News Column

BANK OF NEW YORK MELLON CORP - 10-Q - s 2. and 3. Management's Discussion and Analysis of Financial Condition and Results of Operations; Quantitative and Qualitative Disclosures about Market Risk

August 11, 2014

General

In this Quarterly Report on Form 10-Q, 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. Certain business terms used in this report are defined in the Glossary included in our Annual Report on Form 10-K for the year ended Dec. 31, 2013 ("2013 Annual Report").



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 Form 10-Q, certain measures, which are noted as "Non-GAAP financial measures," exclude certain items. BNY Mellon believes that these measures are useful to investors because they permit a focus on period-to-period comparisons using measures that relate to our ability to enhance revenues and limit expenses in circumstances where such matters are within our control. We also present the net interest margin on a fully taxable equivalent ("FTE") basis. We believe that this presentation allows for comparison of amounts arising from both taxable and tax-exempt sources and is consistent with industry practice. Certain immaterial reclassifications have been made to prior periods to place them on a basis comparable with the current period presentation. See "Supplemental information - Explanation of GAAP and Non-GAAP financial measures" beginning on page 55 for a reconciliation of financial measures presented in accordance with U.S. generally accepted accounting principles ("GAAP") to adjusted Non-GAAP financial measures.



In the first quarter of 2014, BNY Mellon elected to early adopt the new accounting guidance included in Accounting Standards Update ("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.

Overview

BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE symbol: BK). BNY Mellon is a global investments company dedicated to helping its clients manage and service their financial assets throughout the investment lifecycle. Whether providing financial services for institutions, corporations or individual investors, BNY Mellon delivers informed investment management and investment services in 35 countries and more than 100 markets. As of June 30, 2014, BNY Mellon had $28.5 trillion in assets under custody and/or administration, and $1.6 trillion in assets under management. BNY Mellon can act as a single point of contact for clients looking to create, trade, hold, manage, service, distribute or restructure investments.



Key second quarter 2014 and subsequent events

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 approximately $315 million, or approximately $490 million pre-tax. Equity income related to our investment in Wing Hang totaled $20 million in the first half of 2014 and $95 million in full-year 2013, including $37 million from the sale of a property.



Charge related to certain administrative errors

In the second quarter of 2014, BNY Mellon recorded a pre-tax charge of $109 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.

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Restructuring charge

In the second quarter of 2014, BNY Mellon recorded an after-tax restructuring charge of $75 million, or $120 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.



Organizational changes

In the second quarter of 2014, BNY Mellon announced a series of organizational changes.

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 role as Head of Client Service Delivery and Client Technology

Solutions.

Tim Keaney, the former Vice Chairman and CEO of Investment Services,

announced he will be leaving the company to pursue other opportunities on

Sept. 30, 2014.

Brian Rogan, Vice Chairman and Chief Risk Officer, and Art Certosimo, CEO of

Global Markets, announced their plans to retire at year end.

Monique Herena was named Senior Executive Vice President and Chief Human

Resources Officer.

Kevin McCarthy was named Senior Executive Vice President, General Counsel and

Corporate Secretary. Corporate headquarters In May 2014, BNY Mellon agreed to sell 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 is expected to be completed in the third quarter of 2014, and is expected to result in an after-tax gain of approximately $200 million, or approximately $345 million pre-tax. BNY Mellon announced that it will relocate its corporate headquarters to Brookfield Place in lower Manhattan's Battery Park City. This move is part of the Company's previously-announced decision to consolidate and streamline operations. The 20-year leasing agreement covers approximately 350,000 square feet of office space.



Agreement to sell the equity stake in BNY Mellon Western Fund Management Limited

In May 2014, BNY Mellon agreed to sell its 49% stake in China-based BNY Mellon Western Fund Management Limited to Leadbank Asset Management Company Limited, a Shanghai-based wealth management firm. The closing of the equity transfer is anticipated to occur in the fourth quarter of 2014, subject to regulatory approval. We expect this transaction to be immaterial to our results of operations.



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 held a 35% ownership stake in HedgeMark.

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 are required to comply with Advanced Approach reporting and public disclosures commencing on June 30, 2014. This means, among other things, for purposes of determining whether we meet minimum risk-based capital requirements, starting with the second quarter of 2014, our common equity Tier 1, 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. BNY Mellon 5

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Highlights of second quarter 2014 results

In the second quarter of 2014, BNY Mellon reported net income applicable to common shareholders of $554 million, or $0.48 per diluted common share. Excluding the after-tax impact of the previously disclosed charges related to investment management funds and severance of $161 million, or $0.14 per diluted common share, on a Non-GAAP basis, net income applicable to common shareholders totaled $715 million, or $0.62 per diluted common share, in the second quarter of 2014. In the second quarter of 2013, net income applicable to common shareholders was $831 million, or $0.71 per diluted common share. Excluding the after-tax gain of $109 million, or $0.09 per diluted common share, related to an equity investment and the after-tax recovery related to investment management funds of $21 million, or $0.02 per diluted common share, on a Non-GAAP basis, net income applicable to common shareholders totaled $701 million, or $0.60 per diluted common share, in the second quarter of 2013. Net income applicable to common shareholders was $661 million, or $0.57 per diluted common share, in the first quarter of 2014. See "Supplemental information - Explanation of GAAP and Non-GAAP financial measures" beginning on page 55 for the reconciliation of the Non-GAAP measures.



Highlights of the second quarter 2014 include:

AUC/A totaled $28.5 trillion at June 30, 2014 compared with $26.2 trillion at

June 30, 2013. The increase of 9% primarily reflects higher market values.

(See the "Investment Services business" beginning on page 23).

Assets under management ("AUM"), excluding securities lending cash management

assets and assets managed in the Investment Services business, totaled a

record $1.64 trillion at June 30, 2014 compared with $1.43 trillion at

June 30, 2013. The increase of 15% resulted from higher market values, the

impact of a weaker U.S. dollar and net new business. (See the "Investment

Management business" beginning on page 20).

Investment services fees totaled $1.7 billion, a decrease of 1% compared with

the second quarter of 2013. The decrease primarily reflects lower Depositary

Receipts revenue driven by lower corporate actions, lower Corporate Trust

revenue and higher money market fee waivers, partially offset by higher asset

servicing and clearing



services fees. (See the "Investment Services business" beginning on page 23). Investment management and performance fees totaled $883 million, a 4%

increase compared with the second quarter of 2013. The increase primarily

reflects higher equity market values, the average impact of a weaker U.S.

dollar and net new business, partially offset by higher money market fee

waivers and lower performance fees. (See the "Investment Management business"

beginning on page 20).

Foreign exchange and other trading revenue totaled $130 million in the second

quarter of 2014 compared with $207 million in the second quarter of 2013.

Foreign exchange revenue decreased 28% year-over-year primarily driven by

lower volatility, partially offset by higher volumes. Other trading revenue

decreased year-over-year reflecting lower derivatives trading revenue. (See

"Fee and other revenue" beginning on page 7).

Investment and other income totaled $142 million in the second quarter of

2014 compared with $285 million in the second quarter of 2013. The decrease

primarily reflects the gain related to an equity investment recorded in the

second quarter of 2013, partially offset by higher other income and seed

capital gains. (See "Fee and other revenue" beginning on page 7).

Net interest revenue totaled $719 million in the second quarter of 2014

compared with $757 million in the second quarter of 2013. The decrease

primarily resulted from lower yields on investment securities, partially

offset by higher average interest-earning assets driven by higher deposits.

(See "Net interest revenue" beginning on page 11).

The net unrealized pre-tax gain on our total investment securities portfolio

was $1.2 billion at June 30, 2014 compared with $676 million at March 31,

2014. The increase was primarily driven by the reduction in market interest

rates. (See "Investment securities" beginning on page 32).

The provision for credit losses was a credit of $12 million in the second

quarter of 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 37).

Noninterest expense totaled $2.9 billion in the second quarter of 2014

compared with $2.8 billion in the second quarter of 2013. The 6 BNY Mellon --------------------------------------------------------------------------------



increase primarily reflects the charges related to investment management funds and severance, partially offset by lower staff and business development expenses. (See "Noninterest expense" beginning on page 14). The provision for income taxes was $217 million (26.7% effective tax rate) in

the second quarter of 2014. (See "Income taxes" on page 15).

At June 30, 2014, our estimated CET1 ratio (Non-GAAP) calculated under the

Standardized Approach, and based on our interpretation of the Final Capital

Rules, on a fully phased-in basis,

was 10.3% compared with 11.1% at March 31, 2014. Our estimated Basel III CET1 ratio (Non-GAAP) calculated under the Advanced Approach, and based on our interpretation of the Final Capital Rules, on a fully phased-in basis, was 10.0% at June 30, 2014, compared with 10.7% at March 31, 2014. (See "Capital" beginning on page 46). In the second quarter of 2014, we repurchased 12.6 million common shares for a total cost of $431 million. Fee and other revenue Fee and other revenue YTD14 2Q14 vs. Year-to-date vs. (dollars in millions, unless otherwise noted) 2Q14 1Q14 2Q13 2Q13 1Q14 2014 2013 YTD13 Investment services fees: Asset servicing (a) $ 1,022$ 1,009$ 988 3 % 1 % $ 2,031$ 1,957 4 % Clearing services 326 325 321 2 - 651 625 4 Issuer services 231 229 294 (21 ) 1 460 531 (13 ) Treasury services 141 136 139 1 4 277 280 (1 ) Total investment services fees 1,720 1,699 1,742 (1 ) 1 3,419 3,393 1 Investment management and performance fees 883 843 848 4 5 1,726 1,670 3 Foreign exchange and other trading revenue 130 136 207 (37 ) (4 ) 266 368 (28 ) Distribution and servicing 43 43 45 (4 ) - 86 94 (9 ) Financing-related fees 44 38 44 - 16 82 85 (4 ) Investment and other income (b) 142 102 285 N/M N/M 244 373 N/M Total fee revenue (b) 2,962 2,861 3,171 (7 ) 4 5,823 5,983 (3 ) Net securities gains 18 22 32 N/M N/M 40 80 N/M Total fee and other revenue (b) $ 2,980$ 2,883$ 3,203 (7 )% 3



% $ 5,863$ 6,063 (3 )%

AUM at period end (in billions) (c) $ 1,636$ 1,620$ 1,427 15 % 1 % $ 1,636$ 1,427 15 % AUC/A at period end (in trillions) (d) $ 28.5$ 27.9$ 26.2 9 % 2



% $ 28.5$ 26.2 9 %

(a) Asset servicing fees include securities lending revenue of $46 million in the

second quarter of 2014, $38 million in the first quarter of 2014, $50 million

in the second quarter of 2013, $84 million in the first six months of 2014

and $89 million in the first six months of 2013.

(b) Results for the second quarter of 2013 and the first six months of 2013 were

restated to reflect the retrospective application of adopting new accounting

guidance in the first quarter of 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 September 2013.

(d) Includes the AUC/A of CIBC Mellon of $1.2 trillion at June 30, 2014 and

March 31, 2014 and $1.1 trillion at June 30, 2013.

N/M - Not meaningful. Fee and other revenue Fee and other revenue totaled $3.0 billion in the second quarter of 2014, a decrease of 7% year-over-year and an increase of 3% (unannualized) sequentially. The year-over-year decrease primarily reflects the gain related to an equity investment recorded in the second quarter of 2013, lower foreign exchange and other trading revenue and lower issuer services fees, partially offset by higher investment management and performance fees and higher asset



servicing fees. The sequential increase primarily reflects higher investment management and performance fees, investment and other income and investment services fees.

Investment services fees

Investment services fees were impacted by the following compared with the second quarter of 2013 and the first quarter of 2014:

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Asset servicing fees increased 3% year-over-year and 1% (unannualized)

sequentially. The year-over-year increase primarily reflects higher market

values, the average impact of a weaker U.S. dollar, net new business and

organic growth, partially offset by lower securities lending revenue. The

sequential increase primarily reflects seasonally higher securities lending

revenue and higher market values.

Clearing services fees increased 2% year-over-year and were up slightly

sequentially. The year-over-year increase was driven by higher mutual fund

fees, partially offset by a decrease in daily average revenue trades

("DARTS") and higher money market fee waivers. The sequential increase

primarily reflects higher mutual fund, cash management and technology fees,

primarily offset by lower clearance revenue driven by lower volumes.

Issuer services fees decreased 21% year-over-year and increased 1%

(unannualized) sequentially. The year-over-year decrease reflects lower

dividend fees, partially due to timing, and corporate actions in Depositary

Receipts and lower customer reimbursements related to technology

expenditures, higher money market fee waivers and the impact of continued net

maturities of high margin securitizations in Corporate Trust. We continue to

estimate that net maturities of high margin structured debt securitizations

could reduce the Company's total annual revenue by up to one-half of 1% if

the structured debt markets do not recover.

Treasury services fees increased 1% year-over-year and 4% (unannualized)

sequentially. Both increases reflect higher payment volumes. The sequential

increase also reflects additional business days.

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

Investment management and performance fees

Investment management and performance fees totaled $883 million in the second quarter of 2014, an increase of 4% year-over-year and 5% (unannualized) sequentially. Both increases reflect higher equity market values and the average impact of a weaker U.S. dollar. The year-over-year increase also reflects net new business, partially offset by higher money market fee waivers and lower performance fees. The sequential increase also reflects lower money market fee waivers and higher performance fees. Excluding money market fee waivers, investment management and performance fees increased 5% year-over-year and 3% (unannualized) sequentially (Non-GAAP). Performance fees were $29 million in the second quarter of 2014 compared with $33 million in the second quarter of 2013 and $20 million in the first quarter of 2014. Total AUM for the Investment Management business was a record $1.64 trillion at June 30, 2014, an increase of 15% year-over-year and 1% (unannualized) sequentially. Both increases resulted from higher market values. The year-over-year increase also reflects the impact of a weaker U.S. dollar and net new business. Net long-term outflows totaled $13 billion in the second quarter of 2014 primarily reflecting liability-driven and equity AUM, partially offset by inflows of index funds, while short-term outflows were $18 billion.



See the "Investment Management business" in "Review of businesses" for additional details.

Foreign exchange and other trading revenue

Foreign exchange and other trading revenue Year-to-date (in millions) 2Q14 1Q14 2Q13 2014 2013 Foreign exchange $ 129$ 130$ 179$ 259$ 328 Other trading revenue (loss): Fixed income (1 ) 1 12 - 20 Equity/other 2 5 16 7 20 Total other trading revenue 1 6 28



7 40 Total foreign exchange and other trading revenue $ 130$ 136$ 207$ 266$ 368

Foreign exchange and other trading revenue totaled $130 million in the second quarter of 2014, $207 million in the second quarter of 2013 and $136 million in the first quarter of 2014. In the second quarter of 2014, foreign exchange revenue totaled $129 million, a decrease of 28% year-over-year and 1% (unannualized) sequentially. Both decreases primarily reflect lower volatility, partially offset by higher volumes. Other trading revenue totaled $1 million in the second quarter of 2014 compared with $28 million in the second quarter of 2013 and $6 million in the first quarter of 2014. The year-over-year decrease primarily reflects lower derivatives trading revenue. Sequentially, the decrease primarily 8 BNY Mellon

-------------------------------------------------------------------------------- reflects lower fixed income trading revenue. Foreign exchange revenue and fixed income trading revenue are reported in the Investment Services business and the Other segment. Other trading revenue is primarily reported in the Other segment. The foreign exchange trading engaged in by the Company generates revenues, which are influenced by the volume of client transactions and the spread realized on these transactions. Revenues are impacted by market pressures which continue to be increasingly competitive. The level of volume and spreads is affected by market volatility, the level of cross-border assets held in custody for clients, the level and nature of underlying cross-border investments and other transactions undertaken by corporate and institutional clients. These revenues also depend on our ability to manage the risk associated with the currency transactions we execute. A substantial majority of our foreign exchange trades are undertaken for our custody clients in transactions where BNY Mellon acts as principal, and not as an agent or broker. As a principal, we earn a profit, if any, based on our ability to risk manage the aggregate foreign currency positions that we buy and sell on a daily basis. Generally speaking, custody clients enter into foreign exchange transactions in one of three ways: negotiated trading with BNY Mellon, BNY Mellon's standing instruction program, or transactions with third-party foreign exchange providers. Negotiated trading generally refers to orders entered by the client or the client's investment manager, with all decisions related to the transaction, usually on a transaction-specific basis, made by the client or its investment manager. Such transactions may be initiated by (i) contacting one of our sales desks to negotiate the rate for specific transactions, (ii) using electronic trading platforms, or (iii) electing other methods such as those pursuant to a benchmarking arrangement, in which pricing is determined by an objective market rate adjusted by a pre-negotiated spread. Our custody clients choose to use third-party foreign exchange providers other than BNY Mellon for a substantial majority of their U.S. dollar-equivalent volume foreign exchange transactions. The preponderance of the notional value of our trading volume with clients is in negotiated trading. Our standing instruction program, including a standing instruction program option called the Defined Spread Offering, which the Company introduced to clients in the first quarter of 2012, provides custody clients and their investment managers with an end-to-end solution that allows them to shift to BNY Mellon the cost, management and execution risk, often in small transactions or transactions in restricted and difficult to trade currencies. We incur substantial costs in supporting the global operational infrastructure required to administer the standing instruction program; on a per-transaction basis, the costs associated with the standing instruction program exceed the costs associated with negotiated trading. In response to competitive market pressures and client requests, we are continuing to develop standing instruction program products and services and making these new products and services available to our clients. In 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 $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 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 program Defined Spread Offering 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 Offering's disclosure documentation, which is available to clients and their investment managers.



A shift by custody clients from the standing instruction program to other trading options combined with competitive market pressures on the foreign exchange business may negatively impact our foreign exchange revenue. We continue to invest in our foreign exchange trading and execution capabilities, which is leading towards enhanced

BNY Mellon 9 -------------------------------------------------------------------------------- customer service and higher volumes. For the quarter ended June 30, 2014, our total revenue for all types of foreign exchange trading transactions was $129 million, or approximately 3% of our total revenue and approximately 35% of our foreign exchange revenue resulted from foreign exchange transactions undertaken through our standing instruction program.



Distribution and servicing fees

Distribution and servicing fee revenue was $43 million in the second quarter of 2014, $45 million in the second quarter of 2013 and $43 million in the first quarter of 2014. The year-over-year decrease primarily reflects higher money market fee waivers. 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 $44 million in both the second quarter of 2014 and the second quarter of 2013 and $38 million in the first quarter of 2014.

Investment and other income Investment and other income Year-to-date (in millions) 2Q14 1Q14 2Q13 2014



2013

Corporate/bank-owned life insurance $ 30$ 30$ 32$ 60

$ 66 Lease residual gains 4 35 10 39



11

Expense reimbursements from joint venture 15 12 8 27

19 Seed capital gains 15 6 1 21 7 Asset-related gains (losses) 17 (1 ) 7 16 14 Equity investment revenue (loss) 17 (2 ) 200 15



213

Private equity gains (losses) (2 ) 5 5 3



3

Transitional services agreements - - 4 -



9

Other income (a) 46 17 18 63



31

Total investment and other income (a) $ 142$ 102$ 285$ 244

$ 373

(a) Results for the second quarter of 2013 and the first six months of 2013 were

restated to reflect the retrospective application of adopting new accounting

guidance in the first quarter of 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.



Investment and other income, which is primarily reported in the Other segment and Investment Management business, includes insurance contracts,

revenue from lease residual gains, expense reimbursements from our CIBC Mellon joint venture, seed capital gains, asset-related gains and losses, gains and losses on equity investments, gains and losses on private equity investments, transitional services agreements, and other income and loss. Expense reimbursements from our CIBC Mellon joint venture relate to expenses incurred by BNY Mellon on behalf of the CIBC Mellon joint venture. Asset-related gains (losses) include loan, real estate and other asset dispositions. 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. Investment and other income decreased $143 million compared with the second quarter of 2013 and increased $40 million compared to the first quarter of 2014. The year-over-year decrease primarily reflects a gain related to an equity investment recorded in the second quarter of 2013, partially offset by higher other income and seed capital gains. The sequential increase primarily reflects higher other income, equity investment revenue and asset-related gains, partially offset by lower lease residual gains.



Year-to-date 2014 compared with year-to-date 2013

Fee and other revenue for the first six months of 2014 totaled $5.9 billion compared with $6.1 billion in the first six months of 2013. The decrease primarily reflects lower investment and other income, foreign exchange and other trading revenue, lower issuer services fees, and lower net securities gains, partially offset by higher asset servicing fees, investment management and performance fees, and clearing services fees. The decrease in investment and other income primarily reflects a gain related to an equity investment recorded in the second quarter of 2013. The decrease in foreign exchange and other trading revenue primarily reflects lower volatility, partially offset by higher volumes. The decrease in issuer services fees primarily reflects the impact of continued net maturities of high margin securitizations in Corporate Trust and lower dividend fees in Depositary Receipts. The increase in asset servicing fees primarily reflects higher market values, net new business, the average impact of a weaker U.S. dollar and organic growth. The increase in investment management and performance fees 10 BNY Mellon --------------------------------------------------------------------------------



primarily reflects higher equity market values and the average impact of a weaker U.S. dollar, partially offset by higher money market fee waivers. The

increase in clearing services fees reflects higher mutual fund fees.

Net interest revenue Net interest revenue YTD14 2Q14 vs. Year-to-date vs. (dollars in millions) 2Q14 1Q14 2Q13 2Q13 1Q14 2014 2013 YTD13 Net interest revenue (non-FTE) $ 719$ 728$ 757 (5 ) % (1 ) % $ 1,447$ 1,476 (2 ) % Tax equivalent adjustment 17 16 14 21 6 33 28 18 Net interest revenue (FTE) - Non-GAAP $ 736$ 744$ 771 (5 ) % (1 ) % $ 1,480$ 1,504 (2 ) % Average interest-earning assets $ 300,758$ 284,532$ 268,481 12 % 6 % $ 292,691$ 267,124 10 % Net interest margin (FTE) 0.98 % 1.05 % 1.15 % (17 ) bps (7 ) bps 1.02 % 1.13 % (11 ) bps bps - basis points. Net interest revenue totaled $719 million in the second quarter of 2014, a decrease of $38 million compared with the second quarter of 2013 and $9 million sequentially. The year-over-year decrease in net interest revenue primarily resulted from lower yields on investment securities, partially offset by higher average interest-earning assets driven by higher deposits. The sequential decrease primarily reflects higher premium amortization on agency mortgage-backed securities. The net interest margin (FTE) was 0.98% in the second quarter of 2014 compared with 1.15% in the second quarter of 2013 and 1.05% in the first quarter of 2014. Both decreases in the net interest margin (FTE) primarily reflect the factors mentioned above. In the second half of 2014, we are planning to reduce our interbank placement assets and increase our securities portfolio inventory of high quality liquid assets. The anticipated revenue as a result of these tactical actions should mitigate the impact on our net interest revenue as a result of: the European Central Bank's reduction in their deposit rate to negative, and



the resulting impact on lower reinvestment rates across the euro yield curve;

as well as

prolonged low reinvestment rates in the U.S.

Year-to-date 2014 compared with year-to-date 2013

Net interest revenue totaled $1.4 billion in the first six months of 2014, a decrease of 2% compared with the first six months of 2013. The decrease in net interest revenue primarily resulted from lower yields on investment securities, partially offset by a change in the mix of interest-earnings assets and higher average interest-earning assets driven by higher deposits. The net interest margin (FTE) was 1.02% in the first six months of 2014, compared with 1.13% in the first six months of 2013. The decline in the net interest margin (FTE) primarily reflects the factors mentioned above. BNY Mellon 11 --------------------------------------------------------------------------------

Average balances and interest rates Quarter ended June 30, 2014 March 31, 2014 June 30, 2013 (dollar amounts in millions, presented on an FTE basis) Average balance Average rates Average balance Average rates Average balance Average rates Assets Interest-earning assets: Interest-bearing deposits with banks (primarily foreign banks) $ 41,424 0.74 % $ 41,617 0.71 % $ 42,772 0.64 % Interest-bearing deposits held at the Federal Reserve and other central banks 85,546 0.26 74,399 0.25 55,911 0.22 Federal funds sold and securities purchased under resale agreements 13,387 0.58 11,118 0.61 7,878 0.52 Margin loans 17,050 1.05 15,840 1.07 13,906 1.14 Non-margin loans: Domestic offices 22,566 2.30 22,002 2.31 21,689 2.40 Foreign offices 13,833 1.34 13,805 1.26 12,318 1.32 Total non-margin loans 36,399 1.94 35,807 1.90 34,007 2.01 Securities: U.S. Government obligations 17,462 1.63 17,213 1.61 19,887 1.62 U.S. Government agency obligations 43,167 1.67 42,710 1.87 47,631 1.80 State and political subdivisions - tax-exempt 6,473 2.58 6,691 2.50 6,377 2.26 Other securities 34,318 1.55 33,920 1.64 33,243 1.93 Trading securities 5,532 2.19 5,217 2.60 6,869 2.33 Total securities 106,952 1.71 105,751 1.83 114,007 1.86 Total interest-earning assets $ 300,758 1.10 % $ 284,532 1.17 % $ 268,481 1.27 % Allowance for loan losses (197 ) (210 ) (237 ) Cash and due from banks 5,064 5,886 5,060 Other assets 52,182 53,430 52,627 Assets of consolidated investment management funds 11,405 11,354 11,524 Total assets $ 369,212$ 354,992$ 337,455 Liabilities Interest-bearing liabilities: Interest-bearing deposits: Money market rate accounts $ 5,177 0.12 % $ 5,660 0.13 % $ 5,746 0.27 % Savings 1,185 0.27 1,034 0.25 897 0.24 Demand deposits 2,406 0.14 3,673 0.08 2,437 0.09 Time deposits 42,824 0.04 41,544 0.04 41,706 0.04 Foreign offices 111,082 0.06 101,075 0.06 100,433 0.07 Total interest-bearing deposits 162,674 0.06 152,986 0.06 151,219 0.07 Federal funds purchased and securities sold under repurchase agreements 19,030 (0.05 ) 14,505 (0.13 ) 9,206 (0.28 ) Trading liabilities 2,993 0.97 1,978 1.59 3,036 1.40 Other borrowed funds 1,272 0.47 1,035 0.51 1,385 0.20 Commercial paper 1,970 0.08 102 0.05 58 0.04 Payables to customers and broker-dealers 8,916 0.09 8,883 0.09 9,073 0.08 Long-term debt 20,361 1.16 20,420 1.09 19,002 0.94 Total interest-bearing liabilities $ 217,216 0.17 % $ 199,909 0.17 % $ 192,979 0.16 % Total noninterest-bearing deposits 77,820 81,430 70,648 Other liabilities 24,854 24,608 26,779 Liabilities and obligations of consolidated investment management funds 10,180 10,128 10,242 Total liabilities 330,070 316,075 300,648 Temporary equity Redeemable noncontrolling interests 225 246 189 Permanent equity Total BNY Mellon shareholders' equity 38,127 37,851 35,817 Noncontrolling interests 790 820 801 Total permanent equity 38,917 38,671 36,618 Total liabilities, temporary equity and permanent equity $ 369,212$ 354,992$ 337,455 Net interest margin (FTE) 0.98 % 1.05 % 1.15 %



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. 12 BNY Mellon -------------------------------------------------------------------------------- Average balances and interest rates



Year-to-date

June 30, 2014 June 30, 2013 (dollar amounts in millions, presented on an FTE Average Average Average Average basis) balance rates balance rates Assets Interest-earning assets: Interest-bearing deposits with banks (primarily foreign banks) $ 41,520 0.73 % $ 41,874 0.67 % Interest-bearing deposits held at the Federal Reserve and other central banks 80,004 0.25 59,555 0.21 Federal funds sold and securities purchased under resale agreements 12,259 0.59 7,679 0.53 Margin loans 16,448 1.06 13,627 1.15 Non-margin loans: Domestic offices 22,286 2.31 21,524 2.39 Foreign offices 13,819 1.30 11,949 1.34 Total non-margin loans 36,105 1.92 33,473 2.02 Securities: U.S. government obligations 17,339 1.62 19,353 1.57 U.S. government agency obligations 42,940 1.77 45,028 1.82 State and political subdivisions - tax-exempt 6,581 2.54 6,286 2.32 Other securities 34,120 1.60 33,873 1.98 Trading securities 5,375 2.39 6,376 2.36 Total securities 106,355 1.77 110,916 1.88 Total interest-earning assets $ 292,691 1.14 % $ 267,124 1.26 % Allowance for loan losses (204 ) (250 ) Cash and due from banks 5,473 4,798 Other assets 52,800 52,383 Assets of consolidated investment management funds 11,380 11,514 Total assets $ 362,140$ 335,569 Liabilities Interest-bearing liabilities: Interest-bearing deposits: Money market rate accounts $ 5,417 0.12 % $ 5,731 0.26 % Savings 1,110 0.26 859 0.26 Demand deposits 3,036 0.10 2,748 0.08 Time deposits 42,187 0.04 40,406 0.05 Foreign offices 106,106 0.06 99,740 0.08 Total interest-bearing deposits 157,856 0.06 149,484 0.08 Federal funds purchased and securities sold under repurchase agreements 16,780 (0.08 ) 9,197 (0.20 ) Trading liabilities 2,489 1.22 2,795 1.38 Other borrowed funds 1,154 0.49 1,269 0.51 Commercial paper 1,041 0.08 151 0.08 Payables to customers and broker-dealers 8,900 0.09 9,046 0.08 Long-term debt 20,391 1.13 18,940 1.06 Total interest-bearing liabilities $ 208,611 0.17 % $ 190,882 0.19 % Total noninterest-bearing deposits 79,615



70,493

Other liabilities 24,730



27,095

Liabilities and obligations of consolidated investment management funds 10,154 10,214 Total liabilities 323,110 298,684 Temporary equity Redeemable noncontrolling interests 236 182 Permanent equity Total BNY Mellon shareholders' equity 37,990 35,891 Noncontrolling interests 804 812 Total permanent equity 38,794 36,703 Total liabilities, temporary equity and permanent equity $ 362,140$ 335,569 Net interest margin (FTE) 1.02 % 1.13 %



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. BNY Mellon 13 --------------------------------------------------------------------------------



Noninterest expense

Noninterest expense YTD14 2Q14 vs. Year-to-date vs. (dollars in millions) 2Q14 1Q14 2Q13 2Q13 1Q14 2014 2013 YTD13 Staff: Compensation $ 903$ 925$ 891 1 % (2 )% $ 1,828$ 1,776 3 % Incentives 313 359 364 (14 ) (13 ) 672 702 (4 ) Employee benefits 223 227 254 (12 ) (2 ) 450 503 (11 ) Total staff 1,439 1,511 1,509 (5 ) (5 ) 2,950 2,981 (1 ) Professional, legal and other purchased services 314 312 317 (1 ) 1 626 612 2 Software 154 152 157 (2 ) 1 306 297 3 Net occupancy 152 154 159 (4 ) (1 ) 306 322 (5 ) Distribution and servicing 112 107 111 1 5 219 217 1 Furniture and equipment 82 85 81 1 (4 ) 167 169 (1 ) Sub-custodian 81 68 77 5 19 149 141 6 Business development 68 64 90 (24 ) 6 132 158 (16 ) Other 347 223 215 61 56 570 522 9 Amortization of intangible assets 75 75 93 (19 ) - 150 179 (16 ) M&I, litigation and restructuring charges 122 (12 ) 13 N/M N/M 110 52 N/M Total noninterest expense - GAAP $ 2,946$ 2,739$ 2,822 4 % 8



% $ 5,685$ 5,650 1 %

Total staff expense as a percentage of total revenue (a) 38 % 41 % 37 % 40 % 39 % Full-time employees at period end 51,100 51,400 49,800 3 % (1 )% 51,100 49,800 3 % Memo: Total noninterest expense excluding amortization of intangible assets, M&I, litigation and restructuring charges and the charge (recovery) related to investment management funds, net of incentives - Non-GAAP $ 2,640$ 2,681$ 2,743 (4 )% (2 )% $ 5,321$ 5,407 (2 )%



(a) Results for the second quarter of 2013 and the first six months of 2013 were

restated to reflect the retrospective application of adopting new accounting

guidance in the first quarter of 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.

N/M - Not meaningful.

Total noninterest expense was $2.9 billion in the second quarter of 2014, an increase of 4% year-over-year or 8% (unannualized) sequentially. In the second quarter of 2014, BNY Mellon recorded a charge of $109 million, net of incentives, in connection with administrative errors related to certain investment management funds and a restructuring charge of $120 million. Excluding amortization of intangible assets, M&I, litigation and restructuring charges and the charge (recovery) related to investment management funds, net of incentives (Non-GAAP), noninterest expense decreased 4% year-over-year and 2% (unannualized) sequentially. Both decreases were primarily driven by a 5% reduction in staff expense despite the impact of regulatory, risk and control-related expenses. The year-over-year decrease also benefited from lower business development expenses.



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 expense growth to begin 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 55% of total noninterest expense in the second quarter of 2014, 55% in the second quarter of 2013 and 56% in the first quarter of 2014, excluding amortization of intangible assets, M&I, litigation and restructuring charges and the charge (recovery) related to investment management funds, net of incentives.



Staff expense was $1.4 billion in the second quarter of 2014, a decrease of 5% compared with the second

14 BNY Mellon --------------------------------------------------------------------------------



quarter of 2013 and a decrease of 5% (unannualized) compared with the first quarter of 2014. Both decreases primarily reflect lower incentives and pension expenses.

Non-staff expense Non-staff expense, excluding amortization of intangible assets, M&I, litigation and restructuring charges, and the charge (recovery) related to investment management funds, net of incentives, totaled $1.2 billion on a non-GAAP basis in the second quarter of 2014, a decrease of 5% compared with the second quarter of 2013 and an increase of 1% (unannualized) compared with the first quarter of 2014. The year-over-year decrease primarily reflects lower business development expense. The sequential increase was primarily driven by higher volume-related expenses. The financial services industry has seen a continuing increase in the level of litigation and enforcement activity. As a result, we anticipate our legal and litigation costs to continue at elevated levels. For additional information on our legal proceedings, see Note 18 of the Notes to Consolidated Financial Statements. In the second quarter of 2014, we recorded a pre-tax restructuring charge of $120 million, primarily reflecting severance expense related to streamlining actions. For additional information on restructuring charges, see Note 10 of the Notes to Consolidated Financial Statements.



Year-to-date 2014 compared with year-to-date 2013

Noninterest expense totaled $5.7 billion in the first six months of 2014, an increase of $35 million, or 1%, compared with the first six months of 2013. The increase primarily reflects the restructuring charge and the charge related to investment management funds, net of incentives discussed above, partially offset by lower litigation and incentive expenses, the cost of generating certain tax credits, and pension and business development expenses.



Income taxes

The provision for income taxes was $217 million in the second quarter of 2014, $339 million in the second quarter of 2013 and $232 million in the first quarter of 2014. The effective tax rate was 26.7% in



the second quarter of 2014, 27.7% in the second quarter of 2013 and 25.1% in the first quarter of 2014.

In the first quarter of 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 27% in the third quarter of 2014.

Review of businesses



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

Business accounting principles

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



For information on the accounting principles of our businesses, the primary types of revenue by business and how our businesses are presented and analyzed, see Note 19 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. During the second quarter of 2014, minor reclassifications were made to our business results. All prior periods have been restated. Results for the three and six months ended June 30, 2013 have been restated to reflect the impact of the retrospective application of adopting new accounting guidance in the first quarter of 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 15

--------------------------------------------------------------------------------



Restructuring charges recorded in the second quarter of 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.

The results of our businesses may be influenced by client activities that vary by quarter. In the second quarter, we typically experience an increase in securities lending fees due to an increase in demand

to borrow securities outside of the United States. In the third quarter, Depositary Receipts revenue is typically higher due to an increased level of client dividend payments paid in the quarter. Also in the third quarter, volume-related fees may decline due to reduced client activity. In the fourth quarter, we typically incur higher business development and marketing expenses. In our Investment Management business, performance fees are typically higher in the fourth quarter, as the fourth quarter represents the end of the measurement period for many of the performance fee-eligible relationships. The following table presents key market metrics at period end and on an average basis. Key market metrics 2Q14 vs. Year-to-date YTD14 vs. 2Q13 3Q13 4Q13 1Q14 2Q14 2Q13 1Q14 2014 2013 YTD13 S&P 500 Index (a) 1606 1682 1848 1872 1960 22 % 5 % 1960 1606 22 % S&P 500 Index - daily average 1609 1675 1769 1835 1900 18 4 1868 1562 20 FTSE 100 Index (a) 6215 6462 6749 6598 6744 9 2 6744 6215 9 FTSE 100 Index - daily average 6438 6530 6612 6680 6764 5 1 6722 6365 6 MSCI World Index (a) 1434 1544 1661 1674 1743 22 4 1743 1434 22 MSCI World Index - daily average 1463 1511 1602 1647 1698 16 3 1673 1434 17 Barclays Capital Global Aggregate BondSM Index (a)(b) 343 356 354 365 376 10 3 376 343 10 NYSE and NASDAQ share volume (in billions) 186 166 179 196 187 1 (5 ) 383 360 6 JPMorgan G7 Volatility Index - daily average (c) 9.84 9.72 8.20 7.80 6.22 (37 ) (20 ) 7.01 9.43 (26 ) Average Fed Funds effective (5) rate 0.12 % 0.09 % 0.09 % 0.07 % 0.09 % (3) bps 2 bps 0.08 % 0.13 % bps (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.

bps - basis points.

Fee revenue in Investment Management, and to a lesser extent in Investment Services, is impacted by the value of market indices. At June 30, 2014, using the Standard & Poor's ("S&P") 500 Index as a proxy for the global equity markets, we estimate that a 100-point change in the value of the S&P 500 Index

spread evenly throughout the year, would impact fee revenue by less than 1% and diluted earnings per common share by $0.02 to $0.04. If however, global equity markets do not perform in line with the S&P 500 Index, the impact to fee revenue and earnings per share could be different. 16 BNY Mellon --------------------------------------------------------------------------------



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

For the quarter ended June 30, 2014 Investment Investment (dollar amounts in millions) Management Services Other Consolidated Fee and other revenue $ 970 (a) $ 1,920$ 119$ 3,009 (a) Net interest revenue 66 593 60 719 Total revenue 1,036 (a) 2,513 179 3,728 (a)

Provision for credit losses - - (12 ) (12 ) Noninterest expense 865 1,868 213 2,946 Income (loss) before taxes $ 171 (a) $ 645$ (22 ) $ 794 (a) Pre-tax operating margin (b) 16 % 26 % N/M 21 % Average assets $ 37,750$ 264,221$ 67,241$ 369,212 Excluding amortization of intangible assets: Noninterest expense $ 834$ 1,824$ 213$ 2,871 Income (loss) before taxes 202 (a) 689 (22 ) 869 (a) Pre-tax operating margin (b) 19 % 27 % N/M 23 %



(a) Both total fee and other revenue and total revenue include income from

consolidated investment management funds of $46 million, net of

noncontrolling interests of $17 million, for a net impact of $29 million.

Income (loss) before taxes is net of noncontrolling interests of $17 million.

(b) Income before taxes divided by total revenue.

N/M - Not meaningful.

For the quarter ended March 31, 2014 Investment Investment (dollar amounts in millions) Management Services Other Consolidated Fee and other revenue $ 900 (a) $ 1,887$ 112$ 2,899 (a) Net interest revenue 70 590 68 728 Total revenue 970 (a) 2,477 180 3,627 (a)

Provision for credit losses - - (18 ) (18 ) Noninterest expense 724 1,822 193 2,739 Income before taxes $ 246 (a) $ 655$ 5 $ 906 (a) Pre-tax operating margin (b) 25 % 26 % N/M 25 % Average assets $ 39,463$ 258,470$ 57,059$ 354,992 Excluding amortization of intangible assets: Noninterest expense $ 693$ 1,778$ 193$ 2,664 Income before taxes 277 (a) 699 5 981 (a) Pre-tax operating margin (b) 29 % 28 % N/M 27 %



(a) Both total fee and other revenue and total revenue include income from

consolidated investment management funds of $36 million, net of

noncontrolling interests of $20 million, for a net impact of $16 million.

Income before taxes is net of noncontrolling interests of $20 million.

(b) Income before taxes divided by total revenue.

N/M - Not meaningful. BNY Mellon 17

-------------------------------------------------------------------------------- For the quarter ended June 30, 2013 Investment Investment (dollar amounts in millions) Management Services Other Consolidated Fee and other revenue (a) $ 912 (b) $ 1,970$ 347$ 3,229 (b) Net interest revenue 63 633 61 757 Total revenue (a) 975 (b) 2,603 408 3,986 (b) Provision for credit losses - - (19 ) (19 ) Noninterest expense 704 1,879 239 2,822 Income before taxes (a) $ 271 (b) $ 724$ 188$ 1,183 (b) Pre-tax operating margin (a) (c) 28 % 28 % N/M 30 % Average assets $ 37,953$ 244,802$ 54,700$ 337,455 Excluding amortization of intangible assets: Noninterest expense $ 665$ 1,825$ 239$ 2,729 Income before taxes (a) 310 (b) 778 188 1,276 (b) Pre-tax operating margin (a) (c) 32 % 30 % N/M 32 %



(a) Other segment and consolidated results have been restated to reflect the

retrospective application of adopting new accounting guidance in the first

quarter of 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 $65 million, net of

noncontrolling interests of $39 million, for a net impact of $26 million.

Income before taxes is net of noncontrolling interests of $39 million.

(c) Income before taxes divided by total revenue.

N/M - Not meaningful.

For the six months ended June 30, 2014 Investment Investment (dollar amounts in millions) Management Services Other Consolidated Fee and other revenue $ 1,870 (a) $ 3,807$ 231$ 5,908 (a) Net interest revenue 136 1,183 128 1,447 Total revenue 2,006 (a) 4,990 359 7,355 (a)

Provision for credit losses - - (30 ) (30 ) Noninterest expense 1,589 3,690 406 5,685 Income (loss) before taxes $ 417 (a) $ 1,300$ (17 )$ 1,700 (a) Pre-tax operating margin (b) 21 % 26 % N/M 23 % Average assets $ 38,602$ 261,362$ 62,176$ 362,140 Excluding amortization of intangible assets: Noninterest expense $ 1,527$ 3,602$ 406$ 5,535 Income (loss) before taxes 479 (a) 1,388 (17 ) 1,850 (a) Pre-tax operating margin (b) 24 % 28 % N/M 25 %



(a) Both total fee and other revenue and total revenue include income from

consolidated investment management funds of $82 million, net of

noncontrolling interests of $37 million, for a net impact of $45 million.

Income (loss) before taxes is net of noncontrolling interests of $37 million.

(b) Income before taxes divided by total revenue.

N/M - Not meaningful. 18 BNY Mellon

-------------------------------------------------------------------------------- For the six months ended June 30, 2013 Investment Investment (dollar amounts in millions) Management Services Other Consolidated Fee and other revenue (a) $ 1,793 (b) $ 3,831$ 499$ 6,123 (b) Net interest revenue 125 1,286 65 1,476 Total revenue (a) 1,918 (b) 5,117 564 7,599 (b) Provision for credit losses - 1 (44 ) (43 ) Noninterest expense 1,441 3,722 487 5,650 Income before taxes (a) $ 477 (b) $ 1,394$ 121$ 1,992 (b) Pre-tax operating margin (a) (c) 25 % 27 % N/M 26 % Average assets $ 38,346$ 242,507$ 54,716$ 335,569 Excluding amortization of intangible assets: Noninterest expense $ 1,363$ 3,621$ 487$ 5,471 Income before taxes (a) 555 (b) 1,495 121 2,171 (b) Pre-tax operating margin (a) (c) 29 % 29 % N/M 29 %



(a) Other segment and consolidated results have been restated to reflect the

retrospective application of adopting new accounting guidance in the first

quarter of 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 $115 million, net of

noncontrolling interests of $55 million, for a net impact of $60 million.

Income before taxes is net of noncontrolling interests of $55 million.

(c) Income before taxes divided by total revenue.

N/M - Not meaningful. BNY Mellon 19

--------------------------------------------------------------------------------



Investment Management business

YTD14 (dollar amounts 2Q14 vs. Year-to-date vs.



in millions) 2Q13 3Q13 4Q13 1Q14 2Q14

2Q13 1Q14 2014 2013 YTD13 Revenue: Investment management fees: Mutual funds $ 299$ 293$ 303$ 299$ 311 4 % 4 % $ 610$ 598 2 % Institutional clients 366 367 385 372 385 5 3 757 726 4



Wealth management 146 145 149 153 156

7 2 309 289 7



Investment

management fees 811 805 837 824 852

5 3 1,676 1,613 4 Performance fees 33 10 72 20 29 (12 ) N/M 49 48 2



Investment

management and performance fees 844 815 909 844 881 4 4 1,725 1,661 4 Distribution and servicing 44 41 41 40 41 (7 ) 3 81 90 (10 ) Other (a) 24 26 43 16 48 N/M N/M 64 42 52 Total fee and other revenue (a) 912 882 993 900 970 6 8 1,870 1,793 4 Net interest revenue 63 67 68 70 66 5 (6 ) 136 125 9 Total revenue 975 949 1,061 970 1,036 6 7 2,006 1,918 5 Noninterest expense (ex. amortization of intangible assets and the charge (recovery) related to investment management funds, net of incentives) 692 689 760 698 725 5 4 1,423 1,351 5 Income before taxes (ex. amortization of intangible assets and the charge (recovery) related to investment management funds, net of incentives) 283 260 301 272 311 10 14 583 567 3 Amortization of intangible assets 39 35 35 31 31 (21 ) - 62 78 (21 ) Charge (recovery) related to investment management funds, net of incentives (27 ) - - (5 ) 109 N/M N/M 104 12 N/M Income before taxes $ 271$ 225$ 266$ 246$ 171



(37 )% (30 )% $ 417$ 477 (13 )%

Pre-tax operating margin 28 % 24 % 25 % 25 % 16 % 21 % 25 % Adjusted pre-tax operating margin (a) 34 % 33 % 34 % 34 % 36 % 35 % 35 % Wealth management: Average loans $ 9,253$ 9,453$ 9,755$ 10,075$ 10,372



12 % 3 % $ 10,224$ 9,113 12 % Average deposits $ 13,306$ 13,898$ 14,161$ 14,805$ 13,458

1 % (9 )% $ 14,128$ 13,475 5 %

(a) Total fee and other revenue includes the impact of the consolidated

investment management funds. Adjusted pre-tax operating margin includes the

pro forma impact of money market fee waivers, is net of distribution and

servicing expense and excludes amortization of intangible assets and the

charge (recovery) related to investment management funds, net of incentives.

See "Supplemental information - Explanation of GAAP and Non-GAAP financial

measures" beginning on page 55 for the reconciliation of Non-GAAP measures.

N/M - Not meaningful. 20 BNY Mellon -------------------------------------------------------------------------------- AUM trends (a) 2Q14 vs. (dollar amounts in billions) 2Q13 3Q13 4Q13 1Q14 2Q14 2Q13 1Q14 AUM at period end, by product type: Equity $ 242$ 266$ 276$ 277$ 282 17 % 2 % Fixed income 218 215 220 224 224 3 - Index 280 303 323 328 353 26 8 Liability-driven investments (b) 347 394 403 436 436 26 - Alternative investments 63 62 62 63 66 5 5 Cash 277 292 299 292 275 (1 ) (6 ) Total AUM $ 1,427$ 1,532$ 1,583$ 1,620$ 1,636 15 % 1 % AUM at period end, by client type: Institutional $ 968$ 1,041$ 1,072$ 1,118$ 1,109 15 % (1 )% Mutual funds 378 407 425 415 440 16 6 Private client 81 84 86 87 87 7 - Total AUM $ 1,427$ 1,532$ 1,583$ 1,620 $



1,636 15 % 1 %

Changes in AUM: Beginning balance of AUM $ 1,423$ 1,427$ 1,532$ 1,583$ 1,620 Net inflows (outflows): Long-term: Equity 1 3 (5 ) (1 ) (4 ) Fixed income 2 (1 ) 5 - (1 ) Index 8 2 (3 ) - 7 Liability-driven investments (b) 11 27 4 20 (17 ) Alternative investments (1 ) 1 1 2 2 Total long-term inflows (outflows) 21 32 2 21 (13 ) Short term: Cash (1 ) 13 6 (7 ) (18 ) Total net inflows (outflows) 20 45 8 14 (31 ) Net market/currency impact (16 ) 60 43 23 47 Ending balance of AUM $ 1,427$ 1,532$ 1,583$ 1,620$ 1,636 15 % 1 %



(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 September 2013.

(b) Includes currency and overlay assets under management.

Business description Our Investment Management business is comprised of our affiliated investment management boutiques, wealth management business and global distribution companies. See page 22 of our 2013 Annual Report for additional information on our Investment Management business.



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 $1.64 trillion at June 30, 2014 compared with $1.43 trillion at June 30, 2013 and $1.62 trillion at March 31, 2014. Both increases primarily resulted from higher market values. The year-over-year increase also reflects the impact of a weaker U.S. dollar and net new business. Net long-term outflows were $13 billion in the second quarter of 2014 reflecting liability-driven and equity AUM, partially offset by inflows of index funds. The outflow of liability-driven investment reflects one customer that in-sourced its business. Short-term outflows were $18 billion in the second quarter of 2014. Total revenue was $1.04 billion, an increase of 6% compared with the second quarter of 2013 and an increase of 7% (unannualized) compared with the first quarter of 2014. Both increases primarily reflect higher equity market values, higher seed capital gains and the average impact of a weaker U.S. dollar. The year-over-year increase was partially offset by higher money market fee waivers and lower performance fees. The sequential increase was also driven by lower money market fee waivers and higher performance fees. Excluding money market fee waivers, total revenue increased 7% year-over-year and 6% (unannualized) sequentially. Revenue generated in the Investment Management business included 45% from non-U.S. sources in the second BNY Mellon 21 --------------------------------------------------------------------------------



quarter of 2014 compared with 46% in the second quarter of 2013 and 45% in the first quarter of 2014.

Investment management fees in the Investment Management business were $852 million in the second quarter of 2014 compared with $811 million in the second quarter of 2013 and $824 million in the first quarter of 2014. Both increases primarily reflect higher equity market values and the average impact of a weaker U.S. dollar. The year-over-year increase also reflects net new business, partially offset by higher money market fee waivers. The sequential increase was also driven by lower money market fee waivers. In the second quarter of 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 was $311 million in the second quarter of 2014 compared with $299 million in both the second quarter of 2013 and the first quarter of 2014. Both increases primarily reflect higher equity market values. Performance fees were $29 million in the second quarter of 2014 compared with $33 million in the second quarter of 2013 and $20 million in the first quarter of 2014. The sequential increase was due to seasonality. Distribution and servicing fees were $41 million in the second quarter of 2014 compared with $44 million in the second quarter of 2013 and $40 million in the first quarter of 2014. The year-over-year decrease primarily reflects higher money market fee waivers. Other fee revenue was $48 million in the second quarter of 2014 compared with $24 million in the second quarter of 2013 and $16 million in the first quarter of 2014. Both increases primarily reflect higher seed capital gains. Net interest revenue was $66 million in the second quarter of 2014 compared with $63 million in the second quarter of 2013 and $70 million in the first quarter of 2014. The year-over-year increase primarily reflects higher average loans, while the sequential decrease primarily resulted from lower average deposits. Average loans increased 12% year-over-year and 3% sequentially, while average deposits increased 1% year-over-year and decreased 9% sequentially. Noninterest expense excluding amortization of intangible assets and the charge (recovery) related to investment management funds, net of incentives, was $725 million in the second quarter of 2014 compared with $692 million in the second quarter of 2013 and $698 million in the first quarter of 2014. Both increases primarily reflect the average impact of a weaker U.S. dollar and higher staff and marketing expenses resulting from investments in strategic initiatives.



Year-to-date 2014 compared with year-to-date 2013

Income before taxes totaled $417 million in the first six months of 2014 compared with $477 million in the first six months of 2013. Income before taxes excluding amortization of intangible assets and the charge (recovery) related to investment management funds, net of incentives, was $583 million in the first six months of 2014 compared with $567 million in the first six months of 2013. Fee and other revenue increased $77 million compared with the first six months of 2013, primarily due to higher equity market values, the average impact of a weaker U.S. dollar, and higher seed capital gains, partially offset by higher money market fee waivers. Net interest revenue increased $11 million compared to the first six months of 2013, primarily due to higher average loans and deposits. Noninterest expense excluding amortization of intangible assets and the charge (recovery) related to investment management funds, net of incentives, increased $72 million compared to the first six months of 2013, primarily reflecting the average impact of a weaker U.S. dollar, higher marketing expenses resulting from investments in strategic initiatives and higher staff expense. 22 BNY Mellon

--------------------------------------------------------------------------------

Investment Services business YTD14 (dollar amounts in millions, 2Q14 vs. Year-to-date vs. unless otherwise noted) 2Q13 3Q13 4Q13 1Q14 2Q14 2Q13 1Q14 2014 2013 YTD13



Revenue:

Investment services fees: Asset servicing $ 961$ 939$ 957$ 985$ 993 3 % 1 % $ 1,978$ 1,904 4 % Clearing services 320 314 322 323 324 1 - 647 622 4 Issuer services 294 321 236 228 231 (21 ) 1 459 530 (13 ) Treasury services 135 135 137 134 140 4 4 274 272 1 Total investment services fees 1,710 1,709 1,652 1,670

1,688 (1 ) 1 3,358 3,328 1 Foreign exchange and other trading revenue 193 177 150 158 145 (25 ) (8 ) 303 366 (17 ) Other (a) 67 63 58 59 87 30 47 146 137 7 Total fee and other revenue (a) 1,970 1,949 1,860 1,887



1,920 (3 ) 2 3,807 3,831 (1 ) Net interest revenue 633 619 610 590

593 (6 ) 1 1,183 1,286 (8 ) Total revenue

2,603 2,568 2,470 2,477 2,513 (3 ) 1 4,990 5,117 (2 ) Provision for credit losses - - - - - N/M N/M - 1 N/M Noninterest expense (ex. amortization of intangible assets) 1,825 1,765 1,822 1,778 1,824 - 3 3,602 3,621 (1 ) Income before taxes (ex. amortization of intangible assets) 778 803 648 699



689 (11 ) (1 ) 1,388 1,495 (7 ) Amortization of intangible assets

54 46 47 44 44 (19 ) - 88 101 (13 )



Income before taxes $ 724$ 757$ 601$ 655 $

645 (11 )% (2 )% $ 1,300$ 1,394 (7 )%

Pre-tax operating margin 28 % 29 % 24 % 26 % 26 % 26 % 27 % Pre-tax operating margin (ex. amortization of intangible assets) 30 % 31 % 26 % 28 % 27 % 28 % 29 % Investment services fees as a percentage of noninterest expense (b) 94 % 97 % 90 % 93 % 93 % 93 % 93 % Securities lending $ 39$ 26$ 21$ 30$ 35$ 65$ 70 revenue (10 )% 17 % (7 )%



Metrics:

Average loans $ 27,814$ 27,865$ 31,211$ 31,468$ 33,115 19 % 5 % $ 32,296$ 27,258 18 % Average deposits $ 204,499$ 206,068$ 216,216$ 214,947$ 220,701 8 % 3 % $ 217,840$ 202,372 8 %

AUC/A at period end

(in trillions) (c) $ 26.2$ 27.4$ 27.6$ 27.9$ 28.5 9 % 2 % Market value of securities on loan at period end (in billions) (d) $ 255$ 255$ 235$ 264$ 280 10 % 6 % Asset servicing: Estimated new business wins (AUC/A) (in billions) $ 201$ 110$ 123$ 161$ 130 Depositary Receipts: Number of sponsored programs 1,349 1,350 1,335 1,332 1,316 (2 )% (1 )% Clearing services: Global DARTS volume (in thousands) 217 212 213 230 207 (5 )% (10 )% Average active clearing accounts (U.S. platform) (in thousands) 5,591 5,622 5,643 5,695 5,752 3 % 1 % Average long-term mutual fund assets (U.S. platform) $ 371,196$ 377,131$ 401,434$ 413,658$ 433,047 17 % 5 % Average investor margin loans (U.S. platform) $ 8,235$ 8,845$ 8,848$ 8,919$ 9,236 12 % 4 % Broker-Dealer: Average tri-party repo balances (in billions) $ 2,037$ 1,952$ 2,005$ 1,983$ 2,022 (1 )% 2 %



(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 June 30, 2013 and $1.2

trillion at Sept. 30, 2013, Dec. 31, 2013, March 31, 2014 and June 30, 2014.

(d) Represents the total amount of securities on loan managed by the Investment

Services business. Excludes securities for which BNY Mellon acts as agent,

beginning in the fourth quarter of 2013, on behalf of CIBC Mellon clients,

which totaled $62 billion at Dec. 31, 2013, $66 billion at March 31, 2014 and

$64 billion at June 30, 2014.

N/M - Not meaningful. BNY Mellon 23

--------------------------------------------------------------------------------



Business description

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

Our comprehensive suite of financial solutions includes: global custody, global fund services, securities lending, investment manager outsourcing, performance and risk analytics, alternative investment services, securities clearance, collateral management, corporate trust, American and global depositary receipt programs, cash management solutions, payment services, liquidity services and other linked revenues, principally foreign exchange, global clearing and execution, managed account services and global prime brokerage solutions. Our clients include corporations, public funds and government agencies, foundations and endowments; global financial institutions including banks, broker-dealers, asset managers, insurance companies and central banks; financial intermediaries and independent registered investment advisors; and hedge fund managers. We help our clients service their financial assets through a network of offices and operations centers in 35 countries across six continents. The results of this business are driven by a number of factors, which include: the level of transaction activity; the range of services provided, including custody, accounting, fund administration, daily valuations, performance measurement and risk analytics, securities lending, and investment manager back-office outsourcing; the number of accounts; and the market value of assets under custody and/or administration. Market interest rates impact both securities lending revenue and the earnings on client deposit balances. Business expenses are driven by staff, technology investment, equipment and space required to support the services provided by the business and the cost of execution, clearance and custody of securities.



We are one of the leading global securities servicing providers with $28.5 trillion of AUC/A at June 30, 2014. We are the largest custodian for U.S. corporate and public pension plans and we service 40% of the top 50 endowments. We are a leading custodian in the UK and service 20% of UK pensions that require

a custodian. Globalization tends to drive cross-border investment and capital flows, which increases the opportunity to provide solutions to our clients. The changing regulatory environment is also driving demand for new products and services among clients. BNY Mellon is a leader in both global securities and U.S. Government securities clearance. We settle securities transactions in over 100 markets and handle most of the transactions cleared through the Federal Reserve Bank of New York for 18 of the 22 primary dealers. We are a leader in servicing tri-party repo collateral with approximately $2 trillion globally. We currently service approximately $1.4 trillion of the $1.6 trillion tri-party repo market in the U.S. BNY Mellon offers tri-party collateral agency services to dealers and cash investors active in the tri-party repurchase, or repo, market. We currently have approximately 86% of the market share of the U.S. tri-party repo market. As agent, we facilitate settlement between dealers (cash borrowers) and investors (cash lenders). Our involvement in a transaction commences after a dealer and investor agree to a tri-party repo trade and send instructions to us. We maintain custody of the collateral (the subject securities of the repo), monitor the eligibility and sufficiency of the collateral, and execute the payment and delivery instructions agreed to and provided by the principals. BNY Mellon continues to work to significantly reduce the risk associated with the secured intraday credit it provides to dealers with respect to their tri-party repo trades. BNY Mellon has implemented several important measures in that regard, including reducing the amount of time during which we extend intraday credit, implementing three-way trade confirmations, reducing the amount of credit provided in connection with processing collateral substitutions, introducing a functionality that enables us to "roll" maturing trades into new trades without extending credit, and requiring dealers to prefund their repayment obligations in connection with trades collateralized by Depository Trust Company sourced securities. Additionally, in 2013, we limited the collateral eligible to secure intraday credit to certain more liquid asset classes, resulting in a reduction of exposures secured by less liquid forms of collateral. We anticipate that the combination of these measures will have reduced risks substantially in our tri-party repo activity in the near term and, together with 24 BNY Mellon

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



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

Since May 2010, the Federal Reserve Bank of New York has released monthly reports on the tri-party repo market, including information on aggregate volumes of collateral used in all tri-party repo transactions by asset class, concentrations, and margin levels, which are available at http://www.newyorkfed.org/banking/tpr_infr_reform.html.

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.



In securities lending, we are one of the largest lenders of U.S. Treasury securities and depositary receipts and service a lending pool of approximately $3 trillion in 31 markets.

We serve as depositary for 1,316 sponsored American and global depositary receipt programs at June 30, 2014, acting in partnership with leading companies from 66 countries - an estimated 60% global market share.

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



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 18 of the Notes to Consolidated Financial Statements.



Corporate Trust update

The Company has evaluated the possibility of selling the Corporate Trust business, and has concluded that retaining the business would maximize its value to our Company and shareholders. While the business has been impacted in the near-term by the macro environment, Corporate Trust remains a global market leader, continues to win new business and is well positioned to benefit from an increase in short-term interest rates.



Review of financial results

AUC/A at June 30, 2014 were $28.5 trillion, an increase of 9% from $26.2 trillion at June 30, 2013, and 2% from $27.9 trillion at March 31, 2014. Both

BNY Mellon 25 -------------------------------------------------------------------------------- increases were primarily driven by higher market values. The sequential increase also reflects net new business. AUC/A were comprised of 36% equity securities and 64% fixed income securities at June 30, 2014 compared with 34% equity securities and 66% fixed income securities at June 30, 2013. Revenue generated in the Investment Services business included 37% from non-U.S. sources in the second quarter of 2014 compared with 36% in the second quarter of 2013 and 35% in the first quarter of 2014. Investment services fees decreased $22 million, or 1%, in the second quarter of 2014 compared with the second quarter of 2013 and increased $18 million or 1% (unannualized), compared with the first quarter of 2014 reflecting the following factors:



Asset servicing fees (global custody, broker-dealer services and global

collateral services) were $993 million in the second quarter of 2014 compared

with $961 million in the second quarter of 2013 and $985 million in the first

quarter of 2014. The year-over-year increase primarily reflects higher market

values, the impact of a weaker U.S. dollar, net new business and organic

growth, partially offset by lower securities lending revenue. The sequential

increase primarily reflects seasonally higher securities lending revenue and

higher market values.

Clearing services fees were $324 million in the second quarter of 2014

compared with $320 million in the second quarter of 2013 and $323 million in

the first quarter of 2014. The year-over-year increase was driven by higher

mutual fund fees, partially offset by a decrease in DARTS and higher money

market fee waivers. Sequentially, the increase primarily reflects higher

mutual fund, cash management and technology fees, primarily offset by lower

clearance revenue driven by lower volumes.

Issuer services fees (Corporate Trust and Depositary Receipts) were $231

million in the second quarter of 2014, compared with $294 million in the

second quarter of 2013 and $228 million in the first quarter of 2014. The

year-over-year decrease reflects lower dividend fees, partially due to

timing, and corporate actions in Depositary Receipts and lower customer

reimbursements related to technology expenditures, higher money market fee

waivers and the impact of continued net maturities of high margin securitizations in Corporate Trust. Treasury services fees were $140 million in the second quarter of 2014



compared with $135 million in the second quarter of 2013 and $134 million in

the first quarter of 2014. Both increases primarily reflect higher payment

volumes. The sequential increase also reflects additional business days.

Foreign exchange and other trading revenue totaled $145 million in the second quarter of 2014, compared with $193 million in the second quarter of 2013 and $158 million in the first quarter of 2014. Both decreases primarily reflect lower volatility, partially offset by higher volumes. Net interest revenue was $593 million in the second quarter of 2014 compared with $633 million in the second quarter of 2013 and $590 million in the first quarter of 2014. The year-over-year decrease primarily reflects lower yields, partially offset by higher average deposits. The sequential increase primarily reflects additional days in the second quarter of 2014 and higher average deposits. Noninterest expense, excluding amortization of intangible assets, was $1.82 billion in the second quarter of 2014, compared with $1.83 billion in the second quarter of 2013 and $1.78 billion in the first quarter of 2014. Year-over-year expenses decreased slightly reflecting our continued focus on expense control. The sequential increase was primarily driven by higher sub-custodian, litigation and professional, legal and other purchased services expenses.



Year-to-date 2014 compared with year-to-date 2013

Income before taxes totaled $1.3 billion in the first six months of 2014 compared with $1.4 billion in the first six months of 2013. Excluding intangible amortization, income before taxes decreased $107 million. Fee and other revenue decreased $24 million reflecting lower issuer services fees and foreign exchange and other trading revenue primarily driven by lower volatility, partially offset by higher asset servicing fees, driven by net new business and higher market values, and higher mutual fund fees. The $103 million decrease in net interest revenue primarily reflects lower yields, partially offset by higher average deposits and loans. Noninterest expense (excluding intangible amortization) 26 BNY Mellon --------------------------------------------------------------------------------



decreased $19 million primarily due to lower litigation expense, partially offset by higher professional, legal and other purchased services expense.

Other segment Year-to-date

(dollars in millions) 2Q13 3Q13 4Q13 1Q14 2Q14 2014 2013 Revenue: Fee and other revenue $ 347$ 172$ (20 )$ 112$ 119$ 231$ 499 Net interest revenue 61 86 83 68 60 128 65 Total revenue 408 258 63 180 179 359 564 Provision for credit losses (19 ) 2 6 (18 ) (12 ) (30 ) (44 ) Noninterest expense (ex. M&I and restructuring charges) 236 230 200 193 93 286 479 Income (loss) before taxes (ex. M&I and restructuring charges) 191 26 (143 ) 5 98 103 129 M&I and restructuring charges 3 14 13 - 120 120 8 Income (loss) before taxes $ 188$ 12$ (156 )$ 5$ (22 )$ (17 )$ 121 Average loans and leases $ 10,846$ 10,938$ 9,802$ 10,104$ 9,962$ 10,033$ 10,729



See page 28 of our 2013 Annual Report for a description of the Other segment.

Review of financial results

Total fee and other revenue decreased $228 million compared with the second quarter of 2013 and increased $7 million compared with the first quarter of 2014. The year-over-year decrease primarily resulted from a gain related to an equity investment recorded in the second quarter of 2013. The sequential increase primarily reflects higher other income and equity investment revenue, partially offset by lower lease residual gains.



Net interest revenue decreased $1 million compared with the second quarter of 2013 and $8 million compared with the first quarter of 2014. The sequential decrease primarily reflects lower average loans and leases.

The provision for credit losses was a credit of $12 million in the second quarter of 2014 driven by the continued improvement in the credit quality of the loan portfolio.

Noninterest expense excluding M&I and restructuring charges decreased $143 million compared with the second quarter of 2013 and $100 million compared with the first quarter of 2014. The year-over-year decrease reflects declines in several categories, the largest of which are lower staff and business

development expenses. The sequential decrease primarily reflects lower staff expense resulting from the acceleration of the vesting of long-term stock awards for retirement-eligible employees in the first quarter of 2014.



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

Year-to-date 2014 compared with year-to-date 2013

Income before taxes in the Other segment was a loss of $17 million in the first six months of 2014 compared with pre-tax income of $121 million in the first six months of 2013. Total revenue decreased $205 million primarily resulting from a gain related to an equity investment recorded in the second quarter of 2013, lower securities gain and trading revenue, partially offset by the impact on net interest revenue from changes in the internal credit rates to the businesses for deposits. The provision for credit losses was a credit of $30 million in the first six months of 2014 compared with a credit of $44 million in the first six months of 2013 driven by the continued improvement in the credit quality of the loan portfolio. Noninterest expenses excluding M&I and restructuring charges decreased $193 million, primarily reflecting lower staff expense, cost of generating certain tax credits, business development and net occupancy expenses and the sale of Newton's private client business. BNY Mellon 27 --------------------------------------------------------------------------------



Critical accounting estimates

Our significant accounting policies are described in Note 1 of the Notes to Consolidated Financial Statements in our 2013 Annual Report. 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 ("OTTI"), goodwill and other intangibles, and pension accounting, as referenced below. Critical policy Reference Allowance for loan losses and 2013 Annual Report, pages 34 - 36. This policy is allowance for lending-related also disclosed in the "Asset quality and commitments allowance for credit losses" section of this Form 10-Q. Fair value of financial 2013 Annual Report, pages 36 and 37. instruments and derivatives OTTI 2013 Annual Report, pages 37 and 38.



Goodwill and other intangibles 2013 Annual Report, pages 38 and 39. Pension accounting

2013 Annual Report, pages 39 and 40.



Consolidated balance sheet review

At June 30, 2014, total assets were $401 billion compared with $375 billion at Dec. 31, 2013. Total assets averaged $369 billion in the second quarter of 2014 compared with $337 billion in the second quarter of 2013 and $355 billion in the first quarter of 2014. Fluctuations in the period-end and average total assets were primarily driven by the level of client deposits. Deposits totaled $282 billion at June 30, 2014, and $261 billion at Dec. 31, 2013. Total deposits averaged $240 billion in the second quarter of 2014, $222 billion in the second quarter of 2013 and $234 billion in the first quarter of 2014. At June 30, 2014, total interest-bearing deposits were 52% of total interest-earning assets compared with 54% at Dec. 31, 2013. At June 30, 2014, we had $57 billion of liquid funds and $111 billion of cash (including $106 billion of overnight deposits with the Federal Reserve and other central banks) for a total of $168 billion of available funds. This compares with available funds of $155 billion at Dec. 31, 2013. The increase in available funds resulted from an increase in the level of client deposits. Total available funds as a percentage of total assets was 42% at June 30, 2014 compared with 41% at Dec. 31, 2013. Of the $57 billion in liquid funds held at June 30, 2014, $41 billion was placed in interest-bearing deposits with large, highly-rated global financial institutions with a weighted-average life to maturity of approximately 48 days. Of the $41 billion, $8 billion was placed with banks in the Eurozone. Investment securities were $105 billion, or 26% of total assets, at June 30, 2014, compared with $99 billion, or 26% of total assets, at Dec. 31, 2013. The increase reflects a higher level of investments in sovereign debt/sovereign guaranteed, U.S. Treasury securities and agency RMBS. Loans were $59 billion, or 15% of total assets, at June 30, 2014, compared with $52 billion, or 14% of total assets, at Dec. 31, 2013. The increase in total exposure primarily reflects higher overdrafts and margin loans resulting from an increase in our term loan program. Long-term debt totaled $20.3 billion at June 30, 2014 and $19.9 billion at Dec. 31, 2013. In the first six months of 2014, the Parent issued $2.7 billion of senior debt, partially offset by maturities of $2.3 billion. Total The Bank of New York Mellon Corporation shareholders' equity at June 30, 2014 increased to $38.3 billion from $37.5 billion at Dec. 31, 2013. The increase primarily reflects earnings retention, an increase in the value of our investment securities portfolio, an increase in foreign currency translation adjustments and approximately $320 million resulting from stock awards, the exercise of stock options and stock issued for employee benefit plans, partially offset by share repurchases.



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. 28 BNY Mellon -------------------------------------------------------------------------------- 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. Recent events in Russia and Ukraine significantly increased geopolitical tensions in Central and Eastern Europe. In addition to the exposures in the following table, we provide investments services, including acting as a depositary receipt bank, for companies in Russia. To date, our Russian-related businesses have not been materially impacted by the ongoing tensions or sanctions. Future developments including additional sanctions against Russian entities could



adversely impact these businesses and our results of operations. At June 30, 2014, our exposure to Ukraine was less than $1 million.

The following tables present our on- and off-balance sheet exposure in Ireland, Italy and Spain at both June 30, 2014 and Dec. 31, 2013. Additionally, our on- and off-balance sheet exposure to Russia is presented at June 30, 2014. At June 30, 2014 and Dec. 31, 2013, BNY Mellon had exposure of less than $1 million in both Portugal and Greece. Our exposure in Ireland is principally related to Irish-domiciled investment funds. Servicing provided to these funds and fund families may result in overdraft exposure. See "Risk management" for additional information on how our exposures are managed. Exposure in the tables below reflects the country of operations and risk of the immediate counterparty. BNY Mellon 29 -------------------------------------------------------------------------------- On- and off-balance sheet exposure at June 30, 2014 (in millions) Ireland Italy Spain Russia Total On-balance sheet exposure Gross: Deposits with banks (primarily interest-bearing) (a) $ 154$ 254$ 301



$ 20$ 729

Investment securities (primarily sovereign debt and European Floating Rate Notes) (b) 165 700 800 - 1,665 Loans and leases (c) 415 3 3 462 883 Trading assets (d) 62 30 15 - 107 Total gross on-balance sheet exposure 796 987 1,119 482 3,384 Less: Collateral 75 29 15 - 119 Guarantees - 2 1 - 3 Total collateral and guarantees 75 31 16 - 122 Total net on-balance sheet exposure $ 721$ 956$ 1,103$ 482$ 3,262 Off-balance sheet exposure Gross: Lending-related commitments (e) $ 78 $ - $ - $ - $ 78 Letters of credit (f) 60 3 13 1 77



Total gross off-balance sheet exposure 138 3 13

1 155



Less:

Collateral 68 - 13 - 81 Total net off-balance sheet exposure $ 70$ 3 $ - $ 1$ 74 Total exposure: Total gross on- and off-balance sheet exposure $ 934$ 990$ 1,132$ 483$ 3,539 Less: Total collateral and guarantees 143 31 29 - 203 Total net on- and off-balance sheet exposure $ 791$ 959$ 1,103



$ 483 (g) $ 3,336

(a) Interest-bearing deposits with banks represent a $99 million placement with

an Irish subsidiary of a UK holding company, a $49 million placement with an

Irish financial institution, a $100 million placement with a financial

institution in Italy, a $247 million placement with a financial institution

in Spain, $214 million of nostro accounts related to our custody activities

located in Ireland, Italy and Spain and $20 million of nostro accounts

related to our depositary receipts business in Russia.

(b) Investment securities represent $165 million, fair value, of residential

mortgage-backed securities located in Ireland and Italy, $1,447 million, fair

value, of sovereign debt located in Spain and Italy and $53 million, fair

value, of corporate bonds located in Ireland, Italy and Spain. The investment

securities were 90% investment grade.

(c) Loans and leases include $342 million of overdrafts primarily to

Irish-domiciled investment funds resulting from our custody business, a $72

million commercial lease to a company located in Ireland, which was fully

collateralized by U.S. Treasuries, a $1 million loan to a broker-dealer in

Ireland, $3 million of overdrafts to financial institutions located in Italy

and Spain, $3 million of leases to airline manufacturing companies located in

Italy and Spain, which are under joint and several guarantee arrangements

with guarantors outside of the Eurozone and $462 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 over-the-counter 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 $45 million of receivables primarily due

from financial institutions in Italy and Spain. Cash collateral on trading

assets totaled $3 million in Ireland, $29 million in Italy and $4 million in

Spain. Additionally, trading assets in Spain were collateralized by $11

million of U.S. Treasuries.

(e) Lending-related commitments include $78 million to an insurance company in

Ireland, collateralized by $13 million of marketable securities.

(f) Letters of credit represent $58 million extended to an insurance company in

Ireland, collateralized by $55 million of marketable securities, $2 million

extended to an oil and gas company in Ireland, $3 million extended to a

financial institution in Italy, $13 million extended to an insurance company

in Spain, fully collateralized by marketable securities, and $1 million extended to a financial institution in Russia. Risk participations with higher risk countries counterparties are excluded.



(g) Total net on- and off-balance sheet exposure in Russia at March 31, 2014 was

approximately $550 million. 30 BNY Mellon -------------------------------------------------------------------------------- On- and off-balance sheet exposure at Dec. 31, 2013 (in millions) Ireland Italy Spain Total On-balance sheet exposure Gross: Deposits with banks (primarily interest-bearing) (a) $ 100$ 217



$ 375$ 692

Investment securities (primarily sovereign debt and European Floating Rate Notes) (b) 165 279 137 581 Loans and leases (c) 267 3 1 271 Trading assets (d) 62 35 18 115 Total gross on-balance sheet exposure 594 534 531 1,659 Less: Collateral 87 30 18 135 Guarantees - 2 1 3 Total collateral and guarantees 87 32 19 138 Total net on-balance sheet exposure $ 507$ 502$ 512$ 1,521 Off-balance sheet exposure Gross: Lending-related commitments (e) $ 70 $ - $ - $ 70 Letters of credit (f) 115 3 13 131 Total gross off-balance sheet exposure 185 3 13 201 Less: Collateral 68 - 13 81 Total net off-balance sheet exposure $ 117$ 3 $ - $ 120 Total exposure: Total gross on- and off-balance sheet exposure $ 779$ 537$ 544$ 1,860 Less: Total collateral and guarantees 155 32



32 219 Total net on- and off-balance sheet exposure $ 624$ 505$ 512$ 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 Spain and Italy, 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 include $184 million of overdrafts primarily to

Irish-domiciled investment funds resulting from our custody business, a $70

million commercial lease to a company located in Ireland, which was fully

collateralized by U.S. Treasuries, $13 million of loans to financial

institutions located in Ireland, which were collateralized by $12 million of

marketable securities, $1 million of overdrafts to a financial institution

located in Italy and $3 million of leases to airline manufacturing companies

located in Italy and Spain, which are under joint and several guarantee

arrangements with guarantors outside of the Eurozone. There is no impairment

associated with these loans and leases. Overdrafts occur on a daily basis in

our Investment Services businesses and are generally repaid within two

business days.

(d) Trading assets represent the receivable related to the over-the-counter

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 totaled $5 million in Ireland, $30 million in Italy and $5

million in Spain. Trading assets located in Spain are also collateralized by

$13 million of U.S. Treasuries.

(e) Lending-related commitments include $70 million to an insurance company,

collateralized by $3 million of marketable securities.

(f) Letters of credit represent $65 million extended to an insurance company in

Ireland, fully collateralized by marketable securities, $48 million extended

to a financial institution in Ireland, $2 million extended to an oil and gas

company in Ireland, $3 million extended to a financial institution in Italy

and $13 million extended to an insurance company in Spain, fully collateralized by marketable securities. BNY Mellon 31 --------------------------------------------------------------------------------



Investment securities

In the discussion of our investment securities portfolio, we have included certain credit ratings information because the information indicates the degree of credit risk to which we are exposed, and significant changes in ratings classifications for our

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

The following table presents the distribution of our total investment securities portfolio: Investment securities portfolio Ratings March 31, 2014 June 30, 2014 Fair (dollars in millions) 2Q14 value change in as a % of BB+ Fair unrealized Amortized Fair amortized Unrealized AAA/ A+/ BBB+/ and Not value gain (loss) cost value cost (a) gain (loss) AA- A- BBB- lower rated Agency RMBS $ 39,143 $ 340 $ 41,493$ 41,552 100 % $ 59 100 % - % - % - % - % U.S. Treasury 17,299 63 18,568 18,791 101 223 100 - - - - Sovereign debt/sovereign guaranteed (b) 12,856 22 14,736 14,812 101 76 90 - 10 - - Non-agency RMBS (c) 2,637 (8 ) 2,010 2,574 80 564 - 1 2 93 4 Non-agency RMBS 1,287 8 1,207 1,227 94 20 1 11 22 65 1 European floating rate notes (d) 2,580 9 2,535 2,525 99 (10 ) 72 22 - 6 - Commercial MBS 4,168 30 4,338 4,397 101 59 93 6 1 - - State and political subdivisions 6,693 48 6,182 6,253 101 71 80 19 - - 1 Foreign covered bonds (e) 2,716 8 2,699 2,788 103 89 100 - - - - Corporate bonds 1,781 16 1,654 1,693 102 39 21 65 14 - - CLO 1,391 1 1,442 1,455 101 13 100 - - - - U.S. Government agencies 859 4 789 787 100 (2 ) 100 - - - - Consumer ABS 3,364 2 3,274 3,278 100 4 98 2 - - - Other (f) 2,922 (5 ) 2,971 2,980 100 9 38 55 - - 7 Total investment securities $ 99,696 (g) $ 538 $ 103,898$ 105,112 (g) 100 % $ 1,214 (h) 89 % 5 % 2 % 3 % 1 %



(a) Amortized cost before impairments.

(b) Primarily comprised of exposure to UK, France, Germany 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.

(d) Includes RMBS, commercial MBS and other securities. Primarily comprised of

exposure to UK and Netherlands.

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

(f) Includes commercial paper of $1.7 billion and $1.7 billion, fair value, and

money market funds of $849 million and $810 million, fair value, at March 31,

2014 and June 30, 2014, respectively.

(g) Includes net unrealized gains on derivatives hedging securities

available-for-sale of $388 million at March 31, 2014 and $213 million at

June 30, 2014.

(h) Unrealized gains of $1,105 million at June 30, 2014 related to

available-for-sale securities. The fair value of our investment securities portfolio was $105.1 billion at June 30, 2014 compared with $99.4 billion at Dec. 31, 2013. The increase reflects a higher level of investments in sovereign debt/sovereign guaranteed, U.S. Treasury securities and agency RMBS, as well as an increase in the unrealized gain on our investment securities. In the second quarter of 2014, we received $136 million of paydowns and sold $5 million of sub-investment grade securities. At June 30, 2014, the total investment securities portfolio had a net unrealized pre-tax gain of $1.2 billion compared with $309 million at Dec. 31, 2013. The increase in the net unrealized pre-tax gain was primarily driven by the reduction in market interest rates. The unrealized net of tax gain on our investment securities available-for-sale portfolio included in accumulated other comprehensive income was $678 million at June 30, 2014, compared with $357 million at Dec. 31, 2013.



At both June 30, 2014 and Dec. 31, 2013, 89% of the securities in our portfolio were rated AAA/AA-.

We routinely test our investment securities for OTTI. (See "Critical accounting estimates" for additional information regarding OTTI.)

32 BNY Mellon -------------------------------------------------------------------------------- The following table presents the amortizable purchase premium (net of discount) related to the investment securities portfolio and accretable discount related to



the restructuring of the investment securities portfolio.

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

2Q13 3Q13 4Q13 1Q14 2Q14 Amortizable purchase premium (net of discount) relating to investment securities: Balance at period end $ 2,720$ 2,519 $



2,377 $ 2,236$ 2,225 Estimated average life remaining at period end (in years)

5.1 5.2 5.2 5.0 4.8 Amortization $ 172$ 147$ 142$ 145$ 156 Accretable discount related to the restructuring of the investment securities portfolio: Balance at period end $ 743$ 675$ 642$ 534$ 510 Estimated average life remaining at period end (in years) 6.0 6.1 6.0 6.3 6.2 Accretion $ 54$ 55$ 52$ 46$ 41



(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) 2Q14 1Q14 2Q13 YTD14 YTD13 U.S. Treasury $ 1$ 10$ 31$ 11$ 27 U.S. Government agencies - 7 - 7 - State and political subdivisions 7 (1 ) - 6 - Foreign covered bonds 3 - - 3 8 Commercial MBS - - 7 - 15 European floating rate notes - (1 ) (10 ) (1 ) (6 ) Non-agency RMBS (2 ) (2 ) (3 ) (4 ) 1 Other 9 9 7 18 35 Total net securities gains $ 18$ 22$ 32$ 40$ 80 On a quarterly basis, we perform our impairment analysis using several factors, including projected loss severities and default rates. In the second quarter of 2014, this analysis resulted in $2 million of credit losses primarily on our prime RMBS portfolio. At June 30, 2014, if we were to increase or decrease each of our projected loss severities and default rates by 100 basis points on each of the positions in our non-agency RMBS portfolios, including the securities previously held by the Grantor Trust, credit-related impairment charges on these securities would have



increased or decreased by less than $1 million (pre-tax). See Note 4 of the Notes to Consolidated Financial Statements for the projected weighted-average default rates and loss severities.

The following table shows the fair value of the European floating rate notes by geographical location at June 30, 2014. The unrealized loss on these securities was $10 million at June 30, 2014, an improvement of $9 million compared with $19 million at March 31, 2014.



European floating rate notes at June 30, 2014 (a)

Total fair (in millions) RMBS Other value United Kingdom $ 1,558$ 135$ 1,693 Netherlands 634 - 634 Ireland 161 - 161 Other 37 - 37 Total fair value $ 2,390$ 135$ 2,525



(a) 72% of these securities are in the AAA to AA- ratings category.

See Note 15 of the Notes to Consolidated Financial Statements for details of securities by level in the fair value hierarchy.

BNY Mellon 33

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Loans Total exposure - consolidated June 30, 2014 Dec. 31, 2013 Unfunded Total Unfunded Total (in billions) Loans commitments exposure Loans commitments exposure Non-margin loans: Financial institutions $ 15.0$ 16.3$ 31.3$ 14.4$ 17.0$ 31.4 Commercial 1.8 19.2 21.0 1.6 19.5 21.1 Subtotal institutional 16.8 35.5 52.3 16.0 36.5 52.5 Wealth management loans and mortgages 10.4 1.7 12.1 9.8 1.7 11.5 Commercial real estate 2.2 2.5 4.7 2.0 2.4 4.4 Lease financings 2.2 - 2.2 2.3 - 2.3 Other residential mortgages 1.3 - 1.3 1.4 - 1.4 Overdrafts 7.8 - 7.8 3.7 - 3.7 Other 0.8 - 0.8 0.8 - 0.8 Subtotal non-margin loans 41.5 39.7 81.2 36.0 40.6 76.6 Margin loans 17.7 0.5 18.2 15.7 0.5 16.2 Total $ 59.2$ 40.2$ 99.4$ 51.7$ 41.1$ 92.8 At June 30, 2014, total exposures were $99.4 billion, an increase of 7% from $92.8 billion at Dec. 31, 2013. The increase in total exposure primarily reflects higher overdrafts and margin loans resulting from an increase in our term loan program. Our financial institutions and commercial portfolios comprise our largest concentrated risk. These portfolios made up 53% of our total lending exposure at June 30, 2014 and 57% at Dec. 31, 2013. Additionally, a substantial portion of our overdrafts relate to financial institutions and commercial customers.



Financial institutions

The diversity of the financial institutions portfolio is shown in the following table. Financial June 30, 2014 Dec. 31, 2013 institutions portfolio exposure (dollar amounts in Unfunded Total % Inv. % due Unfunded Total billions) Loans commitments exposure grade <1 yr Loans commitments exposure Banks $ 9.0 $ 1.9 $ 10.9 88 % 91 % $ 9.4 $ 2.3 $ 11.7 Asset managers 1.6 4.8 6.4 99 78 1.4 4.1 5.5 Securities industry 3.9 1.3 5.2 89 98 2.9 2.0 4.9 Insurance 0.1 4.2 4.3 99 22 0.1 4.3 4.4 Government - 3.1 3.1 97 26 0.4 3.2 3.6 Other 0.4 1.0 1.4 93 29 0.2 1.1 1.3 Total $ 15.0$ 16.3$ 31.3 93 % 71 % $ 14.4$ 17.0$ 31.4 The financial institutions portfolio exposure was $31.3 billion at June 30, 2014 compared with $31.4 billion at Dec. 31, 2013. The decrease primarily reflects lower exposure to banks and governments, partially offset by increased exposure to asset managers and the securities industry reflecting the reestablishment of a loan to Sentinel Management Group, Inc. ("Sentinel") as a fully collateralized performing loan in the first quarter of 2014. See Note 5 and Note 18 of the Notes to Consolidated Financial Statements for additional information on the Sentinel matter. Financial institution exposures are high quality, with 93% of the exposures meeting the investment grade equivalent criteria of our internal credit rating classification at June 30, 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, 71% expire within one year, and 36% expire within 90 days. In addition, 39% of the financial institutions exposure is secured. For 34 BNY Mellon --------------------------------------------------------------------------------



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 June 30, 2014. These exposures are generally short-term liquidity facilities, with the vast majority to regulated mutual funds.

Commercial

The diversity of the commercial portfolio is presented in the following table. Commercial portfolio exposure June 30, 2014 Dec. 31, 2013 (dollar amounts in Unfunded Total % Inv. % due Unfunded Total billions) Loans commitments exposure grade <1 yr Loans commitments exposure Services and other $ 1.0 $ 6.3 $ 7.3 94 % 25 % $ 0.6 $ 6.0 $ 6.6 Energy and utilities 0.4 5.8 6.2 99 10 0.7 5.9 6.6 Manufacturing 0.3 5.5 5.8 90 9 0.2 5.9 6.1 Media and telecom 0.1 1.6 1.7 90 7 0.1 1.7 1.8 Total $ 1.8$ 19.2$ 21.0 94 % 15 % $ 1.6$ 19.5$ 21.1 The commercial portfolio exposure decreased less than 1% to $21.0 billion at June 30, 2014, from $21.1 billion at Dec. 31, 2013. The increase in exposure to the services and other portfolio was more than offset by a decrease in exposure across the remainder of the commercial 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

June 30, 2013 Sept. 30, 2013 Dec. 31, 2013 March



31, June 30, 2014

2014 Financial institutions 93 % 92 % 93 % 94 % 93 % Commercial 94 % 94 % 94 % 94 % 94 % 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 June 30, 2014.



Wealth management loans and mortgages

Our wealth management exposure was $12.1 billion at June 30, 2014 compared with $11.5 billion at Dec. 31, 2013. Wealth management loans and mortgages are primarily comprised of loans to high-net-worth individuals, which are secured by marketable securities and/or residential property. Wealth management mortgages are primarily interest-only adjustable rate mortgages with an average loan-to-value ratio of 65% at origination. In the wealth management portfolio, less than 1% of the mortgages were past due at June 30, 2014.



At June 30, 2014, the wealth management mortgage portfolio was comprised of the following geographic concentrations: California - 21%; New York - 21%; Massachusetts - 15%; Florida - 9%; and other - 34%.

Commercial real estate

Our income producing commercial real estate facilities are focused on experienced owners and are structured with moderate leverage based on existing cash flows. Our commercial real estate lending activities also include construction and renovation facilities. Our client base consists of experienced developers and long-term holders of real estate assets. BNY Mellon 35 -------------------------------------------------------------------------------- Loans are approved on the basis of existing or projected cash flows, and supported by appraisals and knowledge of local market conditions. Development loans are structured with moderate leverage, and in many instances, involve some level of recourse to the developer. Our commercial real estate exposure totaled $4.7 billion at June 30, 2014 compared with $4.4 billion at Dec. 31, 2013. At June 30, 2014, 57% of our commercial real estate portfolio was secured. The secured portfolio is diverse by project type, with 59% secured by residential buildings, 20% secured by office buildings, 12% secured by retail properties, and 9% secured by other categories. Approximately 97% of the unsecured portfolio is comprised of real estate investment trusts ("REITs"), which are primarily investment grade, and real estate operating companies.



At June 30, 2014, our commercial real estate portfolio is comprised of the following concentrations: New York metro - 44%; REITs and real estate operating companies - 41%; and other - 15%.

Lease financings

The leasing portfolio exposure totaled $2.2 billion and included $151 million of airline exposures at June 30, 2014, compared with $2.3 billion of leasing exposures, including $166 million of airline exposures, at Dec. 31, 2013. At June 30, 2014, approximately 90% of the leasing exposure was investment grade.



At June 30, 2014, the $2.0 billion non-airline lease financing portfolio consisted of exposures backed by well-diversified assets, primarily large-ticket transportation equipment.

At June 30, 2014, our $151 million of exposure to the airline industry consisted of $61 million to major U.S. carriers, $75 million to foreign airlines and $15 million to U.S. regional airlines. Our airline lease customers experienced a recent recovery in the industry. However, a significant portion of these customers remain highly leveraged and vulnerable to both economic downturns and rising fuel prices. Because of these factors, we continue to maintain a sizable allowance for loan losses against these exposures and continue to closely monitor the portfolio.



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

Other residential mortgages

The other residential mortgage portfolio primarily consists of 1-4 family residential mortgage loans and totaled $1.3 billion at June 30, 2014, compared with $1.4 billion at Dec. 31, 2013. Included in this portfolio at June 30, 2014 are $382 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 June 30, 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

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

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 $8.4 billion of loans at June 30, 2014 and $6.7 billion at Dec. 31, 2013 related to a term loan program that offers fully collateralized loans to broker-dealers. 36 BNY Mellon --------------------------------------------------------------------------------



Asset quality and allowance for credit losses

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



The role of credit has shifted to one that complements our other services instead of as a lead product. We believe credit solidifies customer relationships and, through a disciplined allocation of capital, can earn acceptable rates of return as part of an overall relationship.

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

Allowance for credit losses activity June 30, Dec. 31, June 30, (dollar amounts in millions) 2014 March 31, 2014 2013 2013 Margin loans $ 17,685$ 16,430$ 15,652$ 14,434 Non-margin loans 41,563 37,606 36,005 35,873 Total loans $ 59,248$ 54,036$ 51,657$ 50,307 Allowance for credit losses - beginning of period $ 326 $ 344 $ 339$ 358 Provision for credit losses (12 ) (18 ) 6 (19 ) Net (charge-offs) recoveries: Foreign (2 ) - (3 ) - Wealth management loans and mortgages (1 ) - - - Other residential mortgages (1 ) - - (2 ) Financial institutions - - 3 - Commercial 1 - (1 ) - Net (charge-offs) (3 ) - (1 ) (2 ) Allowance for credit losses - end of period $ 311 $ 326 $ 344$ 337 Allowance for loan losses $ 187 $ 198 $ 210$ 212 Allowance for lending-related commitments 124 128 134 125 Allowance for loan losses as a percentage of total loans 0.32 % 0.37 % 0.41 % 0.42 % Allowance for loan losses as a percentage of non-margin loans 0.45 0.53 0.58 0.59 Total allowance for credit losses as a percentage of total loans 0.52 0.60 0.67 0.67 Total allowance for credit losses as a percentage of non-margin loans 0.75 0.87 0.96 0.94 Net charge-offs were $3 million in the second quarter of 2014 and $2 million in the second quarter of 2013. Net charge-offs in these periods were primarily in the other residential mortgages and foreign loan portfolios. There were no net charge-offs in the first quarter of 2014. The provision for credit losses was a credit of $12 million in the second quarter of 2014 primarily driven by the continued improvement in the credit quality of the loan portfolio. The provision for credit losses was a credit of $19 million in the second quarter of 2013 and a credit of $18 million in the first quarter of 2014. The total allowance for credit losses was $311 million at June 30, 2014, $344 million at Dec. 31, 2013 and $337 million at June 30, 2013. The ratio of the total allowance for credit losses to non-margin loans was 0.75% at June 30, 2014, 0.96% at Dec. 31, 2013 and 0.94% at June 30, 2013. The ratio of the allowance for loan losses to non-margin loans was 0.45% at June 30, 2014 compared with 0.58% at Dec. 31, 2013 and 0.59% at June 30, 2013. The decrease in the total allowance for credit losses and the lower ratios at June 30, 2014 compared with both prior periods primarily reflects an improvement in the credit quality in the loan portfolio. We had $17.7 billion of secured margin loans on our balance sheet at June 30, 2014 compared with $15.7 billion at Dec. 31, 2013 and $14.4 billion at June 30, 2013. 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.



The allowance for loan losses and allowance for lending-related commitments represent management's estimate of probable losses inherent in

BNY Mellon 37 --------------------------------------------------------------------------------



our credit portfolio. This evaluation process is subject to numerous estimates and judgments.

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



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

an allowance for impaired credits of $1 million or greater;

an allowance for higher risk-rated credits and pass-rated credits; and

an allowance for residential mortgage loans.

Our lending is primarily to institutional customers. As a result, our loans are generally larger than $1 million. Therefore, the first element, impaired credits, is based on individual analysis of all impaired loans of $1 million or greater. The allowance is measured by the difference between the recorded value of impaired loans and their impaired value. Impaired value is either the present value of the expected future cash flows from the borrower, the market value of the loan, or the fair value of the collateral. The second element, higher risk-rated credits and pass-rated credits, is based on our probable loss model. All loans over $1 million are individually analyzed before being assigned a credit rating. All borrowers are assigned to pools based on their credit rating. The probable loss inherent in each loan in a pool incorporates the borrower's credit rating, loss given default rating and maturity. The loss given default incorporates a recovery expectation and an estimate of the use of the facility at default (usage given default). The borrower's probability of default is derived from the associated credit rating. Borrower ratings are reviewed at least annually and are periodically mapped to third-party databases, including rating agency and default and recovery databases, to ensure ongoing consistency and validity. Higher risk-rated credits are reviewed quarterly. The third element, the allowance for residential mortgage loans, is determined by segregating six mortgage pools into delinquency periods ranging from current through foreclosure. Each of these delinquency periods is assigned a probability of default. A specific loss given default is assigned for each mortgage pool. BNY Mellon also 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 our residential mortgage portfolio. For each pool, the inherent loss is calculated using the above factors. The resulting probable loss factor (the probability of default multiplied by the loss given default) is applied against the loan balance to determine the allowance held for each pool. For home equity lines of credit, probability of default and loss given default are based on external data from third-party databases due to the small size of the portfolio and insufficient internal data.



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

Internal risk factors: Nonperforming loans to total non-margin loans;



Criticized assets to total loans and lending-related commitments;

Ratings volatility;

Borrower concentration; and

Significant concentration in high risk industries.

Environmental risk factors: U.S. non-investment grade default rate;



Unemployment rate; and

Change in real GDP (quarter over quarter).

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. 38 BNY Mellon -------------------------------------------------------------------------------- For each risk factor, we calculate the minimum and maximum values, and percentiles in-between, to evaluate the distribution of our historical experience. The distribution of historical experience is compared to the risk factor's current quarter observed experience to assess the current risk inherent in the portfolio and overall direction/trend of a risk factor relative to our historical experience. Based on this analysis, we assign a risk level - no impact, low, moderate, high and elevated - to each risk factor for the current quarter. Management assesses the impact of each risk factor to determine an aggregate risk level. We do not quantify the impact of any particular risk factor. Management's assessment of the risk factors, as well as the trend in the quantitative allowance, supports management's judgment for the overall required qualitative allowance. A smaller qualitative allowance may be required when our quantitative allowance has reflected incurred losses associated with the aggregate risk level. A greater qualitative allowance may be required if our quantitative allowance does not yet reflect the incurred losses associated with the aggregate risk level. Our consideration of these factors has remained consistent for the quarter ended June 30, 2014. Additionally, the qualitative allowance as a percentage of the total allowance was essentially unchanged from Dec. 31, 2013 to June 30, 2014. The methodologies to determine the loss given default, probability of default and usage given default allowance parameters utilized in our probable loss model to calculate the quantitative allowance were updated in the fourth quarter of 2013.



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.

Based on an evaluation of the allowance for credit losses as discussed above, we have allocated our allowance for credit losses as follows:

Allocation of allowance June 30, March 31, June 30, 2014 2014 Dec. 31, 2013 2013 Commercial 24 % 24 % 24 % 28 % Other residential mortgages 15 15 16 22 Foreign 15 15 16 13 Financial institutions 14 15 14 10 Commercial real estate 14 13 12 9 Lease financing 11 11 11 12 Wealth management (a) 7 7 7 6 100 % 100 % 100 % 100 %



(a) 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 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 $70 million, while if each credit were rated one grade worse, the allowance would have increased by $158 million. Similarly, if the loss given default were one rating worse, the allowance would have increased by $28 million, while if the loss given default were one rating better, the allowance would have decreased by $23 million. For impaired credits, if the net carrying value of the loans was 10% higher or lower, the allowance would have decreased or increased by $1 million, respectively. BNY Mellon 39

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Nonperforming assets

The following table shows the distribution of nonperforming assets.

Nonperforming assets (dollars in millions) June 30, 2014 March 31, 2014 Dec. 31, 2013 Loans: Other residential mortgages $ 105 $ 107 $ 117 Commercial 13 13 15 Wealth management loans and mortgages 12 12 11 Foreign 4 7 6 Commercial real estate 4 4 4 Total nonperforming loans 138 143 153 Other assets owned 4 3 3 Total nonperforming assets (a) $ 142 $ 146 $ 156 Nonperforming assets ratio 0.24 % 0.27 % 0.30 % Nonperforming assets ratio, excluding margin loans 0.3 0.4 0.4 Allowance for loan losses/nonperforming loans 135.5 138.5 137.3 Allowance for loan losses/nonperforming assets 131.7 135.6 134.6 Total allowance for credit losses/nonperforming loans 225.4 228.0 224.8 Total allowance for credit losses/nonperforming assets 219.0 223.3 220.5



(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 $68 million at June 30, 2014, $74

million at March 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. Nonperforming assets activity (in millions) June 30, 2014 March 31, 2014 Dec. 31, 2013 Balance at beginning of period $ 146 $ 156 $ 172 Additions 7 8 7 Return to accrual status (3 ) (9 ) (10 ) Charge-offs (4 ) (1 ) (5 ) Paydowns/sales (4 ) (8 ) (8 ) Balance at end of period $ 142 $ 146 $ 156 Nonperforming assets were $142 million at June 30, 2014, a decrease of $4 million compared with $146 million at March 31, 2014. The decrease primarily resulted from the return of loans to accrual status, sales of loans in the other residential mortgage portfolio and a charge-off in the foreign loan portfolio. 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 in our 2013 Annual Report for our policy for placing loans on nonaccrual status.



Deposits

Total deposits were $282.4 billion at June 30, 2014, an increase of 8% compared with $261.1 billion at Dec. 31, 2013. The increase in deposits reflects higher noninterest-bearing deposits principally in U.S. offices and interest-bearing deposits in non-U.S. offices, partially offset by lower interest-bearing deposits in U.S. offices. Noninterest-bearing deposits were $109.6 billion at June 30, 2014 compared with $95.4 billion at Dec. 31, 2013. Interest-bearing deposits were $172.8 billion at June 30, 2014 compared with $165.7 billion at Dec. 31, 2013.



Short-term borrowings

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



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

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

40 BNY Mellon -------------------------------------------------------------------------------- Federal funds purchased and securities sold under repurchase agreements Quarter ended



(dollar amounts in millions) June 30, 2014March 31, 2014

June 30, 2013 Maximum daily balance during the quarter $ 29,522 $ 21,089 $ 13,484 Average daily balance $ 19,030 $ 14,505 $ 9,206 Weighted-average rate during the quarter (0.05 )% (0.13 )% (0.28 )% Ending balance $ 10,301 $ 9,935 $ 12,600 Weighted-average rate at period end (0.04 )% (0.14 )% (0.26 )% Federal funds purchased and securities sold under repurchase agreements were $10.3 billion at June 30, 2014 compared with $9.9 billion at March 31, 2014 and $12.6 billion at June 30, 2013. The maximum daily balance was $29.5 billion in the second quarter of 2014 compared with $21.1 billion in the first quarter of 2014 and $13.5 billion in the second quarter of 2013. The average daily balance was $19.0 billion in the second quarter of 2014, $14.5 billion in the first quarter of 2014 and $9.2 billion in the second quarter of 2013. Fluctuations between periods resulted from overnight borrowing opportunities. The weighted-average rates in all periods presented reflect revenue earned on securities sold under repurchase agreements related to certain securities for which we were able to charge for lending them.



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

Payables to customers and broker-dealers

Quarter ended (dollar amounts in millions) June 30, 2014 March 31, 2014 June 30, 2013 Maximum daily balance during the quarter $ 17,746 $ 17,691 $



16,458

Average daily balance (a) $ 16,727 $ 16,276 $

15,055

Weighted-average rate during the quarter 0.09 % 0.09 % 0.08 % Ending balance $ 17,242 $ 16,822 $



15,267

Weighted-average rate at period end 0.09 % 0.10 %



0.09 %

(a) The weighted-average rate is calculated based on, and is applied to, the

average interest-bearing payables to customers and broker-dealers, which were

$8,916 million in the second quarter of 2014, $8,883 million in the first

quarter of 2014 and $9,073 million in the second 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 $17.2 billion at June 30, 2014 compared with $16.8 billion at March 31, 2014 and $15.3 billion at June 30, 2013. Payables to customers and broker-dealers are driven by customer trading activity levels and market volatility.



Information related to commercial paper is presented below.

Commercial paper Quarter ended (dollar amounts in millions) June 30, 2014 March 31, 2014 June 30, 2013 Maximum daily balance during the quarter $ 4,932 $ 1,697 $ 924 Average daily balance $ 1,970 $ 102 $ 58 Weighted-average rate during the quarter 0.08 % 0.05 % 0.04 % Ending balance $ 27 $ 27 $ 111 Weighted-average rate at period end 0.01 % 0.02 % 0.03 % Commercial paper outstanding was $27 million at June 30, 2014 compared with $27 million at March 31, 2014 and $111 million at June 30, 2013. Average commercial paper outstanding was $2.0 billion in the second quarter of 2014, $102 million in the first quarter of 2014 and $58 million in the second quarter of 2013. The maximum daily balance was $4.9 billion in the second quarter of 2014 compared with $1.7 billion in the first quarter of 2014 and $924 million in the second quarter of 2013. The increases in maximum and average daily balances in the second quarter of 2014 were 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.



Information related to other borrowed funds is presented below.

Other borrowed funds Quarter ended (dollar amounts in millions) June 30, 2014 March 31, 2014 June 30, 2013 Maximum daily balance during the quarter $ 1,983 $ 2,000 $ 3,720 Average daily balance $ 1,272 $ 1,035 $ 1,385 Weighted-average rate during the quarter 0.47 % 0.51 % 0.20 % Ending balance $ 1,458 $ 1,305 $ 1,060 Weighted-average rate at period end 0.45 % 0.34 % 0.34 % BNY Mellon 41

-------------------------------------------------------------------------------- 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 $1.5 billion at June 30, 2014 compared with $1.3 billion at March 31, 2014 and $1.1 billion at June 30, 2013. Other borrowed funds averaged $1.3 billion in the second quarter of 2014, $1.0 billion in the first quarter of 2014 and $1.4 billion in the second quarter of 2013. The maximum daily balance was $2.0 billion in the second quarter of 2014 compared with $2.0 billion in the first quarter of 2014 and $3.7 billion in the second quarter of 2013. Fluctuations from prior periods primarily reflect changes in overdrafts of sub-custodian account balances in our Investment Services businesses.



Liquidity and dividends

BNY Mellon defines liquidity as the ability of the Parent and its subsidiaries to access funding or convert assets to cash quickly and efficiently, especially during periods of market stress. Liquidity risk is the risk that BNY Mellon cannot meet its cash and collateral obligations at a reasonable cost for both expected and unexpected cash flows, without adversely affecting daily operations or our financial condition. Liquidity risk can arise from cash flow mismatches, market constraints from the inability to convert assets to cash, inability to raise cash in the markets, deposit run-off, or contingent liquidity events.



For additional information on our liquidity policy, see "Risk Management - Liquidity risk" in our 2013 Annual Report.

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

BNY Mellon seeks to maintain an adequate liquidity cushion in both normal and stressed environments and seeks to diversify funding sources by line of business, customer and market segment.

Additionally, we seek to maintain liquidity ratios within approved limits and liquidity risk tolerance, maintain a liquid asset buffer that can be liquidated, financed and/or pledged as necessary, and control the levels and sources of wholesale funds. Potential uses of liquidity include withdrawals of customer deposits and client drawdowns on unfunded credit or liquidity facilities. We actively monitor unfunded lending-related commitments, thereby reducing unanticipated funding requirements.



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

Internal ratios we currently monitor as part of our standard analysis include total loans as a percentage of total deposits, deposits as a percentage of total interest-earning assets, foreign deposits as a percentage of total interest-earning assets, purchased funds as a percentage of total interest-earning assets, liquid assets as a percentage of total interest-earning assets, liquid assets as a percentage of purchased funds, and discount window collateral and central bank deposits as a percentage of total deposits. All of these internal ratios exceeded our minimum guidelines at June 30, 2014. In addition, we monitor the revised Basel III liquidity coverage ratio. We continue to evaluate the U.S. proposed Basel III liquidity coverage ratio ("LCR"), and will comply with its requirements when the rules are finalized and effective, currently anticipated to be during the first quarter of 2015. We also perform liquidity stress tests to ensure the Company maintains sufficient liquidity resources under multiple stress scenarios. Stress tests are based on scenarios that measure liquidity risks under unlikely but plausible events. The Company performs these tests under various time horizons ranging from one day to one year in a base case, as well as supplemental tests to determine whether the Company's liquidity is sufficient for severe market events and firm-specific events. Under our scenario testing program, the results of the tests indicate that the Company has sufficient liquidity.



Commencing January 2015, we will also be subject to the liquidity requirements of the Federal Reserve's

42 BNY Mellon -------------------------------------------------------------------------------- heightened prudential standards for bank holding companies ("BHCs") with total consolidated assets of $50 billion or more, described under "Supervision and Regulation - Enhanced Prudential Standards" in our 2013 Annual Report.



We define available funds as liquid funds (which include interest-bearing deposits with banks and federal funds sold and securities purchased under

resale agreements), cash and due from banks, and interest-bearing deposits with the Federal Reserve and other central banks. The table below presents our total available funds including liquid funds at period-end and on an average basis. The higher level of available funds at June 30, 2014 compared with Dec. 31, 2013 primarily resulted from a higher level of client deposits. Available and liquid funds Average (in millions) June 30, 2014 Dec. 31, 2013 2Q14 1Q14 2Q13 YTD14 YTD13 Available funds: Liquid funds: Interest-bearing deposits with banks $ 41,459$ 35,300$ 41,424$ 41,617$ 42,772$ 41,520$ 41,874 Federal funds sold and securities purchased under resale agreements 15,062 9,161 13,387 11,118 7,878 12,259 7,679 Total liquid funds 56,521 44,461 54,811 52,735 50,650 53,779 49,553 Cash and due from banks 6,173 6,460 5,064 5,886 5,060 5,473 4,798 Interest-bearing deposits with the Federal Reserve and other central banks 105,657 104,359 85,546 74,399 55,911 80,004 59,555 Total available funds $ 168,351$ 155,280$ 145,421$ 133,020$ 111,621$ 139,256$ 113,906 Total available funds as a percentage of total assets 42 % 41 % 39 % 37 % 33 % 38 % 34 % On an average basis, 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 $26.9 billion for the first six months of 2014 and $19.1 billion for the first six months of 2013. The increase primarily reflects higher levels of securities sold under repurchase agreements. Average foreign deposits, primarily from our European-based Investment Services business, were $106.1 billion for the first six months of 2014 compared with $99.7 billion for the first six months of 2013. The increase primarily reflects growth in client deposits. Domestic savings, interest-bearing demand and time deposits averaged $46.3 billion for the first six months of 2014 compared with $44.0 billion for the first six months of 2013. The increase primarily reflects higher time deposits. Average payables to customers and broker-dealers were $8.9 billion for the first six months of 2014 and $9.0 billion for the first six months of 2013. Payables to customers and broker-dealers are driven by customer trading activity and market volatility. Long-term debt averaged $20.4 billion for the first six months of 2014 and $18.9 billion for the first six months of 2013. The increase in average long-term debt was driven by the issuance of long-term debt in the second half of 2013 and the first six months of 2014 in anticipation of debt maturing in 2014. Average noninterest-bearing deposits increased to $79.6 billion for the first six months of 2014 from $70.5 billion for the first six months of 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.



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 June 30, 2014, our bank subsidiaries could declare dividends to the Parent of approximately $1.6 billion, without the need for a regulatory waiver. In addition, at June 30, 2014, non-bank subsidiaries of the Parent had liquid assets of approximately $1.5 billion.



In April 2014, BNY Mellon announced a 13% increase in the quarterly common stock dividend from $0.15 to $0.17 per common share. Our common

BNY Mellon 43 --------------------------------------------------------------------------------



stock dividend payout ratio was 31% for the first six months of 2014. 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, both contained in our 2013 Annual Report. The Parent's average commercial paper borrowings were $2.0 billion in the the second quarter of 2014 and $58 million in the second quarter of 2013. The Parent had cash of $5.3 billion at June 30, 2014, compared with $6.8 billion at Dec. 31, 2013. In addition to issuing commercial paper for funding purposes, the Parent issues commercial paper, on an overnight basis, to certain custody clients with excess demand deposit balances. Overnight commercial paper outstanding issued by the Parent was $27 million at June 30, 2014 and $96 million at Dec. 31, 2013. Net of commercial paper outstanding, the Parent's cash position at June 30, 2014, decreased by $1.5 billion compared with Dec. 31, 2013, primarily reflecting maturities of long-term debt, an increase in loans to subsidiaries and common share repurchases, partially offset by the issuance of senior medium-term notes.



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

In the second quarter of 2014, we repurchased 12.6 million common shares at an average price of $34.14 per common share for a total cost of $431 million.

The Parent's liquidity policy is to have sufficient unencumbered cash and cash equivalents on hand to meet its forecasted debt redemptions, net interest payments and net tax payments over the next 18 to 24 months without the need to receive dividends from its bank subsidiaries or issue debt. As of June 30, 2014, the Parent was in compliance with its liquidity policy. In addition to our other funding sources, we also have the ability to access the capital markets. In June 2013, we filed shelf registration statements on Form S-3 with the Securities and Exchange Commission ("SEC") covering the issuance of certain securities, including an unlimited amount of debt, common stock, preferred stock and trust preferred securities, as well as common stock issued under the Direct Stock Purchase and Dividend Reinvestment Plans. These registration statements will expire in June 2016, at which time we plan to file new shelf registration statements. Our ability to access the capital markets on favorable terms, or at all, is partially dependent on our credit ratings, which, as of June 30, 2014, were as follows: Credit ratings Moody's S&P Fitch DBRS Parent: Long-term senior debt A1 A+ AA- AA (low) Subordinated debt A2 A A+ A (high) Preferred stock Baa2 BBB BBB A (low) Trust-preferred securities A3 BBB BBB+ A (high) Short-term debt P1 A-1 F1+ R-1 (middle) Outlook - Parent: Stable Negative Stable Stable The Bank of New York Mellon: Long-term senior debt Aa2 AA- AA- AA Long-term deposits Aa2 AA- AA AA Short-term deposits P1 A-1+ F1+ R-1 (high) BNY Mellon, N.A.: Long-term senior debt Aa2 AA- AA- (a) AA Long-term deposits Aa2 AA- AA AA Short-term deposits P1 A-1+ F1+ R-1 (high) Outlook - Banks: Stable Stable Stable Stable



(a) Represents senior debt issuer default rating.

As a result of S&P's government support assumptions on certain U.S. financial institutions, the Parent's ratings by S&P benefit from one notch of "lift". Similarly, The Bank of New York Mellon's and BNY Mellon, N.A.'s ratings benefit from two notches of "lift" from Moody's Investor Service ("Moody's") and one notch of "lift" from S&P. In June 2013, S&P indicated that they are reconsidering the inclusion of assumed government support in its ratings on the eight U.S. bank holding companies that they view as having high systemic importance, including The Bank of New York Mellon Corporation. For further discussion on the impact of a credit rating downgrade, see Note 17 of the Notes to Consolidated Financial Statements. 44 BNY Mellon -------------------------------------------------------------------------------- Long-term debt totaled $20.3 billion at June 30, 2014 and $19.9 billion at Dec. 31, 2013. In the first six months of 2014, the Parent issued $2.7 billion of senior debt, partially offset by maturities of $2.3 billion. We have $2.1 billion of long-term debt that will mature in the remainder of 2014. The following table presents the long-term debt issued by the Parent in the second quarter of 2014. Debt issuances Quarter ended (in millions) June 30, 2014 Senior medium-term notes: 2.2% senior medium-term notes due 2019 $ 750 3.4% senior medium-term notes due 2024 500 Total debt issuances $ 1,250 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 110.9% at June 30, 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 the second quarter of 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 $99 million, in aggregate, in the second quarter of 2014.

Statement of cash flows Cash provided by operating activities was $2.4 billion in the six months ended June 30, 2014 compared with $959 million used for operating activities in the six months ended June 30, 2013. In the first six months of 2014, cash flows from operations were principally the result of earnings and changes in trading activities. In the first six months of 2013, cash flows used for operations were principally the result of changes in trading activities, partially offset by earnings. In the six months ended June 30, 2014, cash used for investing activities was $26.3 billion compared with $632 million in the six months ended June 30, 2013. In the first six months of 2014, purchases of securities available-for-sale, changes in loans, interest-bearing deposits with banks and federal funds sold and securities purchased under resale agreements, were significant uses of funds, partially offset by sales, paydowns and maturities of securities available-for-sale. In the first six months of 2013, purchases of securities and changes in 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 deposits with the Federal Reserve and other central banks. In the six months ended June 30, 2014, cash provided by financing activities was $23.6 billion compared with $3.9 billion in the six months ended June 30, 2013. In the first six months of 2014, changes in deposits and 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 the first six months of 2013, an increase in federal funds purchased and securities sold under repurchase agreements and the proceeds from the issuance of long-term debt were significant sources of funds, partially offset by repayment of long-term debt, a decrease in payables to customers and broker-dealers and treasury stock repurchases.


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