##### Table of Contents

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



---



FORM 10-Q



|þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------



For the Quarterly Period Ended September 30, 2003



or



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------



Commission File No. 1-7410



MELLON FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)



|Pennsylvania                                                   |  | 25-1233834                          
|-------------------------------------------------------------- |  | ------------------------------------
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)



One Mellon Center

Pittsburgh, Pennsylvania 15258-0001

(Address of principal executive offices) (Zip Code)



Registrants telephone number, including area code  (412) 234-5000



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



Yes þ No ̈



Indicate by check mark whether the registrant
is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).



Yes þ No ̈



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



|Class                        |  | Outstanding as of Sept. 30, 2003
|---------------------------- |  | --------------------------------
|Common Stock, $.50 par value |  | 430,232,140                     



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##### Table of Contents

MELLON FINANCIAL CORPORATION

THIRD QUARTER 2003 FORM 10-Q

TABLE OF CONTENTS AND 10-Q CROSS-REFERENCE INDEX



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|                                                                                                                                                                  |  | Page No.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------
|                                                                                                                                                                  | 
|Part I - Financial Information                                                                                                                                    |  |         
|                                                                                                                                                                  | 
|Financial Highlights                                                                                                                                              |  | 2       
|                                                                                                                                                                  | 
|Financial Statements (Item 1):                                                                                                                                    |  |         
|Consolidated Income Statement                                                                                                                                     |  | 3       
|Consolidated Balance Sheet                                                                                                                                        |  | 5       
|Consolidated Statement of Cash Flows                                                                                                                              |  | 6       
|Consolidated Statement of Changes in Shareholders Equity                                                                                                         |  | 8       
|                                                                                                                                                                  | 
|Notes to Financial Statements                                                                                                                                     |  | 10      
|                                                                                                                                                                  | 
|Managements Discussion and Analysis of Financial Condition and Results of Operations; Quantitative and Qualitative Disclosures About Market Risk (Items 2 and 3) |  | 19      
|                                                                                                                                                                  | 
|Controls and Procedures (Item 4)                                                                                                                                  |  | 67      
|                                                                                                                                                                  | 
|Cautionary Statement                                                                                                                                              |  | 67      
|                                                                                                                                                                  | 
|Part II - Other Information                                                                                                                                       |  |         
|                                                                                                                                                                  | 
|Legal Proceedings (Item 1)                                                                                                                                        |  | 70      
|                                                                                                                                                                  | 
|Changes in Securities and Use of Proceeds (Item 2)                                                                                                                |  | 70      
|                                                                                                                                                                  | 
|Exhibits and Reports on Form 8-K (Item 6)                                                                                                                         |  | 71      
|                                                                                                                                                                  | 
|Signature                                                                                                                                                         |  | 72      
|                                                                                                                                                                  | 
|Corporate Information                                                                                                                                             |  | 73      
|                                                                                                                                                                  | 
|Index to Exhibits                                                                                                                                                 |  | 74      





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##### Table of Contents

PART I - FINANCIAL INFORMATION



---

Mellon Financial Corporation(and its subsidiaries)

---

|FINANCIAL HIGHLIGHTS                                                                      |  | Quarter ended |        |   | Nine months ended |  
|----------------------------------------------------------------------------------------- |  | ------------- | ------ | - | ----------------- | -
|(dollar amounts in millions, except per shareamounts or unless otherwise noted)           |  | Sept. 30,2003 |        |   | June 30,2003      |  
|                                                                                         
|Financial results                                                                         |  |               |        |   |                   |  
|Income from continuing operations before cumulative effect of accounting change           |  | $             | 153    |   |                   | $
|Cumulative effect of accounting change, net of tax (a)                                    |  |               |       |   |                   |  
|                                                                                          |  |               |        |   |                   |  
|Income from continuing operations                                                         |  | $             | 153    |   |                   | $
|Discontinued operations                                                                   |  |               | 28     |   |                   |  
|                                                                                          |  |               |        |   |                   |  
|Net income                                                                                |  | $             | 181    |   |                   | $
|                                                                                          |  |               |        |   |                  
|Per common share - diluted:                                                               |  |               |        |   |                   |  
|Income from continuing operations before cumulative effect of accounting change           |  | $             | .36    |   |                   | $
|Cumulative effect of accounting change (a)                                                |  |               |       |   |                   |  
|                                                                                          |  |               |        |   |                   |  
|Continuing operations                                                                     |  | $             | .36    |   |                   | $
|Discontinued operations                                                                   |  |               | .06    |   |                   |  
|                                                                                          |  |               |        |   |                   |  
|Net income                                                                                |  | $             | .42    |   |                   | $
|                                                                                         
|Continuing operations                                                                     |  |               |        |   |                   |  
|Noninterest revenue                                                                       |  | $             | 924    |   |                   | $
|Net interest revenue                                                                      |  |               | 134    |   |                   |  
|                                                                                          |  |               |        |   |                   |  
|Total revenue                                                                             |  | $             | 1,058  |   |                   | $
|                                                                                          |  |               |        |   |                  
|Return on equity (annualized) (b)                                                         |  |               | 17.2   | % |                   |  
|Return on assets (annualized) (b)                                                         |  |               | 1.81   | % |                   |  
|Fee revenue as a percentage of fee and net interest revenue (FTE) (c)                     |  |               | 87     | % |                   |  
|Trust and investment fee revenue as a percentage of fee and net interest revenue (FTE)(c) |  |               | 67     | % |                   |  
|Pre-tax operating margin (FTE)                                                            |  |               | 22     | % |                   |  
|                                                                                         
|Average balances                                                                          |  |               |        |   |                   |  
|Money market investments                                                                  |  | $             | 3,066  |   |                   | $
|Trading account securities                                                                |  |               | 693    |   |                   |  
|Securities                                                                                |  |               | 10,882 |   |                   |  
|                                                                                          |  |               |        |   |                   |  
|Total money market investments and securities                                             |  |               | 14,641 |   |                   |  
|Loans                                                                                     |  |               | 7,425  |   |                   |  
|Funds allocated to discontinued operations                                                |  |               |       |   |                   |  
|                                                                                          |  |               |        |   |                   |  
|Total interest-earning assets                                                             |  |               | 22,066 |   |                   |  
|Total assets                                                                              |  |               | 33,449 |   |                   |  
|Deposits                                                                                  |  |               | 19,185 |   |                   |  
|Notes and debentures                                                                      |  |               | 4,234  |   |                   |  
|Trust-preferred securities                                                                |  |               | 999    |   |                   |  
|Total shareholders equity                                                                |  |               | 3,519  |   |                   |  
|                                                                                         

|(a) | See page 11 for a discussion of the cumulative effect of a change in accounting principle.
|--- | ------------------------------------------------------------------------------------------

|(b) | Returns presented in the table for the first nine months of 2003 are before the cumulative effect of a change in accounting principle. Return on equity on a net income basis was
20.4%, 19.7% and 23.1% for the third quarter 2003, second quarter 2003, and third quarter 2002, respectively, and 19.8% and 20.5% for the first nine months of 2003 and the first nine months of 2002, respectively. Return on assets on a net income
basis was 2.15%, 2.04% and 2.21% for the third quarter 2003, second quarter 2003, and third quarter 2002, respectively, and 2.01% and 2.05% for the first nine months of 2003 and the first nine months of 2002, respectively.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(c) | See page 21 for the definition of fee revenue.
|--- | ----------------------------------------------

|Note: | Throughout this report, all calculations are based on unrounded numbers. FTE denotes presentation on a fully taxable equivalent basis.
|----- | --------------------------------------------------------------------------------------------------------------------------------------





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##### Table of Contents

Item 1. - Financial Statements

CONSOLIDATED INCOME STATEMENT



Mellon Financial
Corporation(and its subsidiaries)

|                                                                          
|--------------------------------------------------------------------------
|                                                                          
|(dollar amounts in millions, except pershare amounts; shares in thousands)
|                                                                          
|Noninterest                                                               
|revenue                                                                   
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|Net interest                                                              
|revenue                                                                   
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|Operating                                                                 
|expense                                                                   
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|Income                                                                    
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                          



(continued)





3



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##### Table of Contents

CONSOLIDATED INCOME STATEMENT (continued)



Mellon Financial Corporation(and its subsidiaries)

|            
|------------
|            
|            
|            
|Earnings per
|share(b)    
|            
|            
|            
|            
|            
|            
|            
|            
|            
|            
|            
|            
|            
|            
|            
|            
|Shares      
|outstanding 
|            
|            
|            

|(a) | Amounts do not necessarily agree with those presented in Business Sectors on pages 35 through 37, which include revenue transferred between sectors under revenue transfer
agreements. Additionally, sector amounts are reported on a fully taxable equivalent basis.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | Calculated based on unrounded numbers.
|--- | --------------------------------------

|(c) | Amounts do not foot due to rounding.
|--- | ------------------------------------



See accompanying Notes to Financial Statements.





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##### Table of Contents

CONSOLIDATED BALANCE SHEET



Mellon Financial
Corporation(and its subsidiaries)

|                            
|----------------------------
|(dollar amounts in millions)
|                            
|Assets                      
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|Liabilities                 
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|Shareholdersequity         
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            

See accompanying Notes to Financial Statements.





5



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##### Table of Contents

CONSOLIDATED STATEMENT OF CASH FLOWS



Mellon
Financial Corporation(and its subsidiaries)

|                                    
|------------------------------------
|                                    
|(in millions)                       
|                                    
|                                    
|Cash flows from                     
|operating activities                
|                                    
|                                    
|                                    
|                                    
|                                    
|                                    
|                                    
|                                    
|                                    
|                                    
|                                    
|                                    
|                                    
|                                    
|                                    
|                                    
|                                    
|                                    
|                                    
|                                    
|                                    
|                                    
|                                    
|Cash flows from investing activities
|                                    
|                                    
|                                    
|                                    
|                                    
|                                    
|                                    
|                                    
|                                    
|                                    
|                                    
|                                    
|                                    
|                                    
|                                    



(continued)



6



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##### Table of Contents

CONSOLIDATED STATEMENT OF CASH FLOWS (continued)



Mellon Financial Corporation(and its subsidiaries)

|                    
|--------------------
|                    
|(in millions)       
|                    
|                    
|Cash flows from     
|financing activities
|                    
|                    
|                    
|                    
|                    
|                    
|                    
|                    
|                    
|                    
|                    
|                    
|                    
|                    
|Change in cash and  
|due from banks      
|                    
|                    
|                    
|                    
|                    
|Supplemental        
|disclosures         
|                    

|(a) | Includes discontinued operations.
|--- | ---------------------------------



See accompanying Notes to Financial Statements.



7



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##### Table of Contents

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY



Mellon Financial Corporation(and its subsidiaries)

|                                                                              
|------------------------------------------------------------------------------
|Quarter ended Sept. 30, 2003 (in millions)                                    
|                                                                              
|Balance at June 30, 2003                                                      
|Comprehensive results:                                                        
|Net income                                                                    
|Other comprehensive results, net of tax                                       
|                                                                              
|Total comprehensive results                                                   
|Dividends on common stock at $.14 per share                                   
|Common stock issued under Direct Stock Purchase and Dividend Reinvestment Plan
|Exercise of stock options                                                     
|Repurchase of common stock                                                    
|Common stock issued under the Employee Stock Purchase Plan                    
|Common stock issued in connection with the Arden Group, Inc. acquisition      
|Other                                                                         
|                                                                              
|Balance at Sept. 30, 2003                                                     
|                                                                              
|                                                                              
|Mellon Financial Corporation(and its subsidiaries)                            
|                                                                              
|Quarter ended Sept. 30, 2002 (in millions)                                    
|                                                                              
|Balance at June 30, 2002                                                      
|Comprehensive results:                                                        
|Net income                                                                    
|Other comprehensive results, net of tax                                       
|                                                                              
|Total comprehensive results                                                   
|Dividends on common stock at $.12 per share                                   
|Common stock issued under Direct Stock Purchase and Dividend Reinvestment Plan
|Exercise of stock options                                                     
|Repurchase of common stock                                                    
|Common stock issued under the Employee Stock Purchase Plan                    
|Other                                                                         
|                                                                              
|Balance at Sept. 30, 2002                                                     
|                                                                              



See accompanying Notes to Financial
Statements.



(continued)



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CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY (continued)



Mellon Financial Corporation(and its subsidiaries)

|                                                                              
|------------------------------------------------------------------------------
|Nine months ended Sept. 30, 2003 (in millions)                                
|                                                                              
|Balance at Dec. 31, 2002                                                      
|Comprehensive results:                                                        
|Net income                                                                    
|Other comprehensive results, net of tax                                       
|                                                                              
|Total comprehensive results                                                   
|Dividends on common stock at $.41 per share                                   
|Common stock issued under Direct Stock Purchase and Dividend Reinvestment Plan
|Exercise of stock options                                                     
|Repurchase of common stock                                                    
|Common stock issued under the Employee Stock Purchase Plan                    
|Common stock issued in connection with the Arden Group, Inc. acquisition      
|Other                                                                         
|                                                                              
|Balance at Sept. 30, 2003                                                     
|                                                                              
|                                                                              
|Mellon Financial Corporation(and its subsidiaries)                            
|                                                                              
|Nine months ended Sept. 30, 2002 (in millions)                                
|                                                                              
|Balance at Dec. 31, 2001                                                      
|Comprehensive results:                                                        
|Net income                                                                    
|Other comprehensive results, net of tax                                       
|                                                                              
|Total comprehensive results                                                   
|Dividends on common stock at $.36 per share                                   
|Common stock issued under Direct Stock Purchase and Dividend Reinvestment Plan
|Exercise of stock options                                                     
|Repurchase of common stock                                                    
|Common stock issued under the Employee Stock Purchase Plan                    
|Other                                                                         
|                                                                              
|Balance at Sept. 30, 2002                                                     
|                                                                              

See accompanying Notes to Financial Statements.



9



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##### Table of Contents

NOTES TO FINANCIAL STATEMENTS

---



Note 1  Basis of presentation



The unaudited consolidated financial statements of the Corporation are prepared in accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. These financial statements should be read in conjunction with the Corporations 2002 Annual Report on Form 10-K. In the opinion of management, all normal
recurring adjustments necessary for a fair presentation of the financial position and results of operations for the periods have been included.



Note 2  Adoption of new accounting standards



Stock option expense



The Corporation maintains several stock-based employee compensation plans, which are described in Note 24 in the Corporations 2002
Financial Annual Report. Prior to 2003, the Corporation accounted for those plans under the recognition and measurement provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. No
stock-based employee compensation cost for stock options is reflected in 2002 net income, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. Effective Jan. 1,
2003, the Corporation adopted the fair value recognition provisions of Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation, prospectively for all employee awards granted, modified, or
settled after Jan. 1, 2003. During the third quarter and first nine months of 2003, options totaling 73,012 and 1,261,051 shares, respectively, were granted with a weighted-average fair value of $7.27 and $6.31 per share, respectively. Stock option
expense was determined by using the Black-Scholes option pricing model and totaled less than $1 million after-tax in the third quarter of 2003 and approximately $1 million after-tax in the first nine months of 2003.



Pro forma cost of stock options



As required to be disclosed by SFAS No. 148, Accounting for Stock-Based Compensation -
Transition and Disclosure, an amendment of SFAS No. 123, the following table illustrates the pro forma effect on income and earnings per share if the fair value based method had been applied to all awards in each period. Awards under the
Corporations plans generally vest over periods of three or more years. Therefore, the cost related to stock-based employee compensation included in the determination of net income for 2003 is less than that which would have been recognized if
the fair value based method had been applied to all awards granted in prior periods.



10



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##### Table of Contents

NOTES TO FINANCIAL STATEMENTS (continued)

---



Note 2  Adoption of new accounting standadards (continued)



|                                                                                                                                                                     
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Pro forma income from continuing operations                                                                                                                          
|(dollar amount in millions)                                                                                                                                          
|                                                                                                                                                                     
|Income as reported                                                                                                                                                   
|Add: Stock-based employee compensation expense, using prospective method, included in reported net income, net of tax(b)                                             
|Deduct: Total stock-based employee compensation expense, using retroactive restatement method, determined under fair value based
method for all awards, net of tax(b)
|                                                                                                                                                                     
|Pro forma income                                                                                                                                                     
|                                                                                                                                                                     
|Earnings per share:                                                                                                                                                  
|Basic - as reported                                                                                                                                                  
|Basic - pro forma                                                                                                                                                    
|Diluted - as reported                                                                                                                                                
|Diluted - pro forma                                                                                                                                                  
|                                                                                                                                                                     

|(a) | Income as reported, before the cumulative effect of a change in accounting principle recorded in the first quarter of 2003.
|--- | ---------------------------------------------------------------------------------------------------------------------------

|(b) | Reported and pro forma results include compensation expense for restricted stock awards, net of tax, of $4 million, $4 million and $4 million for the third quarter of 2003,
second quarter of 2003, and third quarter of 2002, respectively, and $12 million and $12 million for the first nine months of 2003 and the first nine months of 2002, respectively. In addition, stock option expense net of tax totaled less than $1
million in the third quarter of 2003 and approximately $1 million in the first nine months of 2003.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The Black-Scholes option pricing model requires the use of subjective assumptions which can materially affect fair value estimates. Therefore, this model does not
necessarily provide a reliable single measure of the fair value of the Corporations stock options or Employee Stock Purchase Plan (ESPP) shares. The fair value of each stock option granted in 2003 and 2002 and ESPP share in 2002 was estimated
on the date of the grant using the following weighted-average assumptions for 2003 and 2002, respectively: (1) expected dividend yields of 2.2% and 1.7%; (2) risk-free interest rates of 2.9% and 3.4%; (3) expected volatility of 30% and 33%; and (4)
expected lives of options of 5.6 years and 5.7 years.



Cumulative effect of
a change in accounting principle



On Jan. 1, 2003, the Corporation adopted
SFAS No. 143, Accounting for Asset Retirement Obligations. SFAS No. 143 requires an entity to record a liability for an obligation associated with the retirement of an asset and for certain lease transaction obligations at the time the
liability is incurred by capitalizing the cost and depreciating it over the remaining useful life of that asset. The initial application of SFAS No. 143 was reported as a cumulative effect of a change in accounting principle in the income statement.
The Corporation recognized a one-time after-tax charge of $7 million, or $.01 per share (pre-tax cost of $11 million), in the first quarter of 2003, for the establishment of a liability for obligations to restore leased facilities, principally
outside the U.S., to their original condition at the end of the leases. The annual ongoing impact of this accounting standard, based on leases presently in effect, is an increase in occupancy expense of approximately $2 million pre-tax. The pro
forma effect on prior periods of the adoption of this statement would not have been material to either the income statement or balance sheet.



Guarantees



In November 2002, the FASB issued Interpretation No. 45 (FIN 45), Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. This
Interpretation requires that a guarantor recognize, at the inception of a guarantee, a liability for the fair value



11



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##### Table of Contents

NOTES TO FINANCIAL STATEMENTS (continued)

---



Note 2  Adoption of new accounting standards (continued)



of the obligation undertaken in issuing the guarantee. The initial recognition and measurement provisions of this Interpretation are applicable on a
prospective basis to guarantees issued or modified after Dec. 31, 2002. At Sept. 30, 2003, the Corporation had a liability of $6 million related to standby letters of credit issued or modified in 2003. For details of guarantees, see Other
guarantees and indemnities in the table on page 51, and the paragraphs under the subheading Other guarantees and indemnities on pages 51 and 52 as well as the Three Rivers Funding Corp. (TRFC) discussion on pages 52 and 53. The
information in the table and those paragraphs are incorporated by reference into these Notes to Financial Statements.



Note 3  Contingent and deferred consideration related to acquisitions



The Corporation completed one acquisition during the third quarter of 2003 with total
initial consideration of $11 million paid with the Corporations common stock. In addition, the Corporation made a deferred consideration cash payment of $12.5 million for Standish Mellon, discussed below, and a $13 million contingent
consideration cash payment for Hendersons private asset management business acquisition, for a total of $37 million paid in the third quarter and $44 million in the first nine months of 2003. The Corporation records contingent purchase
payments when amounts are resolved and become issuable. At Sept. 30, 2003, the Corporation is potentially obligated to pay contingent additional consideration of a minimum expected amount of approximately $25 million to a maximum expected amount of
approximately $65 million for all acquisitions, over the next four years, depending on the performance of the acquired companies. None of the contingent additional consideration was recorded as goodwill at Sept. 30, 2003. In addition, the
Corporation is obligated to pay deferred consideration in four equal annual installments of $12.5 million for a total of $50 million, for the Standish Mellon acquisition, the first of which was paid in the third quarter of 2003, leaving a remaining
obligation of $37.5 million. The $47 million net present value of this obligation was recorded as additional goodwill in the fourth quarter of 2002.



Note 4  Discontinued operations



As a result of several disposition transactions discussed below, and consistent with the announced strategy, the Corporation exited all lines of business serving two
defined major classes of customersretail consumer and small business/middle market customers. The financial results of these businesses are reported as discontinued operations. Following the dispositions, the Corporations remaining lines
of business serve two defined major classes of customershigh net worth individuals/families and large institutional customers.



Reflected as discontinued operations throughout the Corporations financial statements are the results of regional consumer banking, small business banking, and
certain middle market banking operations, which were sold to Citizens Financial Group, Inc. (Citizens) in December 2001; the Mellon Leasing Corporation businesses that served mid-sized corporations and vendors of small ticket equipment, and Mellon
Business Credit, which were sold in June 2001; Dreyfus Brokerage Services which served retail consumers nationally, which was sold in January 2002; the Corporations jumbo mortgage business which served consumers nationally, which was sold in
part to Citizens and the balance disposed of through portfolio sales and securitizations; and the disposition in December 2001 of loans and loan commitments to middle market companies not sold to Citizens.



Because the lines of business included in discontinued operations were discrete lines of
business serving classes of customers no longer served by the Corporations continuing lines of business, the disposition of these businesses has no material impact on continuing operations going forward.



12



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##### Table of Contents

NOTES TO FINANCIAL STATEMENTS (continued)

---



Note 4  Discontinued operations (continued)



In accordance with generally accepted accounting principles, earnings of the discontinued businesses are shown
separately in the income statement for all periods presented, where applicable. All information in this Quarterly Report on Form 10-Q reflects continuing operations, before the cumulative effect of a change in accounting principle recorded in the
first quarter of 2003, unless otherwise noted. During the third quarter of 2002, the Corporation completed the conversion of customer deposit accounts and loans to Citizens. The Corporation had been administering these accounts under a transitional
service agreement until Citizens was able to convert these accounts to its systems. This was the final step of a transition process that began following the December 2001 sale.



After-tax gains of $28 million were recorded in the third quarter of 2003 primarily relating to an income tax benefit of $20 million based
on the determination of the tax deductibility of a consolidated loss, relating to the sale of Dreyfus Brokerage Services, as well as the favorable resolution of estimates made at the time of the disposition of other discontinued businesses.
After-tax gains of $2 million were recorded in the second quarter of 2003 and $5 million in the third quarter of 2002, primarily resulting from favorable resolution of estimates made at the time of disposition of the discontinued businesses.



|                                                                                              
|----------------------------------------------------------------------------------------------
|Income from discontinued operations                                                           
|(in millions)                                                                                 
|                                                                                              
|Income from operations (net of applicable tax expense of $-, $-, $-, $- and $1) (a)           
|Net gain on disposals (net of applicable tax (credit)/ expense of $(16), $1, $3, $(14) and $6)
|                                                                                              
|Income from discontinued operations after-tax                                                 
|                                                                                              



|(a) | Revenue from discontinued operations totaled $- million, $- million and $9 million in the third quarter of 2003, the second quarter of 2003 and the third quarter of 2002,
respectively, and $- million and $55 million in the first nine months of 2003 and the first nine months of 2002, respectively.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



There were no derivatives used for risk management purposes for discontinued operations at Sept. 30, 2003, Dec. 31, 2002, and Sept. 30, 2002.



13



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##### Table of Contents

NOTES TO FINANCIAL STATEMENTS (continued)

---



Note 5  Securities



|                                                
|------------------------------------------------
|Securities                                      
|                                                
|(in millions)                                   
|                                                
|Securities available for sale:                  
|U.S. Treasury                                   
|U.S. agency mortgage-backed                     
|Other U.S. agency                               
|                                                
|Total U.S. Treasury and agency securities       
|Obligations of states and political subdivisions
|Other securities:                               
|Other mortgage backed                           
|Bonds, notes and preferred stock                
|Other                                           
|                                                
|Total other securities                          
|                                                
|Total securities available for sale             
|                                                
|Investment securities (held to maturity):       
|U.S. agency mortgage-backed                     
|Obligations of states and political subdivisions
|Other securities:                               
|Stock of Federal Reserve Bank                   
|Other mortgage backed                           
|                                                
|Total other securities                          
|                                                
|Total investment securities                     
|                                                



Note: Gross realized gains were $50
million and gross realized losses were less than $1 million on sales of securities available for sale in the first nine months of 2003. Gross realized gains were $59 million and gross realized losses were less than $1 million on sales of securities
available for sale in the full-year 2002. At Sept. 30, 2003, and Dec. 31, 2002, there were no issuers, other than the U.S. Government and its agencies, where the aggregate book value of securities exceeded 10% of shareholders equity.



Note 6  Goodwill and intangible
assets



Goodwill



The following table shows the changes to goodwill, by core business sector, for the nine
months ended Sept. 30, 2003. No charges for goodwill impairment were recognized in the first nine months of 2003.



|                         
|-------------------------
|Goodwill (in
millions)   
|                         
|Balance at Dec. 31, 2002 
|Acquired goodwill        
|Other (a)                
|                         
|Balance at Sept. 30, 2003
|                         



|(a) | Other changes in goodwill include foreign exchange effects on non-dollar denominated goodwill, purchase price adjustments and certain other reclassifications.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------



14



---

##### Table of Contents

NOTES TO FINANCIAL STATEMENTS (continued)

---



Note 6  Goodwill and intangible assets (continued)



Acquired intangible assets



|                                              
|----------------------------------------------
|Intangible assets - subject to amortization(a)
|(in millions)                                 
|                                              
|Customer base                                 
|Technology based                              
|Premium on deposits                           
|Other                                         
|                                              
|Total                                         
|                                              



|(a) | Includes the foreign exchange effects on non-dollar denominated intangible assets.
|--- | ----------------------------------------------------------------------------------



---

|Intangible assets - not subject to amortization |  | Sept. 30, 2003 |                      | Dec. 31, 2002
|----------------------------------------------- |  | -------------- | -------------------- | -------------
|(in millions)                                   |  |                | Gross CarryingAmount |              
|                                               
|Investment management contractual relationships |  | $              | 10                   |              
|                                               



Intangible assets are amortized over
their estimated useful lives. During the third quarter of 2003, the gross carrying amount of intangible assets subject to amortization increased by $3 million with a remaining weighted-average amortization period of 12 years. Amortization expense
totaled $5 million, $4 million and $3 million, in the third quarter of 2003, second quarter of 2003, and the third quarter of 2002, respectively, and $14 million and $10 million in the first nine months of 2003 and the first nine months of 2002,
respectively. Based upon the current level of intangible assets, the annual amortization expense for the years 2003 through 2008 is expected to be approximately $19 million, $18 million, $14 million, $14 million, $13 million and $11 million,
respectively. The after-tax impact of the annual amortization expense for the years 2003 through 2008 is expected to be approximately $15 million, $15 million, $12 million, $11 million, $11 million and $9 million, respectively.



Note 7  Other assets



|                                                                  
|------------------------------------------------------------------
|Other assets (in
millions)                                        
|                                                                  
|Corporate-owned life insurance                                    
|Receivables related to foreign exchange and derivative instruments
|Prepaid pension assets                                            
|Equity investments                                                
|Equity in joint ventures and other investments (a)                
|Other prepaid expenses                                            
|Receivables and other assets                                      
|                                                                  
|Total other assets                                                
|                                                                  



|(a) | Relates to operating joint ventures and other investments including ABN AMRO Mellon Global Securities Services B.V., CIBC Mellon Global Securities Services Company, CIBC Mellon
Trust Company, Russell/Mellon Analytical Services, Pareto Partners, Prime Advisors, Inc., various HR&IS joint ventures, and the Corporations investment in Banco Brascan.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



15



---

##### Table of Contents

NOTES TO FINANCIAL STATEMENTS (continued)

---



Note 8  Preferred stock



The Corporation has authorized 50 million shares of preferred stock, none of which was
issued at Sept. 30, 2003, Dec. 31, 2002, or Sept. 30, 2002.



Note 9  Foreign exchange revenue and securities trading revenue



The results of the Corporations foreign exchange revenue and securities trading revenue are presented, by class of financial instrument, in the following table. Trading revenue is presented on the income
statement as two separate items in noninterest revenue: foreign exchange revenue and securities trading revenue.



|                                                                 
|-----------------------------------------------------------------
|Foreign exchange revenue and securities trading revenue          
|(in millions)                                                    
|                                                                 
|Foreign exchange contracts                                       
|Other derivative contracts                                       
|Debt instruments                                                 
|                                                                 
|Total foreign exchange revenue and securities trading revenue (a)
|                                                                 



|(a) | The Corporation recorded an unrealized loss of $1 million at Sept. 30, 2003, $8 million at June 30, 2003, and $4 million at Sept. 30, 2002, related to securities held in the
trading portfolio.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Note 10
 Net interest revenue



|                    
|--------------------
|Net interest revenue
|(in millions)       
|                    
|Interest revenue    
|                    
|                    
|                    
|                    
|                    
|                    
|                    
|                    
|                    
|                    
|Interest expense    
|                    
|                    
|                    
|                    
|                    
|                    
|                    
|                    
|                    
|                    



|(a) | Interest revenue earned for services provided to the Department of the Treasury in excess of the value of compensating balances during the period.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------



16



---

##### Table of Contents

NOTES TO FINANCIAL STATEMENTS (continued)

---



Note 11  Business sectors



The Corporations business sectors reflect its management structure, the
characteristics of its products and services, and the classes of customers to which those products and services are delivered. Lines of business that offer similar or related products and services to common or similar customer decision makers have
been aggregated into six core business sectors: Institutional Asset Management, Mutual Funds, Private Wealth Management, Asset Servicing, Human Resources & Investor Solutions (HR&IS) and Treasury Services. Institutional Asset Management is
comprised of Mellon Institutional Asset Management (MIAM), which consists of a number of asset management companies offering a broad range of equity, fixed income, hedge and liquidity management products; and Mellon Global Investments (MGI), which
distributes investment management products internationally. Mutual Funds consists of all the activities associated with the Dreyfus/Founders complex of mutual funds. Private Wealth Management provides investment management, wealth management, and
comprehensive banking services for high net worth individuals, families, family offices, charitable gift programs, endowments, foundations, professionals and entrepreneurs. Asset Servicing includes institutional trust and custody and related
services such as securities lending, investment management backoffice outsourcing, performance measurement, benefits disbursements, transition management, commission recapture, transfer agency, fund accounting and administration, web-based
investment management software and foreign exchange and derivative products. HR&IS provides consulting, outsourcing and administrative services to design, build and operate end-to-end solutions in human resources and shareholder services that
leverage scalable operations and technology. Treasury Services includes global cash management, credit products for large corporations, insurance premium financing, commercial real estate lending, corporate finance, securities underwriting and
trading and the activities of Mellon 1stBusiness Bank, National Association, in California.



For details of business sectors, see the tables, through Average Tier I preferred
equity on pages 35 through 37, and first two paragraphs on page 38, as well as the Other Activity section on pages 46 and 47. The tables and information in those paragraphs are incorporated by reference into these Notes to Financial
Statements.



17



---

##### Table of Contents

NOTES TO FINANCIAL STATEMENTS (continued)

---



Note 12  Accumulated unrealized gain (loss), net of tax



|                                                               
|---------------------------------------------------------------
|Accumulated unrealized gain (loss), net of tax                 
|(in millions)                                                  
|                                                               
|Foreign currency translation adjustment, net of tax            
|Beginning balance                                              
|Period change                                                  
|                                                               
|Ending balance                                                 
|                                                               
|                                                               
|Minimum pension liability, net of tax                          
|Beginning balance                                              
|Period change                                                  
|                                                               
|Ending balance                                                 
|                                                               
|                                                               
|Unrealized gain (loss) on assets available for sale, net of tax
|Beginning balance                                              
|Period change                                                  
|                                                               
|Ending balance                                                 
|                                                               
|                                                               
|Unrealized gain (loss) on cash flow hedges, net of tax         
|Beginning balance                                              
|Period change                                                  
|                                                               
|Ending balance                                                 
|                                                               
|                                                               
|Total accumulated unrealized gain (loss), net of tax           
|Beginning balance                                              
|Period change                                                  
|                                                               
|Ending balance                                                 
|                                                               



Note
13  Supplemental information to the Consolidated Statement of Cash Flows



Noncash investing and financing transactions that, appropriately, are not reflected in the Consolidated Statement of Cash Flows are listed below.



|                                            
|--------------------------------------------
|Noncash investing and financing transactions
|                                            
|(in millions)                               
|                                            
|Net transfers to real estate acquired       
|Purchase acquisitions (a):                  
|Fair value of noncash assets acquired       
|Common stock issued                         
|Liabilities assumed                         
|                                            
|Net cash disbursed                          
|                                            



|(a) | For 2003, purchase acquisitions primarily relate to DirectAdvice, the remaining 49% interest in Buck & Willis Healthcare Limited and The Arden Group, as well as the
additional consideration for Hendersons Private Asset Management Business acquisition. For 2002, purchase acquisitions primarily relate to the Unifi Network, the remaining 5% interest in Newton Management Limited, HBV Capital Management, and
Hendersons Private Asset Management Business.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



18



---

##### Table of Contents

NOTES TO FINANCIAL STATEMENTS (continued)

---



Note 14  Legal proceedings



A discussion of legal actions and proceedings against the Corporation and its subsidiaries
is presented in Part II, Item 1, of this Form 10-Q.



|Items 2. and 3. |  | - Managements Discussion and Analysis of Financial Condition and Results of Operations; Quantitative and       Qualitative Disclosures About
Market Risk
|--------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------



Summary of financial results

---



Third quarter of
2003 compared with the second quarter of 2003 and the third quarter of 2002



Consolidated net income in the third quarter of 2003 totaled $181 million, or $.42 per share, compared with $175 million, or $.41 per share, in the second quarter of 2003 and $191 million, or $.44 per share, in the third quarter of 2002.



Third quarter 2003 income from continuing operations totaled $153 million, or
$.36 per share. This total includes charges in the Human Resources & Investor Solutions sector (formerly the Human Resources Services sector) of $51 million pretax, which reduced third quarter 2003 earnings from continuing operations by $.07 per
share. This compares with income from continuing operations of $173 million, or $.40 per share, in the second quarter of 2003 and $186 million, or $.43 per share, in the third quarter of 2002. Continuing operations returned 17.2% on equity in the
third quarter of 2003 compared with 19.5% in the second quarter of 2003, and 22.6% in the third quarter of 2002.



The Corporation previously announced that plans were underway to generate expense reductions associated with the businesses that comprise Human Resources & Investor
Solutions. During the third quarter, these plans were finalized and are now in the process of being implemented. The third quarter included charges of $51 million associated with severance ($30 million), software and fixed asset write-downs ($18
million) and other expenses ($3 million). These actions are expected to generate annualized expense savings of $80 million to $85 million by the fourth quarter of 2004. These initiatives have enabled the Corporation to approach this growth market
with a streamlined organizational structure that provides end-to-end solutions for retirement, employee benefits, shareholder services and HR outsourcing.



In October 2003, the Corporation increased its quarterly common stock dividend by 14% to $.16 per common share. This cash dividend is payable on Friday, Nov. 14, 2003, to
shareholders of record at the close of business on Friday, Oct. 31, 2003.



Year-to-date 2003 compared with year-to-date 2002



Consolidated net income totaled $517 million, or $1.20 per share, in the first nine months of 2003, and included a charge for the cumulative effect of a change in accounting principle of $7 million after-tax, or $.01 per share. This charge
is discussed further on page 11. This compared with consolidated net income of $516 million, or $1.17 per share, in the first nine months of 2002, which included a provision for credit losses of $160 million pre-tax recorded in large part for credit
exposure related to customers that had been associated with allegations of accounting irregularities.



19



---

##### Table of Contents

Summary of financial results (continued)

---



Income from continuing operations before the cumulative effect of a change in accounting principle totaled $493
million, or $1.14 per share, in the first nine months of 2003. This compares with $503 million, or $1.14 per share, in the first nine months of 2002. Continuing operations, before the cumulative effect of a change in accounting principle, returned
18.8% on equity in the first nine months of 2003, compared with 20.0% in the first nine months of 2002.



Discontinued operations



All
information in this Quarterly Report on Form 10-Q is reported on a continuing operations basis, before the cumulative effect of a change in accounting principle recorded in the first quarter of 2003, unless otherwise noted. See Note 4 of the Notes
to Financial Statements for a discussion of discontinued operations.



Critical accounting policies

---



Note 1 of the Corporations 2002 Financial Annual Report includes a summary of the Corporations significant accounting policies. Certain of these policies are considered to be critical to the presentation
of the Corporations financial results, since they require management to make complex and subjective estimates and assumptions relating to amounts which are inherently uncertain. These policies, which have been discussed with the Audit
Committee of the Board of Directors, include accounting policies related to establishing the reserve for credit exposure, valuing venture capital investments and accounting for pensions. For a discussion of the Corporations accounting policies
relating to the reserve for credit exposure, see pages 54 and 55 of the 2002 Financial Annual Report. For a discussion of the Corporations accounting policies relating to valuing venture capital investments, see pages 33, 34 and 70 of the 2002
Financial Annual Report. For a discussion of the net periodic benefit credit for pensions and its sensitivity to changes in assumptions, see page 17 of the 2002 Financial Annual Report. For a discussion of the accounting policies relating to
pensions, see pages 99 and 100 of the 2002 Financial Annual Report.



20



---

##### Table of Contents

Noninterest revenue

---



|                                                                                      
|--------------------------------------------------------------------------------------
|Noninterest revenue                                                                   
|                                                                                      
|(dollar amounts in millions, unless otherwise noted)                                  
|                                                                                      
|Trust and investment fee revenue (a):                                                 
|Investment management                                                                 
|Human resources & investor solutions                                                  
|Institutional trust and custody                                                       
|Securities lending revenue                                                            
|                                                                                      
|Total trust and investment fee revenue                                                
|                                                                                      
|Cash management revenue                                                               
|Foreign exchange revenue                                                              
|Securities trading revenue                                                            
|Financing-related revenue                                                             
|Equity investment revenue                                                             
|Other revenue                                                                         
|                                                                                      
|Total fee and other revenue                                                           
|Gains on sales of securities                                                          
|                                                                                      
|Total noninterest revenue                                                             
|                                                                                      
|                                                                                      
|Fee revenue as a percentage of fee and net interest revenue (FTE)                     
|Trust and investment fee revenue as a percentage of fee and net interest revenue (FTE)
|Market value of assets under management at period end (in billions)                   
|Market value of assets under administration or custody at period end (in billions)    
|                                                                                      
|S&P 500 Index - period end                                                            
|S&P 500 Index - daily average                                                         
|                                                                                      

|(a) | Amounts do not necessarily agree with those presented in Business Sectors on pages 35 through 37, which include revenue transferred between sectors under revenue transfer
agreements. Additionally, sector amounts are reported on a fully taxable equivalent (FTE) basis.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Note: For analytical purposes, the
term fee revenue, as utilized throughout this Quarterly Report on Form 10-Q, is defined as total noninterest revenue less gains on the sales of securities.



Fee revenue



Fee revenue of $906 million in the third quarter of 2003 increased $53 million, or 6% (unannualized), from the second quarter of 2003, primarily due to an increase in
cash management, investment management, and foreign exchange revenue as well as higher equity investment revenue. The increase in cash management revenue primarily reflects a classification change from net interest revenue to fee revenue, as
discussed further under the applicable categories on the following pages. Excluding the impact of this classification change, fee revenue increased 4% compared with the second quarter of 2003. Trust and investment fee revenue decreased 1% as a 4%
increase in investment management fees from improved equity markets and net new business was more than offset by lower HR&IS fee revenue, primarily due to lower seasonal out-of-pocket expense reimbursements, and a seasonal decline in securities
lending revenue.



Fee revenue increased $50 million, or 6%, in the third
quarter of 2003 from $856 million in the third quarter of 2002, primarily due to higher cash management fee revenue and equity investment revenue. Trust and



21



---

##### Table of Contents

Noninterest revenue (continued)

---



investment fee revenue decreased $3 million, primarily due to an improvement in the equity markets which was more than offset by the Dec. 31, 2002 formation
of the global custody joint venture ABN AMRO Mellon Global Securities Services B.V., and lower HR&IS revenue. The formation of this joint venture, the results of which are accounted for under the equity method of accounting, resulted in an $11
million reduction in fee revenue in the third quarter 2003 compared with the third quarter 2002.



Investment management fee revenue



Investment management fee revenue increased $14 million, or 4% (unannualized), in the third quarter of 2003 compared with the second quarter 2003, reflecting higher mutual fund, institutional and private client management fees. Investment
management fee revenue increased $8 million, or 3%, compared with the third quarter of 2002, primarily resulting from higher institutional and private client management fees, offset in part by lower mutual fund management fees. Of the $14 million
increase compared with the second quarter of 2003, $7 million is from the estimated impact of improved equity markets, and the remaining increase is from net new business and the impact of one additional day in the quarter. Of the $8 million
increase compared with the third quarter of 2002, $14 million is from the estimated impact of improved equity markets and $2 million is from higher performance fees, partially offset by net outflows in money market mutual funds. Performance fees are
earned by investment managers as the investment performance of their products exceeds various benchmarks. Performance fees totaled $8 million in the third quarter of 2003 compared with $8 million in the second quarter of 2003 and $6 million in the
third quarter of 2002, and are included in institutional investment management fees.



The Corporation estimates that a sustained (one-year) 100-point change in the Standard & Poors (S&P) 500 Index, when applied to the Corporations mix of assets under management, would result in a change of approximately
$40 million to $50 million annually in investment management fees. For any given quarterly reporting period, the actual impact may vary from what might be estimated using that sensitivity, since Institutional Asset Management records investment
management revenue based on quarter-end asset levels, Mutual Funds based on daily levels and Private Wealth Management based on prior months levels. The actual impact will also vary with changes in asset mix, the timing of flows, the
relationship of other benchmarks used versus the S&P 500 Index and other factors. The relevant changes in the S&P 500 Index for the second quarter of 2003 compared with prior quarters is as follows.



|             
|-------------
|S&P 500 Index
|             
|             
|             
|Period-end   
|Daily average
|             



Mutual fund management fees are based
upon the daily average net assets of each fund. The average net assets of proprietary mutual funds managed in the third quarter of 2003 were $176 billion, an increase of $1 billion, or less than 1%, compared with the second quarter of 2003.
Proprietary equity funds averaged $40 billion in the third quarter of 2003, an increase of $3 billion, or 10%, compared with $37 billion in the second quarter of 2003. As shown in the following table, total managed mutual fund fees increased $6
million in the third quarter of 2003 compared with the second quarter of 2003 primarily due to a $6 million increase in proprietary equity mutual funds.



22



---

##### Table of Contents

Noninterest revenue (continued)

---



The average net assets of proprietary mutual funds managed in the third quarter of 2003 of $176 billion decreased $17
billion, or 9%, from $193 billion in the third quarter of 2002, primarily reflecting a lower average level of money market funds. Average proprietary equity funds increased $2 billion, or 5%, to $40 billion in the third quarter of 2003, from $38
billion in the third quarter of 2002. Total managed mutual fund fees decreased $8 million in the third quarter of 2003 compared with the third quarter of 2002 primarily due to an $11 million decrease in fees from proprietary money market funds.



During the third quarter of 2003, second quarter of 2003, and third quarter of
2002, respectively, the Corporation generated, on an annualized basis: 61, 60 and 60 basis points, respectively, on average proprietary equity mutual funds; 24, 24 and 25 basis points, respectively, on average proprietary money market funds; and 58,
57 and 57 basis points, respectively, on average proprietary bond and fixed income funds. In the third quarter of 2003, total average proprietary managed mutual funds generated 38 basis points, on an annualized basis, compared with 37 basis points
in the second quarter of 2003, and 36 basis points in the third quarter of 2002.



|                                       
|---------------------------------------
|Investment management fee revenue      
|(in millions)                          
|                                       
|Managed mutual funds (a):              
|Equity funds                           
|Money market funds                     
|Bond and fixed-income funds            
|Nonproprietary                         
|                                       
|Total managed mutual funds             
|Institutional                          
|Private clients                        
|                                       
|Total investment management fee revenue
|                                       

|(a) | Net of mutual fund fees waived and fund expense reimbursements of $10 million, $10 million and $9 million at Sept. 30, 2003, June 30, 2003, and Sept. 30, 2002, respectively, and
$30 million and $29 million for the nine months ended Sept. 30, 2003, and Sept. 30, 2002, respectively.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



23



---

##### Table of Contents

Noninterest revenue (continued)

---



As shown in the following table, the market value of assets under management was $625 billion at Sept. 30, 2003, a
$13 billion, or 2% (unannualized), increase from $612 billion at June 30, 2003, and a $63 billion, or 11%, increase from $562 billion at Sept. 30, 2002. The $625 billion of assets managed were comprised as follows: 34% equities; 27% money market;
21% fixed income; 10% securities lending cash collateral; and 8% overlay and global fixed-income products.



|                                                     
|-----------------------------------------------------
|Market value of assets under management at period end
|(in billions)                                        
|                                                     
|Mutual funds managed:                                
|Equity funds                                         
|Money market funds                                   
|Bond and fixed-income funds                          
|Nonproprietary                                       
|                                                     
|Total mutual funds managed                           
|Institutional (b)                                    
|Private clients                                      
|                                                     
|Total market value of assets under management        
|                                                     
|                                                     
|S&P 500 Index - period end                           
|S&P 500 Index - daily average                        
|                                                     

|(a) | At Sept. 30, 2003, the combined market values of $24 billion of nonproprietary mutual funds and $375 billion of institutional assets managed, by asset type, were as follows: $122
billion money market, (which includes securities lending assets of $64 billion), $115 billion equities, $84 billion fixed income, $51 billion in overlay and global fixed-income products, and $27 billion balanced, for a total of $399 billion.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | Includes assets managed at Pareto Partners of $37 billion at Sept. 30, 2003, $35 billion at June 30, 2003, $30 billion at March 31, 2003, $32 billion at Dec. 31, 2002, and $32
billion at Sept. 30, 2002. The Corporation has a 30% equity interest in Pareto Partners, which is accounted for under the equity method of accounting.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                                                              
|----------------------------------------------------------------------------------------------
|Changes in market value of assets under management for third quarter 2003 - by Business Sector
|(in billions)                                                                                 
|                                                                                              
|Market value of assets under management at June 30, 2003                                      
|Net inflows (outflows):                                                                       
|Long-term                                                                                     
|Money market                                                                                  
|                                                                                              
|Total net inflows (outflows)                                                                  
|Net market appreciation                                                                       
|Acquisitions                                                                                  
|                                                                                              
|Market value of assets under management at Sept. 30, 2003                                     
|                                                                                              

|(a) | Represents securities lending assets. Revenue earned on these assets is reported in Securities lending revenue on the income statement.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------



24



---

##### Table of Contents

Noninterest revenue (continued)

---



|                                                                                        
|----------------------------------------------------------------------------------------
|Changes in market value of assets under management from Sept. 30, 2002 to Sept. 30, 2003
|(in billions)                                                                           
|                                                                                        
|Market value of assets under management at Sept. 30, 2002                               
|Net inflows (outflows):                                                                 
|Long-term                                                                               
|Money market                                                                            
|                                                                                        
|Total net inflows (outflows)                                                            
|Net market appreciation                                                                 
|Acquisitions/transfers between sectors                                                  
|                                                                                        
|Market value of assets under management at Sept. 30, 2003                               
|                                                                                        

|(a) | Represents securities lending assets. Revenue earned on these assets is reported in Securities lending revenue on the income statement.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------



Institutional trust and custody revenue



Institutional trust and custody fees are dependent on a number of factors including the
level of assets administered and under custody, the volume of transactions in the accounts, and the types and frequency of ancillary services provided to the customers such as performance analytics. Institutional trust and custody revenue decreased
$2 million, or 2% (unannualized), in the third quarter of 2003 compared to the second quarter of 2003, and $8 million, or 8%, compared with the third quarter of 2002. The decrease compared with the second quarter of 2003 was primarily due to lower
equity income from joint ventures as a result of a seasonal decrease in securities lending revenue in the joint ventures. The decrease compared with the third quarter 2002 was principally due to the formation of the ABN AMRO Mellon global custody
joint venture on Dec. 31, 2002. Excluding the impact of the joint venture, institutional trust and custody fees were essentially flat compared with the third quarter of 2002, reflecting the impact of net new business offset by a slowdown in spending
for professional and license fees for software products offered by Eagle Investment Systems.



As shown in the following table, assets under administration or custody totaled $2.611 trillion at Sept. 30, 2003, an increase of $101 billion, or 4% (unannualized), compared with $2.510 trillion at June 30, 2003 and
$402 billion, or 18%, compared with $2.209 trillion at Sept. 30, 2002. The increase compared with June 30, 2003 resulted from market appreciation and the positive effect of favorable foreign exchange rates.



25



---

##### Table of Contents

Noninterest revenue (continued)

---



|                                                                    
|--------------------------------------------------------------------
|Market value of assets under administration or custody at period end
|(in billions)                                                       
|                                                                    
|Market value of assets under administration or custody (a)(b)       
|                                                                    
|                                                                    
|S&P 500 Index - period end                                          
|S&P 500 - daily average                                             
|                                                                    

|(a) | Includes $390 billion of assets at Sept. 30, 2003; $382 billion at June 30, 2003; $327 billion at March 31, 2003; $322 billion at Dec. 31, 2002; and $315 billion at Sept. 30,
2002, under administration or custody by CIBC Mellon Global Securities Services, a joint venture between the Corporation and the Canadian Imperial Bank of Commerce. The market rate at the close of business was $.7409, $.7373, $.6790, $.6339, and
$.6301 at Sept. 30, 2003, June 30, 2003, March 31, 2003, Dec. 31, 2002, and Sept. 30, 2002, respectively, for one Canadian dollar.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | Assets under administration or custody by ABN AMRO Mellon Global Securities Services B.V., a joint venture of the Corporation and ABN AMRO, included in the table above, were $272
billion at Sept. 30, 2003, $262 billion at June 30, 2003, $218 billion at March 31, 2003, and $221 billion at Dec. 31, 2002. Assets under administration or custody by ABN AMRO Mellon, a previous strategic alliance of the Corporation and ABN AMRO,
included in the table above, were $157 billion at Sept. 30, 2002. The market rate at the close of business was $1.1669, $1.1496, $1.0911, $1.0462, and $.9884 at Sept. 30, 2003, June 30, 2003, March 31, 2003, Dec. 31, 2002, and Sept. 30, 2002,
respectively, for one Euro.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Securities lending revenue



Securities lending revenue totaled $16 million in the third quarter of
2003 compared with $22 million in the second quarter of 2003 and $16 million in the third quarter of 2002. The decrease compared with the second quarter of 2003 primarily resulted from lower international equity lending revenue due to seasonality.
This was partially offset by higher domestic volumes. The average level of securities on loan totaled $66 billion in the third quarter of 2003 compared with $67 billion in the second quarter of 2003 and $56 billion in the third quarter of 2002.



Human resources & investor solutions fee revenue



HR&IS fee revenue generated from consulting, outsourcing and investor services totaled
$229 million in the third quarter of 2003, a decrease of $16 million, or 7% (unannualized), from the second quarter of 2003, primarily due to an $8 million reduction in seasonal out-of-pocket expense reimbursements from clients, as well as lower
revenues from investor services. HR&IS fee revenue decreased $3 million, or 1%, from the third quarter of 2002. This decrease resulted from lower outsourcing revenues, reflecting the loss of revenues from former Unifi Network customers that had
indicated their decision to terminate business prior to the closing of the acquisition in 2002.



Cash management revenue



Cash
management fee revenue of $98 million in the third quarter of 2003 increased $24 million compared with the second quarter of 2003, and increased $26 million compared with the third quarter of 2002. These increases primarily resulted from a change in
the manner in which the Corporation was paid for cash management services by the Department of the Treasury, a major cash management customer, beginning in mid-July 2003. This revenue, which totaled $19 million in the third quarter of 2003, was
previously recorded as net interest revenue because it was paid via compensating balance earnings. Excluding the impact of this classification change, cash management fee revenue increased 6% compared with the second



26



---

##### Table of Contents

Noninterest revenue (continued)

---



quarter of 2003 and 11% compared with the third quarter of 2002. Cash management revenue in the third quarter 2003 compared with the third quarter 2002 was
also favorably impacted by higher volumes of electronic services.



Foreign
exchange revenue



Foreign exchange revenue totaled $42 million in the
third quarter of 2003, a $14 million, or 53% (unannualized), increase compared with the second quarter of 2003 due to higher levels of client volumes and higher volatility. In addition, the second quarter of 2003 was impacted by costs associated
with hedging specific customer driven option contracts during a period of market volatility. Foreign exchange revenue decreased $2 million, or 4%, compared with the third quarter of 2002.



Securities trading revenue



Securities trading revenue totaled $13 million in the third quarter of 2003, a $9 million increase compared with the second quarter of 2003, and a $1 million decrease
compared with the third quarter of 2002. The third quarter of 2003 compared with the second quarter of 2003 reflects improved trading performance and a gain of $3 million resulting from the fair market value adjustment of credit default swaps.



Financing-related revenue



Financing-related revenue primarily includes loan commitment fees; letters of credit and
acceptance fees; gains or losses on securitizations, loan sales and lease residuals; and returns from corporate-owned life insurance. Financing-related revenue totaled $30 million in the third quarter of 2003, a decrease of $8 million, or 23%
(unannualized), compared with the second quarter of 2003, and $4 million, or 13% compared with the third quarter 2002. The decrease compared with the second quarter of 2003 primarily reflects write-downs on lease residuals and lower revenue on
corporate-owned life insurance.



Equity investment revenue



Equity investment revenue, which includes realized and unrealized gains and losses on
venture capital and non-venture capital investments, totaled $3 million in the third quarter of 2003 compared with a loss of $18 million in the second quarter of 2003 and a loss of $23 million in the third quarter of 2002. Revenue from non-venture
capital investments includes equity income from certain investments accounted for under the equity method of accounting and gains (losses) from other equity investments. The following table shows the components of equity investment revenue.



|                                                                      
|----------------------------------------------------------------------
|Equity investment revenue - gain (loss)                               
|(in millions)                                                         
|                                                                      
|Venture capital activity - realized and unrealized gain (loss):       
|Private and publicly held direct investments                          
|Third party indirect funds                                            
|                                                                      
|Total venture capital activity                                        
|                                                                      
|Equity income (loss) and gains on the sale of other equity investments
|                                                                      
|Total equity investment revenue                                       
|                                                                      



27



---

##### Table of Contents

Noninterest revenue (continued)

---



See pages 33 and 34 of the 2002 Financial Annual Report for a description of the risk rating categories and for a
further discussion of the factors used in the valuation process of the venture capital investments. The Corporations direct venture capital investments are categorized as either growth and buyout, technology, or
financial and information services. Net gains from venture capital activities totaled $2 million in the third quarter of 2003 primarily resulting from realized gains on the sale of direct investments in the technology sector. Results
from venture capital activity were a net loss of $13 million in the second quarter of 2003 and a net loss of $28 million in the third quarter of 2002. The $13 million net loss in the second quarter of 2003 resulted from negative fair value
adjustments and management fees of $13 million for third party indirect funds and $5 million from privately held direct investments, partially offset by realized gains of $5 million from third party indirect funds. The negative fair value
adjustments of the third party indirect funds were recorded across all sectors, while the negative valuation adjustments of direct investments primarily related to a telecommunication company in the technology sector. The third quarter 2002 net loss
of $28 million primarily resulted from valuation adjustments of companies in the technology sector that were risk rated in the below expectations and declining categories, as well as additional negative valuation adjustments
to reflect prices being realized in mergers and acquisitions of technology and telecommunications companies. At both Sept. 30, 2003 and June 30, 2003, approximately 60% of the direct investment portfolio was risk rated as superior or
meets expectations, the two best risk ratings. However, continued weakness in the economy and deterioration in the equity markets could result in losses in the future. See the table on page 48 of this Report for the third quarter 2003
and life-to-date activity of the Corporations venture capital investment portfolio.



Equity income from non-venture capital investments accounted for under the equity method of accounting, and gains (losses) from other equity investments totaled a gain of $1 million in the third quarter of 2003
compared with a loss of $5 million in the second quarter of 2003 and a gain of $5 million in the third quarter of 2002.



Gains on sales of securities



The gains on the sales of securities of $18 million in the third quarter of 2003 resulted from the sale of mortgage-backed securities. At Sept. 30, 2003, net unrealized
gains remaining in the Corporations available for sale portfolio were $90 million, compared with $201 million at June 30, 2003, primarily due to higher yields in the mortgage-backed securities market.



Year-to-date 2003 compared with year-to-date 2002



Fee revenue for the first nine months of 2003 totaled $2.600 billion, a $122 million, or 4%,
decrease compared with the first nine months of 2002, primarily due to a $147 million, or 7%, decrease in trust and investment fee revenue, partially offset by a $36 million increase in cash management revenue. The decrease in trust and investment
fee revenue primarily resulted from: a $65 million decrease in investment management fee revenue, due in part to a lower average level of proprietary mutual fund assets under management; a $51 million decrease in HR&IS revenue reflecting the
loss of revenues from former Unifi Network customers that had indicated their decision to terminate business prior to the closing of the acquisition in 2002, lower volumes due to fewer clients and benefit plan participants, and a slowdown in
discretionary spending by large corporate customers; and the Dec. 31, 2002, formation of the global custody joint venture ABN AMRO Mellon Global Securities Services B.V., which resulted in a $25 million reduction in fee revenue in the first nine
months of 2003 compared with the first nine months of 2002. The



28



---

##### Table of Contents

Noninterest revenue (continued)

---



increase in cash management revenue primarily resulted from the change in the manner in which the Corporation was paid for cash management services by the
Department of the Treasury, beginning in mid-July 2003, as well as higher volumes of electronic services.



Gross joint venture fee revenue (supplemental information)



The Corporation accounts for its interests in joint ventures under the equity method of accounting, with its share of the net results recorded primarily as trust and investment fee revenue. The Corporations
portions of gross joint venture fee revenue and expenses are not included in the Corporations reported fee revenue and operating expense. The following table presents the components of gross joint venture fee revenue for informational purposes
to show the trend of revenue growth in the Corporations joint ventures. The decrease in trust and investment gross joint venture fee revenue in the third quarter of 2003 compared with the second quarter of 2003 primarily resulted from the
seasonal decrease in securities lending revenues in the joint ventures.



|                                                    
|----------------------------------------------------
|Gross joint venture fee revenue                     
|(in millions)                                       
|                                                    
|Trust and investment gross joint venture fee revenue
|Foreign exchange gross joint venture fee revenue    
|                                                    
|Total gross joint venture fee revenue               
|                                                    

|(a) | Includes results of the joint venture with ABN AMRO, which was formed on Dec. 31, 2002, and which is accounted for under the equity method of accounting beginning in 2003.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



29



---

##### Table of Contents

Net interest revenue

---



Net interest revenue on a fully taxable equivalent basis totaled $138 million in the third
quarter of 2003, a decrease of $30 million compared with $168 million in the second quarter of 2003 and $21 million compared with $159 million in the third quarter of 2002. The net interest margin was 2.48% in the third quarter of 2003, down 46
basis points compared with 2.94% in the second quarter of 2003 and down 24 basis points compared with 2.72% in the third quarter of 2002. The decreases in net interest revenue primarily resulted from the combination of the change in the manner in
which the Corporation was paid for cash management services by the Department of the Treasury beginning in mid-July 2003, as well as the continued reduction in large corporate loans and the sales and prepayment of higher coupon mortgage-backed
securities as a result of the lower interest rate environment. The revenue from the Department of the Treasury, which totaled $19 million in the third quarter of 2003, is now recorded as cash management fee revenue. Net interest revenue also
decreased due to the impact of the Dec. 31, 2002, formation of the ABN AMRO Mellon global custody joint venture, which resulted in a $4 million reduction in net interest revenue compared with the third quarter of 2002. Excluding the revenue earned
from the Department of the Treasury and the impact of ABN AMRO Mellon, net interest revenue and margins would have been $138 million and 2.49%, $149 million and 2.61%, and $151 million and 2.59% for the quarters ended Sept. 30, 2003, June 30, 2003
and Sept. 30, 2002, respectively.



As a result of the Corporations stated
intention to reduce credit availability to the corporate and institutional marketplace, it is expected that net interest revenue will be negatively impacted in the fourth quarter of 2003. In addition, noninterest revenue could potentially be
negatively impacted if customers transfer business to other providers. It is not possible to quantify the impact on either net interest revenue or noninterest revenue.



Year-to-date 2003 compared with year-to-date 2002



Net interest revenue and the net interest margin on a fully taxable equivalent basis were $466 million and 2.72%, respectively, in the first
nine months of 2003, compared with $473 million and 2.79%, respectively, in the first nine months of 2002. The $7 million, or 2%, decrease in net interest revenue primarily resulted from the third quarter 2003 change in the manner in which the
Department of the Treasury is paying for cash management services, and a $13 million reduction due to the formation of the ABN AMRO joint venture, partially offset by a higher level of interest-earning assets. Excluding the revenue earned from the
Department of the Treasury and the impact of ABN AMRO Mellon, net interest revenue and margins would have been $445 million and 2.60% and $445 million and 2.62% for the nine months ended Sept. 30, 2003 and Sept. 30, 2002, respectively.



30



---

##### Table of Contents

Net interest revenue (continued)

---



CONSOLIDATED BALANCE SHEET  AVERAGE BALANCES AND INTEREST YIELDS/RATES

---

|                                                                   |  | Quarter ended  |       
|------------------------------------------------------------------ |  | -------------- | ------
|                                                                   |  | Sept. 30, 2003 |       
|(dollar amounts in millions)                                       |  | Averagebalance |       
|                                                                  
|Assets                                                             |  |                |       
|                                                                   |  |                |       
|Interest-earning assets:                                           |  |                |       
|Interest-bearing deposits with banks (primarily foreign)           |  | $              | 2,333 
|Federal funds sold and securities under resale agreements          |  |                | 578   
|Other money market investments                                     |  |                | 155   
|Trading account securities                                         |  |                | 693   
|Securities:                                                        |  |                |       
|U.S. Treasury and agency securities (a)                            |  |                | 9,778 
|Obligations of states and political subdivisions (a)               |  |                | 566   
|Other (a)                                                          |  |                | 537   
|Loans, net of unearned discount                                    |  |                | 7,425 
|                                                                   |  |                |       
|Total interest-earning assets (b)                                  |  |                | 22,065
|Cash and due from banks                                            |  |                | 2,319 
|Premises and equipment                                             |  |                | 694   
|Other assets (a)                                                   |  |                | 8,483 
|Reserve for loan losses                                            |  |                | (113  
|                                                                  
|Total assets                                                       |  | $              | 33,448
|                                                                  
|Liabilities and shareholders equity                               |  |                |       
|                                                                   |  |                |       
|Interest-bearing liabilities:                                      |  |                |       
|Deposits in domestic offices:                                      |  |                |       
|Demand, money market and other savings accounts                    |  | $              | 8,592 
|Savings certificates                                               |  |                | 232   
|Other time deposits                                                |  |                | 326   
|Deposits in foreign offices                                        |  |                | 4,066 
|                                                                   |  |                |       
|Total interest-bearing deposits                                    |  |                | 13,216
|Federal funds purchased and securities under repurchase agreements |  |                | 1,679 
|U.S. Treasury tax and loan demand notes                            |  |                | 311   
|Term federal funds purchased                                       |  |                | 181   
|Commercial paper                                                   |  |                | 18    
|Other funds borrowed                                               |  |                | 620   
|Notes and debentures (with original maturities over one year)      |  |                | 4,234 
|Trust-preferred securities                                         |  |                | 999   
|                                                                   |  |                |       
|Total interest-bearing liabilities                                 |  |                | 21,258
|Total noninterest-bearing deposits                                 |  |                | 5,969 
|Other liabilities (a)                                              |  |                | 2,703 
|                                                                  
|Total liabilities                                                  |  |                | 29,930
|Shareholders equity (a)                                           |  |                | 3,518 
|                                                                  
|Total liabilities and shareholders equity                         |  | $              | 33,448
|                                                                  
|Rates                                                              |  |                |       
|                                                                   |  |                |       
|Yield on total interest-earning assets                             |  |                |       
|Cost of funds supporting interest-earning assets                   |  |                |       
|                                                                  
|Net interest margin:                                               |  |                |       
|Taxable equivalent basis                                           |  |                |       
|Without taxable equivalent increments                              |  |                |       
|                                                                  

|(a) | Amounts and yields exclude adjustments for fair value and the related deferred tax effect required by FAS No. 115.
|--- | ------------------------------------------------------------------------------------------------------------------

|(b) | Yields on interest-earning assets include the impact of interest earned on balances maintained by the Department of the Treasury in return for services provided including the
amounts shown in Note 10 on page 16.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(c) | In the second quarter of 2003, the Corporation began to include hedge results with trust-preferred securities, which previously had been included with notes and debentures. The
average rate paid on trust-preferred securities, including the hedge results, would have been 5.38% for the third quarter of 2002, while the rate paid on notes and debentures, excluding the hedge results, would have been 3.68% for the third quarter
of 2002.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Note: Interest and average yields/rates were calculated on a taxable equivalent basis, at tax rates approximating 35%, using
dollar amounts in thousands and actual number of days in the years, and are before the effect of reserve requirements. Loan fees, as well as nonaccrual loans and their related income effect, have been included in the calculation of average
yields/rates.



31



---

##### Table of Contents

Net interest revenue (continued)

---



CONSOLIDATED BALANCE SHEET  AVERAGE BALANCES AND INTEREST YIELDS/RATES

---

|                                                                   |  | Nine months ended |       
|------------------------------------------------------------------ |  | ----------------- | ------
|                                                                   |  | Sept. 30, 2003    |       
|(dollar amounts in millions)                                       |  | Averagebalance    |       
|                                                                  
|Assets                                                             |  |                   |       
|                                                                   |  |                   |       
|Interest-earning assets:                                           |  |                   |       
|Interest-bearing deposits with banks (primarily foreign)           |  | $                 | 2,106 
|Federal funds sold and securities under resale agreements          |  |                   | 729   
|Other money market investments                                     |  |                   | 149   
|Trading account securities                                         |  |                   | 755   
|Securities:                                                        |  |                   |       
|U.S. Treasury and agency securities (a)                            |  |                   | 9,940 
|Obligations of states and political subdivisions (a)               |  |                   | 530   
|Other (a)                                                          |  |                   | 823   
|Loans, net of unearned discount                                    |  |                   | 7,848 
|Funds allocated to discontinued operations                         |  |                   |      
|                                                                   |  |                   |       
|Total interest-earning assets (b)                                  |  |                   | 22,880
|Cash and due from banks                                            |  |                   | 2,275 
|Premises and equipment                                             |  |                   | 699   
|Other assets of discontinued operations                            |  |                   |      
|Other assets (a)                                                   |  |                   | 8,476 
|Reserve for loan losses                                            |  |                   | (120  
|                                                                  
|Total assets                                                       |  | $                 | 34,210
|                                                                  
|Liabilities and shareholders equity                               |  |                   |       
|                                                                   |  |                   |       
|Interest-bearing liabilities:                                      |  |                   |       
|Deposits in domestic offices:                                      |  |                   |       
|Demand, money market and other savings accounts                    |  | $                 | 8,034 
|Savings certificates                                               |  |                   | 236   
|Other time deposits                                                |  |                   | 365   
|Deposits in foreign offices                                        |  |                   | 4,085 
|                                                                   |  |                   |       
|Total interest-bearing deposits                                    |  |                   | 12,720
|Federal funds purchased and securities under repurchase agreements |  |                   | 1,728 
|U.S. Treasury tax and loan demand notes                            |  |                   | 151   
|Term federal funds purchased                                       |  |                   | 296   
|Commercial paper                                                   |  |                   | 20    
|Other funds borrowed                                               |  |                   | 616   
|Notes and debentures (with original maturities over one year)      |  |                   | 4,324 
|Trust-preferred securities                                         |  |                   | 1,016 
|                                                                   |  |                   |       
|Total interest-bearing liabilities                                 |  |                   | 20,871
|Total noninterest-bearing deposits                                 |  |                   | 7,148 
|Other liabilities of discontinued operations                       |  |                   |      
|Other liabilities (a)                                              |  |                   | 2,780 
|                                                                  
|Total liabilities                                                  |  |                   | 30,799
|Shareholders equity (a)                                           |  |                   | 3,411 
|                                                                  
|Total liabilities and shareholders equity                         |  | $                 | 34,210
|                                                                  
|Rates                                                              |  |                   |       
|                                                                   |  |                   |       
|Yield on total interest-earning assets                             |  |                   |       
|Cost of funds supporting interest-earning assets                   |  |                   |       
|                                                                  
|Net interest margin:                                               |  |                   |       
|Taxable equivalent basis                                           |  |                   |       
|Without taxable equivalent increments                              |  |                   |       
|                                                                  

|(a) | Amounts and yields exclude adjustments for fair value and the related deferred tax effect required by FAS No. 115.
|--- | ------------------------------------------------------------------------------------------------------------------

|(b) | Yields on interest-earning assets include the impact of interest earned on balances maintained by the Department of the Treasury in return for services provided including the
amounts shown in Note 10 on page 16.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(c) | In the second quarter of 2003, the Corporation began to include hedge results with trust-preferred securities, which previously had been included with notes and debentures. The
average rate paid on trust-preferred securities, including the hedge results, would have been 5.09% for the first nine months of 2003 and 5.60% for the first nine months of 2002, while the average rate paid on notes and debentures, excluding the
hedge results, would have been 3.18% for the first nine months of 2003 and 3.88% for the first nine months of 2002.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Note: Interest and
average yields/rates were calculated on a taxable equivalent basis, at tax rates approximating 35%, using dollar amounts in thousands and actual number of days in the years, and are before the effect of reserve requirements. Loan fees, as well as
nonaccrual loans and their related income effect, have been included in the calculation of average yields/rates.



32



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##### Table of Contents

Operating expense

---

|                                                 |  | Quarter ended |        | Nine months ended
|------------------------------------------------ |  | ------------- | ------ | -----------------
|(dollar amounts in millions)                     |  | Sept. 30,2003 |        | June 30,2003     
|                                                
|Staff expense:                                   |  |               |        |                  
|Compensation                                     |  | $             | 350    |                  
|Incentive (a)                                    |  |               | 89     |                  
|Employee benefits                                |  |               | 59     |                  
|                                                
|Total staff expense                              |  | $             | 498    |                  
|Professional, legal and other purchased services |  |               | 109    |                  
|Net occupancy expense                            |  |               | 68     |                  
|Equipment expense                                |  |               | 70     |                  
|Business development                             |  |               | 27     |                  
|Communications expense                           |  |               | 24     |                  
|Amortization of intangible assets                |  |               | 5      |                  
|Other expense                                    |  |               | 36     |                  
|                                                
|Total operating expense                          |  | $             | 837    |                  
|                                                
|Average full-time equivalent staff               |  |               | 22,400 |                  
|Period-end headcount (b)                         |  |               | 21,300 |                  
|                                                

|(a) | Effective Jan. 1, 2003, the Corporation began recording an expense for the estimated fair value of stock options using the prospective method under transitional guidance provided
in Statement of Financial Accounting Standards (SFAS) No. 148, Accounting for Stock-Based CompensationTransition and Disclosure. Stock option expense totaled less than $1 million in the third quarter of 2003 and approximately $2
million in the first nine months of 2003. See Note 2 of Notes to Financial Statements for a further discussion of the impact of recording expense for stock options.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | Period-end headcount does not include the equivalent staff impact of temporaries, contractors or overtime, which are included in average full-time equivalent staff. The decrease
in average full-time equivalent staff in the third quarter of 2003 compared to both the second quarter of 2003 and the third quarter of 2002 exceeded the decrease in period-end headcount for the same comparable periods due to lower levels of
temporaries, contractors and overtime.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Operating expense
totaled $837 million in the third quarter of 2003, an increase of $54 million, or 7% (unannualized), compared with the second quarter of 2003. This increase primarily resulted from the recording of $51 million of expenses in the Corporations
HR&IS sector (formerly the Human Resources Services sector), consisting of $30 million of severance expense (included in compensation expense in the table above), $18 million of software and fixed asset write-downs (included in equipment expense
in the table above) and $3 million of other expense. As discussed on page 19, plans to generate expense reductions in the HR&IS sector were finalized in the third quarter of 2003 and are now being implemented. These actions are expected to
generate annual expense savings of $80 million to $85 million by the fourth quarter of 2004. Excluding the $51 million of expenses, operating expense increased $3 million in the third quarter of 2003 compared with the second quarter of 2003. This
increase primarily resulted from an $11 million increase in incentive expense, partially offset by a $9 million decrease in out-of-pocket client reimbursable expenses. Reimbursable out-of-pocket expenses, the reimbursement of which is recorded in
revenue, totaled $22 million in the third quarter of 2003 compared with $31 million in the second quarter of 2003 and $24 million in the third quarter of 2002. Severance expense totaled $34 million in the third quarter of 2003, including the $30
million for the HR&IS sector, compared with $7 million in the second quarter of 2003. The $34 million charge for severance expense relates to a planned reduction of approximately 1,350 positions, approximately 100 of which had occurred by Sept.
30, 2003. As of Sept. 30, 2003, $3 million of this severance accrual had been utilized, with the remaining $31 million expected to be utilized by Sept. 30, 2004. Base compensation expense, excluding severance expense, was $1 million lower compared
with the second quarter of 2003, as the impact of July 1, 2003, merit increases of $4 million per quarter was offset by the impact of a lower headcount.



33



---

##### Table of Contents

Operating expense (continued)

---



Operating expense increased $81 million, or 11%, compared with the third quarter of 2002 primarily due to the
expenses recorded in the HR&IS sector discussed above, as well as higher employee benefits expense for pension and medical benefits, an increase in professional, legal and other purchased services, higher other severance, higher occupancy
expense and a $5 million translation impact from the weaker dollar on non-U.S. expenses. These increases were partially offset by the impact of the formation of the ABN AMRO Mellon joint venture, which resulted in a $6 million reduction in operating
expense compared with the third quarter of 2002. Base compensation expense, excluding severance expense, was $9 million lower compared with the third quarter of 2002 reflecting a reduction in headcount of approximately 1,600, the impact of which
more than offset the $4 million of merit increases granted in the third quarter of 2003.



Year-to-date 2003 compared with year-to-date 2002



Operating expense for the first nine months of 2003 totaled $2.378 billion, a $90 million, or 4%, increase compared with the first nine months of 2002, reflecting the expenses recorded in the HR&IS sector
discussed above; a lower pension credit; and higher medical and other benefits expense; higher professional, legal and other purchased services and the translation impact of a weaker dollar, which more than offset lower incentive expense and a $22
million expense reduction due to the formation of the ABN AMRO Mellon joint venture.



Income taxes

---



The provision for income taxes from continuing operations totaled $68 million in the third quarter of 2003 compared with $96 million in the third quarter of 2002. The Corporations effective tax rate on income from continuing
operations was approximately 31% for the third quarter of 2003, and approximately 31.5% for the first nine months of 2003 compared with approximately 33% for the full-year 2002. It is currently anticipated that the effective tax rate will be
approximately 31.5% for the fourth quarter of 2003.



34



---

##### Table of Contents

Business sectors

|                                                                            
|----------------------------------------------------------------------------
|Quarterly data                                                              
|(dollar amounts in millions, averages inbillions; presented on an FTE basis)
|                                                                            
|Revenue:                                                                    
|Trust and investment fee revenue                                            
|Other fee revenue                                                           
|Net interest revenue (expense)                                              
|                                                                            
|Total revenue                                                               
|Credit quality expense                                                      
|Operating expense                                                           
|                                                                            
|Income from continuing operations before taxes (benefits)                   
|Income taxes (benefits)                                                     
|                                                                            
|Income from continuing operations                                           
|Income from discontinued operations after-tax (a)                           
|                                                                            
|Net income (loss)                                                           
|                                                                            
|Average loans                                                               
|Average assets (b)                                                          
|Average deposits                                                            
|Average common equity                                                       
|Average Tier I preferred equity                                             
|                                                                            
|Return on common equity (c)(d)                                              
|Pre-tax operating margin (c)                                                
|Percentage of core sector revenue                                           
|Percentage of core sector income before taxes                               
|                                                                            



|                                                                                                    
|----------------------------------------------------------------------------------------------------
|For the nine months ended Sept. 30,                                                                 
|(dollar amounts in millions, averages inbillions; presented on an FTE basis)                        
|                                                                                                    
|Revenue:                                                                                            
|Trust and investment fee revenue                                                                    
|Other fee revenue                                                                                   
|Net interest revenue (expense)                                                                      
|                                                                                                    
|Total revenue                                                                                       
|Credit quality expense                                                                              
|Operating expense                                                                                   
|                                                                                                    
|Income from continuing operations before taxes (benefits) and cumulative effect of accounting change
|Income taxes (benefits)                                                                             
|                                                                                                    
|Income (loss) from continuing operations before cumulative effect of accounting change              
|Cumulative effect of accounting change (a)                                                          
|                                                                                                    
|Income from continuing operations                                                                   
|Income from discontinued operations after-tax (a)                                                   
|                                                                                                    
|Net income (loss)                                                                                   
|                                                                                                    
|Average loans                                                                                       
|Average assets (b)                                                                                  
|Average deposits                                                                                    
|Average common equity                                                                               
|Average Tier I preferred equity                                                                     
|                                                                                                    
|Return on common equity (c)(d)                                                                      
|Pre-tax operating margin (c)                                                                        
|Percentage of core sector revenue                                                                   
|Percentage of core sector income before taxes                                                       
|                                                                                                    

|(a) | Income from discontinued operations for the first nine months of 2003 and 2002 and the cumulative effect of accounting change recorded in the first quarter of 2003 have not been
allocated to any of the Corporations reportable sectors.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | Where average deposits are in excess of average loans, average assets include an allocation of investment securities equal to such excess.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------

|(c) | On a continuing operations basis.
|--- | ---------------------------------

|(d) | Return on common equity is annualized.
|--- | --------------------------------------

Note: Prior periods
sector data reflects immaterial reclassifications resulting from minor changes made to be consistent with current period presentation.



35



---

##### Table of Contents

Business sectors (continued)

---



|Quarterly data                                                                |  | AssetServicing |     |   | Human Resources &Investor Solutions |   |     | TreasuryServices |  |   | Total Corporate& InstitutionalServices |  
|----------------------------------------------------------------------------- |  | -------------- | --- | - | ----------------------------------- | - | --- | ---------------- |  | - | -------------------------------------- | -
|(dollar amounts in millions, averages in billions; presented on an FTE basis) |  | 3Q03           |     |   | 2Q03                                |   |     | 3Q02             |  |   | 3Q03                                   |  
|                                                                             
|Revenue:                                                                      |  |                |     |   |                                     |   |     |                  |  |   |                                        |  
|Trust and investment fee revenue                                              |  | $              | 119 |   |                                     | $ | 127 |                  |  | $ | 128                                    |  
|Other fee revenue                                                             |  |                | 38  |   |                                     |   | 21  |                  |  |   | 38                                     |  
|Net interest revenue (expense)                                                |  |                | 21  |   |                                     |   | 23  |                  |  |   | 22                                     |  
|                                                                             
|Total revenue                                                                 |  |                | 178 |   |                                     |   | 171 |                  |  |   | 188                                    |  
|Credit quality expense                                                        |  |                |    |   |                                     |   |    |                  |  |   |                                       |  
|Operating expense                                                             |  |                | 138 |   |                                     |   | 129 |                  |  |   | 139                                    |  
|                                                                             
|Income from continuing operations before taxes (benefits)                     |  |                | 40  |   |                                     |   | 42  |                  |  |   | 49                                     |  
|Income taxes (benefits)                                                       |  |                | 14  |   |                                     |   | 15  |                  |  |   | 18                                     |  
|                                                                             
|Income from continuing operations                                             |  |                | 26  |   |                                     |   | 27  |                  |  |   | 31                                     |  
|Income from discontinued operations after-tax (a)                             |  |                |    |   |                                     |   |    |                  |  |   |                                       |  
|                                                                             
|Net income (loss)                                                             |  | $              | 26  |   |                                     | $ | 27  |                  |  | $ | 31                                     |  
|                                                                             
|Average loans                                                                 |  | $              |    |   |                                     | $ | 0.1 |                  |  | $ |                                       |  
|Average assets (b)                                                            |  | $              | 6.1 |   |                                     | $ | 5.7 |                  |  | $ | 4.9                                    |  
|Average deposits                                                              |  | $              | 4.5 |   |                                     | $ | 4.2 |                  |  | $ | 3.4                                    |  
|Average common equity                                                         |  | $              | 0.6 |   |                                     | $ | 0.6 |                  |  | $ | 0.4                                    |  
|Average Tier I preferred equity                                               |  | $              | 0.1 |   |                                     | $ | 0.1 |                  |  | $ |                                       |  
|                                                                             
|Return on common equity (c)(d)                                                |  |                | 18  | % |                                     |   | 19  | %                |  |   | 26                                     | %
|Pre-tax operating margin (c)                                                  |  |                | 22  | % |                                     |   | 25  | %                |  |   | 26                                     | %
|Percentage of core sector revenue                                             |  |                | 17  | % |                                     |   | 16  | %                |  |   | 18                                     | %
|Percentage of core sector income before taxes                                 |  |                | 19  | % |                                     |   | 16  | %                |  |   | 17                                     | %
|                                                                             



|                                                                                                    
|----------------------------------------------------------------------------------------------------
|For the nine months ended Sept. 30,                                                                 
|(dollar amounts in millions, averages inbillions; presented on an FTE basis)                        
|                                                                                                    
|Revenue:                                                                                            
|Trust and investment fee revenue                                                                    
|Other fee revenue                                                                                   
|Net interest revenue (expense)                                                                      
|                                                                                                    
|Total revenue                                                                                       
|Credit quality expense                                                                              
|Operating expense                                                                                   
|                                                                                                    
|Income from continuing operations before taxes (benefits) and cumulative effect of accounting change
|Income taxes (benefits)                                                                             
|                                                                                                    
|Income (loss) from continuing operations before cumulative effect of accounting change              
|Cumulative effect of accounting change (a)                                                          
|                                                                                                    
|Income from continuing operations                                                                   
|Income from discontinued operations after-tax (a)                                                   
|                                                                                                    
|Net income (loss)                                                                                   
|                                                                                                    
|Average loans                                                                                       
|Average assets (b)                                                                                  
|Average deposits                                                                                    
|Average common equity                                                                               
|Average Tier I preferred equity                                                                     
|                                                                                                    
|Return on common equity (c)(d)                                                                      
|Pre-tax operating margin (c)                                                                        
|Percentage of core sector revenue                                                                   
|Percentage of core sector income before taxes                                                       
|                                                                                                    

|(a) | Income from discontinued operations for the first nine months of 2003 and 2002 and the cumulative effect of accounting change recorded in the first quarter of 2003 have not been
allocated to any of the Corporations reportable sectors.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | Where average deposits are in excess of average loans, average assets include an allocation of investment securities equal to such excess.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------

|(c) | On a continuing operations basis.
|--- | ---------------------------------

|(d) | Return on common equity is annualized.
|--- | --------------------------------------

Note: Prior periods
sector data reflects immaterial reclassifications resulting from minor changes made to be consistent with current period presentation.



36



---

##### Table of Contents

Business sectors (continued)

---



|Quarterly data                                                               |  | Total CoreSectors |       |   | Other Activity |   |       | ConsolidatedResults | 
|---------------------------------------------------------------------------- |  | ----------------- | ----- | - | -------------- | - | ----- | ------------------- | 
|(dollar amounts in millions, averages inbillions; presented on an FTE basis) |  | 3Q03              |       |   | 2Q03           |   |       | 3Q02                | 
|                                                                            
|Revenue:                                                                     |  |                   |       |   |                |   |       |                     | 
|Trust and investment fee revenue                                             |  | $                 | 707   |   |                | $ | 718   |                     | 
|Other fee revenue (a)                                                        |  |                   | 163   |   |                |   | 119   |                     | 
|Net interest revenue (expense) (b)                                           |  |                   | 171   |   |                |   | 198   |                     | 
|                                                                            
|Total revenue                                                                |  |                   | 1,041 |   |                |   | 1,035 |                     | 
|Credit quality expense                                                       |  |                   | 1     |   |                |   |      |                     | 
|Operating expense                                                            |  |                   | 836   |   |                |   | 774   |                     | 
|                                                                            
|Income from continuing operations before taxes (benefits)                    |  |                   | 204   |   |                |   | 261   |                     | 
|Income taxes (benefits) (c)                                                  |  |                   | 71    |   |                |   | 92    |                     | 
|                                                                            
|Income from continuing operations                                            |  |                   | 133   |   |                |   | 169   |                     | 
|Income from discontinued operations after-tax (d)                            |  |                   |      |   |                |   |      |                     | 
|                                                                            
|Net income (loss)                                                            |  | $                 | 133   |   |                | $ | 169   |                     | 
|                                                                            
|Average loans                                                                |  | $                 | 6.3   |   |                | $ | 6.6   |                     | 
|Average assets (e)                                                           |  | $                 | 26.2  |   |                | $ | 25.5  |                     | 
|Average deposits                                                             |  | $                 | 18.3  |   |                | $ | 17.6  |                     | 
|Average common equity                                                        |  | $                 | 3.2   |   |                | $ | 3.3   |                     | 
|Average Tier I preferred equity                                              |  | $                 | 1.0   |   |                | $ | 1.0   |                     | 
|                                                                            
|Return on common equity (f)(g)                                               |  |                   | 16    | % |                |   | 21    | %                   | 
|Pre-tax operating margin (f)                                                 |  |                   | 20    | % |                |   | 25    | %                   | 
|                                                                            



|                                                                                                    
|----------------------------------------------------------------------------------------------------
|For the nine months ended Sept. 30,                                                                 
|(dollar amounts in millions, averages inbillions; presented on an FTE basis)                        
|                                                                                                    
|Revenue:                                                                                            
|Trust and investment fee revenue                                                                    
|Other fee revenue (a)                                                                               
|Net interest revenue (expense) (b)                                                                  
|                                                                                                    
|Total revenue                                                                                       
|Credit quality expense                                                                              
|Operating expense                                                                                   
|                                                                                                    
|Income from continuing operations before taxes (benefits) and cumulative effect of accounting change
|Income taxes (benefits) (c)                                                                         
|                                                                                                    
|Income (loss) from continuing operations before cumulative effect of accounting change              
|Cumulative effect of accounting change (d)                                                          
|                                                                                                    
|Income from continuing operations                                                                   
|Income from discontinued operations after-tax (d)                                                   
|                                                                                                    
|Net income (loss)                                                                                   
|                                                                                                    
|Average loans                                                                                       
|Average assets (e)                                                                                  
|Average deposits                                                                                    
|Average common equity                                                                               
|Average Tier I preferred equity                                                                     
|                                                                                                    
|Return on common equity (f)(g)                                                                      
|Pre-tax operating margin (f)                                                                        
|                                                                                                    

|(a) | Consolidated results include FTE impact of $10 million, $12 million and $9 million for the third quarter of 2003, second quarter of 2003 and third quarter of 2002, respectively,
and $31 million and $31 million for the first nine months of 2003 and the first nine months of 2002, respectively.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | Consolidated results include FTE impact of $4 million, $4 million and $3 million for the third quarter of 2003, second quarter of 2003 and third quarter of 2002, respectively,
and $12 million and $9 million for the first nine months of 2003 and the first nine months of 2002, respectively.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(c) | Consolidated results include FTE impact of $14 million, $16 million and $12 million for the third quarter of 2003, second quarter of 2003 and third quarter of 2002, respectively,
and $43 million and $40 million for the first nine months of 2003 and the first nine months of 2002, respectively.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(d) | Income from discontinued operations for the first nine months of 2003 and 2002 and the cumulative effect of accounting change recorded in the first quarter of 2003 have not been
allocated to any of the Corporations reportable sectors.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(e) | Where average deposits are in excess of average loans, average assets include an allocation of investment securities equal to such excess. Consolidated average assets includes
average assets of discontinued operations of $- million and $521 million for the first nine months of 2003 and the first nine months of 2002, respectively.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(f) | On a continuing operations basis.
|--- | ---------------------------------

|(g) | Return on common equity is annualized.
|--- | --------------------------------------

|(h) | Ratio is before the cumulative effect of a change in accounting principle.
|--- | --------------------------------------------------------------------------

Note: Prior periods sector data reflects immaterial reclassifications resulting from minor changes made to be consistent with current period presentation.

N/M  Not meaningful



37



---

##### Table of Contents

Business sectors (continued)

---



The Corporations business sectors reflect its management structure, the characteristics of its products and
services, and the classes of customers to which those products and services are delivered. The Corporations lines of business serve two major classes of customers - high net worth individuals/families, and large institutional customers. Lines
of business that offer similar or related products and services to common or similar customer decision makers have been aggregated into six core business sectors. In addition, Other Activity, as discussed further on pages 46 and 47, consists of all
activities not aggregated in the Corporations core business sectors. The results of the Corporations core business sectors are presented and analyzed on an internal management reporting basis. There is no intercompany profit or loss on
intersector activity. The accounting policies of the business sectors are the same as those described in Note 1 of the 2002 Financial Annual Report to Shareholders except: other fee revenue, net interest revenue and income taxes differ from the
amounts shown in the Consolidated Income Statement because amounts presented in Business Sectors are on a fully taxable equivalent basis (FTE); and credit quality expense (revenue) for the core business sectors is presented on a net charge-off
basis. Capital is allocated to the business sectors to reflect managements assessment of credit risk, market risk and operating risk using internal risk assessments and factors and, where appropriate, regulatory guidelines. While external
benchmarks are considered in the allocation process, the capital allocations may not be representative of the capital levels that would be required if these sectors were nonaffiliated business units. In the first quarter of 2003, the Corporation
revised its capital allocations to the core business sectors to better reflect the economic capital required for these businesses, and in anticipation of an increase in required capital as proposed by the new Basel accord.



The Corporations core business sectors are divided into two overall reportable groups
 Asset Management and Corporate & Institutional Services. The Asset Management group is comprised of the Institutional Asset Management, Mutual Funds and Private Wealth Management sectors. The Corporate & Institutional Services group
is comprised of the Asset Servicing, Human Resources & Investor Solutions (HR&IS) and Treasury Services sectors. In addition, Business Sector information is reported on a continuing operations basis for all periods presented. See Note 4 of
the Notes to Financial Statements for a discussion of discontinued operations.



Following is a discussion of the Corporations six core business sectors and Other Activity. In the tables that follow, the income statement amounts are presented in millions and are on an FTE basis, the assets under management,
administration or custody are period-end market values and are presented in billions, and the return on common equity is annualized. Where applicable, revenue and expense growth rates are reported excluding the impact of acquisitions, divestitures
or the formation of joint ventures to improve period to period comparability. The operations of acquired businesses are integrated with the existing business sectors soon after most acquisitions are completed. As a result of the integration of staff
support functions, management of customer relationships, operating processes and the financial impact of funding the acquisitions, the impact of the acquisitions on income before taxes cannot be accurately determined and therefore is not reported.





38



---

##### Table of Contents

Business sectors (continued)

---



Institutional Asset Management



|                                                                              
|------------------------------------------------------------------------------
|                                                                              
|(income statement dollar amounts inmillions, asset dollar amounts in billions)
|                                                                              
|Trust and investment fee revenue                                              
|Other fee revenue                                                             
|Net interest revenue (expense)                                                
|                                                                              
|Total revenue                                                                 
|Total operating expense                                                       
|Income before taxes                                                           
|Return on common equity(annualized)                                           
|Pre-tax operating margin                                                      
|                                                                              
|Assets under management                                                       
|Plus: subadvised for other Mellon sectors                                     
|                                                                              
|                                                                              
|                                                                              
|Assets under administration or custody                                        
|                                                                              
|S&P 500 Index - period end                                                    
|S&P 500 Index - daily average                                                 
|                                                                              



Institutional Asset Management is
comprised of Mellon Institutional Asset Management (MIAM), which consists of a number of asset management companies offering a broad range of equity, fixed income, hedge and liquidity management products; and Mellon Global Investments (MGI), which
distributes investment management products internationally. MIAM offers its investors access to a wide spectrum of investment styles and asset classes, ranging from active growth equity strategies to emerging markets to fixed income and asset
allocation solutions. Most of these strategies are available on a separate account and pooled fund basis. The MIAM clients are predominately institutional investors (Corporations, Financial Institutions, Public Plan Sponsors, Foundations/Endowments,
Insurance Companies, and Taft Hartley plans) although through its global distributor, MGI, funds are also sold to individuals via brokers. MIAM reaches its institutional investors through direct sales, consultant relationships and sub-advisory
relationships. The results of the Institutional Asset Management sector are primarily driven by the period-end levels of assets managed as well as the mix of those assets, as shown in the tables on pages 24 and 25. Managed equity assets generate
higher percentage fees than money market and bond assets. In addition, performance fees may be generated by the performance of the managed funds exceeding peer or market benchmarks. Expenses associated with the Institutional Asset Management Sector
are predominately driven by staffing costs and incentives. Incentives are directly associated with the performance of the individual asset management companies and new business generation.



The 5% increase in revenue in the third quarter of 2003 compared with the second quarter of
2003 was due to an increase in investment management fees, which are based on the market value of assets under management. This increase primarily resulted from net inflows, as well as market appreciation. As shown in the second table on page 24,
assets under management for the sector increased $20 billion from June 30, 2003, resulting from $11 billion of net inflows and $9 billion of equity market appreciation. Operating expense increased 5% in the third quarter of 2003 compared with the
second quarter of 2003, due to higher incentive expense, primarily resulting from increased profitability of the individual investment firms, partially offset by a reduction in general expenses. Income before taxes increased $1 million, or 2%.



39



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##### Table of Contents

Business sectors (continued)

---



The 21% increase in revenue in the third quarter of 2003 compared with the third quarter of 2002 primarily resulted
from an increase in investment management fees, primarily due to the impact of improved equity markets, and net inflows, as shown on the table on page 25, and higher performance fees. Operating expense increased 8% compared with the third quarter of
2002, primarily due to higher incentive expense, as well as the translation impact of the weaker dollar on non-U.S. expenses. Income before taxes increased $17 million compared with the third quarter of 2002.



On a year-to-date basis, revenue increased 3% from the prior year, primarily due to an
increase in investment management fees, partially offset by a $12 million decrease in performance fees. Expenses increased 4%, primarily due to the translation impact of the weaker dollar on non-U.S. expenses, which more than offset a decrease in
discretionary expenses. Income before taxes of $63 million for the first nine months of 2003 was unchanged from the prior year period.



Mutual Funds



|                                                                              
|------------------------------------------------------------------------------
|                                                                              
|(income statement dollar amounts inmillions, asset dollar amounts in billions)
|                                                                              
|Trust and investment fee revenue                                              
|Other fee revenue                                                             
|Net interest revenue (expense)                                                
|                                                                              
|Total revenue                                                                 
|Total operating expense                                                       
|Income before taxes                                                           
|Return on common equity (annualized)                                          
|Pre-tax operating margin                                                      
|                                                                              
|Assets under management                                                       
|Less: subadvised by other Mellon sectors                                      
|                                                                              
|                                                                              
|                                                                              
|S&P 500 Index - period end                                                    
|S&P 500 Index - daily average                                                 
|                                                                              



Mutual Funds consists of all the
activities associated with the Dreyfus/Founders complex of mutual funds. Products manufactured and distributed in this sector include mutual funds (equity, fixed income and money market), separately managed accounts and variable annuities. These
products are sold through intermediaries (brokers, financial institutions and insurance companies) and directly to individuals. The results of the Mutual Fund sector are driven by average asset levels and the mix of assets managed. Generally,
actively managed equity funds generate higher fees than fixed income funds, index funds and money market funds. In addition, results are impacted by sales of fee-based products such as fixed and variable annuities. Expenses are impacted by sales of
long-term funds and fee-based products, asset levels of money market funds and the cost of advertising and marketing new and existing products.



Revenue increased 1% in the third quarter of 2003 compared with the second quarter of 2003, primarily due to higher fees from equity mutual funds due to the improvement
in the equity markets and higher revenue from separately managed accounts. Expenses increased 1% primarily due to higher severance expense and merit increases, resulting in income before taxes that was unchanged compared with the second quarter of
2003.



40



---

##### Table of Contents

Business sectors (continued)

---



Revenue decreased 9% compared with the third quarter of 2002 principally due to lower management fee revenue from a
lower average level of institutional money market funds due to net outflows, partially offset by higher revenue from separately managed accounts. Expenses decreased 3%, as a result of lower staff and incentive expense. Income before taxes decreased
19% compared with the third quarter of 2002. Assets under management for this sector of $146 billion were down 7% from $157 billion at June 30, 2003, and down 10% from $162 billion at Sept. 30, 2002, primarily due to money market outflows partially
offset by equity market appreciation.



On a year-to-date basis, revenue
decreased 13% from the prior year, primarily due to lower average levels of equity funds and institutional money market funds and lower net interest revenue, partially offset by an increase in revenue from separately managed accounts. Expenses
decreased 7% as a result of lower staff, incentive and advertising expense. Income before taxes was down 23% from the first nine months of 2002.



Private Wealth Management



|                                                                              
|------------------------------------------------------------------------------
|                                                                              
|(income statement dollar amounts inmillions, asset dollar amounts in billions)
|                                                                              
|Trust and investment fee revenue                                              
|Other fee revenue                                                             
|Net interest revenue                                                          
|                                                                              
|Total revenue                                                                 
|Credit quality expense                                                        
|Total operating expense                                                       
|Income before taxes                                                           
|Return on common equity (annualized)                                          
|Pre-tax operating margin                                                      
|                                                                              
|Total client assets at beginning of quarter                                   
|Assets under management net inflows                                           
|Assets under administration or custody net inflows (outflows)                 
|Acquisitions                                                                  
|Transfer from Institutional Asset Management                                  
|Market appreciation (depreciation)                                            
|                                                                              
|Total client assets at end of quarter (a)                                     
|                                                                              
|S&P 500 Index - period end                                                    
|S&P 500 Index - daily average                                                 
|                                                                              

|(a) | Includes assets under management of $45 billion, $44 billion and $40 billion, respectively.
|--- | -------------------------------------------------------------------------------------------



Private Wealth Management provides investment management, wealth management, and comprehensive banking services for high net worth
individuals, families, family offices, charitable gift programs, endowments, foundations, professionals and entrepreneurs. It operates from more than sixty locations in fourteen states. The results of the Private Wealth Management sector are driven
by the level of assets managed and custodied as well as the mix of those assets and the level of activity in client accounts. Net interest revenue is determined by the level and spread of loans and deposits. Expenses of this sector are driven by
staff expense in the investment management, sales, service and support groups.



41



---

##### Table of Contents

Business sectors (continued)

---



Revenue increased $1 million in the third quarter of 2003 compared with the second quarter of 2003, reflecting the
impact of higher equity markets, partially offset by lower net interest revenue. Operating expense increased 3%, due to higher incentive expense, partially offset by lower general expenses, resulting in a 2% decrease in income before taxes compared
with the second quarter of 2003.



Revenue increased 1% compared with the third
quarter of 2002 due to higher net interest revenue. Expenses increased 12% primarily reflecting higher staff expense due to acquisitions and additional wealth offices, incentive expense, primarily due to sales growth, as well as increased occupancy
expense related to the build-out of wealth offices. Income before taxes decreased 12% compared with the third quarter of 2002. Client assets were $71 billion at Sept. 30, 2003, an increase of 3% from June 30, 2003, and an increase of 11% from Sept.
30, 2002, reflecting the impact of equity market appreciation.



On a
year-to-date basis, revenue decreased 2% and expenses increased 6%, resulting in a 10% decrease in income before taxes. The decrease in revenue from the first nine months of 2002 primarily reflects the impact of weak equity markets partially offset
by higher net interest revenue. The increase in expense primarily relates to higher staff expense due to acquisitions and additional wealth offices and higher occupancy expense due to the build-out of wealth offices mentioned previously.



Asset Servicing



|                                                                              
|------------------------------------------------------------------------------
|                                                                              
|(income statement dollar amountsin millions, asset dollar amounts in billions)
|                                                                              
|Trust and investment fee revenue                                              
|Other fee revenue (a)                                                         
|Net interest revenue                                                          
|                                                                              
|Total revenue                                                                 
|Total operating expense                                                       
|Income before taxes                                                           
|Return on common equity (annualized)                                          
|Pre-tax operating margin                                                      
|                                                                              
|Assets under management                                                       
|Assets under administration or custody                                        
|                                                                              
|S&P 500 Index - period end                                                    
|S&P 500 Index - daily average                                                 
|                                                                              

|(a) | Primarily consists of foreign exchange revenue.
|--- | -----------------------------------------------



Asset Servicing includes institutional trust and custody and related services such as securities lending, investment management backoffice outsourcing, performance
measurement, benefits disbursements, transition management, commission recapture, transfer agency, fund accounting and administration, web-based investment management software and foreign exchange and derivative products. These services and products
are provided to corporate and public retirement funds, foundations and endowments and global financial institutions including investment managers, insurance companies and mutual funds. As a global service provider, these products are distributed
through the franchises sales organization along with the Corporations joint venture partners, CIBC Mellon, ABN AMRO Mellon and Russell Mellon. Internet based investment manager software solutions are provided by Eagle Investment Systems.



42



---

##### Table of Contents

Business sectors (continued)

---



The results of the Asset Servicing sector are driven by a number of factors which include the market value of assets
under administration and custody as well as the level of transaction activity and extent of services provided including custody, accounting, administration, daily valuations, performance measurement, securities lending, foreign exchange, and
investment manager backoffice outsourcing. Market interest rates and changes to them impact both securities lending revenue and the earnings and value of client cash balances. Foreign exchange revenues are directly influenced by the volume of client
transactions and the spread realized on such transactions, and indirectly influenced by factors including market volatility in major currencies, the level of cross-border assets held in custody for clients, and the level and nature of underlying
cross-border investment and other transactions undertaken by corporate and institutional clients. Eagle Investment Systems fee revenue is dependent on investment manager discretionary spending for license and development fees and professional
services. Sector expenses are principally driven by staffing levels and technology investments necessary to process transaction volumes. Fees paid to subcustodians are driven by market values of global assets and related transaction volumes.



The 4% increase in revenue compared with the second quarter of 2003 was
primarily due to higher foreign exchange revenue, partially offset by a seasonal decrease in securities lending fees including lower equity income from joint ventures due to lower securities lending revenue, and by lower net interest revenue.
Operating expenses increased 8% primarily due to expenses in support of new business growth and development around enhancements to existing products, as well as higher incentive expense. Income before taxes decreased 8% compared with the second
quarter of 2003.



Revenue and expenses in the third quarter of 2003 compared to
the third quarter of 2002 were impacted by the Dec. 31, 2002, formation of the ABN AMRO Mellon global custody joint venture. Excluding the impact of this joint venture, revenue increased 3% primarily from net new business and higher net interest
revenue, partially offset by a slowdown in spending for professional and license fees for software products offered by Eagle Investment Systems. Operating expense, excluding the impact of the joint venture, increased 4% primarily in support of new
business growth and development around enhancements to existing products. Income before taxes decreased 19% compared with the third quarter of 2002. Assets under administration or custody for this sector were $2.463 trillion at Sept. 30, 2003, an
increase of $94 billion, or 4%, compared with June 30, 2003, and an increase of $392 billion, or 19%, compared with Sept. 30, 2002. The increase compared with June 30, 2003, resulted from market appreciation and the positive effect of favorable
foreign exchange rates.



Revenue and expenses on a year-to-date basis were also
impacted by the formation of the ABN AMRO Mellon global custody joint venture. Excluding the impact of the joint venture, revenue decreased 1%, primarily due to lower foreign exchange revenue, lower revenue from Eagle Investment Systems and lower
securities lending revenue, which more than offset the impact of net new business and higher net interest revenue. Operating expenses, excluding the impact of the joint venture, increased 4%, primarily in support of new business growth and
development around enhancements to existing products, as well as to the translation impact of the weaker dollar on non-U.S. expenses. Income before taxes was down 22% from the first nine months of 2002.





43



---

##### Table of Contents

Business sectors (continued)

---



Human Resources & Investor Solutions



|                                                                               
|-------------------------------------------------------------------------------
|                                                                               
|(income statement dollar amounts in millions, asset dollar amounts in billions)
|                                                                               
|Trust and investment fee revenue                                               
|Other fee revenue                                                              
|Net interest revenue (expense)                                                 
|                                                                               
|Total revenue                                                                  
|Total operating expense                                                        
|Income before taxes                                                            
|Return on common equity (annualized)                                           
|Pre-tax operating margin                                                       
|Assets under administration or custody                                         
|                                                                               
|S&P 500 Index - period end                                                     
|S&P 500 Index - daily average                                                  
|                                                                               



The Human Resources and Investor
Solutions (HR&IS) sector reorganized around consolidated lines of business and the Mellon brand for retirement, employee benefits, investor solutions and human resources (HR) outsourcing. The sector provides consulting, outsourcing and
administration services to design, build and operate end-to-end solutions in HR and shareholder services that leverage scalable operations and technology. Consulting fee revenue is dependent on discretionary corporate spending on the design and
implementation of retirement, benefits, shareholder and compensation programs and other project work. Clients are generally billed on an hourly basis at rates that vary based upon staff level and experience. Consultant utilization, a key statistic,
is a function of work levels and headcount. Outsourcing and benefit plan administration fees are influenced by number of employees serviced, plan participant counts, volume of transactions processed, project work and market value of benefit plan
assets under administration. Shareholder services consist of a diverse array of products to shareholders and corporations including stock transfer and record keeping services, investment plan services, demutualizations, corporate actions and
unclaimed property services. Shareholder services revenues include earnings related to customer balances maintained in an agency capacity. Customer balances held in an agency capacity and not reflected on the Corporations balance sheet totaled
$389 million at Sept. 30, 2003. Earnings on these balances are classified as trust and investment fees. Earnings on customer balances reflected on the Corporations balance sheet are classified as net interest revenue. Sector expenses are
driven by staff, equipment and space required to support the services provided by the sector.



Compared with the second quarter of 2003, revenue decreased 4%, reflecting lower seasonal out-of-pocket expense reimbursements from clients as well as lower revenues from investor services. Operating expense increased
14%, primarily resulting from the recording of $51 million of expenses discussed previously, consisting of $30 million of severance expense, $18 million of software and fixed asset write-downs and $3 million of other expense. Excluding these
expenses, operating expense decreased 6%, primarily relating to lower seasonal out-of-pocket client reimbursable expenses. Income before taxes decreased $48 million compared with the second quarter of 2003, due to the third quarter 2003 charges
discussed above.



Revenue decreased 2% compared with the third quarter of 2002,
primarily due to the loss of revenues from former Unifi Network customers that had indicated their decision to terminate business prior to the close of the Unifi Network acquisition in 2002. Expenses increased 19% compared with the third quarter of
2002,



44



---

##### Table of Contents

Business sectors (continued)

---



primarily due to the $51 million of charges discussed previously. Excluding these expenses, operating expense decreased 1%. Income before taxes decreased $54
million compared with the third quarter of 2002.



On a year-to-date basis,
revenue decreased 6%, reflecting the loss of revenues from former Unifi Network customers, reduced discretionary project spending by large corporate customers as well as lower volumes due to fewer clients and benefit plan participants, partially
offset by net new business. Lower revenue also resulted from a decline in consulting revenue due principally to a slowdown in discretionary spending by large corporate customers since the first half of 2002. Operating expenses for the first nine
months of 2003 increased 6% compared with the first nine months of 2002, primarily reflecting the $51 million of expenses discussed previously. Excluding these expenses, operating expense decreased 1%. Income before taxes decreased $94 million
compared with the prior year period.



Treasury Services



|                                             
|---------------------------------------------
|                                             
|(income statement dollar amounts in millions)
|                                             
|Trust and investment fee revenue             
|Other fee revenue                            
|Net interest revenue                         
|                                             
|Total revenue                                
|Credit quality expense                       
|Total operating expense                      
|Income before taxes                          
|Return on common equity (annualized)         
|Pre-tax operating margin                     
|                                             



Treasury Services includes global cash
management, credit products for large corporations, insurance premium financing, commercial real estate lending, corporate finance, securities underwriting and trading and the activities of Mellon 1stBusiness Bank, National Association, in California. Global cash management results are driven by electronic cash management activity including: automated
clearing house, wire transfer and telecash; remittance processing services, primarily corporate and retail lockbox; and ancillary processing services for imaging and storage activities. The other significant driver is the net interest revenue earned
from the deposit balances generated by activity across the business operations. These products are provided to large corporations, banks, brokers, insurance companies and government agencies.



The results of the Treasury Services sectors lending lines of business  Large
Corporate, AFCO, Real Estate Finance, and Mellon 1stBusiness Bank  are driven by the level of commitments,
and fees applicable to these commitments, and the level of outstanding loans and the spreads on these loans. The results are further impacted by the risk profile that the Corporation will accept and, in the case of Mellon 1stBusiness Bank, its ability to gather significant levels of deposits. Securities underwriting results are driven by the general
volatility of the bond and fixed income markets and the Corporations ability to generate new underwritings. In accordance with the Corporations management accounting reporting practices, credit quality expense for the core sectors
reflects net credit losses, not the provision for credit losses. Therefore, a provision for credit losses is not included in the Treasury Services sector results. As also discussed in Other Activity below, when a determination is made that a lending
arrangement does not meet the Corporations relationship strategy criteria, it is moved to Other Activity and managed under an exit strategy. Any subsequent credit quality expense (revenue) is reported in Other Activity and not in the core
sectors.



45



---

##### Table of Contents

Business sectors (continued)

---



Revenue for this sector increased by 1% in the third quarter of 2003 compared to the second quarter of 2003, due
primarily to higher cash management fee revenue, partially offset by lower net interest revenue. Operating expenses increased by 6%, due to higher severance and incentive expense, resulting in a 7% decrease in income before taxes.



Revenue decreased 1% in the third quarter of 2003 compared to the third quarter of 2002,
primarily due to lower net interest revenue from lower loan levels. Operating expenses increased 9% due to higher severance and other expense, resulting in a 13% decrease in income before taxes.



On a year-to-date basis, revenue increased by 2% due to higher cash management revenue,
partially offset by lower net interest revenue. Operating expenses increased 6% in the first nine months of 2003, due in part to higher global cash management operating and other expenses. In addition, credit quality expense increased $3 million,
resulting in a 5% decrease in income before taxes.



Other Activity



Other Activity includes results for large ticket leasing, which is in a
runoff mode, and certain lending relationships that are part of the Corporations business exits strategy; the results of Mellon Ventures, the Corporations venture capital group; and business activities or utilities, including Corporate
Treasury, that are not separate lines of business or have not been fully allocated for management reporting purposes to the core business sectors.



|                                                                                               
|-----------------------------------------------------------------------------------------------
|Other Activity - income (loss) from continuing operations before taxes (benefits) (in millions)
|                                                                                               
|                                                                                               
|Business exits activity                                                                        
|Venture capital activity                                                                       
|Corporate activity/other                                                                       
|                                                                                               
|Total - Other Activity                                                                         
|                                                                                               



Revenue in the Other Activity sector
primarily reflects net interest revenue from business exits activity, earnings on capital above that required for the core business sectors, gains from the sale of assets, and the gains/losses and carrying costs of Mellon Ventures activities.
Operating expense includes various direct expenses for items not attributable to the operations of a business sector, a net credit for the net corporate level (income) expense amounts allocated from Other Activity to the core business sectors, and
the expenses of Mellon Ventures. Assets in Other Activity include assets of the activities discussed below that the Corporation intends to exit, the investments of Mellon Ventures and assets of certain areas not identified with the core business
sectors. This sector also includes assets and liabilities recorded in Corporate Treasury and not allocated to a particular line of business. Average common and Tier I preferred equity represents capital in excess of that required for the core
business sectors, as well as capital required for the investments of Mellon Ventures and business exits.



In accordance with the Corporations management accounting reporting practices, credit quality expense (revenue) in Other Activity represents the Corporations provision for credit losses in excess of net
charge-offs recorded in the core business sectors. Credit quality expense (revenue) for the core business sectors is presented on a net charge-off basis and totaled $1 million in the third quarter of 2003. When a determination is made that a
borrowing arrangement does not meet the Corporations relationship strategy criteria, it is moved to business exits in Other Activity and managed under an exit strategy. Any subsequent credit



46



---

##### Table of Contents

Business sectors (continued)

---



quality expense (revenue) is reported in Other Activity and not in the core business sectors. The Corporations business exits strategy is to exit all
credit relationships for which a broad fee-based relationship resulting from the cross-sale of the Corporations fee-based services does not exist, or for which the customer does not meet the Corporations credit quality criteria. The
loans and leases transferred to this classification include the Corporations large ticket lease portfolio, which was principally transaction based; selected types of loans which were also transaction based (leveraged loans, project
financings); and loans to companies where a broad fee-based relationship does not exist or for which the customer does not meet the Corporations credit quality criteria. The Corporation will not renew its credit relationship with such
companies when the respective contractual commitment periods end. The Corporation may consider selling remaining commitments on a case-by-case basis as opportunities arise.



Included in other activity is $18 million and $21 million of gains from the sale of mortgage-backed securities in the third quarter and
second quarter of 2003, respectively. In addition, the third quarter of 2003 included write-downs on lease residuals, as well as net gains from venture capital activities of $2 million. Venture capital activities generated a net loss of $13 million
in the second quarter of 2003. Results for the third quarter of 2002 included $28 million of net losses on venture capital investments. See pages 27 and 28 for a discussion of venture capital activity. Also included in other activity for the third
quarter of 2002 was $28 million of gains from the sale of mortgage-backed securities. As shown in the table on the prior page, business exits activity in the third quarter of 2002 reported a loss of $115 million, reflecting the net credit losses of
$115 million in the quarter. This loss was offset in the corporate activity component of Other Activity as the actual income statement impact of the provision for credit losses was recorded in prior quarters. The results in the corporate activity
component of Other Activity for the second quarter of 2002 included the $160 million provision for credit losses related in large part to credit exposure to customers that had been associated with allegations of accounting irregularities.



Income before taxes was a gain of $50 million for the first nine months of
2003, primarily resulting from gains on the sale of securities, partially offset by losses from venture capital activity. Income before taxes was a loss of $114 million for the first nine months of 2002, primarily resulting from the second quarter
$160 million provision for credit losses.



47



---

##### Table of Contents

Business sectors (continued)

---



Venture capital investments



The following table reports the third quarter 2003 and life-to-date activity of the Corporations venture capital investment portfolio.
For a discussion of the Corporations accounting policies relating to venture capital investments, which are regarded as critical accounting policies, see pages 33, 34 and 70 of the 2002 Financial Annual Report.



|                                                           
|-----------------------------------------------------------
|Venture capital investment portfolio activity (in millions)
|                                                           
|Direct investments:                                        
|Beginning carrying value                                   
|Investments - new investments                              
|Investments - additional funding for existing investments  
|Realized - cost basis of exits (a) and write-offs          
|Change in net unrealized gains/(losses)                    
|                                                           
|Ending carrying value (b)                                  
|                                                           

|(a) | Receipts on exits totaled $3 million in the third quarter of 2003 and $201 million life to date.
|--- | ------------------------------------------------------------------------------------------------

|(b) | At Sept. 30, 2003, there were 81 actively managed investments with an average cost basis of $7 million. In the third quarter of 2003, the Corporation invested $22 million and is
not committed to provide additional funding for direct investments at Sept. 30, 2003.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



---



|Fund investments (indirect):                      |  |   |     |   |  |  |  |   |      |  
|------------------------------------------------- |  | - | --- | - |  |  |  | - | ---- | -
|Beginning carrying value                          |  | $ | 193 |   |  |  |  | $ |     |  
|Draws against fund capital commitments            |  |   | 10  |   |  |  |  |   | 410  |  
|Realized - cost basis of exits (c) and write-offs |  |   | (11 | ) |  |  |  |   | (190 | )
|Change in net unrealized gains/(losses)           |  |   |    |   |  |  |  |   | (28  | )
|                                                 
|Ending carrying value (d)                         |  | $ | 192 |   |  |  |  | $ | 192  |  
|                                                 

|(c) | Receipts on exits totaled $11 million in the third quarter of 2003 and $161 million life to date.
|--- | -------------------------------------------------------------------------------------------------

|(d) | In the third quarter of 2003, the Corporation invested $10 million related to prior commitments and was committed to provide additional funding of $193 million for indirect fund
investments at Sept. 30, 2003. No new commitments for indirect funds have been made in 2003.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



---



|Active investments (e):       |  |   |      |    
|----------------------------- |  | - | ---- | ---
|Active investments cost basis |  | $ | 795  |    
|Unrealized gains/(losses)     |  |   | (191 | )  
|                             
|Ending carrying value         |  | $ | 604  | (e)
|                             

|(e) | This summary of active investments includes both direct and indirect investments. The ending carrying values represent 72% of direct investments cost basis and 87% of indirect
investments cost basis, for a combined 76% of all active investments cost basis.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



48



---

##### Table of Contents

Composition of loan portfolio

---



The loan portfolio at Sept. 30, 2003, decreased $469 million compared with June 30, 2003,
$1.2 billion compared with Dec. 31, 2002, and $2.1 billion compared with Sept. 30, 2002, primarily reflecting lower levels of commercial and financial loans.



|                                                
|------------------------------------------------
|Composition of loan portfolio (in millions)     
|                                                
|Domestic loans and leases:                      
|Commercial and financial                        
|Commercial real estate                          
|Personal                                        
|Lease finance assets                            
|                                                
|Total domestic loans and leases                 
|International loans and leases                  
|                                                
|Total loans and leases, net of unearned discount
|                                                

|(a) | Includes $2.945 billion of loans to Private Wealth customers and $925 million of loans to Mellon 1stBusiness Bank, National Association, customers.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------



Domestic and international commercial and financial loans and leases totaled $3.547 billion at Sept. 30, 2003, a $508 million, or 13%, decrease from June 30, 2003, a
$1.374 billion, or 28%, decrease from Dec. 31, 2002, and a $1.831 billion, or 34%, decrease from Sept. 30, 2002. These decreases resulted from actions taken to reduce exposure to the corporate and institutional market place and from securitizations
of insurance premium financing loans, including a securitization of insurance premium financing loans at a Canadian subsidiary in the first quarter of 2003.



Large corporate commercial and financial exposure - by industry sector



As shown in the following table, large corporate loans totaled $1.351 billion, a $728 million decrease from June 30, 2003. Part of this decrease is due to the Sept. 30,
2003, reclassification of approximately $350 million of commercial loans made primarily to private wealth customers for commercial purposes. These loans are now reported as commercial and financial - other and were previously reported as
commercial and financial - large corporate. Lease finance assets, included in other commercial and financial loans in the following table, represent large ticket leases, which will continue to run-off through repayments, possible sales
and no new originations.



49



---

##### Table of Contents

Composition of loan portfolio (continued)

---



---

Large corporate commercial and financial exposure at Sept. 30,
2003

(dollar amounts in millions)

|                                                
|------------------------------------------------
|                                                
|                                                
|Industry sector(a)                              
|Large corporate commercial and financial:       
|Insurance                                       
|Financial institutions                          
|Captive finance companies                       
|Electric and gas utilities                      
|Services                                        
|Energy                                          
|Investment management companies                 
|Cable/media                                     
|Chemicals                                       
|Electrical and electronic equipment             
|State & local government (d)                    
|Scientific and medical equipment                
|Transportation and warehousing                  
|All other                                       
|                                                
|Total commercial and financial - large corporate
|Total commercial and financial - other(f)       
|                                                
|Total (g)                                       
|Commercial real estate                          
|Personal                                        
|                                                
|Total                                           
|                                                
|Memo:                                           
|Credit default swaps                            
|                                                

|(a) | The industry sectors shown are those that comprise $500 million or more of unfunded commercial and financial commitments and/or $50 million or more in outstanding loans.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | Number of customers represents those customers with available commitments.
|--- | --------------------------------------------------------------------------

|(c) | Investment grade loans and commitments are those where the customer has a Moodys long-term rating of Baa3 or better, and/or a Standard and Poors long-term rating of
BBB- or better, or if unrated, has been assigned an equivalent rating using the Corporations internal risk rating. The percentages in the table are based upon the dollar amounts of investment grade loans and commitments as a percentage of the
related dollar amount of loans and commitments for each industry sector.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(d) | Includes $524 million of seasonal unfunded commitments that will expire by Dec. 31, 2003.
|--- | -----------------------------------------------------------------------------------------

|(e) | As of Sept. 30, 2003, approximately $350 million of commercial loans made primarily to private wealth customers for commercial purposes are reported as commercial and
financial - other. Previously, these loans were reported as commercial and financial - large corporate. In addition, approximately $90 million of unfunded commitments were similarly reclassified.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(f) | Includes commitments originated by Mellon Florida ($85 million) and Mellon 1st Business Bank, National Association ($450 million). Includes loans originated by
AFCO/CAFO, insurance premium financing subsidiaries ($429 million), Mellon Florida($187 million), Mellon 1st Business Bank, National Association ($350 million) and domestic and international lease finance loans ($631 million).
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(g) | Includes commercial and financial, lease finance and international loans and commitments.
|--- | -----------------------------------------------------------------------------------------

|(h) | Credit exposure has been hedged by purchasing $410 million of credit default swaps in the following industry sectors: scientific and medical equipment, $98 million; insurance,
$60 million; electrical and electronic equipment, $56 million; services, $30 million; chemicals, $26 million; and all other $140 million. The $410 million of credit default swaps includes $22 million of swaps related to letters of credit, which are
not shown in the table above. Amounts shown in the industry sector details have not been reduced by the amounts of credit default swaps.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

N/M  Not meaningful for this disclosure.



50



---

##### Table of Contents

Off-balance-sheet financial instruments with contract amounts that represent credit risk

---



|                                                                                                        
|--------------------------------------------------------------------------------------------------------
|Off-balance-sheet financial instruments with contract amounts that representcredit risk(a)
(in millions)
|                                                                                                        
|Commitments to extend credit (b):                                                                       
|Expire within one year                                                                                  
|Expire within one to five years                                                                         
|Expire over five years                                                                                  
|                                                                                                        
|Total commitments to extend credit                                                                      
|                                                                                                        
|Commercial letters of credit (c)                                                                        
|                                                                                                        
|Other guarantees and indemnities:                                                                       
|Standby letters of credit and foreign and other guarantees (d)                                          
|Custodian securities lent with indemnification against broker default of return of securities           
|Liquidity support provided to TRFC                                                                      
|                                                                                                        

|(a) | For a discussion of off-balance-sheet financial instruments with contract amounts that represent credit risk, see pages 107 through 110 of the 2002 Financial Annual Report. In
addition, the Corporation had commitments to fund venture capital investments of $193 million, $203 million, $239 million and $217 million, respectively.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | Net of participations totaling $445 million, $485 million, $588 million and $709 million, respectively.
|--- | -------------------------------------------------------------------------------------------------------

|(c) | Net of participations and collateral totaling $44 million, $27 million, $27 million and $16 million, respectively.
|--- | ------------------------------------------------------------------------------------------------------------------

|(d) | Net of participations and cash collateral totaling $230 million, $229 million, $203 million and $307 million, respectively. At Sept. 30, 2003, standby letters of credit and
foreign and other guarantees had a weighted average maturity of approximately 1 year.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Commitments to extend credit



Total
unfunded commitments to extend credit decreased $478 million, or 3%, compared with June 30, 2003, $2.190 billion, or 12%, compared with Dec. 31, 2002, and $4.101 billion, or 20%, compared with Sept. 30, 2002. Commitments to extend credit expiring
over one year at Sept. 30, 2003, decreased $91 million, or 1%, compared with June 30, 2003, $634 million, or 8%, compared with Dec. 31, 2002, and $878 million, or 11%, compared with Sept. 30, 2002, in part resulting from the Corporations
actions to exit credit relationships for which a broad fee-based relationship resulting from the cross-sale of fee-based services does not exist, or for which the customer does not meet the Corporations credit quality criteria.



The table on page 50 presents a summary of unfunded commitments to extend credit at Sept. 30,
2003.



Other guarantees and indemnities



In the normal course of business, the Corporation offers guarantees in support of certain
joint ventures and subsidiaries, and certain other guarantees and indemnities. For additional information on standby letters of credit and foreign and other guarantees, and custodian securities lent with indemnification against broker default of
return of securities, see pages 108 and 109 of the 2002 Financial Annual Report.



Standby letters of credit and foreign and other guarantees irrevocably obligate the Corporation for a stated period to disburse funds to a third-party beneficiary if the Corporations customer fails to perform under the terms of an
agreement with the beneficiary. The Corporation must recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. At Sept. 30, 2003, the Corporation had a liability of $6 million
related to letters of credit issued or modified in 2003. As



51



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##### Table of Contents

Off-balance-sheet financial instruments with contract amounts that represent credit risk (continued)

---



required by FIN 45, the fair value of the liability, which was recorded with an offsetting asset in Other assets, was estimated as the present value of
contractual customer fees.



Mellon Bank, N.A. and ABN AMRO Bank N.V. entered
into a joint venture to provide global securities services, with operations commencing in January 2003. Each of the two partners signed a statutory declaration under Dutch law as of Dec. 31, 2002, to be jointly and severally liable with the joint
venture to parties that have a provable contractual debt or damage claim. The benefit of this declaration is potentially available to all creditors and customers of the joint venture with valid legal claims where the joint venture has defaulted, and
totaled approximately $14.3 billion at Sept. 30, 2003, primarily relating to securities lending activity. This amount assumes that there is no capital or assets of the joint venture to satisfy such claims and that there is no level of contribution
by ABN AMRO Bank N.V.



As of Sept. 30, 2003, the Corporation provided a
guarantee for one-half of a $7 million debt incurred by Pareto Partners, in which the Corporation has a 30% equity interest.



The Corporation provides TRFC liquidity support and a letter of credit in support of TRFCs commercial paper. See below and pages 87 and 88 of the 2002 Financial
Annual Report for a detailed discussion of these arrangements.



The Corporation
has issued put options to holders of certificates sold by certain qualifying special-purpose entities (QSPEs), relating to the Corporations jumbo mortgage securitizations. The put options allow the holders to sell the certificates,
collateralized by the principal of the loans, to the Corporation at specified prices based on the then outstanding principal amount of the certificates at future dates if certain triggering events occur over the next five years. The total
certificates outstanding from the QSPEs at Sept. 30, 2003 subject to such agreements was $41 million. The liability for the put options has been reduced to zero at Sept. 30, 2003.



The Corporation has also provided standard representations for underwriting agreements, acquisition and divestiture agreements, sales of
loans and commitments, and other similar types of arrangements, and customary indemnification for claims and legal proceedings related to its provision of financial services. It is not possible to estimate a maximum potential amount of payments that
could be required with such agreements. The Corporation has purchased insurance to help mitigate certain of these risks.



The Corporation is a minority equity investor in, and member of, several industry clearing or settlement exchanges through which foreign exchange, securities or other
transactions settle. Certain of these industry clearing or settlement exchanges require their members to guarantee their obligations and liabilities or to provide financial support in the event other partners do not honor their obligations.



Referral arrangements with TRFC, an asset-backed commercial paper entity



The Corporations primary banking subsidiary, Mellon Bank, N.A. (the
Bank) has a referral relationship with Three Rivers Funding Corp. (TRFC), a special purpose entity that issues commercial paper. TRFC is owned by an independent third party and is not a subsidiary of either the Bank or the Corporation. Its financial
results are not included in the financial statements of the Bank or the Corporation. TRFC was formed in 1990 and can issue up to $5 billion of commercial paper to purchase pools of receivables or asset-backed securities. The Bank operates as a
referral agent and refers transactions to TRFC. For a complete description of the Corporations relationship with TRFC, see pages 87 and 88 of the 2002 Financial Annual



52



---

##### Table of Contents

Off-balance-sheet financial instruments with contract amounts that represent credit risk (continued)

---



Report. Fee revenue of $1 million was received from this entity in the third quarter of 2003 compared with $2 million in the second quarter of 2003 and $3
million in the third quarter of 2002, for the services and the liquidity and credit support facilities.



At Sept. 30, 2003, TRFCs receivables and commercial paper outstanding each totaled approximately $1.0 billion, compared with $1.2 billion at June 30, 2003. A letter of credit provided by the Bank in support of
TRFCs commercial paper totaled $73 million at Sept. 30, 2003, compared with $92 million at June 30, 2003. The Corporations maximum loss exposure related to TRFC, which is required to be disclosed under FASB Interpretation No. 46 (FIN
46), is the full amount of a liquidity facility, or $926 million, at Sept. 30, 2003 compared with $1.163 billion at June 30, 2003. However, the probability of this loss scenario is remote as it would mean that all of TRFCs receivables were
wholly uncollectible. Since TRFCs formation in 1990, the Bank has not been required to fund under any liquidity support agreement or under the letter of credit. In addition, the Bank has never purchased a receivable from TRFC or recorded a
credit loss related to its relationship with TRFC. As a result of actions taken by TRFC, the Corporation is not expected to be the primary beneficiary of TRFC, as defined by FIN 46, and does not expect to be required to consolidate
TRFCs assets and liabilities into the Corporations financial statements in the fourth quarter of 2003. See page 66 for a further discussion of FIN 46.



Nonperforming assets

---



Nonperforming assets increased $2 million at Sept. 30, 2003, compared with June 30, 2003, and decreased $6 million compared with Sept. 30,
2003. The $2 million increase in nonperforming assets compared with June 30, 2003, resulted primarily from the addition to nonperforming status of a $9 million loan to an energy company, primarily offset by loan sales and repayments. The remaining
portion of a $100 million loan to WorldCom, Inc. was sold in the third quarter of 2003 resulting in a $4 million reduction of nonperforming loans and a credit recovery of $3 million. The $6 million decrease primarily resulted from lower commercial
real estate nonperforming loans. Of the $63 million balance of total nonperforming assets at Sept. 30, 2003, $36 million was to a California-based electric and natural gas utility company that voluntarily filed for Chapter 11 bankruptcy protection
in the second quarter of 2001, $11 million was to a cable television operator, $9 million was to an energy company and $7 million consisted of various smaller loans and acquired assets. Additional information regarding the Corporations
practices for placing assets on nonaccrual status is presented in the Nonperforming assets discussion and in Note 1 in the Corporations 2002 Financial Annual Report.



53



---

##### Table of Contents

Nonperforming assets (continued)

---



|                                                                                       
|---------------------------------------------------------------------------------------
|Nonperforming assets (dollar amounts in millions)                                      
|                                                                                       
|Nonaccrual loans:                                                                      
|Commercial and financial                                                               
|Personal                                                                               
|Commercial real estate                                                                 
|Lease finance assets                                                                   
|                                                                                       
|Total nonperforming loans (a)                                                          
|Total acquired property                                                                
|                                                                                       
|Total nonperforming assets                                                             
|                                                                                       
|Nonperforming loans as a percentage of total loans                                     
|Nonperforming assets as a percentage of total loans and net acquired property          
|Nonperforming assets as a percentage of Tier I capital plus the reserve for loan losses
|                                                                                       

|(a) | Includes $23 million, $15 million, less than $1 million, and $22 million, respectively, of loans with both principal and interest less than 90 days past due but placed on
nonaccrual status by management discretion. These amounts represent 37%, 26%, 1%, and 33%, respectively, of total nonperforming loans.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                             
|-------------------------------------------------------------
|Change in nonperforming loans for the quarter ended Sept. 30,
|                                                             
|(in millions)                                                
|                                                             
|Nonperforming loans at June 30                               
|Additions                                                    
|Reductions from sales                                        
|Reductions from payments (a)                                 
|Credit losses from sales                                     
|Credit losses - other                                        
|Transfers to acquired property                               
|                                                             
|Nonperforming loans at Sept. 30                              
|                                                             

|(a) | Includes interest applied to principal.
|--- | ---------------------------------------



The following table presents the amount of loans that were 30-59 days, 60-89 days and 90 days or more past due as to principal or interest. Loans 90 days or more past
due, that are not classified as nonaccrual loans, were either well secured and in the process of collection, or were non-real estate secured personal loans that are automatically charged off upon reaching various stages of delinquency, generally 120
days past due. Real estate secured personal loans are generally placed on nonaccrual status upon reaching 180 days past due.



|                            
|----------------------------
|Past due loans              
|                            
|(dollar amounts in millions)
|                            
|Personal                    
|Commercial and financial    
|Commercial real estate      
|                            
|Total past due loans        
|                            



54



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##### Table of Contents

Provision and reserve for credit exposure

---



The Corporations accounting policies regarding the reserve for credit exposure are
regarded as critical accounting policies in that they involve significant management valuation judgements. The Corporations banking subsidiaries maintain a reserve for loan losses that is intended to adjust the value of their loans for
inherent credit losses. The banking subsidiaries also maintain a reserve for unfunded commitments, namely loan commitments, letters of credit and bankers acceptances, that is reported as a liability on the Corporations consolidated balance
sheet. Provisions are recorded for each reserve, if necessary. Transfers between the reserves can occur in conjunction with funding a loan and thereby decreasing unfunded commitments or conversely repaying a loan and thereby increasing unfunded
commitments. The level of the reserve for unfunded commitments is determined following a methodology similar to that used for the reserve for loan losses. The Corporation refers to the combined balance of the reserve for loan losses and the reserve
for unfunded commitments as the reserve for credit exposure. For a further discussion of the Corporations accounting policies relating to the reserve for credit exposure, see pages 54 and 55 of the 2002 Financial Annual Report.



The Corporations reserve for credit exposure is solely an estimate based
on managements judgement. Due to the significance of managements judgement used to calculate the Corporations reserves, actual losses incurred could be higher or lower than the estimated reserves. When losses on specific loans or
commitments are identified, management charges off the portion deemed uncollectible.



The allocation of the Corporations loan loss reserve is presented in the following table. This allocation is judgmental, and the entire reserve is available to absorb credit losses regardless of the type of loss.



|                                                 
|-------------------------------------------------
|Reserve for credit exposure (amounts in millions)
|                                                 
|Reserve for loan losses:                         
|Base reserves:                                   
|Commercial and financial                         
|Commercial real estate                           
|Personal                                         
|Lease assets                                     
|                                                 
|Total domestic base reserve                      
|International                                    
|                                                 
|Total base reserve                               
|Impairment                                       
|Unallocated                                      
|                                                 
|Total loan loss reserve                          
|                                                 
|                                                 
|Reserve for unfunded commitments:                
|Commitments                                      
|Letters of credit and bankers acceptances        
|                                                 
|Total unfunded commitments reserve               
|                                                 
|                                                 
|Total reserve for credit exposure                
|                                                 



The base reserve totaled $91 million
at Sept. 30, 2003, an increase of $1 million compared with $90 million at June 30, 2003 and a decrease of $13 million compared with Dec. 31, 2002 and $4 million compared with Sept. 30, 2002. The increase compared with June 30, 2003 was primarily
driven by higher commercial real estate and lease reserves due to a revised estimate of inherent loss. The decreases compared with Dec. 31,



55



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##### Table of Contents

Provision and reserve for credit exposure (continued)

---



2002, and Sept. 30, 2002, were driven by a lower commercial and financial base reserve reflecting the revised estimates of inherent losses and a lower level
of outstandings. The impairment reserve was $5 million at Sept. 30, 2003 compared with no impairment reserve at June 30, 2003, and $2 million at both Dec. 31, 2002, and Sept. 30, 2002. The increase compared with the prior periods primarily reflects
impairment reserves associated with new nonperforming loans. Nonperforming loans as a percentage of total loans were .86% at Sept. 30, 2003, compared with .77% at June 30, 2003, .68% at Dec. 31, 2002, and .72% at Sept. 30, 2002. The unallocated
reserve totaled $14 million at Sept. 30, 2003, a decrease of $9 million compared with $23 million at June 30, 2003. The reserve reflects continued uncertainty about the financial condition of customers in industries sensitive to increases in oil
prices, and in the energy/electrical utilities, certain retail and real estate customers as well as concern over customers currently facing regulatory or legal issues.



The reserve for unfunded commitments totaled $58 million at Sept. 30, 2003, an increase of $1 million from June 30, 2003, $15 million from
Dec. 31, 2002, and $14 million at Sept. 30, 2002. The reserve for letters of credit and bankers acceptances totaled $13 million at Sept. 30, 2003, an increase of $4 million from June 30, 2003. The increase in the reserves for commitments and letters
of credit and bankers acceptances compared with June 30, 2003, is due to revised estimates of inherent losses. The increases compared with Dec. 31, 2002, and Sept. 30, 2002, also reflects a general decline in credit quality in the first half of
2003.



There was no net provision for credit losses in the third quarter of
2003, compared with $3 million in the second quarter of 2003 and $2 million in the third quarter of 2002. The provision for credit losses of $166 million in the first nine months of 2002 was recorded in large part for credit exposure related to
customers that had been associated with allegations of accounting irregularities.



Net credit-related recoveries totaled $2 million in the third quarter of 2003, primarily resulting from the $3 million recovery from the sale of the remaining portion of the loan to WorldCom, Inc. This compared with net credit-related
losses of $2 million in the second quarter of 2003 and $115 million in the third quarter of 2002, as detailed in the table on page 57.



The reserve for loan losses as a percentage of total loans increased to 1.52% at Sept. 30, 2003, up from 1.46% at June 30, 2003, and 1.36% at Sept. 30, 2002, reflecting
the $469 million and $2.1 billion reduction in loans compared with June 30, 2003, and Sept. 30, 2002, respectively. The reserve as a percentage of nonperforming loans was 178% at Sept. 30, 2003, 189% at June 30, 2003, and 188% at Sept. 30, 2002.
These ratios are products of the reserve calculation methodology which estimates appropriate reserves for each component of the loan portfolio. The resulting ratios are benchmarks, but not targets. The ratio of the reserve for loan losses to
nonperforming loans is an outcome of two interrelated but separate processes: the establishment of an appropriate loan loss reserve level for the portfolio as a whole, including the nonperforming component in the portfolio; and the classification of
certain assets as nonperforming in accordance with established accounting, regulatory and management policies. While the level of nonperforming loans is an indication of the overall credit quality of the loan portfolio, there is no direct
correlation between the level of nonperforming loans and the size of the reserve for loan losses. The Corporations management concluded that, at Sept. 30, 2003, the overall reserve level was appropriate to recognize inherent losses in the loan
portfolio. The Audit Committee of the Board of Directors concurred.



56



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##### Table of Contents

Provision and reserve for credit exposure (continued)

---



|                                                                            
|----------------------------------------------------------------------------
|Reserve activityQuarter ended (dollar amounts in millions)                  
|                                                                            
|                                                                            
|Reserve at beginning of period                                              
|Credit losses:                                                              
|Domestic:                                                                   
|Commercial and financial                                                    
|Commercial real estate                                                      
|Personal                                                                    
|Lease finance assets                                                        
|                                                                            
|Total domestic                                                              
|International                                                               
|                                                                            
|Total credit losses                                                         
|                                                                            
|Recoveries:                                                                 
|Domestic:                                                                   
|Commercial and financial                                                    
|Commercial real estate                                                      
|Personal                                                                    
|Lease finance assets                                                        
|                                                                            
|Total domestic                                                              
|International                                                               
|                                                                            
|Total recoveries                                                            
|                                                                            
|Net credit recoveries (losses):                                             
|Domestic:                                                                   
|Commercial and financial                                                    
|Commercial real estate                                                      
|Personal                                                                    
|Lease finance assets                                                        
|                                                                            
|Total domestic                                                              
|International                                                               
|                                                                            
|Sub-total - net credit recoveries (losses)                                  
|Credit losses on loans transferred to held for sale                         
|                                                                            
|Total net credit recoveries (losses)                                        
|Loss on sale of commitments                                                 
|Provision for credit losses                                                 
|Net change in reserve from transfers and other activity:                    
|Dispositions/acquisitions                                                   
|Funding of commitments                                                      
|                                                                            
|Net change in reserve from transfers and other activity                     
|                                                                            
|Reserve at end of period                                                    
|                                                                            
|                                                                            
|Reserve for loan losses as a percentage of total loans (a)                  
|Reserve for loan losses as a percentage of nonperforming loans (a)          
|Reserve for unfunded commitments as a percentage of unfunded commitments (a)
|                                                                            
|Annualized net credit (recoveries) losses to average loans                  
|                                                                            

|(a) | At period end.
|--- | --------------

N/M  Not meaningful for this
disclosure.



57



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##### Table of Contents

Provision and reserve for credit exposure (continued)

---



|                                                               
|---------------------------------------------------------------
|Reserve activity Nine months ended (dollar amounts in millions)
|                                                               
|                                                               
|Reserve at beginning of period                                 
|Credit losses:                                                 
|Domestic:                                                      
|Commercial and financial                                       
|Commercial real estate                                         
|Personal                                                       
|Lease finance assets                                           
|                                                               
|Total domestic                                                 
|International                                                  
|                                                               
|Total credit losses                                            
|                                                               
|Recoveries:                                                    
|Domestic:                                                      
|Commercial and financial                                       
|Commercial real estate                                         
|Personal                                                       
|Lease finance assets                                           
|                                                               
|Total domestic                                                 
|International                                                  
|                                                               
|Total recoveries                                               
|                                                               
|Net credit (losses) recoveries:                                
|Domestic:                                                      
|Commercial and financial                                       
|Commercial real estate                                         
|Personal                                                       
|Lease finance assets                                           
|                                                               
|Total domestic                                                 
|International                                                  
|                                                               
|Sub-total - net credit (losses) recoveries                     
|Credit losses on loans transferred to held for sale            
|                                                               
|Total net credit (losses) recoveries                           
|Loss on sale of commitments                                    
|Provision for credit losses                                    
|Net change in reserve from transfers and other activity:       
|Dispositions/acquisitions                                      
|Funding of commitments                                         
|                                                               
|Net change in reserve from transfers and other activity        
|                                                               
|Reserve at end of period                                       
|                                                               
|Annualized net credit losses (recoveries) to average loans     
|                                                               

N/M  Not meaningful for this disclosure.



58



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##### Table of Contents

Asset/liability management

---



|                              
|------------------------------
|Average balances              
|(in millions)                 
|                              
|Assets:                       
|Money market investments      
|Trading account securities    
|Securities                    
|Loans                         
|                              
|Total interest-earning assets 
|Noninterest-earning assets    
|Reserve for loan losses       
|                              
|Total assets                  
|                              
|                              
|Funds supporting total assets:
|Core funds                    
|Purchased funds               
|                              
|Funds supporting total assets 
|                              



The decrease in the Corporations
average interest-earning assets compared with the second quarter of 2003 resulted from lower levels of securities and loans. This was due to the sales and prepayment of higher coupon mortgage-backed securities as a result of the lower interest rate
environment, and the continued reduction of large corporate loans. The decrease compared with the third quarter of 2002 resulted from a lower level of loans which more than offset higher levels of money market investments and securities.



Core funds, considered to be the most stable sources of funding, are defined principally
as institutional money market deposits and other deposit sweeps, individual money market and other savings deposits, savings certificates, demand deposits, shareholders equity, notes and debentures with original maturities over one year,
trust-preferred securities, and other liabilities. Core funds primarily support core assets, consisting of loans, net of the reserve, and noninterest-earning assets. Average core assets decreased $350 million in the third quarter of 2003 from the
second quarter of 2003, reflecting the lower level of loans. Core funds averaged 158% of core assets in the third quarter of 2003 compared with 152% in the second quarter of 2003 and 146% in the third quarter of 2002. The excess of core funds over
core assets are typically invested in securities.



Purchased funds are defined
as funds acquired in the wholesale money markets including deposits in foreign offices (excluding cash management and sub-custodial sweep deposits), federal funds purchased and securities sold under repurchase agreements, negotiable certificates of
deposit, other time deposits, U.S. Treasury tax and loan demand notes, term federal funds purchased, commercial paper, short-term bank notes and other funds borrowed. Average purchased funds decreased $1.5 billion in the third quarter of 2003 from
the second quarter of 2003, primarily due to lower overall funding needs combined with higher levels of core deposits. Average purchased funds totaled 11% of total average assets in the third quarter of 2003 compared with 15% in the second quarter
of 2003 and 12% in the third quarter of 2002.



59



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##### Table of Contents

Capital

---



|                                                                                                       
|-------------------------------------------------------------------------------------------------------
|Selected capital data (dollar
amounts in millions, except per shareamounts; common shares in thousands)
|                                                                                                       
|Total shareholders equity                                                                             
|Total shareholders equity to assets ratio                                                             
|                                                                                                       
|Tangible shareholders equity                                                                          
|Tangible shareholders equity to assets ratio(a)                                                       
|                                                                                                       
|Tier I capital ratio (b)                                                                               
|Total (Tier I plus Tier II) capital ratio (b)                                                          
|Leverage capital ratio (b)                                                                             
|Total Tier I capital                                                                                   
|Total (Tier I plus Tier II) capital                                                                    
|Total risk-adjusted assets                                                                             
|Average assets - leverage capital basis                                                                
|                                                                                                       
|Book value per common share                                                                            
|Tangible book value per common share                                                                   
|                                                                                                       
|Closing common stock price per share                                                                   
|Market capitalization                                                                                  
|Common shares outstanding                                                                              
|                                                                                                       

|(a) | Shareholders equity plus minority interest less goodwill and intangible assets divided by total assets less goodwill and intangible assets. Minority interest totaled $11
million, $13 million $17 million and $22 million, respectively. The amount of goodwill and intangible assets subtracted from shareholders equity and total assets is net of the tax benefit. Tax benefits related to tax deductible goodwill and
intangible assets totaled $459 million, $451 million, $448 million and $416 million, respectively.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | The required minimum Tier I, Total and Leverage capital ratios are 4%, 8% and 3%, respectively. For a banking institution to qualify as well capitalized, its Tier I, Total and
Leverage capital ratios must be at least 6%, 10% and 5%, respectively.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The Corporations improved capital ratios at Sept. 30, 2003, compared with June 30, 2003, reflect a lower level of period-end assets at Sept. 30, 2003, and the effect of earnings retention offset in part by the
impact of common stock repurchases, net of reissuances. The Tier I and Total capital ratios were impacted by the guarantee provided to the ABN AMRO Mellon custody joint venture primarily for securities lending activity, which at Sept. 30, 2003,
resulted in lower Tier I and Total capital ratios of approximately 105 basis points and 165 basis points, respectively.



During the third quarter of 2003, 1.7 million shares of common stock were repurchased at a purchase price of $54 million for an average share price of $30.97. Share
repurchases in the first nine months of 2003 totaled 5.2 million shares at a purchase price of $140 million for an average share price of $26.85, which more than offset reissuances of 4.6 million shares, primarily for employee benefit plan purposes.
At Sept. 30, 2003, an additional 21.8 million common shares were available for repurchase under a repurchase program authorized by the Board of Directors in October 2002.



60



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##### Table of Contents

Capital (continued)

---



The Corporation considers internally generated tangible capital to be available for the following: dividends to
shareholders; to support business growth; acquisitions; and share repurchases. The Corporation expects the majority of its internal capital generation to be available for acquisitions or, to the extent such acquisitions are not pending, for the
repurchase of common stock, all subject to maintaining its commitment to remain well capitalized. The Corporation endeavors to maintain a minimum tangible shareholders equity to assets ratio (as defined above) in a range of 5% to 6%.



|                                                                                    
|------------------------------------------------------------------------------------
|Common shares outstanding (in millions)                                             
|                                                                                    
|Beginning shares outstanding                                                        
|Shares issued primarily for stock-based benefit plans and dividend reinvestment plan
|Shares repurchased (a)                                                              
|                                                                                    
|Ending shares outstanding                                                           
|                                                                                    

|(a) | Purchase price of $54 million, $140 million and $698 million, respectively, for an average share price of $30.97, $26.85 and $34.27, respectively, for the third quarter of 2003,
the first nine months of 2003 and the full-year 2002, respectively.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In September 2003, the regulatory agencies proposed new capital guidelines concerning the risk-based capital treatment of asset backed commercial paper programs. The agencies proposal would require banks to hold risk-based capital
against short-term liquidity facilities provided to asset backed commercial paper programs. At Sept. 30, 2003, this proposal would have decreased the Corporations Tier I and Total risk-based capital ratios by 12 basis points and 18 basis
points, respectively.



Liquidity and dividends

---



The Corporation manages its liquidity position with
the objective of maintaining the ability to fund balance sheet commitments and to repay liabilities in accordance with their terms, even during periods of market or financial stress. Assets and liabilities are managed in such a way to accommodate
changes in funding requirements without generating a material adverse impact on net income. Core demand and time deposits, gathered from the Corporations private wealth management and corporate and institutional services businesses, are used
in conjunction with long term debt to provide stable sources of funding. Purchased funds, acquired from a variety of sources and customers in worldwide financial markets, are used to supplement the core sources of funding. Liquid assets, in the form
of money market investments and portfolio securities held available for sale, are also utilized to meet short-term requirements for cash. Liquidity is managed on both a consolidated basis and at Mellon Financial Corporation (Parent Corporation).



The Parent Corporation has access to the following principal sources of
liquidity: dividends and interest from its subsidiaries, the commercial paper market, a revolving credit agreement with third party financial institutions and access to the capital markets. The ability of national bank subsidiaries to pay dividends
to the Parent Corporation is subject to certain regulatory limitations. For a discussion of these limitations, see Note 25 in the 2002 Financial Annual Report. Under the more restrictive limitation, the Corporations national bank subsidiaries
can, without prior regulatory approval, declare dividends subsequent to Sept. 30, 2003 and through Dec. 31, 2003 of up to approximately $690 million, less any dividends declared and plus or minus net profits or losses, as defined, earned between
Oct. 1, 2003, and the date of any such dividend declaration. Beginning Jan. 1, 2004, the subsidiary banks will no longer be permitted to consider retained earnings from 2001, the year in which the sale of various businesses to Citizens occurred,
when determining



61



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##### Table of Contents

Liquidity and dividends (continued)

---



dividend capacity because such earnings will have occurred more than two calendar years prior thereto. Excluding net retained earnings available from 2001,
the dividend limit at Sept. 30, 2003 would have been approximately $165 million.



At Sept. 30, 2003, the Parent Corporation held cash and marketable securities of $847 million. For the third quarter of 2003, the Parent Corporations quarterly average commercial paper borrowings were $18 million, compared with $19
million in the third quarter of 2002. Commercial paper outstanding was $12 million at Sept. 30, 2003.



The Parent Corporation has a $250 million revolving credit agreement with financial institutions that expires in June 2004. There were no borrowings under this facility at Sept. 30, 2003. The Parent Corporation also
has the ability to access the capital markets. On July 28, 2003, the Corporation filed a shelf registration statement with the Securities and Exchange Commission. This statement was declared effective by the Securities and Exchange Commission on
Aug. 21, 2003. At Sept. 30, 2003, the Parent Corporation had $2 billion of capacity to issue debt, equity and trust-preferred securities. In November 2003, the Corporation issued $250 million of 5.50% subordinated notes maturing in November 2018.
There were no contractual maturities of the Corporations long-term debt in the third quarter of 2003. Contractual maturities will total approximately $300 million for the remainder of 2003 and approximately $200 million in 2004. Access to the
capital markets is partially dependent on the Corporations and Mellon Bank, N.A.s credit ratings which are shown in the following table.



|                                                         
|---------------------------------------------------------
|Senior and subordinated debt ratings    at Sept. 30, 2003
|                                                         
|Mellon Financial Corporation:                            
|Issuer rating                                            
|Senior debt                                              
|Subordinated debt                                        
|Mellon Bank, N.A.:                                       
|Long-term deposits                                       
|Subordinated debt                                        
|                                                         



The Corporation paid $60 million in
common stock dividends in the third quarter of 2003, compared with $51 million in the prior-year period. The common dividend payout ratio, on a net income basis, was 33% in the third quarter of 2003 on a dividend of $.14 per share compared with 27%
in the third quarter of 2002 on a dividend of $.12 per share. On Oct. 21, 2003, the Corporation announced a $.02, or 14%, increase in its quarterly common stock dividend to $.16 per share. Based upon shares outstanding at Sept. 30, 2003, and the new
quarterly common stock dividend rate of $.16 per share, the annualized common stock dividend requirement would be approximately $275 million.



As shown in the consolidated statement of cash flows, cash and due from banks decreased by $109 million during the first nine months of 2003 to $2.619 billion. The
decrease resulted from $3.361 billion of net cash used in financing activities, partially offset by $2.547 billion of net cash provided by investing activities and $703 million of net cash provided by operating activities. Net cash used in financing
activities primarily resulted from a lower level of deposits. Net cash provided by investing activities primarily resulted from a decrease in the level of federal funds sold, loan levels and securities available for sale.



62



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##### Table of Contents

Interest rate sensitivity analysis

---



Interest rate risk is measured using net interest margin simulation and asset/liability net
present value sensitivity analyses. The following table illustrates the simulation analysis of the impact of a 50, 100 and 200 basis point shift upward or 50 and 100 basis point shift downward in interest rates on net interest revenue, earnings per
share and return on equity. Given the low interest rate environment that existed in the third quarter of 2003, the impact of a 200 basis point downward shift is not shown in the table. This analysis was prepared using the levels of all
interest-earning assets, supporting funds and derivative instruments used for interest rate risk management at Sept. 30, 2003, and excluding the impact of interest receipts on nonperforming loans. The impact of the rate movements was developed by
simulating the effect of rates changing in a gradual fashion over a six-month period from the Sept. 30, 2003, levels and remaining at those levels thereafter. Financial market conditions and managements response to events may cause actual
results to differ from simulated results. Additional information regarding the Corporations interest rate risk management is presented in the Interest rate sensitivity analysis discussion in the Corporations 2002 Financial
Annual Report.



|                                                                       
|-----------------------------------------------------------------------
|Interest rate simulation sensitivity analysis                          
|                                                                       
|Simulated impact in the next 12 months    compared with Sept. 30, 2003:
|                                                                       
|                                                                       
|                                                                       
|Net interest revenue decrease                                          
|Earnings per share decrease                                            
|Return on equity decrease                                              
|                                                                       



The anticipated impact on net interest
revenue under various scenarios did not exceed the Corporations guidelines for assuming interest rate risk at both Sept. 30, 2003, and Sept. 30, 2002. The simulation results reflect the Corporations efforts to manage the repricing
characteristics of its interest-earning assets and supporting funds. The guidelines used by the Corporation for assuming interest rate risk are presented on page 42 of the 2002 Financial Annual Report.



Managing interest rate risk with derivative instruments



Derivatives are used as part of the Corporations overall asset/liability management
process to augment the management of interest rate exposure. The following table presents the gross notional amounts and weighted-average maturities of derivative instruments used to manage interest rate risk, identified by the underlying interest
rate-sensitive instruments. The gross notional amount of interest rate swaps used to manage interest rate risk was $1.878 billion lower at Sept. 30, 2003, compared with Dec. 31, 2002, due to maturities of instruments associated with money market
deposits. The notional amounts should be viewed in the context of the Corporations overall interest rate risk management activities to assess the impact on the net interest margin. Additional information regarding these contracts is presented
in Note 28 in the 2002 Financial Annual Report.



63



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##### Table of Contents

Interest rate sensitivity analysis (continued)

---



|                                                                                       
|---------------------------------------------------------------------------------------
|Interest rate swaps used to    manage interest rate risk                               
|(notional amounts in millions)                                                         
|                                                                                       
|Receive fixed instruments associated with long term debt and trust-preferred securities
|Pay fixed instruments associated with deposits                                         
|Pay fixed instruments associated with loans                                            
|                                                                                       
|Total notional amount (a)                                                              
|                                                                                       

|(a) | The amount of credit risk associated with these instruments is limited to the cost of replacing a contract in a gain position, on which a counterparty may default. Credit risk
associated with these instruments was $258 million at Sept. 30, 2003, $262 million at Dec. 31, 2002, and $313 million at Sept. 30, 2002. The credit risk associated with interest rate swaps is calculated after considering master netting agreements,
which includes derivative instruments used for risk management purposes and derivative instruments used for trading activities.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The interest received and interest paid are recorded on an accrual basis in the interest revenue and interest expense accounts associated with the underlying liabilities
and assets. The net differential resulted in interest revenue of $30 million and $91 million in the third quarter and first nine months of 2003, compared with interest revenue of $24 million and $67 million in the third quarter and first nine months
of 2002. The estimated unrealized fair value of the Corporations risk management derivative instruments at Sept. 30, 2003, was $288 million, compared to $277 million at Dec. 31, 2002, and $310 million at Sept. 30, 2002. These values must be
viewed in the context of the overall financial structure of the Corporation, including the aggregate net position of all on- and off-balance-sheet instruments.



Fair value hedges



The Corporation enters into interest rate swaps to convert portions of its fixed rate trust-preferred securities to floating rate securities, its fixed rate long-term debt to floating rate debt and, to a small degree,
certain fixed rate loans to variable rate loans. The fixed rate liability instruments are changed to variable rate instruments by entering into receive fixed/pay variable swaps and the fixed rate asset instruments are changed to variable rate
instruments by entering into pay fixed/receive variable swaps. No ineffectiveness was recorded for the nine months ended Sept. 30, 2003, and Sept. 30, 2002.



Cash flow hedges



The Corporation uses interest rate swaps to convert money market deposits to fixed rate deposits. The deposits are changed to fixed rate by entering into pay fixed/receive floating swaps. Changes in the fair value of
the interest rate swaps designated as hedging instruments of the variable cash flows associated with the Corporations deposits are reported in comprehensive results. These amounts are subsequently reclassified from accumulated other
comprehensive results to interest expense in the same period in which the related interest on the deposits affects earnings. At Sept. 30, 2003, there were no outstanding cash flow hedges. Ineffectiveness of less than $1 million was recorded for the
nine months ended Sept. 30, 2003, and Sept. 30, 2002.



64



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##### Table of Contents

Interest rate sensitivity analysis (continued)

---



Hedges of net investment in foreign operations



The Corporation uses five year yen denominated debt to hedge its investment in a Japanese bank. The purpose of this hedge is to protect
against adverse movements in exchange rates.



Instruments used for trading
activities

---



The
Corporation enters into various foreign exchange and interest rate derivative contracts for trading purposes. Trading activities primarily involve providing various derivative products to customers to assist them in managing foreign currency
exchange risk, interest rate risk and equity price risk and for managing the Corporations risks in certain trading portfolios and as part of its proprietary trading activities. All of these instruments are carried at market value with realized
and unrealized gains and losses included in foreign exchange revenue and securities trading revenue. Additional information regarding these contracts is presented on pages 45 and 46 and in Note 28 in the 2002 Financial Annual Report.



Credit default swaps allow the transfer of credit risk from one party to another for a fee.
At Sept. 30, 2003, the Corporation had $410 million notional value of credit default swaps outstanding. These swaps are used to hedge credit risk associated with commercial lending activities, and are included with the other products in the
following table. Fair value adjustments resulting in net gains of $3 million were recorded in securities trading revenue on the credit default swaps in the third quarter of 2003. Such net gains were $2 million in the first nine months of 2003.



|                                                                         
|-------------------------------------------------------------------------
|Instruments used for trading activities(a) (notional amounts in millions)
|                                                                         
|Foreign currency contracts:                                              
|Commitments to purchase                                                  
|Commitments to sell                                                      
|Foreign currency option contracts purchased                              
|Foreign currency option contracts written                                
|Interest rate agreements:                                                
|Interest rate swaps                                                      
|Options, caps and floors purchased                                       
|Options, caps and floors written                                         
|Futures and forward contracts                                            
|Other products                                                           
|                                                                         

|(a) | The amount of credit risk associated with these instruments is limited to the cost of replacing a contract in a gain position, on which a counterparty may default. Credit risk
associated with these instruments, primarily foreign currency and option contracts, was $814 million at Sept. 30, 2003, $1.038 billion at June 30, 2003, $1.119 billion at Dec. 31, 2002, and $936 million at Sept. 30, 2002. The credit risk associated
with these instruments is calculated after considering master netting agreements, which are generally applicable to instruments used for both trading activities and risk management purposes.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The Corporation uses a value-at-risk methodology to estimate the potential daily amount that
could be lost from adverse market movements. Using the Corporations methodology, which considers such factors as changes in currency exchange rates, interest rates, spreads and related volatility, the aggregate value-at-risk for trading
activities was approximately $7 million at Sept. 30, 2003, compared with approximately $5 million at Dec. 31, 2002.



65



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##### Table of Contents

Recent accounting pronouncements and developments

---



In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with characteristics of both Liabilities and Equity. SFAS No. 150 establishes standards for classifying and measuring certain financial instruments with characteristics of both liabilities and equity. SFAS No. 150 was effective for
financial instruments entered into or modified after May 31, 2003. The Corporation does not expect this pronouncement to have a material impact on its results of operations or financial condition.



In April 2003, the FASB issued SFAS No. 149, Amendment of Statement No. 133 on
Derivative Instruments and Hedging Activities. Among other things, this Statement requires that contracts with comparable characteristics be accounted for similarly and clarifies under what circumstances a contract with an initial net
investment meets the characteristics of a derivative. SFAS No. 149 was effective July 1, 2003. The Corporation does not expect this pronouncement to have a material impact on its results of operations or financial condition.



In January 2003, the FASB issued Interpretation No. 46 (FIN 46), Consolidation of
Variable Interest Entities. This Interpretation addresses consolidation by business enterprises of variable interest entities (VIEs). A VIE is subject to the consolidation provisions of FIN 46 if, by design, it cannot support its financial
activities without additional subordinated financial support from other parties and does not have equity investors which as a group have the ability to make decisions about its activities through voting rights. FIN 46 requires a VIE to be
consolidated by its primary beneficiary. The primary beneficiary is the party that holds variable interests that expose it to a majority of the entitys expected losses and/or residual returns. The application of this Interpretation was
immediate for VIEs created after Jan. 31, 2003. On Oct. 9, 2003, the FASB deferred the implementation date of FIN 46 until the fourth quarter of 2003 for variable interest entities that existed prior to Feb. 1, 2003.



Three Rivers Funding Corporation (TRFC), a VIE, is not expected to be subject to the
consolidation provisions of FIN 46 in the Corporations financial statements because it sold subordinated capital notes to an unrelated third party, and since the holder of the subordinated notes is required to absorb the expected loss amount,
the Corporation is not expected to be TRFCs primary beneficiary. Along with other companies and the accounting industry, the Corporation is evaluating and interpreting the potential impact of FIN 46 on the accounting for its Trust-Preferred
Securities as well as the continued consolidation of the statutory business trusts that issued these securities. The Trust-Preferred Securities were issued by two statutory business trusts, the common stock of which is 100% owned by the Corporation.
The Trust-Preferred Securities of one of the business trusts are currently hedged and to date, a $50 million change in fair value has been recorded as an adjustment to the carrying value of the hedged liabilities, along with a corresponding $50
million change in the fair value of the related hedging instrument. In July 2003, the Federal Reserve Board issued a supervisory letter indicating that Trust-Preferred Securities currently will continue to qualify as Tier 1 capital for regulatory
purposes until further notice. The Federal Reserve Board has also stated that it will continue to review the regulatory implications of any accounting treatment changes and will provide further guidance, if necessary. No other impact of significance
on the Corporations results of operations or financial condition is expected from this Interpretation. However, the FASB staff and the accounting industry continue to address specific interpretative and implementation issues regarding this
Interpretation. The results of these actions could change the Corporations assessment of the impact of the Interpretation.



For a discussion of the adoption of new accounting standards, see Note 2 of the Notes to Financial Statements.



66



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##### Table of Contents

Item 4. - Controls and procedures

---



The Corporations principal executive officer and principal financial officer have evaluated the effectiveness of the Corporations disclosure controls
and procedures, as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended, (the Exchange Act) as of Sept. 30, 2003. Based upon their evaluation, the principal executive officer and principal
financial officer concluded that the Corporations disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed by the Corporation in the reports filed or submitted by it under the
Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms, and to provide reasonable assurance that information required to be disclosed by the Corporation in such reports is
accumulated and communicated to the Corporations management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.



There was no change in the Corporations internal control over financial
reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) that occurred during the quarter ended Sept. 30, 2003, that has materially affected, or is reasonably likely to materially affect, the Corporations internal
control over financial reporting.



Cautionary statement

---



This Quarterly Report on Form 10-Q contains and incorporates by reference statements relating to future results of the Corporation that are considered forward-looking statements. These statements, which
may be expressed in a variety of ways, including the use of future or present tense language, relate to, among other things: annual occupancy expense; the fair value of guarantee obligations; amounts of contingent and deferred consideration payable
for acquisitions; expected amortization expense; results of charges in the HR&IS sector; the impact on investment management fees of changes in the Standard & Poors 500 Index; potential future venture capital losses and possible
changes in the value of the portfolio; the potential impact on revenue of the Corporations stated intention to reduce credit availability to the corporate and institutional marketplace; planned reduction of positions; effective tax rates;
liabilities for guarantees and indemnities; possible losses related to Three Rivers Funding Corp.; credit exposure reserve appropriateness; uses of internal capital generation; intentions as to capital ratios of the Corporation and its banking
subsidiaries and maintaining a minimum tangible shareholders equity to assets ratio; the Corporations liquidity management and interest rate risk management objectives; maturities of debt; simulation of changes in interest rates; the
value-at-risk for trading activities; the effects of recent accounting changes; the impact of FASB Interpretation No. 46; and litigation results.



These forward-looking statements, and other forward-looking statements contained in other public disclosures of the Corporation which make reference to the cautionary
factors contained in this Report, are based on assumptions that involve risks and uncertainties and that are subject to change based on various important factors (some of which are beyond the Corporations control). Actual results may differ
materially from those expressed or implied as a result of these risks and uncertainties, including, but not limited to:



Changes in political and economic conditions. Changes in political and economic conditions can affect the Corporations opportunities to sell its
products and services. If conditions cause customers to become more cautious, the Corporations revenues could be adversely affected. Conversely, the Corporation will likely have greater opportunities during periods of economic growth and
political optimism. These same factors can similarly affect companies in the Corporations venture capital investment portfolio.



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Cautionary statement (continued)

---



Relevant benchmark to estimate future changes in investment management fees. This report presents
estimates as to the effect sustained changes in the Standard & Poors 500 Index would have on the Corporations investment management fees. The S&P 500 Index was chosen for purposes of such estimates because it is a widely
recognized measure and the Corporation has been able to establish a degree of correlation between the index and the Corporations investment management fees over prior periods. While the Corporation believes this index is the best industry
benchmark for purposes of these estimates, the diversity of the Corporations equity assets under management is such that the Corporations current and future equity asset mix will not be fully reflected in this or any other similar
industry measure. Accordingly, the actual impact on investment management fees from a change in the S&P 500 Index may vary from the Corporations estimates.



Equity and fixed-income market fluctuations. As price levels in the equity and fixed-income markets increase or decrease, the
Corporations opportunities to sell its products and services, to invest and to manage financial assets may change. Because certain of the Corporations fee revenue is based on the value of assets under management or custody, fluctuations
in market valuations will affect revenue.



Changes in the mix of assets
under management. Because management fees can vary by asset class, revenues can be affected by the types of assets that at a given time are most attractive to customers.



The effects of the adoption of new accounting standards. The adoption of new accounting standards could affect the
Corporations income statement, balance sheet, statement of cash flows or statement of changes in shareholders equity. New standards could cause reported amounts to increase or decrease or impact the comparability of current and prior
period results.



Corporate and personal customers
bankruptcies. An increase in corporate and personal customers bankruptcies can require higher credit loss provisions and higher charges against the reserve for credit exposure negatively impacting net income and various capital ratios.



Operational risk. Operational risk is the risk of (direct or
indirect) loss resulting from inadequate or failed internal processes, people and systems, or from external events. It is the potential for loss that arises from problems with operating processes, human error or omission, breaches in internal
controls, fraud or unforeseen catastrophes.



Inflation.
Inflation, disinflation or deflation can impact a variety of economic measures and market values that are important to the Corporations financial performance including interest rates, equity and fixed-income market values, the
Corporations expense levels and prices for the Corporations products and services.



Levels of tax-free income. The level of the Corporations tax-exempt income can affect the Corporations effective tax rate.



Technological change. Technology is a very important component of many of the Corporations products and services as well
as being critically important to the Corporations internal operating processes. A faster rate of technological change can require the Corporation to invest more in technology to remain competitive and thus lead to higher expenses. On the other
hand, technological change creates the opportunity for product differentiation and higher revenues as well as reduced costs. There is a risk to the Corporation if its competitors are able to use technology to develop more marketable products and/or
services at lower prices than the Corporation can offer.



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Cautionary statement (continued)

---



Success in the timely development of new products and services. The Corporation operates in a highly
competitive environment in all of the markets it serves. The timely development of new products and services can represent a competitive advantage leading to increased revenues while the inability to do so can have the opposite effect.



Competitive product and pricing pressures within the Corporations
markets. Competitive product and pricing pressures can affect the Corporations ability to sell its products and services and can impact the prices the Corporation is able to charge. Demand for the Corporations products and
services, price levels and activities of competitors will affect the Corporations revenues.



Customer spending and saving habits. The Corporation benefits from the savings of customers that are invested in mutual funds, defined contribution plans and other products offered or serviced by the
Corporation. Changes in the rate of savings or preferred investment styles may affect the Corporations revenues.



Interest rate fluctuations. Interest rate fluctuations, the levels of market interest rates, the shape of the yield curve, the direction of interest rate
changes and fluctuations in the interest rate spreads between different fixed income investments can affect the Corporations cost of funds, its net interest revenue and any other revenue that has a sensitivity to interest rates. Interest rate
fluctuations can also impact the demand for different investment products offered by the Corporation. In general, the Corporation attempts to mitigate the effects of either significant increases or decreases in interest rates on its income
statement.



Monetary fluctuations. Changes in monetary and credit
conditions and their effect on the economy and the financial markets may impact the Corporation in a variety of ways.



Acquisitions and integrations of acquired businesses. Acquisitions of businesses or lines of business are an active part of the Corporations business
strategy and use of excess capital. Any acquisition presents execution risk. There can be no assurance that the operational or financial performance of an acquired business will be as expected, that any desired synergies will occur or that an
acquired business will be successfully assimilated into the Corporation.



Changes in law. The Corporation operates in a highly regulated environment, both within and outside the United States. Many laws and many regulatory agencies, both domestic and foreign, impact its operations. Changes in law
could affect the competitive environment in which the Corporation operates, broaden or narrow the scope of permitted activities of it and its competitors, facilitate or retard consolidation, impose higher costs or operating burdens and challenge the
Corporation to adapt quickly and effectively to such changes.



Changes in
fiscal, monetary, regulatory, trade and tax polices and laws. Changes in these policies and laws could affect the products and services the Corporation offers and therefore its revenues, as well as impose additional costs and expenses, such
as higher taxes. Also, any significant changes will challenge the Corporation to adapt quickly and effectively.



Success in gaining regulatory approvals when required. The Corporation operates in a highly regulated environment, both within and outside the United
States. If regulatory approval is required for an activity, product, service, acquisition or disposition and approval cannot be obtained on a timely basis, the Corporation could miss the opportunity and the particular benefits it presented.



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Cautionary statement (continued)

---



The uncertainties inherent in the litigation process. At any given time, the Corporation is subject to
various pending and threatened legal actions and proceedings. The Corporation evaluates the risks of these actions and proceedings within the context of current judicial decisions and legislative and regulatory interpretations. A trier of fact,
either a judge or jury, could decide a case contrary to the Corporations evaluation of the relevant facts or law, and a court or regulatory agency could act to change existing law on a particular issue.



The effects of recent and any further terrorist acts and the results of the war on
terrorism. Terrorist acts could have a significant impact on economic activity and could cause the Corporations customers not to purchase, or delay purchasing, the Corporations products and services. In addition, the Corporation
has in place business continuity and disaster recovery plans. Terrorists acts could, however, cause damage to the Corporations facilities or could cause delays or disruptions to its operations. The Corporations vendors and counterparties
could be similarly affected;



as well as other risks and uncertainties detailed
elsewhere or incorporated by reference in this Quarterly Report on Form 10-Q and in the Corporations Annual Report on Form 10-K for the year ended Dec. 31, 2002, and in subsequent reports filed by the Corporation with the Securities and
Exchange Commission pursuant to the Securities Exchange Act of 1934. All statements speak only as of the date on which such statements are made, and the Corporation undertakes no obligation to update any statement to reflect events or circumstances
after the date on which such statement is made or to reflect the occurrence of unanticipated events.



PART II - OTHER INFORMATION

---



Item 1. Legal Proceedings.



Various legal
actions and proceedings are pending or are threatened against the Corporation and its subsidiaries, some of which seek relief or damages in amounts that are substantial. These actions and proceedings arise in the ordinary course of the
Corporations businesses and operations and include suits relating to its lending, collections, servicing, investment, mutual fund, advisory, trust, custody, benefits consulting, shareholder services, cash management and other activities and
operations. Because of the complex nature of some of these actions and proceedings, it may be a number of years before such matters ultimately are resolved. After consultation with legal counsel, management believes that the aggregate liability, if
any, resulting from such pending and threatened actions and proceedings will not have a material adverse effect on the Corporations financial condition, results of operations and cash flows.



Item 2. Changes in Securities and Use of Proceeds.



|(c) | On July 30, 2003, and August 29, 2003, the Corporation issued a total of 371,000 shares of Common Stock (the Shares), to the shareholders of The Arden Group, Inc.
(Arden Group) in connection with the acquisition of The Arden Group by the Corporation. The Arden Group shareholders may receive additional shares of Common Stock from time to time if certain conditions are met. The issuance of the
Shares was exempt from registration under Section 4(2) of the Securities Act of 1933, as amended. The Shares were issued to a limited number of sophisticated investors who acquired the Shares for their own account and who represented that any sales
would be pursuant to an effective registration statement or an applicable exemption from registration.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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PART II - OTHER INFORMATION (continued)

---



Item 6. Exhibits and Reports on Form 8-K.



|(a) | Exhibits
|--- | --------



|     | 
|---- | 
|3.1  | 
|     | 
|3.2  | 
|     | 
|4.1  | 
|     | 
|10.1 | 
|     | 
|12.1 | 
|     | 
|12.2 | 
|     | 
|31.1 | 
|     | 
|31.2 | 
|     | 
|32.1 | 
|     | 
|32.2 | 



|(b) | Reports on Form 8-K
|--- | -------------------



During the third quarter of 2003, the Corporation filed or furnished the following Current Reports on Form 8-K:



| | (1) | A report dated July 15, 2003, which included, under Items 7 and 9, the Corporations press release announcing results of operations for the second quarter of 2003.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | A report dated July 31, 2003, which included, under Items 5 and 7, the Corporations press release announcing that it has completed its previously announced acquisition of The
Arden Group, a privately held, Atlanta-based investment management firm.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | A report dated August 7, 2003, which included, under Item 7, the Corporations Business Sectors Financial Information and Financial Trends through Second Quarter 2003.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



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SIGNATURE



Pursuant to the requirements of the
Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



|                       |  |  |  | MELLON FINANCIAL CORPORATION (Registrant)
|---------------------- |  |  |  | -----------------------------------------
|                       |  |  | 
|Date: November 7, 2003 |  |  |  | By:                                      
|                       |  |  |  |                                          
|                       |  |  |  |                                          



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CORPORATE INFORMATION

---



|                                                     | 
|---------------------------------------------------- | 
|Business of the Corporation                          | 
|                                                     | 
|Corporate Communications/ Media Relations            | 
|                                                     | 
|Direct Stock Purchase and Dividend Reinvestment Plan | 
|                                                     | 
|Dividend Payments                                    | 
|                                                     | 
|Exchange Listing                                     | 
|                                                     | 
|Form 10-K and Shareholder Publications               | 
|                                                     | 
|Internet Access                                      | 
|                                                     | 
|Investor Relations                                   | 
|                                                     | 
|Publication Requests/ Securities Transfer Agent      | 
|                                                     | 
|Stock Prices                                         | 



The contents of the listed Internet
sites are not incorporated into this Quarterly Report on Form 10-Q.



Mellon entities are Equal Employment Opportunity/Affirmative Action employers. Mellon is committed to providing equal employment opportunities to every employee and every applicant for employment, regardless of, but not limited to, such
factors as race, color, religion, sex, national origin, age, familial or marital status, ancestry, citizenship, sexual orientation, veteran status or being a qualified individual with a disability.



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Index to Exhibits



|Exhibit No. |  | Description                                                                                                                                                                                   |  | Method of Filing                                                                                                                                              
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------
|            |  |                                                                                                                                                                                              
|3.1         |  | Restated Articles of Incorporation of Mellon Financial Corporation, as amended and restated as of Sept. 17, 1998, and as amended Oct. 18, 1999.                                               |  | Previously filed as Exhibit 3.1 to Quarterly Report on Form 10-Q (File No. 1-7410) for the quarter ended Sept. 30, 1999, and incorporated herein by reference.
|            |  |                                                                                                                                                                                              
|3.2         |  | By-Laws of Mellon Financial Corporation, as amended, effective Oct. 19, 1999.                                                                                                                 |  | Previously filed as Exhibit 3.2 to Quarterly Report on Form 10-Q (File No. 1-7410) for the quarter ended Sept. 30, 1999, and incorporated herein by reference.
|            |  |                                                                                                                                                                                              
|4.1         |  | Shareholder Protection Rights Agreement, dated as of Oct. 15, 1996, between Mellon Financial Corporation and Mellon Bank, N.A., as Rights Agent, as amended and restated as of Oct.
19, 1999. |  | Previously filed as Exhibit 1 to Form 8-A/A Registration Statement (File No. 1-7410) dated Oct. 19, 1999, and incorporated herein by reference.               
|            |  |                                                                                                                                                                                              
|10.1        |  | Mellon Financial Corporation Elective Deferred Compensation Plan for Senior Officers, as amended, effective Jan. 1, 2003.                                                                     |  | Previously filed as Exhibit 4.2 to Registration Statement on Form S-8 (Registration No. 333-109193) and incorporated herein by reference.                     
|            |  |                                                                                                                                                                                              
|12.1        |  | Computation of Ratio of Earnings to Fixed Charges (Parent Corporation).                                                                                                                       |  | Filed herewith.                                                                                                                                               
|            |  |                                                                                                                                                                                              
|12.2        |  | Computation of Ratio of Earnings to Fixed Charges (Mellon Financial Corporation and its subsidiaries).                                                                                        |  | Filed herewith.                                                                                                                                               
|            |  |                                                                                                                                                                                              
|31.1        |  | Rule 13a-14(a) Certification of Chief Executive Officer.                                                                                                                                      |  | Filed herewith.                                                                                                                                               
|            |  |                                                                                                                                                                                              
|31.2        |  | Rule 13a-14(a) Certification of Chief Financial Officer.                                                                                                                                      |  | Filed herewith.                                                                                                                                               



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Index to Exhibits (continued)



|Exhibit No. |  | Description                                            |  | Method of Filing   
|----------- |  | ------------------------------------------------------ |  | -------------------
|            |  |                                                       
|32.1        |  | Section 1350 Certification of Chief Executive Officer. |  | Furnished herewith.
|            |  |                                                       
|32.2        |  | Section 1350 Certification of Chief Financial Officer. |  | Furnished herewith.



75