Bank of New York Mellon Corp (BNY) FY 2021 MD&A

Overview

Established in 1784 by Alexander Hamilton, we were the first company listed on the New York Stock Exchange (NYSE: BK). With a history of more than 235 years, BNY Mellon is a global company that manages and services assets for financial institutions, corporations and individual investors in 35 countries.

In the fourth quarter of 2021, we revised our business segment disclosures by disaggregating our former Investment Services business segment into two new business segments, Securities Services and Market and Wealth Services. Our Investment and Wealth Management business segment and the Other segment were not impacted by the resegmentation.

BNY Mellon has three business segments, Securities Services, Market and Wealth Services and Investment and Wealth Management, which offer a comprehensive set of capabilities and deep expertise across the investment lifecycle, enabling the Company to provide solutions to buy-side and sell-

side market participants, as well as leading institutional and wealth management clients globally.

The diagram below presents our three business segments and lines of business, with the remaining operations in the Other segment.

For additional information on our business segments, see “Review of business segments” and Note 24 of the Notes to Consolidated Financial Statements.

Human capital

Our enduring ambition is to build the best global team—one that is inclusive of varying perspectives, backgrounds and experiences, and represents the increasingly varied markets and clients we serve. Our core objective is to empower our teams to do their best work, make unique contributions, and build purposeful careers in an equitable environment where they are treated with fairness, dignity and respect.

Diversity and Inclusion

Diversity and inclusion is integral to who we are as a company, what our people experience as members of our global team, and how we serve all of our stakeholders. Our diversity and inclusion strategy is not separate, but embedded in our business strategy, operating model, talent experience and client value proposition.

To increase the diversity of our talent pool, we work with professional associations, educational institutions, think tanks and nonprofits to deepen

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Results of Operations (continued)

engagement with Black, Hispanic/Latino, Asian, LGBT+, neuro-diverse individuals, people with disabilities, and talent from other underrepresented backgrounds. We aim for fair inclusion by requiring diverse candidate slates, creating gender-neutral job descriptions and involving diverse interview panels. We embed diversity and inclusion in our talent review processes, succession plans and development objectives to improve promotion readiness and advance and retain talent from all backgrounds.

At the most senior level, our Executive Committee sets diversity and inclusion goals with specific targets to improve senior leader diversity and to increase female representation globally and diverse ethnic and/or racial representation in the U.S. Executive Committee members’ variable compensation is informed by performance against these goals.

At the end of 2021, women were 40% of BNY Mellon’s global workforce and 43% of BNY Mellon’s U.S. workforce. Further, 36% of BNY Mellon’s U.S. workforce were from underrepresented ethnic and/or racial backgrounds.

At the end of 2021, 26% of BNY Mellon’s Executive Committee were women and 18% of BNY Mellon’s Executive Committee were from underrepresented ethnic and/or racial backgrounds.

Our Board of Directors is committed to fostering and maintaining its diversity. At the end of 2021, 31% of our Board of Directors were women and 38% of our Board of Directors was composed of individuals from underrepresented ethnic and/or racial backgrounds. In addition, four of BNY Mellon’s six standing committees of its Board of Directors are chaired by a diverse director based on race or gender.

Retention, Training and Development

We seek to attract and retain employees by providing a rewarding employee experience. We recognize that employees seek a supportive, safe and inclusive workplace, and we continually evaluate our employee engagement and wellbeing programs in an effort to meet those expectations. We offer a 401(k) plan for U.S. employees, and other defined contribution retirement plans worldwide, where consistent with market practice. We also maintain defined benefit plans for certain current and former employees, some of which are frozen (including in the U.S.). At Dec. 31, 2021, we had approximately 43,000 participants

in our 401(k) plan, including former employees. In addition, our frozen U.S. defined benefit pension plan covered approximately 9,100 U.S. participants and our non-U.S. defined benefit plans (some frozen) covered approximately 14,400 non-U.S. participants.

At key career transition points, from internship to executive management, we offer programs and development opportunities to help employees advance their careers and progress within our organization. Our extensive training and development opportunities are designed to enable employees to grow professionally and advance within our organization.

We engage with employees to encourage innovation, show appreciation for their contributions, and gather feedback on how we can build a more rewarding, inclusive workplace. For example, we regularly gather feedback through an all-employee survey.

Employee Wellbeing, Health and Safety

BNY Mellon’s holistic approach to employee wellbeing is designed to create a healthy, resilient and vibrant workforce. Our programs are designed to provide employees easy access to resources to help improve their physical health, emotional resilience, financial wellbeing and social connections. Further, we work to ensure the safety of our employees and clients in all of our facilities. During the coronavirus pandemic, we were early to initiate our business continuity plans and to restrict activities such as travel and in-person participation in events and large meetings. We quickly transitioned the vast majority of our employees, including our senior management and key personnel, to working from home, which opened up space for us to create social distancing for the small number of essential in-office staff. These essential in-office staff are primarily performing roles that cannot be done remotely. Since March 2020, the vast majority of our global employees have worked from home. We are taking a conservative and measured approach in assessing how, and when, we will return employees to our offices when the COVID-19 pandemic subsides. This phased, enterprise-wide approach is principles-based and will be centrally coordinated and localized based on the situation. Our guiding principles are adherence to government/jurisdictional guidelines, facility preparedness, business function prioritization, and staff safety and wellbeing.

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We assembled a comprehensive Supporting You Now COVID-19 framework that communicated the array of measures to support our employees in the moment. This included expanded employee assistance program benefits, telehealth coverage, increased back-up dependent care benefits, virtual babysitting services and toolkits for managers and employees to conduct supportive conversations around life balance needs.

Employees and International Operations

Globally, at Dec. 31, 2021, BNY Mellon and its subsidiaries had approximately 49,100 full-time employees.

We pride ourselves on providing dedicated service through our multilingual sales, marketing and client service teams. At Dec. 31, 2021, approximately 50% of our total employees (full-time and part-time employees) were based outside the U.S., with approximately 9,800 employees in Europe, the Middle East and Africa (“EMEA”), approximately 14,600 employees in the Asia-Pacific region (“APAC”) and approximately 800 employees in other global locations, primarily Brazil.

Summary of financial highlights

We reported net income applicable to common shareholders of BNY Mellon of $3.6 billion, or $4.14 per diluted common share, in 2021, including the negative impact of $85 million, or $0.10 per diluted common share, related to litigation reserves and severance expense, partially offset by gains on disposals (reflected in investment and other revenue). In 2020, net income applicable to common shareholders of BNY Mellon was $3.4 billion, or $3.83 per diluted common share, including the negative impact of $159 million, or $0.18 per diluted common share, related to litigation reserves, severance expense, losses on business sales (reflected in investment and other revenue) and real estate charges in the fourth quarter of 2020.

Highlights of 2021 results

•AUC/A totaled $46.7 trillion at Dec. 31, 2021 compared with $41.1 trillion at Dec. 31, 2020. The 14% increase primarily reflects net client inflows and higher market values, partially offset by the unfavorable impact of a stronger U.S. dollar. (See “Fee and other revenue” beginning on page 7.)

•AUM totaled $2.4 trillion at Dec. 31, 2021 compared with $2.2 trillion at Dec. 31, 2020. The 10% increase primarily reflects higher market values and net inflows. (See “Investment and Wealth Management business segment” beginning on page 19.)

•Investment services fees totaled $8.3 billion in 2021 compared with $8.0 billion in 2020, an increase of 3%. The increase primarily reflects higher market values and client activity, and the favorable impact of a weaker U.S. dollar, partially offset by money market fee waivers. (See “Securities Services business segment” beginning on page 15 and “Market and Wealth Services business segment” beginning on page 17.)

•Investment management and performance fees totaled $3.6 billion in 2021 compared with $3.4 billion in 2020, an increase of 7%. The increase primarily reflects higher market values, the favorable impact of a weaker U.S. dollar, higher equity income and net inflows, partially offset by higher money market fee waivers. (See “Investment and Wealth Management business segment” beginning on page 19.)

•Foreign exchange revenue totaled $799 million in 2021, compared with $774 million in 2020. The increase of 3% primarily reflects higher volumes, partially offset by lower volatility. (See “Fee and other revenue” beginning on page 7.)

•Net interest revenue totaled $2.6 billion in 2021, compared with $3.0 billion in 2020, a decrease of 12%. The decrease was primarily driven by lower interest rates on interest-earning assets, partially offset by the benefit of lower funding and deposit rates and larger deposit, loan and securities balances. Net interest margin was 0.68% in 2021, compared with 0.84% in 2020. (See “Net interest revenue” beginning on page 10.)

•The provision for credit losses was a benefit of $231 million in 2021 compared with a provision of $336 million in 2020. The decrease was primarily driven by an improvement in the macroeconomic forecast. (See “Allowance for credit losses” beginning on page 35.)

•Noninterest expense totaled $11.5 billion in 2021 compared with $11.0 billion in 2020. The 5% increase primarily reflects incremental investments in growth, infrastructure and

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efficiency initiatives, higher revenue-related expenses and the unfavorable impact of a weaker U.S. dollar, partially offset by lower occupancy (including the impact of real estate charges recorded in 2020) and lower severance expense. (See “Noninterest expense” on page 13.)

•The provision for income taxes was $877 million (18.9% effective tax rate) in 2021. (See “Income taxes” on page 13.)

•The net unrealized pre-tax gain on the securities portfolio, including the impact of related hedges, was $384 million at Dec. 31, 2021, compared with $3.2 billion at Dec. 31, 2020. The decrease was primarily driven by higher market interest rates. (See “Securities” beginning on page 28.)

•Our CET1 ratio calculated under the Standardized Approach was 11.2% at Dec. 31, 2021 and 13.1% at Dec. 31, 2020 under the Advanced Approaches. The decrease was primarily driven by common stock repurchases, unrealized losses on securities available-for-sale, dividend payments, foreign currency translation and higher risk-weighted assets (“RWAs”), partially offset by capital generated through earnings. (See “Capital” beginning on page 41.)

•Tier 1 leverage ratio was 5.5% at Dec. 31, 2021, compared with 6.3% at Dec. 31, 2020. The decrease reflects lower common shareholders’ equity, driven by common share repurchases, and higher average assets. (See “Capital” beginning on page 41.)

Impact of coronavirus pandemic on our business

The coronavirus pandemic had a significant effect on the global macroeconomic environment and markets in 2020 and 2021.

Since March 2020, the vast majority of our employees have worked from home. They have been fully operational with minimal disruption to servicing our clients. However, our continued reliance on work-from-home arrangements may result in increased operational risks.

Short-term interest rates declined significantly in the first quarter of 2020 and have remained low through 2021, which resulted in lower net interest revenue and higher money market fee waivers in 2021 compared with 2020. This has been partially offset by higher average deposit balances and higher money market balances compared with 2020. See further discussion of money market fee waivers in “Fee and other revenue.”

Equity market levels have continued to rebound since the first quarter of 2020 and steadily increased throughout 2021, resulting in increased asset-based fees in Investment and Wealth Management, Securities Services and Market and Wealth Services in 2021 compared with 2020.

After a significant deterioration in the macroeconomic outlook in 2020 that resulted in heightened levels of credit provisioning, the macroeconomic outlook continued to improve in 2021, resulting in decreases in the allowance for credit losses and benefits to the provision for credit losses.

We, along with other CCAR firms, suspended open market common stock repurchases for most of 2020 but continued our quarterly common stock dividend. The restrictions on common stock dividends and share repurchases ended on June 30, 2021. In 2021, BNY Mellon increased the quarterly cash dividend on common stock, from $0.31 to $0.34 per share, and repurchased 89.7 million common shares at an average price of $50.91 per common share for a total of $4.6 billion.

For further discussion of the current and potential impact of the coronavirus pandemic see “Risk Factors – Additional Risks – The coronavirus pandemic is adversely affecting us and creates significant risks and uncertainties for our business, and the ultimate impact of the pandemic on us will depend on future developments, which are highly uncertain and cannot be predicted.”

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Fee and other revenue

(a)    Excludes seed capital gains (losses) related to consolidated investment management funds.

(b)    In 2021, we reclassified certain items within total revenue on the consolidated income statement and reclassified prior periods to be comparable with the current period presentation. See Note 2 of the Notes to Consolidated Financial Statements for additional information.

(c)    Consists of AUC/A primarily from the Asset Servicing business and, to a lesser extent, the Clearance and Collateral Management, Issuer Services, Pershing and Wealth Management businesses. Includes the AUC/A of CIBC Mellon of $1.7 trillion at Dec. 31, 2021 and $1.5 trillion at Dec. 31, 2020 and Dec. 31, 2019.

(d)    Excludes assets managed outside of the Investment and Wealth Management business segment.

N/M – Not meaningful.

Fee revenue increased 4% compared with 2020. The increase primarily reflects higher investment services fees and investment management and performance fees, partially offset by higher money market fee waivers. Excluding money market fee waivers, fee revenue increased 9% (Non-GAAP). See “Supplemental Information – Explanation of GAAP and Non-GAAP financial measures” beginning on page 103 for the reconciliation of Non-GAAP measures.

Investment and other revenue increased $20 million in 2021 compared with 2020. The increase primarily reflects gains on strategic equity investments, losses on business sales recorded in 2020 and disposal gains in 2021, partially offset by renewable energy investment pre-tax losses and an impairment, one-

time fees in the Pershing and Asset Servicing businesses recorded in 2020 and lower net securities gains.

Money market fee waivers

Given the continued low short-term interest rates, money market mutual fund fees and other similar fees are being waived to protect investors from negative returns. The fee waivers have primarily impacted fee revenues in Pershing and Investment Management, but also resulted in lower distribution and servicing expense. The fee waivers also began to impact fee revenues in our other businesses in the second half of 2020. Money market fee waivers are highly sensitive to changes in short-term interest rates and are difficult to predict.

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Results of Operations (continued)

The following table presents the impact of money market fee waivers on our consolidated fee revenue, net of distribution and servicing expense. In 2021, the net impact of the money market fee waivers was $916 million, up from $337 million in 2020, driven by the full-year impact of low short-term interest rates.

(a)    Money market fee waivers were $49 million in 2019.

(b)    The line of business revenue for management reporting purposes reflects the impact of revenue transferred between the businesses.

We expect to recover a majority of money market fee waivers, net of distribution and servicing expense, in 2022, based on implied forward rates as of Dec. 31, 2021 and money market balances, on average, that are consistent with 2021. Fee waivers will continue to be dependent on short-term interest rates and the level of money market balances.

Investment services fees

Investment services fees increased 3% compared with 2020, primarily reflecting higher market values and client activity, and the favorable impact of a weaker U.S. dollar, partially offset by higher money market fee waivers. AUC/A totaled $46.7 trillion at Dec. 31,

2021, an increase of 14% compared with Dec. 31, 2020, primarily reflecting net client inflows and higher market values, partially offset by the unfavorable impact of a stronger U.S. dollar. AUC/A consisted of 37% equity securities and 63% fixed-income securities at Dec. 31, 2021 and 36% equity securities and 64% fixed-income securities at Dec. 31, 2020.

See “Securities Services business segment” and “Market and Wealth Services business segment” in “Review of business segments” for additional details.

Investment management and performance fees

Investment management and performance fees increased 7% compared with 2020, primarily reflecting higher market values, the favorable impact of a weaker U.S. dollar, higher equity income and net inflows, partially offset by higher money market fee waivers. Performance fees were $107 million in both 2021 and 2020. On a constant currency basis (Non-GAAP), investment management and performance fees increased 4% compared with 2020.

AUM was $2.4 trillion at Dec. 31, 2021, an increase of 10% compared with Dec. 31, 2020, primarily reflecting higher market values and net inflows.

See “Investment and Wealth Management business segment” in “Review of business segments” for additional details regarding the drivers of investment management and performance fees, AUM and AUM flows.

Foreign exchange revenue

Foreign exchange revenue is primarily driven by the volume of client transactions and the spread realized on these transactions, both of which are impacted by market volatility, and the impact of foreign currency hedging activities. In 2021, foreign exchange revenue increased 3% compared with 2020, primarily reflecting higher volumes, partially offset by lower volatility. Foreign exchange revenue is primarily reported in the Securities Services business segment and, to a lesser extent, the Market and Wealth Services and Investment and Wealth Management business segments and the Other segment.

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Results of Operations (continued)

Financing-related fees

Financing-related fees, which are primarily reported in the Market and Wealth Services and Securities Services business segments, include capital market fees, loan commitment fees and credit-related fees. Financing-related fees decreased 8% in 2021 compared with 2020, primarily reflecting lower underwriting fees.

Distribution and servicing fees

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

Distribution and servicing fees were $112 million in 2021 compared with $115 million in 2020. The impact of distribution and servicing fees on income in any one period is partially offset by distribution and servicing expense paid to other financial intermediaries to cover their costs for distribution and servicing of mutual funds. Distribution and servicing expense is recorded as noninterest expense on the income statement.

Investment and other revenue

Investment and other revenue includes income or loss from consolidated investment management funds, seed capital gains or losses, other trading revenue or loss, renewable energy investments losses, income from corporate and bank-owned life insurance contracts, other investment gains or losses, gains or losses from disposals, expense reimbursements from our CIBC Mellon joint venture, other income or loss and net securities gains or losses. The income or loss from consolidated investment management funds should be considered together with the net income or loss attributable to noncontrolling interests, which reflects the portion of the consolidated funds for which we do not have an economic interest and is reflected below net income as a separate line item on the consolidated income statement. Other trading

revenue or loss primarily includes the impact of market-risk hedging activity related to our seed capital investments in investment management funds, non-foreign currency derivative and fixed income trading, and other hedging activity. Investments in renewable energy generate losses in investment and other revenue that are more than offset by benefits and credits recorded to the provision for income taxes. Other investment gains or losses includes fair value changes of non-readily marketable strategic equity, private equity and other investments. Expense reimbursements from our CIBC Mellon joint venture relate to expenses incurred by BNY Mellon on behalf of the CIBC Mellon joint venture. Other income or loss includes various miscellaneous revenues.

The following table provides the components of investment and other revenue.

(a)    Includes gains (losses) on investments in BNY Mellon funds which hedge deferred incentive awards.

(b)    Includes strategic equity, private equity and other investments.

Investment and other revenue was $336 million in 2021 compared with $316 million in 2020. The increase primarily reflects gains on strategic equity investments, losses on business sales recorded in 2020 and disposal gains in 2021, partially offset by renewable energy investment pre-tax losses and an impairment, one-time fees in the Pershing and Asset Servicing businesses recorded in 2020 and lower net securities gains.

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Results of Operations (continued)

Net interest revenue

(a)    Net interest revenue (FTE) – Non-GAAP and net interest margin (FTE) – Non-GAAP include the tax equivalent adjustments on tax-exempt income which allows for comparisons of amounts arising from both taxable and tax-exempt sources and is consistent with industry practice. The adjustment to an FTE basis has no impact on net income.

N/M – Not meaningful.

bps – basis points.

Net interest revenue decreased 12% compared with 2020, primarily reflecting lower interest rates on interest-earning assets, partially offset by the benefit of lower funding and deposit rates and larger deposit, loan and securities balances.

Net interest margin decreased 16 basis points compared with 2020. The decrease primarily reflects the factors mentioned above.

Average interest-earning assets increased 9% compared with 2020. The increase primarily reflects higher interest-bearing deposits with the Federal Reserve and other central banks and larger securities and loans balances.

Average non-U.S. dollar deposits comprised approximately 25% of our average total deposits in 2021 and 2020. Approximately 40% of the average non-U.S. dollar deposits in 2021 and 2020 were euro denominated.

Net interest revenue in future periods will depend on the level and mix of client deposits and deposit rates, as well as the level and shape of the yield curve. Based on the current expectations of an increase in short-term rates in 2022, we expect net interest revenue to increase in 2022.

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Results of Operations (continued)

(a)    Includes the average impact of offsetting under enforceable netting agreements of approximately $45 billion in 2021 and $57 billion in 2020. On a Non-GAAP basis, excluding the impact of offsetting, the yield on federal funds sold and securities purchased under resale agreements would have been 0.16% for 2021 and 0.62% for 2020, and the rate on federal funds purchased and securities sold under repurchase agreements would have been (0.01)% for 2021 and 0.39% for 2020. We believe providing the rates excluding the impact of netting is useful to investors as it is more reflective of the actual rates earned and paid.

(b)    Interest income includes fees of $3 million in 2021 and $6 million in 2020. Nonaccrual loans are included in average loans; the associated income, which was recognized on a cash basis, is included in interest income.

(c)    In 2021, we reclassified the impact of hedging within the categories comprising total investment securities to align the impact of hedging with the securities being hedged and reclassified prior periods to be comparable. The change reduced the income and average rates previously reported for U.S. government obligations and U.S. government agency obligations and increased the income and average rates for Other securities in domestic offices.

(d)    Average rates were calculated on an FTE basis, at tax rates of approximately 21% for both 2021 and 2020.

(e)    See “Net interest revenue” on page 10 for the reconciliation of this Non-GAAP measure.

(f)    Includes the Cayman Islands branch office.

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Results of Operations (continued)

(a)    Includes the average impact of offsetting under enforceable netting agreements of approximately $56 billion in 2019. On a Non-GAAP basis, excluding the impact of offsetting, the yield on federal funds sold and securities purchased under resale agreements would have been 2.33%, and the rate on federal funds purchased and securities sold under repurchase agreements would have been 2.11% for 2019. We believe providing the rates excluding the impact of netting is useful to investors as it is more reflective of the actual rates earned and paid.

(b)    Includes the impact of the lease-related impairment of $70 million in 2019. On a Non-GAAP basis, excluding the lease-related impairment, the yield on loans in domestic offices would have been 3.78%, the yield on total loans would have been 3.62%, the yield on total interest-earning assets would have been 2.63%, the net interest margin would have been 1.12% and the net interest margin (FTE) – Non-GAAP would have been 1.13% for 2019. We believe providing the rates excluding the lease-related impairment is useful to investors as it is more reflective of the actual rates earned.

(c)    Interest income includes fees of $4 million in 2019. Nonaccrual loans are included in average loans; the associated income, which was recognized on a cash basis, is included in interest income.

(d)    In 2021, we reclassified the impact of hedging within the categories comprising total investment securities to align the impact of hedging with the securities being hedged and reclassified prior periods to be comparable. The change reduced the income and average rates previously reported for U.S. government obligations and U.S. government agency obligations and increased the income and average rates for Other securities in domestic offices.

(e)    Average rates were calculated on an FTE basis, at tax rates of approximately 21% in 2019.

(f)    See “Net interest revenue” on page 10 for the reconciliation of this Non-GAAP measure.

(g)    Includes the Cayman Islands branch office.

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Results of Operations (continued)

Noninterest expense

Total noninterest expense increased 5% compared with 2020. The increase primarily reflects incremental investments in growth, infrastructure and efficiency initiatives, higher revenue-related expenses and the unfavorable impact of a weaker U.S. dollar, partially offset by lower occupancy (including the impact of real estate charges recorded in 2020) and lower severance expense. The investments in growth, infrastructure and efficiency initiatives are primarily included in staff, software and equipment, and professional, legal and other purchased services expenses.

We expect noninterest expense to increase in 2022 driven by higher revenue-related expenses, including higher distribution and servicing expenses associated with the recovery of fee waivers, the impact of inflationary pressures, and the impact of investments in growth, infrastructure and efficiency opportunities.

Income taxes

BNY Mellon recorded an income tax provision of $877 million (18.9% effective tax rate) in 2021 and $842 million (18.8% effective tax rate) in 2020. For additional information, see Note 12 of the Notes to Consolidated Financial Statements.

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Results of Operations (continued)

Review of business segments

We have an internal information system that produces performance data along product and service lines for our principal business segments and the Other segment. In the fourth quarter of 2021, we disaggregated our former Investment Services business segment into two new business segments, Securities Services and Market and Wealth Services. The Securities Services business segment includes the Asset Servicing and Issuer Services lines of business. The Market and Wealth Services business segment includes the Pershing, Treasury Services and Clearance and Collateral Management lines of business. Our Investment and Wealth Management business segment and the Other segment were not impacted by the resegmentation. Additionally, we are now presenting investment services fees for each line of business, as well as other fees, total fee revenue, investment and other revenue and total fee and other revenue for each business segment. Prior periods were revised to reflect these changes.

Business segment accounting principles

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

For information on the accounting principles of our business segments, the primary products and services in each line of business, the primary types of revenue by line of business and how our business segments are presented and analyzed, see Note 24 of the Notes to Consolidated Financial Statements.

Business segment results are subject to reclassification when organizational changes are made, or for refinements in revenue and expense allocation methodologies. Refinements are typically reflected on a prospective basis.

The results of our business segments may be influenced by client and other activities that vary by quarter. In the first quarter, staff expense typically increases reflecting the vesting of long-term stock

awards for retirement-eligible employees. In the third quarter, staff expense typically increases reflecting the annual employee merit increase. In the third quarter, Depositary Receipts revenue is typically higher due to an increased level of client dividend payments, and volume-related fees may decline due to reduced client activity. In the fourth quarter, we typically incur higher business development and marketing expenses; however, 2020 was an exception due to the impact of the coronavirus pandemic. In our Investment and Wealth Management business segment, performance fees are typically higher in the fourth and first quarters, as those quarters represent the end of the measurement period for many of the performance fee-eligible relationships.

The results of our business segments may also be impacted by the translation of financial results denominated in foreign currencies to the U.S. dollar. We are primarily impacted by activities denominated in the British pound and the euro. On a consolidated basis and in our Securities Services and Market and Wealth Services business segments, we typically have more foreign currency-denominated expenses than revenues. However, our Investment and Wealth Management business segment typically has more foreign currency-denominated revenues than expenses. Overall, currency fluctuations impact the year-over-year growth rate in the Investment and Wealth Management business segment more than the Securities Services and Market and Wealth Services business segments. However, currency fluctuations, in isolation, are not expected to significantly impact net income on a consolidated basis.

Fee revenue in the Investment and Wealth Management business segment, and to a lesser extent the Securities Services and Market and Wealth Services business segments, is impacted by the global market fluctuations. At Dec. 31, 2021, we estimated that a 5% change in global equity markets, spread evenly throughout the year, would impact fee revenue by less than 1% and diluted earnings per common share by $0.04 to $0.07.

See Note 24 of the Notes to Consolidated Financial Statements for the consolidating schedules which show the contribution of our business segments to our overall profitability.

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Results of Operations (continued)

Securities Services business segment

(a)    Other fees primarily includes financing-related fees.

(b)    Included in investment services fees reported in the Asset Servicing business.

(c)    Consists of AUC/A primarily from the Asset Servicing business and, to a lesser extent, the Issuer Services business. Includes the AUC/A of CIBC Mellon of $1.7 trillion at Dec. 31, 2021 and $1.5 trillion at Dec. 31, 2020 and Dec. 31, 2019.

(d)    Represents the total amount of securities on loan in our agency securities lending program. Excludes securities for which BNY Mellon acts as agent on behalf of CIBC Mellon clients, which totaled $71 billion at Dec. 31, 2021, $68 billion at Dec. 31, 2020 and $60 billion at Dec. 31, 2019.

N/M – Not meaningful.

Business segment description

The Securities Services business segment consists of two distinct lines of business, Asset Servicing and Issuer Services, which provide business solutions across the transaction lifecycle to our global asset owner and asset manager clients. We are one of the leading global investment services providers with $34.6 trillion of AUC/A at Dec. 31, 2021. For information on the drivers of the Securities Services

fee revenue, see Note 10 of the Notes to Consolidated Financial Statements.

The Asset Servicing business provides a comprehensive suite of solutions. We are one of the largest global custody and front to back outsourcing partners. We offer services for the safekeeping of assets in capital markets globally as well as fund accounting services, exchange-traded funds servicing, transfer agency, trust and depository, front to back

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Results of Operations (continued)

capabilities as well as data and analytics solutions for our clients. We deliver foreign exchange, and securities lending and financing solutions, on both an agency and principal basis. Our agency securities lending program is one of the largest lenders of U.S. and non-U.S. securities, servicing a lendable asset pool of approximately $5.1 trillion in 34 separate markets. Our market-leading liquidity services portal enables cash investments for institutional clients and includes fund research and analytics.

The Issuer Services business includes Corporate Trust and Depositary Receipts. Our Corporate Trust business delivers a full range of issuer and related investor services, including trustee, paying agency, fiduciary, escrow and other financial services. We are a leading provider to the debt capital markets, providing customized and market-driven solutions to investors, bondholders and lenders. Our Depositary Receipts business drives global investing by providing servicing and value-added solutions that enable, facilitate and enhance cross-border trading, clearing, settlement and ownership. We are one of the largest providers of depositary receipts services in the world, partnering with leading companies from more than 50 countries.

Review of financial results

AUC/A of $34.6 trillion increased 13% compared with Dec. 31, 2020, primarily reflecting higher market values and higher client inflows, partially offset by the unfavorable impact of a stronger U.S. dollar.

Total revenue of $7.2 billion decreased 2% compared with 2020. The drivers of total revenue by line of business are indicated below.

Asset Servicing revenue of $5.7 billion decreased slightly compared with 2020, primarily reflecting lower net interest revenue and higher money market fee waivers, partially offset by higher market values and client activity and strategic equity investment gains.

Issuer Services revenue of $1.5 billion decreased 7% compared with 2020, primarily reflecting higher money market fee waivers and lower net interest revenue in Corporate Trust, partially offset by higher Depositary Receipts revenue.

Market and regulatory trends are driving investable assets toward lower fee asset management products at reduced margins for our clients. These dynamics are also negatively impacting our investment services fees. However, at the same time, these trends are providing additional outsourcing opportunities as clients and other market participants seek to comply with regulations and reduce their operating costs.

Noninterest expense of $5.9 billion increased 5% compared with 2020, primarily reflecting investments in growth, infrastructure and efficiency initiatives, higher revenue-related expense and the unfavorable impact of a weaker U.S. dollar.

2020 compared with 2019

Total revenue of $7.4 billion increased less than 1% compared with 2019. The drivers of total revenue by line of business are indicated below.

Asset Servicing revenue of $5.7 billion increased 1% compared with 2019, primarily reflecting higher foreign exchange volatility and volumes, higher market values and higher balances, partially offset by lower net interest revenue.

Issuer Services revenue of $1.7 billion decreased 3% compared with 2019, primarily reflecting lower Depositary Receipts revenue and lower net interest revenue in Corporate Trust.

Noninterest expense of $5.6 billion increased 2% compared with 2019, primarily reflecting continued investments in technology and higher litigation expense, partially offset by lower severance and business development (travel and marketing) expenses.

16 BNY Mellon

Results of Operations (continued)

Market and Wealth Services business segment

(a)    Other fees primarily include financing-related fees.

(b)    Consists of AUC/A from the Clearance and Collateral Management and Pershing businesses.

(c)    Net new assets represent net flows of assets (e.g., net cash deposits and net securities transfers, including dividends and interest) in customer accounts in Pershing LLC, a U.S. broker-dealer.

N/M – Not meaningful.

BNY Mellon 17

Results of Operations (continued)

Business segment description

The Market and Wealth Services business segment consists of three distinct lines of business, Pershing, Treasury Services and Clearance and Collateral Management, which provide business services and technology solutions to entities including financial institutions, corporations, foundations and endowments, public funds and government agencies. For information on the drivers of the Market and Wealth Services fee revenue, see Note 10 of the Notes to Consolidated Financial Statements.

Pershing provides execution, clearing, custody, business and technology solutions, delivering operational support to broker-dealers, wealth managers and registered investment advisors (“RIAs”) globally.

Our Treasury Services business is a leading provider of global payments, liquidity management and trade finance services for financial institutions, corporations and the public sector.

Our Clearance and Collateral Management business clears and settles equity and fixed-income transactions globally and serves as custodian for tri-party repo collateral worldwide. We are the primary provider of U.S. government securities clearance and a provider of non-U.S. government securities clearance. Our collateral services include collateral management, administration and segregation. We offer innovative solutions and industry expertise which help financial institutions and institutional investors with their liquidity, financing, risk and balance sheet challenges. We are a leading provider of tri-party collateral management services with an average of $4.3 trillion serviced globally including approximately $3.1 trillion of the U.S. tri-party repo market at Dec. 31, 2021.

Review of financial results

AUC/A of $11.8 trillion increased 16% compared with Dec. 31, 2020, primarily reflecting net client inflows and higher market values.

Total revenue of $4.7 decreased 1% compared with 2020. The drivers of total revenue by line of business are indicated below.

Pershing revenue of $2.3 billion decreased 1% compared with 2020, primarily reflecting higher money market fee waivers, lower clearing volumes and the impact of lost business, partially offset by higher client activity, market values and balances.

Treasury Services revenue of $1.3 billion decreased 3% compared with 2020, primarily reflecting higher money market fee waivers and lower net interest revenues, partially offset by higher payment volumes.

Clearance and Collateral Management revenue of $1.1 billion decreased 1% compared with 2020, primarily reflecting lower net interest revenue and intraday credit fees, partially offset by higher non-U.S. collateral management fees driven by balances.

Noninterest expense of $2.7 billion increased 2% compared with 2020 primarily reflecting investments in growth, infrastructure and efficiency initiatives, higher revenue-related expenses and the unfavorable impact of a weaker U.S. dollar.

2020 compared with 2019

Total revenue of $4.8 billion increased 2% compared with 2019. The drivers of total revenue by line of business are indicated below.

Pershing revenue of $2.3 billion increased 2% compared with 2019, primarily reflecting higher balances, higher clearing revenue and the positive impact of equity markets, partially offset by higher money market fee waivers.

Treasury Services revenue of $1.3 billion increased 4% compared with 2019, primarily reflecting higher deposit and money market balances.

Clearance and Collateral Management revenue of $1.1 billion increased 1% compared with 2019, primarily reflecting growth in collateral management and clearance volumes and higher net interest revenue, partially offset by lower investment income due to the 2019 sale of an equity investment.

Noninterest expense of $2.6 billion decreased 1% compared with 2019, primarily reflecting lower business development (travel and marketing) and severance expenses.

18 BNY Mellon

Results of Operations (continued)

Investment and Wealth Management business segment

(a)    On a constant currency basis, investment management and performance fees increased 4% (Non-GAAP) compared with 2020. See “Supplemental Information – Explanation of GAAP and Non-GAAP financial measures” beginning on page 103 for the reconciliation of this Non-GAAP measure.

(b)    Other fees primarily includes investment services fees.

(c)    Investment and other revenue and total fee and other revenue are net of income attributable to noncontrolling interests related to consolidated investment management funds.

(d)    Net of distribution and servicing expense. See “Supplemental Information – Explanation of GAAP and Non-GAAP financial measures” beginning on page 103 for the reconciliation of this Non-GAAP measure.

N/M – Not meaningful.

BNY Mellon 19

Results of Operations (continued)

(a)    Excludes assets managed outside of the Investment and Wealth Management business segment.

(b)    Includes AUM and AUC/A in the Wealth Management line of business.

Business segment description

Our Investment and Wealth Management business segment consists of two distinct lines of business, Investment Management and Wealth Management, which have a combined AUM of $2.4 trillion as of Dec. 31, 2021.

BNY Mellon Investment Management is a leading global asset manager and consists of our eight specialist investment firms and global distribution network to deliver a highly diversified portfolio of investment strategies to institutional and retail clients globally.

Our Investment Management model provides specialized expertise from eight respected investment firms offering solutions across every major asset class, with backing from the proven stewardship and

global presence of BNY Mellon. Each investment firm has its own individual culture, investment philosophy and proprietary investment process. This approach brings our clients clear, independent thinking from highly experienced investment professionals.

The investment firms offer a broad range of actively managed equity, fixed income, alternative and liability-driven investments, along with passive products and cash management. Our seven majority-owned investment firms are as follows: Alcentra, ARX, Dreyfus Cash Investment Strategies, Insight Investment, Mellon, Newton Investment Management and Walter Scott. BNY Mellon owns a non-controlling minority interest in Siguler Guff.

In September 2021, Investment Management realigned Mellon’s capabilities in fixed income, equities and multi-asset, and liquidity management to Insight Investment, Newton Investment Management and Dreyfus Cash Investment Strategies, respectively. In addition, the Japanese equities team from BNY Mellon Investment Management Japan is expected to be added to Newton Investment Management’s capabilities in 2022.

In addition to the investment firms, Investment Management has multiple global distribution entities, which are responsible for distributing the investment products developed and managed by the investment firms, as well as responsibility for management and distribution of our U.S. mutual funds and certain offshore money market funds.

BNY Mellon Wealth Management provides investment management, custody, wealth and estate planning, private banking services, investment servicing and information management. BNY Mellon Wealth Management has $321 billion in client assets as of Dec. 31, 2021, and more than 30 offices in the U.S. and internationally.

Wealth Management clients include individuals, families and institutions. Institutions include family offices, charitable gift programs and endowments and foundations. We work with clients to build, manage and sustain wealth across generations and market cycles.

The wealth business differentiates itself with a comprehensive wealth management framework called

20 BNY Mellon

Results of Operations (continued)

Active Wealth that seeks to empower clients to build and sustain long-term wealth.

The results of the Investment and Wealth Management business segment are driven by a blend of daily, monthly and quarterly averages of AUM by product type. The overall level of AUM for a given period is determined by:

•the beginning level of AUM;

•the net flows of new assets during the period resulting from new business wins and existing client inflows, reduced by the loss of clients and existing client outflows; and

•the impact of market price appreciation or depreciation, foreign exchange rates and investment firm acquisitions or divestitures.

The mix of AUM is a result of the historical growth rates of equity and fixed income markets and the cumulative net flows of our investment firms as a result of client asset allocation decisions. Actively managed equity, multi-asset and alternative assets typically generate higher percentage fees than fixed-income and liability-driven investments and cash. Also, actively managed assets typically generate higher management fees than indexed or passively managed assets of the same type. Market and regulatory trends have resulted in increased demand for lower fee asset management products and for performance-based fees.

Investment management 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. Management fees are typically subject to fee schedules based on the overall level of assets managed for a single client or by individual asset class and style. This is most common for institutional clients where we typically manage substantial assets for individual accounts.

Performance fees are generally calculated as a percentage of a portfolio’s performance in excess of a benchmark index or a peer group’s performance.

A key driver of organic growth in investment management and performance fees is the amount of

net new AUM flows. Overall market conditions are also key drivers, with a significant long-term economic driver being growth of global financial assets.

Net interest revenue is determined by loan and deposit volumes and the interest rate spread between customer rates and internal funds transfer rates on loans and deposits. Expenses in the Investment and Wealth Management business segment are mainly driven by staff and distribution and servicing expenses.

Review of financial results

AUM of $2.4 trillion increased 10% compared with Dec. 31, 2020 primarily reflecting higher market values and net inflows.

Net long-term strategy inflows were $32 billion in 2021, driven by inflows of liability-driven investment and fixed income funds, partially offset by outflows of equity and index funds. Short-term strategy inflows were $70 billion in 2021.

Total revenue of $4.0 billion increased 9% compared with 2020.

Investment Management revenue of $2.8 billion increased 9% compared with 2020, primarily reflecting higher market values, the favorable impact of a weaker U.S. dollar, higher equity income and client inflows, partially offset by higher money market fee waivers.

Wealth Management revenue of $1.2 billion increased 10% compared with 2020, primarily reflecting higher market values.

Revenue generated in the Investment and Wealth Management business included 38% from non-U.S. sources in 2021, compared with 41% in 2020.

Noninterest expense of $2.8 billion increased 5% compared with 2020, primarily reflecting the unfavorable impact of a weaker U.S. dollar, investments in growth initiatives and higher revenue-related expenses.

BNY Mellon 21

Results of Operations (continued)

Other segment

(a)    In 2021, we reclassified certain items within total revenue on the consolidated income statement and reclassified prior periods to be comparable with the current period presentation. See Note 2 of the Notes to Consolidated Financial Statements for additional information.

(b)    Includes a gain on sale of an equity investment.

Segment description

The Other segment primarily includes:

•the leasing portfolio;

•corporate treasury activities, including our securities portfolio;

•derivatives and other trading activity;

•corporate and bank-owned life insurance;

•renewable energy and other corporate investments; and

•certain business exits.

Revenue primarily reflects:

•net interest revenue (expense) and lease-related gains (losses) from leasing operations;

•net interest revenue (expense) and derivatives and other corporate treasury activities;

•other revenue from certain business exits;

•investment and other revenue from corporate and bank-owned life insurance, gains (losses) associated with investment securities and other assets, including renewable energy; and

•fee revenue from the elimination of the results of certain services provided between segments, which are also provided to third parties.

Expenses include:

•direct expenses supporting leasing, investing and funding activities; and

•expenses not directly attributable to Securities Services, Market and Wealth Services and Investment and Wealth Management operations.

Review of financial results

Loss before taxes was $252 million in 2021 compared with $208 million in 2020.

Investment and other revenue decreased $22 million compared with 2020, primarily reflecting renewable energy investment pre-tax losses and an impairment, and lower net securities gains, partially offset by gains on equity investments and a loss on a business sale recorded in 2020.

Net interest expense increased $14 million compared with 2020, primarily reflecting corporate treasury activity.

Noninterest expense increased $28 million compared with 2020, primarily reflecting higher staff expense.

International operations

Our primary international activities consist of asset servicing in our Securities Services business segment, global payment services in our Market and Wealth Services business segment and investment management in our Investment and Wealth Management business segment.

Our clients include central banks and sovereigns, financial institutions, asset managers, insurance companies, corporations, local authorities and high-net-worth individuals and family offices. Through our global network of offices, we have developed a deep understanding of local requirements and cultural needs, and we pride ourselves on providing dedicated

22 BNY Mellon

Results of Operations (continued)

service through our multilingual sales, marketing and client service teams.

At Dec. 31, 2021, approximately 50% of our total employees (full-time and part-time employees) were based outside the U.S., with approximately 9,800 employees in EMEA, approximately 14,600 employees in APAC and approximately 800 employees in other global locations, primarily Brazil.

We are a leading global asset manager. Our international operations managed 60% of BNY Mellon’s AUM at Dec. 31, 2021 and 56% at Dec. 31, 2020.

In Europe, we maintain capabilities to service Undertakings for Collective Investment in Transferable Securities and alternative investment funds. We offer a full range of tailored solutions for investment companies, financial institutions and institutional investors across Europe.

We are a provider of non-U.S. government securities, fixed income and equities clearance, settling securities transactions directly in European markets, and using a high-quality and established network of local agents in non-European markets.

We have extensive experience providing trade and cash services to financial institutions and central banks outside of the U.S. In addition, we offer a broad range of servicing and fiduciary products to financial institutions, corporations and central banks. In emerging markets, we lead with custody, global payments and issuer services, introducing other products as the markets mature. For more established markets, our focus is on global investment services.

We are also a full-service global provider of foreign exchange services, actively trading in over 100 of the world’s currencies. We serve clients from trading desks located in Europe, Asia and North America.

Our financial results, as well as our levels of AUC/A and AUM, are impacted by translation from foreign currencies to the U.S. dollar. We are primarily impacted by activities denominated in the British pound and the euro. If the U.S. dollar depreciates against these currencies, the translation impact is a higher level of fee revenue, net interest revenue, noninterest expense and AUC/A and AUM. Conversely, if the U.S. dollar appreciates, the translated levels of fee revenue, net interest revenue,

noninterest expense and AUC/A and AUM will be lower.

International clients accounted for 38% of revenues in 2021, compared with 37% in 2020. Net income from international operations was $1.8 billion in 2021, compared with $2.0 billion in 2020.

In 2021, revenues from EMEA were $4.1 billion, compared with $4.0 billion in 2020. The 4% increase reflects higher revenue in the Securities Services, Market and Wealth Services and Investment and Wealth Management business segments. The increase in revenue in the Securities Services business segment primarily reflects higher market values and client activity and the favorable impact of a weaker U.S. dollar, partially offset by lower net interest revenue and foreign exchange revenue. The increase in revenue in the Market and Wealth Services business segment was primarily driven by higher client activity. The increase in revenue in the Investment and Wealth Management business segment primarily reflects the favorable impact of a weaker U.S. dollar and higher market values.

The Securities Services, Investment and Wealth Management and Market and Wealth Services business segments generated 52%, 29% and 19% of EMEA revenues, respectively. Net income from EMEA was $1.0 billion in 2021, compared with $1.2 billion in 2020.

Revenues from APAC were $1.14 billion in 2021, compared with $1.17 billion in 2020. The 2% decrease primarily reflects lower revenue in the Investment and Wealth Management business segment, partially offset by higher revenue in the Securities Services business segment. The decrease in Investment and Wealth Management revenue was primarily driven by lower performance fees and AUM outflows, partially offset by higher market values.

BNY Mellon 23

Results of Operations (continued)

The Securities Services, Market and Wealth Services and Investment and Wealth Management business segments generated 52%, 31% and 17% of APAC revenues, respectively. Net income from APAC was $445 million in 2021, compared with $462 million in 2020.

For additional information regarding our international operations, including certain key subjective assumptions used in determining the results, see Note 25 of the Notes to Consolidated Financial Statements.

Country risk exposure

The following table presents BNY Mellon’s top 10 exposures by country (excluding the U.S.) as of Dec.

31, 2021, as well as certain countries with higher-risk profiles, and is presented on an internal risk management basis. We monitor our exposure to these and other countries as part of our internal country risk management process.

The country risk exposure below reflects the Company’s risk to an immediate default of the counterparty or obligor based on the country of residence of the entity which incurs the liability. If there is credit risk mitigation, the country of residence of the entity providing the risk mitigation is the country of risk. The country of risk for securities is generally based on the domicile of the issuer of the security.

(a)    Lending includes loans, acceptances, issued letters of credit, net of participations, and lending-related commitments.

(b)    Securities include both the available-for-sale and held-to-maturity portfolios.

(c)    Other exposures include over-the-counter (“OTC”) derivative and securities financing transactions, net of collateral.

(d)    The top 10 country exposures comprise approximately 75% of our total non-U.S. exposure.

(e)    Includes an $18 million letter of credit.

Events in recent years have resulted in increased focus on Brazil. The country risk exposure to Brazil is primarily short-term trade finance loans extended to large financial institutions. We also have operations in Brazil providing investment services and investment management services.

Recent events have also increased focus on Russia. The country risk exposure to Russia consists of interest-bearing deposits and a letter of credit. From time to time, we also provide uncommitted intraday credit. In addition, we also provide investment services to clients located in Russia.

24 BNY Mellon

Results of Operations (continued)

Critical accounting estimates

Our significant accounting policies are described in Note 1 of the Notes to Consolidated Financial Statements. Certain of these policies include critical accounting estimates which require management to make subjective or complex judgments about the effect of matters that are inherently uncertain and may change in subsequent periods. Our critical accounting estimates are those related to the allowance for credit losses, goodwill and other intangibles and litigation and regulatory contingencies. Management has discussed the development and selection of the critical accounting estimates with the Company’s Audit Committee.

Allowance for credit losses

The allowance for credit losses covers financial assets subject to credit losses and measured at amortized cost, including loans and lending-related commitments, held-to-maturity securities, certain securities financing transactions and deposits with banks. The allowance for credit losses is intended to adjust the carrying value of these assets by an estimated amount of credit losses that we expect to incur over the life of the asset. Similarly, the allowance for credit losses on lending-related commitments and other off-balance sheet financial instruments is meant to capture the credit losses that we expect to recognize in these portfolios as of the balance sheet date.

A quantitative methodology and qualitative framework is used to estimate the allowance for credit losses.

The quantitative component of our estimate uses models and methodologies that categorize financial assets based on product type, collateral type, and other credit trends and risk characteristics, including relevant information about past events, current conditions and reasonable and supportable forecasts of future economic conditions that affect the collectability of the recorded amounts. For the quantitative component, we segment portfolios into various major components including commercial loans and lease financing, commercial real estate, financial institutions, residential mortgages, and other. The segmentation of our debt securities portfolios is by major asset class and is influenced by whether the security is structured or non-structured (i.e., direct obligation), as well as the issuer type. The

components of the credit loss calculation for each major portfolio or asset class include a probability of default, loss given default and exposure at default, as applicable, and their values depend on the forecast behavior of variables in the macroeconomic environment. We utilize a multi-scenario macroeconomic forecast which includes a weighting of three scenarios: a baseline and upside and downside scenarios and allows us to develop our estimate using a wide span of economic variables. Our baseline scenario reflects a view on likely performance of each global region and the other two scenarios are designed relative to the baseline scenario. This approach incorporates a reasonable and supportable forecast period spanning the life of the asset, and this period includes both an initial estimated economic outlook component as well as a reversion component for each economic input variable. The length of each of the two components depends on the underlying financial instrument, scenario, and underlying economic input variable. In general, the initial economic outlook period for each economic input variable under each scenario ranges between several months and two years. The speed at which the scenario-specific forecasts revert to long-term historical mean is based on observed historical patterns of mean reversion at the economic variable input level that are reflected in our model parameter estimates. Certain macroeconomic variables such as unemployment or home prices take longer to revert after a contraction, though specific recovery times are scenario-specific. Reversion will usually take longer the further away the scenario-specific forecast is from the historical mean. On a quarterly basis, and within a developed governance structure, we update these scenarios for current economic conditions and may adjust the scenario weighting based on our economic outlook. The Company uses its best judgment to assess these economic conditions and loss data in estimating the allowance for credit losses and these estimates are subject to periodic refinement based on changes to underlying external or Company-specific historical data.

In the quantitative component of our estimate, we measure expected credit losses using an individual evaluation method if the risk characteristics of the asset is no longer consistent with the portfolio or class of asset. For these assets we do not employ the macroeconomic model calculation but consider factors such as payment status, collateral value, the obligor’s financial condition, guarantor support, the probability of collecting scheduled principal and

BNY Mellon 25

Results of Operations (continued)

interest payments when due, and recovery expectations if they can be reasonably estimated. For loans, we measure the expected credit loss as the difference between the amortized cost basis in the loan and the present value of the expected future cash flows from the borrower which is generally discounted at the loan’s effective interest rate, or the fair value of the collateral, if the loan is collateral dependent. We generally consider nonperforming loans as well as loans that have been or are anticipated to be modified and classified under a troubled debt restructuring for individual evaluation given the risk characteristics of such loans.

Available-for-sale debt securities are recorded at fair value. When an available-for-sale debt security is in an unrealized loss position, we employ a methodology to identify and estimate the credit loss portion of the unrealized loss position. The measurement of expected credit losses is performed at the security level and is based on our best single estimate of cash flows, on a discounted basis; however, we do not specifically employ the macroeconomic forecasting models and scenarios summarized above.

The qualitative component of our estimate for the allowance for credit losses is intended to capture expected losses that may not have been fully captured in the quantitative component. Through an established governance structure, management determines the qualitative allowance each period based on an evaluation of various internal and environmental factors which include: scenario weighting and sensitivity risk, credit concentration risk, economic conditions and other considerations. We have made and may continue to make adjustments for idiosyncratic risks.

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 and recoveries.

Our allowance for credit losses is sensitive to a number of inputs, most notably the credit ratings assigned to each borrower as well as macroeconomic forecast assumptions that are incorporated in our estimate of credit losses through the expected life of the loan portfolio. Thus, as the macroeconomic environment and related forecasts change, the allowance for credit losses may change materially. The following sensitivity analyses do not represent

management’s expectations of the deterioration of our portfolios or the economic environment, but are provided as hypothetical scenarios to assess the sensitivity of the allowance for credit losses to changes in key inputs. If commercial real estate property values were increased 10% and all other credits were rated one grade better, the quantitative allowance would have decreased by $37 million, and if commercial real estate property values were decreased 10% and all other credits were rated one grade worse, the quantitative allowance would have increased by $83 million. Our multi-scenario based macroeconomic forecast used in determining the Dec. 31, 2021 allowance for credit losses consisted of three scenarios. The baseline scenario reflects flat GDP growth, continued moderate labor market recovery and stable commercial real estate prices through mid-2022 that begin to increase in the second half of 2022. The upside scenario reflects faster GDP growth and labor market recovery and higher commercial real estate prices compared with the baseline. The downside scenario contemplates negative GDP growth throughout the first quarter of 2022 and subsequent stabilization throughout 2022 as well as increasing unemployment throughout 2022 and lower commercial real estate prices than the baseline. Throughout 2021, we placed the most weight on our baseline scenario, with the remaining weighting resulting in slightly more weight placed on the downside scenario than the upside scenario. From a sensitivity perspective, at Dec. 31, 2021, if we had applied 100% weighting to the downside scenario, the quantitative allowance for credit losses would have been approximately $110 million higher.

Goodwill and other intangibles

We initially record all assets and liabilities acquired in purchase acquisitions, including goodwill, indefinite-lived intangibles and other intangibles, in accordance with Accounting Standards Codification (“ASC”) 805, Business Combinations. Goodwill, indefinite-lived intangibles and other intangibles are subsequently accounted for in accordance with ASC 350, Intangibles – Goodwill and Other. The initial measurement of goodwill and intangibles requires judgment concerning estimates of the fair value of the acquired assets and liabilities. Goodwill ($17.5 billion at Dec. 31, 2021) and indefinite-lived intangible assets ($2.6 billion at Dec. 31, 2021) are not amortized but are subject to tests for impairment annually or more often if events or circumstances indicate it is more likely than not they may be

26 BNY Mellon

Results of Operations (continued)

impaired. Other intangible assets are amortized over their estimated useful lives and are subject to impairment if events or circumstances indicate a possible inability to realize the carrying value.

BNY Mellon’s business segments include six reporting units for which annual goodwill impairment testing is performed in accordance with ASC 350, Intangibles – Goodwill and Other.

The goodwill impairment test compares the estimated fair value of the reporting unit with its carrying amount, including goodwill. If the estimated fair value of the reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired. However, if the carrying amount of the reporting unit were to exceed its estimated fair value, an impairment loss would be recorded. A substantial goodwill impairment charge would not have a significant impact on our financial condition or our regulatory capital ratios, but would have an adverse impact on our results of operations. In addition, due to regulatory restrictions, the Company’s subsidiary banks could be restricted from distributing available cash to the Parent, resulting in the Parent needing to issue additional long-term debt.

In the second quarter of 2021, we performed our annual goodwill impairment test on all six reporting units using an income approach to estimate the fair values of each reporting unit. Estimated cash flows used in the income approach were based on management’s projections as of March 31, 2021. The discount rate applied to these cash flows was 10% and incorporated a 6% market equity risk premium. Estimated cash flows extend far into the future, and, by their nature, are difficult to estimate over such an extended time frame.

As a result of the annual goodwill impairment test of the six reporting units, no goodwill impairment was recognized. The fair values of all six of the Company’s reporting units were substantially in excess of the respective reporting units’ carrying value. The Investment Management reporting unit, with $7.3 billion of allocated goodwill, which is one of the two reporting units in the Investment and Wealth Management segment, exceeded its carrying value by approximately 25%. For the Investment Management reporting unit, in the future, small changes in the assumptions, such as the discount rate, changes in the level or mix of AUM and operating

margin, could produce a non-cash goodwill impairment.

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

Indefinite-lived intangible assets are evaluated for impairment at least annually by comparing their fair values, estimated using discounted cash flow analyses, to their carrying values. Other amortizing intangible assets ($402 million at Dec. 31, 2021) are evaluated for impairment if events and circumstances indicate a possible impairment. Such evaluation of other intangible assets would be initially based on undiscounted cash flow projections.

See Notes 1 and 7 of the Notes to Consolidated Financial Statements for additional information regarding goodwill, intangible assets and the annual and interim impairment testing.

Litigation and regulatory contingencies

Significant estimates and judgments are required in establishing an accrued liability for litigation and regulatory contingencies. For additional information on our policy, see “Legal proceedings” in Note 22 of the Notes to Consolidated Financial Statements.

Consolidated balance sheet review

One of our key risk management objectives is to maintain a balance sheet that remains strong throughout market cycles to meet the expectations of our major stakeholders, including our shareholders, clients, creditors and regulators.

We also seek to undertake overall liquidity risk, including intraday liquidity risk, that stays within our risk appetite. The objective of our balance sheet management strategy is to maintain a balance sheet that is characterized by strong liquidity and asset quality, ready access to external funding sources at competitive rates and a strong capital structure that supports our risk-taking activities and is adequate to absorb potential losses. In managing the balance sheet, appropriate consideration is given to balancing the competing needs of maintaining sufficient levels of liquidity and complying with applicable regulations and supervisory expectations while optimizing profitability.

BNY Mellon 27

Results of Operations (continued)

At Dec. 31, 2021, total assets were $444 billion, compared with $470 billion at Dec. 31, 2020. The decrease in total assets was primarily driven by lower interest-bearing deposits with the Federal Reserve and other central banks, partially offset by higher loans. Deposits totaled $320 billion at Dec. 31, 2021, compared with $342 billion at Dec. 31, 2020. The decrease primarily reflects lower interest-bearing deposits in both non-U.S. and U.S. offices, partially offset by higher noninterest-bearing deposits (principally in U.S. offices). Total interest-bearing deposits as a percentage of total interest-earning assets were 60% at Dec. 31, 2021 and 63% at Dec. 31, 2020.

At Dec. 31, 2021, available funds totaled $155 billion and includes cash and due from banks, interest-bearing deposits with the Federal Reserve and other central banks, interest-bearing deposits with banks and federal funds sold and securities purchased under resale agreements. This compares with available funds of $196 billion at Dec. 31, 2020. Total available funds as a percentage of total assets were 35% at Dec. 31, 2021 and 42% at Dec. 31, 2020. For additional information on our available funds, see “Liquidity and dividends.”

Securities were $159 billion, or 36% of total assets, at Dec. 31, 2021, compared with $156 billion, or 33% of total assets, at Dec. 31, 2020. The increase primarily reflects investments in U.S. Treasury securities, partially offset by decreases in agency residential mortgage-backed securities (“RMBS”) and unrealized pre-tax gains. For additional information on our securities portfolio, see “Securities” and Note 4 of the Notes to Consolidated Financial Statements.

Loans were $68 billion, or 15% of total assets, at Dec. 31, 2021, compared with $56 billion, or 12% of total assets, at Dec. 31, 2020. The increase was primarily driven by higher margin loans, capital call financing and wealth management loans. For additional information on our loan portfolio, see “Loans” and Note 5 of the Notes to Consolidated Financial Statements.

Long-term debt totaled $26 billion at Dec. 31, 2021 and Dec. 31, 2020. Redemptions and maturities and a decrease in the fair value of hedged long-term debt were partially offset by issuances. For additional information on long-term debt, see “Liquidity and dividends” and Note 13 of the Notes to Consolidated Financial Statements.

The Bank of New York Mellon Corporation total shareholders’ equity decreased to $43 billion at Dec. 31, 2021 from $46 billion at Dec. 31, 2020. For additional information, see “Capital” and Note 15 of the Notes to Consolidated Financial Statements.

Securities

In the discussion of our securities portfolio, we have included certain credit ratings information because the information can indicate the degree of credit risk to which we are exposed. Significant changes in ratings classifications could indicate increased credit risk for us and could be accompanied by an increase in the allowance for credit losses and/or a reduction in the fair value of our securities portfolio.

28 BNY Mellon

Results of Operations (continued)

The following table shows the distribution of our total securities portfolio.

(a)    Amortized cost reflects historical impairments, and is net of the allowance for credit losses.

(b)    Includes the impact of hedges.

(c)    Represents ratings by Standard & Poor’s (“S&P”) or the equivalent.

(d)    Primarily consists of exposure to Germany, France, UK, Italy, Singapore, and Spain.

(e)    Primarily consists of exposure to Canada, UK, Australia, Germany and Norway.

(f)    Primarily consists of exposure to Netherlands, Canada, France, Norway and Finland.

(g)    Includes net unrealized losses on derivatives hedging securities available-for-sale (including terminated hedges) of $1,428 million at Dec. 31, 2020 and $590 million at Dec. 31, 2021.

(h)    Includes unrealized gains of $475 million at Dec. 31, 2021 related to available-for-sale securities, net of hedges, and unrealized losses of $91 related to held-to-maturity securities.

The fair value of our securities portfolio, including related hedges, was $158.0 billion at Dec. 31, 2021, compared with $156.3 billion at Dec. 31, 2020. The increase primarily reflects investments in U.S. Treasury securities, partially offset by decreases in agency RMBS and unrealized pre-tax gains.

At Dec. 31, 2021, the securities portfolio had a net unrealized gain, including the impact of related hedges, of $384 million, compared with $3.2 billion at Dec. 31, 2020. The decrease in the net unrealized gain was primarily driven by higher market interest rates.

The fair value of the available-for-sale securities totaled $101.2 billion at Dec. 31, 2021, net of hedges, or 64% of the securities portfolio, net of hedges. The fair value of the held-to-maturity securities totaled

$56.8 billion at Dec. 31, 2021, or 36% of the securities portfolio.

The unrealized gain (after-tax) on our available-for-sale securities portfolio, net of hedges, included in accumulated other comprehensive income was $362 million at Dec. 31, 2021, compared with $1.5 billion at Dec. 31, 2020. The decrease in the unrealized gain, net of tax, was primarily driven by higher market interest rates.

At Dec. 31, 2021, 96% of the securities in our portfolio were rated AAA/AA-, compared with 95% at Dec. 31, 2020.

See Note 4 of the Notes to Consolidated Financial Statements for the pre-tax net securities gains (losses) by security type. See Note 20 of the Notes to Consolidated Financial Statements for securities by level in the fair value hierarchy.

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Results of Operations (continued)

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

(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.

Equity investments

We have several equity investments recorded in other assets. These include equity method investments, including renewable energy, investments in qualified affordable housing projects, Federal Reserve Bank stock, seed capital and other investments. The following table presents the carrying values at Dec. 31, 2021 and Dec. 31, 2020.

(a)    Includes strategic equity, private equity and other investments.

(b)    Includes investments in BNY Mellon funds which hedge deferred incentive awards.

For additional information on the fair value of certain seed capital investments and our private equity investments, see Note 8 of the Notes to Consolidated Financial Statements.

Renewable energy investments

We invest in renewable energy projects to receive an expected after-tax return, which consists of allocated renewable energy tax credits, tax deductions and cash distributions based on the operations of the project. The pre-tax losses on these investments are recorded in investment and other revenue on the consolidated income statement. The corresponding tax benefits and credits are recorded to the provision for income taxes on the consolidated income statement.

30 BNY Mellon

Results of Operations (continued)

Loans

(a)    In 2021, we began disclosing capital call financing loans, and separately disclosing wealth management loans and wealth management mortgages. The prior period was revised to be comparable.

At Dec. 31, 2021, total lending-related exposure was $116.0 billion, an increase of 9% compared with Dec. 31, 2020, primarily reflecting higher margin loans, and exposure in the capital call financing and wealth management loans portfolios, partially offset by lower financial institutions exposure.

Our financial institutions and commercial portfolios comprise our largest concentrated risk. These portfolios comprised 47% of our total exposure at Dec. 31, 2021 and 55% at Dec. 31, 2020. Additionally, most of our overdrafts relate to financial institutions.

Financial institutions

The financial institutions portfolio is shown below.

(a)    Prior period was revised to exclude capital call financing loans

The financial institutions portfolio exposure was $40.8 billion at Dec. 31, 2021, a decrease of 7% compared with Dec. 31, 2020, primarily reflecting lower exposure in the securities industry portfolio, partially offset by higher exposure in the asset managers and insurance portfolios.

Financial institution exposures are high-quality, with 96% of the exposures meeting the investment grade equivalent criteria of our internal credit rating classification at Dec. 31, 2021. 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. For ratings of non-U.S. counterparties, 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.

The exposure to financial institutions is generally short-term, with 87% of the exposures expiring

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Results of Operations (continued)

within one year. At Dec. 31, 2021, 17% of the exposure to financial institutions had an expiration within 90 days, compared with 18% at Dec. 31, 2020.

In addition, 66% of the financial institutions exposure is secured at Dec. 31, 2021. For example, securities industry clients and asset managers often borrow against marketable securities held in custody.

At Dec. 31, 2021, the secured intraday credit provided to dealers in connection with their tri-party repo activity totaled $16.4 billion and was included in the securities industry portfolio. Dealers secure the outstanding intraday credit with high-quality liquid collateral having a market value in excess of the amount of the outstanding credit. Secured intraday credit facilities represent approximately 40% of the

exposure in the financial institutions portfolio and are reviewed and reapproved annually.

The asset managers portfolio exposure is high-quality, with 99% of the exposures meeting our investment grade equivalent ratings criteria as of Dec. 31, 2021. These exposures are generally short-term liquidity facilities, with the majority to regulated mutual funds.

Our banks exposure primarily relates to our global trade finance. These exposures are short-term in nature, with 99% due in less than one year. The investment grade percentage of our banks exposure was 88% at Dec. 31, 2021, compared with 85% at Dec. 31, 2020. Our non-investment grade exposures are primarily trade finance loans in Brazil.

Commercial

The commercial portfolio is presented below.

The commercial portfolio exposure was $14.0 billion at Dec. 31, 2021, a decrease of 1% from Dec. 31, 2020, primarily driven by lower unfunded commitments, partially offset by higher loans across the portfolio.

Our credit strategy is to focus on investment grade clients that are active users of our non-credit services. The following table summarizes the percentage of the financial institutions and commercial portfolio exposures that are investment grade.

Wealth management loans

Our wealth management loan exposure was $10.3 billion at Dec. 31, 2021, compared with $9.0 billion at Dec. 31, 2020. Wealth management loans

primarily consist of loans to high-net-worth individuals, a majority of which are secured by the customers’ investment management accounts or custody accounts.

Wealth management mortgages

Our wealth management mortgage exposure was $8.6 billion at Dec. 31, 2021, compared with $8.4 billion at Dec. 31, 2020. Wealth management mortgages primarily consist of loans to high-net-worth individuals, which are secured by residential property. Wealth management mortgages are primarily interest-only, adjustable-rate mortgages with a weighted-average loan-to-value ratio of 61% at origination. Less than 1% of the mortgages were past due at Dec. 31, 2021.

At Dec. 31, 2021, the wealth management mortgage portfolio consisted of the following geographic concentrations: California – 21%; New York – 16%; Florida – 9%; Massachusetts – 9%; and other – 45%.

32 BNY Mellon

Results of Operations (continued)

Commercial real estate

The composition of the commercial real estate portfolio by asset class, including percentage secured, is presented below.

(a)    Represents the amount of secured exposure in each asset class.

(b)    Prior period was revised to exclude capital call financing loans.

Our commercial real estate exposure totaled $9.3 billion at Dec. 31, 2021 and $9.2 billion at Dec. 31, 2020. Our income-producing commercial real estate facilities are focused on experienced owners and are structured with moderate leverage based on existing cash flows. Our commercial real estate lending activities also include construction and renovation facilities. Our client base consists of experienced developers and long-term holders of real estate assets. Loans are approved on the basis of existing or projected cash flows and supported by appraisals and knowledge of local market conditions. Development loans are structured with moderate leverage, and in many instances, involve some level of recourse to the developer.

At Dec. 31, 2021, the unsecured portfolio consisted of real estate investment trusts (“REITs”) and real estate operating companies, which are both primarily investment grade.

At Dec. 31, 2021, our commercial real estate portfolio consisted of the following concentrations: New York metro – 38%; REITs and real estate operating companies – 34%; and other – 28%.

Lease financings

The lease financings portfolio exposure totaled $731 million at Dec. 31, 2021 and $1.0 billion at Dec. 31, 2020. At Dec. 31, 2021, approximately 99% of leasing exposure was investment grade, or investment grade equivalent and consisted of exposures backed by well-diversified assets, primarily real estate and

large-ticket transportation equipment. The largest components of our lease residual value exposure were to aircraft and freight-related rail cars. Assets are both domestic and foreign-based, with primary concentrations in Germany and the U.S.

Approximately 63% of the portfolio is additionally secured by highly rated securities and/or secured by letters of credit from investment grade issuers. Counterparty rating equivalents at Dec. 31, 2021, were as follows:

•43% were A or better, or equivalent;

•56% were BBB; and

•1% were non-investment grade.

Other residential mortgages

The other residential mortgages portfolio primarily consists of 1-4 family residential mortgage loans and totaled $299 million at Dec. 31, 2021 and $389 million at Dec. 31, 2020.

Overdrafts

Overdrafts primarily relate to custody and securities clearance clients and are generally repaid within two business days.

Capital call financing

Capital call financing includes loans to private equity funds that are secured by the fund investors’ capital commitments and the funds’ right to call capital.

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Results of Operations (continued)

Other loans

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

Margin loans

Margin loan exposure of $22.5 billion at Dec. 31, 2021 and $15.5 billion at Dec. 31, 2020 was

collateralized with marketable securities. Borrowers are required to maintain a daily collateral margin in excess of 100% of the value of the loan. Margin loans included $7.7 billion at Dec. 31, 2021 and $4.6 billion at Dec. 31, 2020 related to a term loan program that offers fully collateralized loans to broker-dealers.

Maturity of loan portfolio

The following table shows the maturity structure of our loan portfolio.

Interest rate characteristic

The following table shows the interest rate characteristic of loans maturing after one year.

34 BNY Mellon

Results of Operations (continued)

Allowance for credit losses

Our credit strategy is to focus on investment grade clients who are active users of our non-credit services. Our primary exposure to the credit risk of a customer consists of funded loans, unfunded contractual commitments to lend, standby letters of credit (“SBLC”) and overdrafts associated with our custody and securities clearance businesses.

The following table presents the changes in our allowance for credit losses.