment. We employ a funds transfer pricing system that matches funds with the specific assets and liabilities of each segment based on their interest sensitivity and maturity characteristics.

•

The measure of revenues and pre-tax profit or loss by a segment has been adjusted to present segment data on an FTE basis.

•

Support and other indirect expenses are allocated to segments based on internally-developed methodologies.

•

The FDIC special emergency deposit assessment is considered a corporate charge and was therefore recorded in the Other segment. Recurring FDIC expense is allocated to segments based on average deposits generated within each segment.

•

Support agreement charges are recorded in the segment in which the charges occurred.

•

Restructuring charges are a result of corporate initiatives and therefore are recorded in the Other segment.

•

Balance sheet assets and liabilities and their related income or expense are specifically assigned to each segment. Segments with a net liability position have been allocated assets.

•

Goodwill and intangible assets are reflected within individual business segments.

Our business segments continued to face a difficult operating environment in the second quarter of 2009. Equity markets were down significantly year-over-year partially offset by new business. On a sequential basis, improved equity markets and new business contributed to improved fee revenue. Net interest revenue decreased in nearly every segment compared with the first quarter of 2009 and was relatively flat compared with the second quarter of 2008. The decrease sequentially reflects a decline in average interest-earning assets resulting from a continued roll-off of deposits taken in during the credit crisis. Net interest revenue in the second quarter of 2008 includes a SILO charge of $377 million which was recorded in the Other segment. Strong expense control and the impact of merger-related synergies resulted in lower noninterest expense in every segment compared with the second quarter of 2008. Noninterest expense increased sequentially primarily reflecting higher sub-custodian and clearing expenses, software expenses and FDIC expense.

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


Market indices
						2Q09 vs.				Year-to-date		YTD09 vs. YTD08
	2Q08	3Q08	4Q08	1Q09	2Q09	2Q08		1Q09		2009	2008	YTD09 vs. YTD08
S&P 500 Index ^(a)	1280	1166	903	798	919	(28	)%	15	%	919	1280	(28	)%
S&P 500 Index-daily average	1371	1252	916	809	891	(35	)	10		851	1362	(38	)
FTSE 100 Index ^(a)	5626	4902	4434	3926	4249	(24	)	8		4249	5626	(24	)
FTSE 100 Index-daily average	5979	5359	4270	4040	4258	(29	)	5		4149	5937	(30	)
NASDAQ Composite Index ^(a)	2293	2092	1577	1529	1835	(20	)	20		1835	2293	(20	)
Lehman Brothers Aggregate Bond^sm Index ^(a)	270	256	275	262	280	4		7		280	270	4
MSCI EAFE^® Index ^(a)	1967	1553	1237	1056	1307	(34	)	24		1307	1967	(34	)
NYSE Share Volume (in billions)	141	180	181	161	151	7		(6	)	312	299	4
NASDAQ Share Volume (in billions)	135	145	148	136	152	13		12		288	284	1

^(a)

Period end.

Average daily U.S. fixed-income trading volume was down 2%

sequentially and 22% year-over-year. Total debt issuances were flat sequentially and up 4% year-over-year.

The Bank of New York Mellon Corporation 19

The period end S&P 500 Index increased 15% sequentially and decreased 28% year-over-year. The period end FTSE 100 Index increased 8% sequentially and decreased 24% year-over-year. On a daily average basis, the S&P 500 Index increased 10% sequentially and decreased 35% year-over-year and the FTSE 100 Index increased 5% sequentially and decreased 29% year-over-year. The period end NASDAQ Composite Index increased 20% sequentially and decreased 20% year-over-year.

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

securities servicing businesses. Using the S&P 500 Index as a proxy for the equity markets, we estimate that a 100 point change in the value of the S&P 500 Index, sustained for one year, would impact fee revenue by approximately 1% and fully diluted earnings per common share on a continuing operations basis by $0.05.

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


For the quarter ended June 30, 2009 (dollar amounts in millions, presented on an FTE basis)	Asset Management			Wealth Management			Total Asset and Wealth Management Sector			Asset Servicing			Issuer Services			Clearing Services			Treasury Services			Total Institutional Services Sector			Other Segment			Total Continuing Operations

Fee and other revenue	$	529		$	140		$	669		$	893		$	410		$	314		$	195		$	1,812		$	(216	)	$	2,265
Net interest revenue		9			49			58			211			185			87			155			638			8			704

Total revenue		538			189			727			1,104			595			401			350			2,450			(208	)		2,969	*^(a)*
Provision for credit losses		-			-			-			-			-			-			-			-			61			61
Noninterest expense		474			146			620			710			323			263			206			1,502			261			2,383

Income before taxes	$	64		$	43		$	107		$	394		$	272		$	138		$	144		$	948		$	(530	)	$	525

Pre-tax operating margin *^(b)*		12	%		23	%		15	%		36	%		46	%		34	%		41	%		39	%		N/M			18	%
Average assets	$	12,377		$	9,131		$	21,508		$	58,289		$	52,152		$	17,014		$	24,861		$	152,316		$	32,402		$	206,226	*^(c)*

Excluding intangible amortization:
Noninterest expense	$	419		$	135		$	554		$	701		$	303		$	256		$	199		$	1,459		$	262		$	2,275
Income before taxes		119			54			173			403			292			145			151			991			(531	)		633
Pre-tax operating margin *^(b)*		22	%		29	%		24	%		37	%		49	%		36	%		43	%		40	%		N/M			21	%



For the quarter ended March 31, 2009 (dollar amounts in millions, presented on an FTE basis)	Asset Management			Wealth Management			Total Asset and Wealth Management Sector			Asset Servicing			Issuer Services			Clearing Services			Treasury Services			Total Institutional Services Sector			Other Segment			Total Continuing Operations

Fee and other revenue	$	479		$	141		$	620		$	830		$	404		$	321		$	239		$	1,794		$	(270	)	$	2,144
Net interest revenue		16			50			66			249			200			82			158			689			24			779

Total revenue		495			191			686			1,079			604			403			397			2,483			(246	)		2,923	^(a)
Provision for credit losses		-			-			-			-			-			-			-			-			59			59
Noninterest expense		453			139			592			712			318			259			201			1,490			198			2,280

Income before taxes	$	42		$	52		$	94		$	367		$	286		$	144		$	196		$	993		$	(503	)	$	584

Pre-tax operating margin ^(b)		8	%		27	%		14	%		34	%		47	%		36	%		49	%		40	%		N/M			20	%
Average assets	$	12,636		$	9,611		$	22,247		$	65,153		$	50,855		$	18,600		$	28,761		$	163,369		$	32,137		$	217,753	^(c)

Excluding intangible amortization:
Noninterest expense	$	398		$	128		$	526		$	705		$	297		$	252		$	195		$	1,449		$	198		$	2,173
Income before taxes		97			63			160			374			307			151			202			1,034			(503	)		691
Pre-tax operating margin ^(b)		20	%		33	%		23	%		35	%		51	%		37	%		51	%		42	%		N/M			24	%

20 The Bank of New York Mellon Corporation



For the quarter ended Dec. 31, 2008 (dollar amounts in millions, presented on an FTE basis)	Asset Management			Wealth Management			Total Asset and Wealth Management Sector			Asset Servicing			Issuer Services			Clearing Services			Treasury Services			Total Institutional Services Sector			Other Segment			Total Continuing Operations

Fee and other revenue	$	562		$	134		$	696		$	1,137		$	436		$	349		$	230		$	2,152		$	(1,022	)	$	1,826
Net interest revenue		43			56			99			411			211			96			233			951			4			1,054

Total revenue		605			190			795			1,548			647			445			463			3,103			(1,018	)		2,880	^(a)
Provision for credit losses		-			-			-			-			-			-			-			-			54			54
Noninterest expense		541			155			696			1,000			338			274			211			1,823			340			2,859

Income before taxes	$	64		$	35		$	99		$	548		$	309		$	171		$	252		$	1,280		$	(1,412	)	$	(33	)

Pre-tax operating margin ^(b)		11	%		18	%		12	%		35	%		48	%		38	%		54	%		41	%		N/M			(1	)%
Average assets	$	13,135		$	9,632		$	22,767		$	71,455		$	38,987		$	21,128		$	34,585		$	166,155		$	52,688		$	241,610	^(c)

Excluding intangible amortization:
Noninterest expense	$	480		$	141		$	621		$	994		$	318		$	268		$	204		$	1,784		$	341		$	2,746
Income before taxes		125			49			174			554			329			177			259			1,319			(1,413	)		80
Pre-tax operating margin ^(b)		21	%		26	%		22	%		36	%		51	%		40	%		56	%		43	%		N/M			3	%



For the quarter ended Sept. 30, 2008 (dollar amounts in millions, presented on an FTE basis)	Asset Management			Wealth Management			Total Asset and Wealth Management Sector			Asset Servicing			Issuer Services			Clearing Services			Treasury Services			Total Institutional Services Sector			Other Segment			Total Continuing Operations

Fee and other revenue	$	687		$	163		$	850		$	1,082		$	529		$	317		$	262		$	2,190		$	(103	)	$	2,937
Net interest revenue		10			50			60			240			170			75			158			643			(17	)		686

Total revenue		697			213			910			1,322			699			392			420			2,833			(120	)		3,623	^(a)
Provision for credit losses		-			1			1			-			-			-			-			-			22			23
Noninterest expense		881			169			1,050			1,213			370			290			208			2,081			188			3,319

Income before taxes	$	(184	)	$	43		$	(141	)	$	109		$	329		$	102		$	212		$	752		$	(330	)	$	281

Pre-tax operating margin ^(b)		(26	)%		20	%		(15	)%		8	%		47	%		26	%		50	%		27	%		N/M			8	%
Average assets	$	13,286		$	9,801		$	23,087		$	57,795		$	34,264		$	18,471		$	22,384		$	132,914		$	40,465		$	196,466	^(c)

Excluding intangible amortization:
Noninterest expense	$	817		$	155		$	972		$	1,207		$	349		$	282		$	202		$	2,040		$	189		$	3,201
Income before taxes		(120	)		57			(63	)		115			350			110			218			793			(331	)		399
Pre-tax operating margin ^(b)		(17	)%		27	%		(7	)%		9	%		50	%		28	%		52	%		28	%		N/M			11	%



For the quarter ended June 30, 2008 (dollar amounts in millions, presented on an FTE basis)	Asset Management			Wealth Management			Total Asset and Wealth Management Sector			Asset Servicing			Issuer Services			Clearing Services			Treasury Services			Total Institutional Services Sector			Other Segment			Total Continuing Operations

Fee and other revenue	$	796		$	161		$	957		$	1,090		$	479		$	323		$	255		$	2,147		$	(104	)	$	3,000
Net interest revenue		11			48			59			213			176			75			153			617			(284	)		392

Total revenue		807			209			1,016			1,303			655			398			408			2,764			(388	)		3,392	^(a)
Provision for credit losses		-			(1	)		(1	)		-			-			-			-			-			14			13
Noninterest expense		601			155			756			812			367			297			210			1,686			301			2,743

Income before taxes	$	206		$	55		$	261		$	491		$	288		$	101		$	198		$	1,078		$	(703	)	$	636

Pre-tax operating margin ^(b)		26	%		26	%		26	%		38	%		44	%		25	%		49	%		39	%		N/M			19	%
Average assets	$	13,410		$	10,254		$	23,664		$	54,763		$	35,167		$	17,395		$	21,227		$	128,552		$	41,381		$	193,597	^(c)

Excluding intangible amortization:
Noninterest expense	$	533		$	142		$	675		$	807		$	347		$	291		$	203		$	1,648		$	297		$	2,620
Income before taxes		274			68			342			496			308			107			205			1,116			(699	)		759
Pre-tax operating margin ^(b)		34	%		33	%		34	%		38	%		47	%		27	%		50	%		40	%		N/M			22	%

The Bank of New York Mellon Corporation 21


For the six months ended June 30, 2009 (dollar amounts in millions, presented on an FTE basis)	Asset Management			Wealth Management			Total Asset and Wealth Management Sector			Asset Servicing			Issuer Services			Clearing Services			Treasury Services			Total Institutional Services Sector			Other Segment			Total Continuing Operations

Fee and other revenue	$	1,008		$	281		$	1,289		$	1,723		$	814		$	635		$	434		$	3,606		$	(486	)	$	4,409
Net interest revenue		25			99			124			460			385			169			313			1,327			32			1,483

Total revenue		1,033			380			1,413			2,183			1,199			804			747			4,933			(454	)		5,892	*^(a)*
Provision for credit losses		-			-			-			-			-			-			-			-			120			120
Noninterest expense		927			285			1,212			1,422			641			522			407			2,992			459			4,663

Income before taxes	$	106		$	95		$	201		$	761		$	558		$	282		$	340		$	1,941		$	(1,033	)	$	1,109

Pre-tax operating margin ^(b)		10	%		25	%		14	%		35	%		47	%		35	%		46	%		39	%		N/M			19	%
Average assets	$	12,506		$	9,370		$	21,876		$	61,702		$	51,507		$	17,803		$	26,800		$	157,812		$	32,270		$	211,958	*^(c)*

Excluding intangible amortization:
Noninterest expense	$	817		$	263		$	1,080		$	1,406		$	600		$	508		$	394		$	2,908		$	460		$	4,448
Income before taxes		216			117			333			777			599			296			353			2,025			(1,034	)		1,324
Pre-tax operating margin ^(b)		21	%		31	%		24	%		36	%		50	%		37	%		47	%		41	%		N/M			22	%



For the six months ended June 30, 2008 (dollar amounts in millions, presented on an FTE basis)	Asset Management			Wealth Management			Total Asset and Wealth Management Sector			Asset Servicing			Issuer Services			Clearing Services			Treasury Services			Total Institutional Services Sector			Other Segment			Total Continuing Operations

Fee and other revenue	$	1,548		$	327		$	1,875		$	2,197		$	886		$	626		$	482		$	4,191		$	(75	)	$	5,991
Net interest revenue		26			94			120			435			329			150			335			1,249			(228	)		1,141

Total revenue		1,574			421			1,995			2,632			1,215			776			817			5,440			(303	)		7,132	^(a)
Provision for credit losses		-			(1	)		(1	)		-			-			-			-			-			28			27
Noninterest expense		1,220			310			1,530			1,570			705			566			422			3,263			552			5,345

Income before taxes	$	354		$	112		$	466		$	1,062		$	510		$	210		$	395		$	2,177		$	(883	)	$	1,760

Pre-tax operating margin^(b)		22	%		27	%		23	%		40	%		42	%		27	%		48	%		40	%		N/M			25	%
Average assets	$	13,324		$	10,375		$	23,699		$	53,616		$	33,697		$	16,902		$	22,690		$	126,905		$	45,264		$	195,868	^(c)

Excluding intangible amortization:
Noninterest expense	$	1,090		$	284		$	1,374		$	1,558		$	665		$	554		$	408		$	3,185		$	544		$	5,103
Income before taxes		484			138			622			1,074			550			222			409			2,255			(875	)		2,002
Pre-tax operating margin ^(b)		31	%		33	%		31	%		41	%		45	%		29	%		50	%		41	%		N/M			28	%

^(a)

Consolidated results include FTE impact of $12 million in the second quarter of 2009, $12 million in the first quarter of 2009, $16 million in the fourth quarter of 2008, $16 million in the third quarter of 2008, $15 million in the second quarter of 2008, $24 million in the first six months of 2009 and $30 million in the first six months of 2008.

^(b)

Income before taxes divided by total revenue.

^(c)

Including average assets of discontinued operations of $2,307 million for the second quarter of 2009, $2,366 million for the first quarter of 2009, $2,352 million for the fourth quarter of 2008, $2,361 million for the third quarter of 2008, $2,400 million for the second quarter of 2008, $2,336 million for the first six months of 2009 and $2,526 million for the first six months of 2008, consolidated average assets were $208,533 million for the second quarter of 2009, $220,119 million for the first quarter of 2009, $243,962 for the fourth quarter of 2008, $198,827 million for the third quarter of 2008, $195,997 million for the second quarter of 2008, $214,294 million for the first six months of 2009 and $198,394 million for the first six months of 2008.

N/M - Not meaningful.

Asset and Wealth Management Sector

Asset and Wealth Management fee revenue is dependent on the overall level and mix of AUM and the management fees expressed in basis points (one-hundredth of one percent) charged for managing those assets. Assets under management were $926 billion at June 30, 2009, compared with

$881 billion at March 31, 2009, and $1.1 trillion at June 30, 2008. Net asset outflows in the second quarter of 2009 totaled $19 billion, primarily reflecting an outflow of $14 billion related to the termination of a unique and very low fee relationship (less than 1 basis point annually), as well as money market outflows.

22 The Bank of New York Mellon Corporation


AUM at period end, by product type (in billions)	June 30, 2008		Sept. 30, 2008		Dec. 31, 2008		March 31, 2009		June 30, 2009
Equity securities	$	428	$	384	$	270	$	242	$	289
Money market		344		364		402		393		393
Fixed income securities		199		213		168		167		159
Alternative investments and overlay		142		106		88		79		85

Total AUM	$	1,113	$	1,067	$	928	$	881	$	926


AUM at period end, by client type (in billions)	June 30, 2008		Sept. 30, 2008		Dec. 31, 2008		March 31, 2009		June 30, 2009
Institutional	$	625	$	585	$	445	$	394	$	425
Mutual funds		393		384		400		413		421
Private client		95		98		83		74		80

Total AUM	$	1,113	$	1,067	$	928	$	881	$	926


Changes in market value of AUM from March 31, 2009 to June 30, 2009 – by business segment (in billions)	Asset Management			Wealth Management			Total
Market value of AUM at March 31, 2009	$	815		$	66		$	881
Net inflows (outflows):
Long-term		(18	) ^(a)		1			(17	)
Money market		(2	)		-			(2	)

Total net inflows (outflows)		(20	)		1			(19	)
Net market appreciation ^(b)		62			2			64

Market value of AUM at June 30, 2009	$	857	^(c)	$	69	^(d)	$	926

^(a)

Includes a $14 billion outflow related to the termination of a unique and very low fee relationship (less than 1 basis point annually).

^(b)

Includes the effect of changes in foreign exchange rates.

^(c)

Excludes $3 billion subadvised for the Wealth Management segment.

^(d)

Excludes private client assets managed in the Asset Management segment.

The Bank of New York Mellon Corporation 23

Asset Management segment


(dollar amounts in millions, presented on FTE basis)																2Q09 vs.				Year-to-date						YTD09 vs. YTD08
(dollar amounts in millions, presented on FTE basis)		2Q08			3Q08			4Q08			1Q09			2Q09		2Q08		1Q09			2009			2008		YTD09 vs. YTD08
Revenue:
Asset and wealth management:
Mutual funds	$	340		$	328		$	297		$	263		$	266		(22	)%	1	%	$	529		$	663		(20	)%
Institutional clients		290			265			193			181			175		(40	)	(3	)		356			594		(40	)
Private clients		47			43			35			32			31		(34	)	(3	)		63			92		(32	)
Performance fees		16			3			44			7			26		N/M		N/M			33			36		(8	)

Total asset and wealth management revenue		693			639			569			483			498		(28	)	3			981			1,385		(29	)
Distribution and servicing		99			93			93			92			90		(9	)	(2	)		182			185		(2	)
Other		4			(45	)		(100	)		(96	)		(59	)	N/M		N/M			(155	)		(22	)	N/M
Total fee and other revenue		796			687			562			479			529		(34	)	10			1,008			1,548		(35	)
Net interest revenue (expense)		11			10			43			16			9		(18	)	(44	)		25			26		(4	)
Total revenue ^(a)		807			697			605			495			538		(33	)	9			1,033			1,574		(34	)
Noninterest expense (ex. intangible amortization and support agreement charges)		528			489			478			412			419		(21	)	2			831			1,085		(23	)
Income before taxes (ex. intangible amortization and support agreement charges)		279			208			127			83			119		(57	)	43			202			489		(59	)
Amortization of intangible assets		68			64			61			55			55		(19	)	-			110			130		(15	)
Support agreement charges		5			328			2			(14	)		-		N/M		N/M			(14	)		5		N/M
Income before taxes	$	206		$	(184	)	$	64		$	42		$	64		(69	)%	52	%	$	106		$	354		(70	)%
Memo: Income before taxes (ex. intangible amortization)	$	274		$	(120	)	$	125		$	97		$	119		(57	)%	23	%	$	216		$	484		(55	)%
Pre-tax operating margin – GAAP		26	%		(26	)%		11	%		8	%		12	%						10	%		22	%
Pre-tax operating margin (ex. intangible amortization) – Non-GAAP ^(b)		34	%		(17	)%		21	%		20	%		22	%						21	%		31	%
Average assets	$	13,410		$	13,286		$	13,135		$	12,636		$	12,377		(8	)%	(2	)%	$	12,506		$	13,324		(6	)%

^(a)

There were no investment write-downs in the Asset Management segment in 2Q08. Investment write-downs were $3 million in 3Q08, $51 million in 4Q08, $34 million in 1Q09 and $45 million in 2Q09. Excluding investment write-downs, 2Q09 vs. 2Q08 and linked quarter growth rates were a negative 28% and a positive 10% (unannualized), respectively.

^(b)

The pre-tax operating margin, excluding intangible amortization, support agreement charges and investment write-downs was 35% for 2Q08, 30% for 3Q08, 27% for 4Q08, 22% for 1Q09 and 28% for 2Q09.

N/M

– Not meaningful.

Business description

BNY Mellon Asset Management is the umbrella organization for our affiliated investment management boutiques and is responsible, through various subsidiaries, for U.S. and non-U.S. retail, intermediary and institutional distribution of investment management and related services. The investment management boutiques offer a broad range of equity, fixed income, cash and alternative/overlay products. In addition to the investment subsidiaries, BNY Mellon Asset Management includes BNY Mellon Asset Management International, which is responsible for the distribution of investment management products internationally, and the Dreyfus Corporation and its affiliates, which are responsible for U.S. distribution of retail mutual funds, separate accounts and annuities.

We are one of the world’s largest asset managers with a top 10 position in both the U.S. and Europe and top 15 globally.

The results of the Asset Management segment are mainly driven by the period end and average levels of assets managed as well as the mix of those assets, as previously shown. Results for this segment are also impacted by sales of fee-based products such as fixed and variable annuities and separately managed accounts. In addition, performance fees may be generated when the investment performance exceeds various benchmarks and satisfies other criteria. Expenses in this segment are mainly driven by staffing costs, incentives, distribution and servicing expense, and product distribution costs.

24 The Bank of New York Mellon Corporation

Review of financial results

In the second quarter of 2009, Asset Management had pre-tax income of $64 million compared with $206 million in the second quarter of 2008 and $42 million in the first quarter of 2009. Excluding amortization of intangible assets, pre-tax income was $119 million in the second quarter of 2009 compared with $274 million in the second quarter of 2008 and $97 million in the first quarter of 2009. Year-over-year results reflect weakness in global equity market values, partially offset by strong expense control. Sequential results primarily reflect higher global equity market values.

Asset and wealth management revenue in the Asset Management segment was $498 million in the second quarter of 2009 compared with $693 million in the second quarter of 2008 and $483 million in the first quarter of 2009. The year-over-year decrease reflects weakness in global equity market values as well as lower fees related to money market and alternative asset classes. The increase sequentially reflects an increase in global equity market values and higher performance fees, partially offset by lower fees related to money market and alternative asset classes.

In the second quarter of 2009, 53% of Asset and Wealth Management fees in the Asset Management segment were generated from managed mutual fund fees. These fees are based on the daily average net assets of each fund and the basis point management fee paid by that fund. Managed mutual fund fee revenue was $266 million in the second quarter of 2009 compared with $340 million in the second quarter of 2008 and $263 million in the first quarter of 2009. The decrease year-over-year was primarily due to lower market values, partially offset by inflows in money market funds. The linked quarter increase reflects higher market values.

Distribution and servicing fees were $90 million in the second quarter of 2009 compared with $99 million in the second quarter of 2008 and $92 million in the first quarter of 2009. The decreases from both prior periods primarily reflect lower redemptions in the current period.

Other fee revenue was a loss of $59 million in the second quarter of 2009 compared with a gain of $4 million in the second quarter of 2008 and a loss of $96 million in the first quarter of 2009. The year-over-year decrease was primarily due to investment write-downs. The increase sequentially was primarily driven by improved seed capital values. Noninterest expense (excluding amortization of intangible assets and support agreement charges) was $419 million in the second quarter of 2009 compared with $528 million in the second quarter of 2008 and $412 million in the first quarter of 2009. Ongoing expense management in response to the operating environment resulted in noninterest expense declining 21% year-over-year, reflecting staff reductions and lower incentive expenses. Noninterest expense (excluding intangible amortization and support agreement charges) increased only 2% (unannualiz

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