Review of businesses

3 Months Ended

Mar. 31, 2012

Review of businesses

Note 19 – Review of businesses

We have an internal information system that produces performance data for our two principal businesses and the Other segment. The following discussion of our businesses satisfies the disclosure requirements for ASC 280, Segment Reporting.

Organization of our business

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

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.

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

The accounting policies of the businesses are the same as those described in Note 1 of the Notes to Consolidated Financial Statements in BNY Mellon’s 2011 Annual Report.

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

The primary types of revenue for two principal businesses and the Other segment are presented below:

Business	Primary types of revenue
Investment Management	•    Investment management and performance fees from: Mutual funds Institutional clients Private clients High-net-worth individuals and families, endowments and foundations and related entities •    Distribution and servicing fees
Investment Services	•    Asset servicing fees, including institutional trust and custody fees, broker-dealer services and securities lending •    Issuer services fees, including Corporate Trust and Depositary Receipts •    Clearing services fees, including broker-dealer services, registered investment advisor services and prime brokerage services •    Treasury services fees, including global payment services and working capital solutions •    Foreign exchange
Other segment	•    Credit-related activities •    Leasing operations •    Corporate treasury activities •    Global markets and institutional banking services •    Business exits

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

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

• Revenues and expenses associated with specific client bases are included in those businesses. For example, foreign exchange activity associated with clients using custody products is allocated to Investment Services.

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

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

• Recurring FDIC expense is allocated to the businesses based on average deposits generated within each business.

• Litigation expense is generally recorded in the business in which the charge occurs.

• Management of the investment securities portfolio is a shared service contained in the Other segment. As a result, gains and losses associated with the valuation of the securities portfolio are included in the Other segment.

• Client deposits serve as the primary funding source for our investment securities portfolio. We typically allocate all interest revenue to the businesses generating the deposits.

Accordingly, accretion related to the restructured investment securities portfolio has been included in the results of the businesses.

• Restructuring charges are related to corporate initiatives and are therefore recorded in the Other segment.

• M&I expenses are corporate level items and are therefore recorded in the Other segment.

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

• Goodwill and intangible assets are reflected within individual businesses.

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

For the quarter ended March 31, 2012 (dollar amounts in millions)	Investment Management			Investment Services			Other			Consolidated
Fee and other revenue	$	852	(a)	$	1,854		$	164		$	2,870	(a)
Net interest revenue		55			644			66			765
Total revenue		907			2,498			230			3,635
Provision for credit losses		-			16			(11	)		5
Noninterest expense		667			1,829			260			2,756
Income (loss) before taxes	$	240	(a)	$	653		$	(19	)	$	874	(a)
Pre-tax operating margin (b)		26	%		26	%		N/M			24	%
Average assets	$	36,475		$	215,899		$	48,970		$	301,344

(a) Total fee and other revenue includes income from consolidated investment management funds of $43 million, net of noncontrolling interests of $11 million, for a net impact of $32 million. Income before taxes includes noncontrolling interests of $11 million.

(b) Income before taxes divided by total revenue.

N/M - Not meaningful.

For the quarter ended Dec. 31, 2011 (dollar amounts in millions)	Investment Management			Investment Services			Other			Consolidated
Fee and other revenue	$	767	(a)	$	1,781		$	240		$	2,788	(a)
Net interest revenue		55			634			91			780
Total revenue		822			2,415			331			3,568
Provision for credit losses		-			-			23			23
Noninterest expense		685			1,756			387			2,828
Income (loss) before taxes	$	137	(a)	$	659		$	(79	)	$	717	(a)
Pre-tax operating margin (b)		17	%		27	%		N/M			20	%
Average assets	$	37,163		$	228,668		$	50,243		$	316,074

(a) Total fee and other revenue includes a loss from consolidated investment management funds of $5 million, net of loss attributable to noncontrolling interests of $28 million, for a net impact of $23 million. Income before taxes includes a loss attributable to noncontrolling interests of $28 million.

(b) Income before taxes divided by total revenue.

N/M - Not meaningful.

For the quarter ended March 31, 2011 (dollar amounts in millions)	Investment Management			Investment Services			Other			Consolidated
Fee and other revenue	$	868	(a)	$	1,889		$	147		$	2,904	(a)
Net interest revenue		52			621			25			698
Total revenue		920			2,510			172			3,602
Noninterest expense		682			1,752			263			2,697
Income (loss) before taxes	$	238	(a)	$	758		$	(91	)	$	905	(a)
Pre-tax operating margin (b)		26	%		30	%		N/M			25	%
Average assets	$	37,315		$	176,162		$	44,221		$	257,698

(a) Total fee and other revenue includes income from consolidated investment management funds of $110 million, net of noncontrolling interests of $44 million, for a net impact of $66 million. Income before taxes includes noncontrolling interests of $44 million.

(b) Income before taxes divided by total revenue.

N/M - Not meaningful.