##### Table of Contents

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



[ü] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934



For the Quarterly Period Ended September 30, 2004



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  ü    No



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



Yes  ü    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, 2004
|                             | 
|Common Stock, $.50 par value |  | 423,548,521                     



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##### Table of Contents

MELLON FINANCIAL CORPORATION

THIRD QUARTER 2004 FORM 10-Q

TABLE OF CONTENTS AND 10-Q CROSS-REFERENCE INDEX



|                                                                                                                                                                  |  |         
|----------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------
|                                                                                                                                                                  | 
|                                                                                                                                                                  |  | Page No.
|Part I -
Financial Information                                                                                                                                    |  |         
|                                                                                                                                                                  | 
|Item 1.
Financial Statements:                                                                                                                                     |  |         
|Consolidated Income Statement                                                                                                                                     |  | 2       
|Consolidated Balance Sheet                                                                                                                                        |  | 4       
|Consolidated Statement of Cash Flows                                                                                                                              |  | 5       
|Consolidated Statement of Changes in Shareholders Equity                                                                                                         |  | 6       
|                                                                                                                                                                  | 
|Notes to Financial Statements                                                                                                                                     |  | 8       
|                                                                                                                                                                  | 
|Items 2. and 3.
Managements Discussion and Analysis of Financial Condition and Results of Operations; Quantitative and Qualitative Disclosures About Market Risk |  | 16      
|                                                                                                                                                                  | 
|Item 4.
Controls and Procedures                                                                                                                                   |  | 54      
|                                                                                                                                                                  | 
|Cautionary Statement                                                                                                                                              |  | 55      
|                                                                                                                                                                  | 
|Part II -
Other Information                                                                                                                                       |  |         
|                                                                                                                                                                  | 
|Item 1.
Legal Proceedings.                                                                                                                                        |  | 56      
|                                                                                                                                                                  | 
|Item 2.
Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities.                                                                         |  | 56      
|                                                                                                                                                                  | 
|Item 6.
Exhibits.                                                                                                                                                 |  | 56      
|                                                                                                                                                                  | 
|Signature                                                                                                                                                         |  | 57      
|                                                                                                                                                                  | 
|Corporate Information                                                                                                                                             |  | 58      
|                                                                                                                                                                  | 
|Index to Exhibits                                                                                                                                                 |  | 59      



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##### Table of Contents

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

CONSOLIDATED INCOME STATEMENT



Mellon Financial
Corporation(and its subsidiaries)



|              |  |                                                                                                  |  |               |     |                   |   |               |  |               |     |  |               |       |   |  |   |       |  
|------------- |  | ------------------------------------------------------------------------------------------------ |  | ------------- | --- | ----------------- | - | ------------- |  | ------------- | --- |  | ------------- | ----- | - |  | - | ----- | -
|              |  |                                                                                                  |  | Quarter ended |     | Nine months ended |  
|(in millions) |  |                                                                                                  |  | Sept. 30,2004 |     | June 30,2004      |   | Sept. 30,2003 |  | Sept. 30,2004 |     |  | Sept. 30,2003 |      
|Noninterest   |  | Trust and investment fee revenue:                                                                |  |               |     |                   |   |               |  |               |     |  |               |       |   |  |   |       |  
|revenue       |  | Investment management                                                                            |  | $             | 376 |                   | $ | 385           |  | $             | 348 |  | $             | 1,166 |   |  | $ | 1,000 |  
|              |  | Human resources & investor solutions                                                             |  |               | 221 |                   |   | 233           |  |               | 229 |  |               | 687   |   |  |   | 714   |  
|              |  | Institutional trust and custody                                                                  |  |               | 127 |                   |   | 133           |  |               | 114 |  |               | 393   |   |  |   | 339   |  
|              |  | Securities lending revenue                                                                       |  |               | 16  |                   |   | 24            |  |               | 16  |  |               | 58    |   |  |   | 53    |  
|              |  |                                                                                                  | 
|              |  | Total trust and investment fee revenue                                                           |  |               | 740 |                   |   | 775           |  |               | 707 |  |               | 2,304 |   |  |   | 2,106 |  
|              |  | Cash management revenue                                                                          |  |               | 77  |                   |   | 79            |  |               | 83  |  |               | 234   |   |  |   | 226   |  
|              |  | Foreign exchange trading revenue                                                                 |  |               | 37  |                   |   | 50            |  |               | 42  |  |               | 144   |   |  |   | 108   |  
|              |  | Financing-related revenue                                                                        |  |               | 32  |                   |   | 30            |  |               | 30  |  |               | 97    |   |  |   | 100   |  
|              |  | Equity investment revenue                                                                        |  |               | 23  |                   |   | 9             |  |               | 3   |  |               | 130   |   |  |   | (12   | )
|              |  | Other revenue                                                                                    |  |               | 21  |                   |   | 19            |  |               | 38  |  |               | 54    |   |  |   | 62    |  
|              |  |                                                                                                  | 
|              |  | Total fee and other revenue                                                                      |  |               | 930 |                   |   | 962           |  |               | 903 |  |               | 2,963 |   |  |   | 2,590 |  
|              |  | Gains on sales of securities                                                                     |  |               |    |                   |   | 8             |  |               | 18  |  |               | 8     |   |  |   | 50    |  
|              |  |                                                                                                  | 
|              |  | Total noninterest revenue                                                                        |  |               | 930 |                   |   | 970           |  |               | 921 |  |               | 2,971 |   |  |   | 2,640 |  
|              | 
|Net interest  |  | Interest revenue                                                                                 |  |               | 202 |                   |   | 199           |  |               | 214 |  |               | 595   |   |  |   | 717   |  
|revenue       |  | Interest expense                                                                                 |  |               | 92  |                   |   | 80            |  |               | 82  |  |               | 252   |   |  |   | 268   |  
|              |  |                                                                                                  | 
|              |  | Net interest revenue                                                                             |  |               | 110 |                   |   | 119           |  |               | 132 |  |               | 343   |   |  |   | 449   |  
|              |  | Provision for credit losses                                                                      |  |               |    |                   |   |              |  |               |    |  |               | (7    | ) |  |   | 7     |  
|              |  |                                                                                                  | 
|              |  | Net interest revenue after provision for credit losses                                           |  |               | 110 |                   |   | 119           |  |               | 132 |  |               | 350   |   |  |   | 442   |  
|              | 
|Operating     |  | Staff expense                                                                                    |  |               | 481 |                   |   | 481           |  |               | 494 |  |               | 1,457 |   |  |   | 1,400 |  
|expense       |  | Professional, legal and other purchased services                                                 |  |               | 102 |                   |   | 110           |  |               | 108 |  |               | 316   |   |  |   | 308   |  
|              |  | Net occupancy expense                                                                            |  |               | 66  |                   |   | 93            |  |               | 68  |  |               | 227   |   |  |   | 197   |  
|              |  | Equipment expense                                                                                |  |               | 54  |                   |   | 53            |  |               | 70  |  |               | 161   |   |  |   | 174   |  
|              |  | Business development                                                                             |  |               | 25  |                   |   | 26            |  |               | 28  |  |               | 76    |   |  |   | 78    |  
|              |  | Communications expense                                                                           |  |               | 23  |                   |   | 27            |  |               | 24  |  |               | 78    |   |  |   | 80    |  
|              |  | Amortization of intangible assets                                                                |  |               | 5   |                   |   | 4             |  |               | 5   |  |               | 14    |   |  |   | 14    |  
|              |  | Other expense                                                                                    |  |               | 33  |                   |   | 34            |  |               | 35  |  |               | 119   |   |  |   | 113   |  
|              |  |                                                                                                  | 
|              |  | Total operating expense                                                                          |  |               | 789 |                   |   | 828           |  |               | 832 |  |               | 2,448 |   |  |   | 2,364 |  
|              | 
|Income        |  | Income from continuing operations before income taxes and cumulative effect of accounting change |  |               | 251 |                   |   | 261           |  |               | 221 |  |               | 873   |   |  |   | 718   |  
|              |  | Provision for income taxes                                                                       |  |               | 70  |                   |   | 85            |  |               | 68  |  |               | 272   |   |  |   | 226   |  
|              |  |                                                                                                  | 
|              |  | Income from continuing operations before cumulative effect of accounting change                  |  |               | 181 |                   |   | 176           |  |               | 153 |  |               | 601   |   |  |   | 492   |  
|              |  | Cumulative effect of accounting change, net of tax                                               |  |               |    |                   |   |              |  |               |    |  |               |      |   |  |   | (7    | )
|              |  |                                                                                                  | 
|              |  | Income from continuing operations                                                                |  |               | 181 |                   |   | 176           |  |               | 153 |  |               | 601   |   |  |   | 485   |  
|              |  | Discontinued operations:                                                                         |  |               |     |                   |   |               |  |               |     |  |               |       |   |  |   |       |  
|              |  | Income from operations (net of tax of $-, $-, $-, $-, and $-)                                    |  |               |    |                   |   |              |  |               |    |  |               |      |   |  |   | 1     |  
|              |  | Net gain on disposals (net of tax expense (credit) of $-, $-, $(16), $1 and $(14))               |  |               | 2   |                   |   |              |  |               | 28  |  |               | 3     |   |  |   | 31    |  
|              |  |                                                                                                  | 
|              |  | Income from discontinued operations (net of tax of $-, $-, $(16), $1 and $(14))                  |  |               | 2   |                   |   |              |  |               | 28  |  |               | 3     |   |  |   | 32    |  
|              |  |                                                                                                  | 
|              |  | Net income                                                                                       |  | $             | 183 |                   | $ | 176           |  | $             | 181 |  | $             | 604   |   |  | $ | 517   |  



(continued)



2



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##### Table of Contents

CONSOLIDATED INCOME STATEMENT (continued)



Mellon Financial Corporation(and its subsidiaries)



|                             |  |                                                                                 |  |                   |         |               |   |               |  |               |         |  |   |         |  |   |         |  
|---------------------------- |  | ------------------------------------------------------------------------------- |  | ----------------- | ------- | ------------- | - | ------------- |  | ------------- | ------- |  | - | ------- |  | - | ------- | -
|                             |  | Quarter ended                                                                   |  | Nine months ended |        
|(share amounts in thousands) |  | Sept. 30,2004                                                                   |  | June 30,2004      |         | Sept. 30,2003 |   | Sept. 30,2004 |  | Sept. 30,2003 |        
|Earnings per                 |  | Basic:                                                                          |  |                   |         |               |   |               |  |               |         |  |   |         |  |   |         |  
|share (a)                    |  | Income from continuing operations before cumulative effect of accounting change |  | $                 | .43     |               | $ | .42           |  | $             | .37     |  | $ | 1.43    |  | $ | 1.16    |  
|                             |  | Cumulative effect of accounting change                                          |  |                   |        |               |   |              |  |               |        |  |   |        |  |   | (.02    | )
|                             |  |                                                                                 |  |                   |         |               |   |               |  |               |         |  |   |         |  |   |         |  
|                             |  | Continuing operations                                                           |  |                   | .43     |               |   | .42           |  |               | .37     |  |   | 1.43    |  |   | 1.14    |  
|                             |  | Discontinued operations                                                         |  |                   | .01     |               |   |              |  |               | .06     |  |   | .01     |  |   | .07     |  
|                             |  |                                                                                 |  |                   |         |               |   |               |  |               |         |  |   |         |  |   |         |  
|                             |  | Net income                                                                      |  | $                 | .44     |               | $ | .42           |  | $             | .43     |  | $ | 1.44    |  | $ | 1.21    |  
|                             |  |                                                                                 |  |                   |         |              
|                             |  | Diluted:                                                                        |  |                   |         |               |   |               |  |               |         |  |   |         |  |   |         |  
|                             |  | Income from continuing operations before cumulative effect of accounting change |  | $                 | .43     |               | $ | .42           |  | $             | .36     |  | $ | 1.42    |  | $ | 1.14    |  
|                             |  | Cumulative effect of accounting change                                          |  |                   |        |               |   |              |  |               |        |  |   |        |  |   | (.01    | )
|                             |  |                                                                                 |  |                   |         |               |   |               |  |               |         |  |   |         |  |   |         |  
|                             |  | Continuing operations                                                           |  |                   | .43     |               |   | .42           |  |               | .36     |  |   | 1.42    |  |   | 1.13    |  
|                             |  | Discontinued operations                                                         |  |                   |        |               |   |              |  |               | .06     |  |   |        |  |   | .07     |  
|                             |  |                                                                                 |  |                   |         |               |   |               |  |               |         |  |   |         |  |   |         |  
|                             |  | Net income                                                                      |  | $                 | .43     |               | $ | .42           |  | $             | .42     |  | $ | 1.42    |  | $ | 1.20    |  
|                             | 
|Shares                       |  | Basic average shares outstanding                                                |  |                   | 419,136 |               |   | 419,015       |  |               | 426,183 |  |   | 419,937 |  |   | 426,856 |  
|outstanding                  |  | Common stock equivalents                                                        |  |                   | 3,978   |               |   | 4,780         |  |               | 5,152   |  |   | 4,796   |  |   | 4,460   |  
|                             |  |                                                                                 |  |                   |         |               |   |               |  |               |         |  |   |         |  |   |         |  
|                             |  | Diluted average shares outstanding                                              |  |                   | 423,114 |               |   | 423,795       |  |               | 431,335 |  |   | 424,733 |  |   | 431,316 |  

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



See accompanying Notes to Financial Statements.



3



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##### Table of Contents

CONSOLIDATED BALANCE SHEET



Mellon Financial Corporation (and its subsidiaries)

|                             |  |                                                                                                                      |  |   |              |   |  |               |        |   |  |   |        |  
|---------------------------- |  | -------------------------------------------------------------------------------------------------------------------- |  | - | ------------ | - |  | ------------- | ------ | - |  | - | ------ | -
|(dollar amounts in millions) |  | Sept. 30,2004                                                                                                        |  |   | Dec. 31,2003 |   |  | Sept. 30,2003 |       
|Assets                       |  | Cash and due from banks                                                                                              |  | $ | 3,278        |   |  | $             | 2,602  |   |  | $ | 2,619  |  
|                             |  | Interest-bearing deposits with banks                                                                                 |  |   | 2,858        |   |  |               | 2,775  |   |  |   | 2,319  |  
|                             |  | Federal funds sold and securities under resale agreements                                                            |  |   | 347          |   |  |               | 703    |   |  |   | 869    |  
|                             |  | Other money market investments                                                                                       |  |   | 107          |   |  |               | 216    |   |  |   | 155    |  
|                             |  | Trading account securities                                                                                           |  |   | 201          |   |  |               | 266    |   |  |   | 569    |  
|                             |  | Securities available for sale                                                                                        |  |   | 12,445       |   |  |               | 10,690 |   |  |   | 10,225 |  
|                             |  | Investment securities (approximate fair value of $233, $308 and $374)                                                |  |   | 226          |   |  |               | 297    |   |  |   | 361    |  
|                             |  | Loans, net of unearned discount of $29, $30 and $31                                                                  |  |   | 7,025        |   |  |               | 7,467  |   |  |   | 7,223  |  
|                             |  | Reserve for loan losses                                                                                              |  |   | (98          | ) |  |               | (103   | ) |  |   | (110   | )
|                             |  |                                                                                                                      |  |   |              |   |  |               |        |   |  |   |        |  
|                             |  | Net loans                                                                                                            |  |   | 6,927        |   |  |               | 7,364  |   |  |   | 7,113  |  
|                             |  | Premises and equipment                                                                                               |  |   | 686          |   |  |               | 668    |   |  |   | 675    |  
|                             |  | Goodwill                                                                                                             |  |   | 2,278        |   |  |               | 2,194  |   |  |   | 2,097  |  
|                             |  | Other intangibles                                                                                                    |  |   | 148          |   |  |               | 100    |   |  |   | 104    |  
|                             |  | Assets of discontinued operations                                                                                    |  |   |             |   |  |               | 187    |   |  |   |       |  
|                             |  | Other assets                                                                                                         |  |   | 5,595        |   |  |               | 5,921  |   |  |   | 5,847  |  
|                             |  |                                                                                                                      | 
|                             |  | Total assets                                                                                                         |  | $ | 35,096       |   |  | $             | 33,983 |   |  | $ | 32,953 |  
|                             | 
|Liabilities                  |  | Noninterest-bearing deposits in domestic offices                                                                     |  | $ | 7,294        |   |  | $             | 7,310  |   |  | $ | 7,836  |  
|                             |  | Interest-bearing deposits in domestic offices                                                                        |  |   | 9,277        |   |  |               | 8,099  |   |  |   | 7,390  |  
|                             |  | Interest-bearing deposits in foreign offices                                                                         |  |   | 5,460        |   |  |               | 5,434  |   |  |   | 3,617  |  
|                             |  |                                                                                                                      | 
|                             |  | Total deposits                                                                                                       |  |   | 22,031       |   |  |               | 20,843 |   |  |   | 18,843 |  
|                             |  | Federal funds purchased and securities under repurchase agreements                                                   |  |   | 853          |   |  |               | 754    |   |  |   | 779    |  
|                             |  | U.S. Treasury tax and loan demand notes                                                                              |  |   | 6            |   |  |               | 6      |   |  |   | 1,007  |  
|                             |  | Commercial paper                                                                                                     |  |   | 7            |   |  |               | 10     |   |  |   | 12     |  
|                             |  | Other funds borrowed                                                                                                 |  |   | 286          |   |  |               | 314    |   |  |   | 703    |  
|                             |  | Reserve for unfunded commitments                                                                                     |  |   | 71           |   |  |               | 75     |   |  |   | 71     |  
|                             |  | Other liabilities                                                                                                    |  |   | 2,557        |   |  |               | 2,861  |   |  |   | 2,566  |  
|                             |  | Notes and debentures (with original maturities over one year)                                                        |  |   | 4,266        |   |  |               | 4,209  |   |  |   | 4,269  |  
|                             |  | Junior subordinated deferrable interest debentures held by trusts that issued guaranteed capital debt securities (a) |  |   | 1,060        |   |  |               | 1,057  |   |  |   |       |  
|                             |  | Guaranteed preferred beneficial interests in capital debt securities issued by consolidated trusts (a)               |  |   |             |   |  |               |       |   |  |   | 1,043  |  
|                             |  | Liabilities of discontinued operations                                                                               |  |   |             |   |  |               | 152    |   |  |   |       |  
|                             |  |                                                                                                                      | 
|                             |  | Total liabilities                                                                                                    |  |   | 31,137       |   |  |               | 30,281 |   |  |   | 29,293 |  
|                             | 
|Shareholders equity         |  | Common stock - $.50 par value Authorized - 800,000,000 shares Issued  588,661,920 shares                            |  |   | 294          |   |  |               | 294    |   |  |   | 294    |  
|                             |  | Additional paid-in capital                                                                                           |  |   | 1,924        |   |  |               | 1,901  |   |  |   | 1,895  |  
|                             |  | Retained earnings                                                                                                    |  |   | 6,280        |   |  |               | 5,934  |   |  |   | 5,822  |  
|                             |  | Accumulated unrealized gain, net of tax                                                                              |  |   | 23           |   |  |               | 26     |   |  |   | 10     |  
|                             |  | Treasury stock of 165,113,399; 161,629,563 and 158,429,780 shares at cost                                            |  |   | (4,562       | ) |  |               | (4,453 | ) |  |   | (4,361 | )
|                             |  |                                                                                                                      | 
|                             |  | Total shareholders equity                                                                                           |  |   | 3,959        |   |  |               | 3,702  |   |  |   | 3,660  |  
|                             |  |                                                                                                                      | 
|                             |  | Total liabilities and shareholders equity                                                                           |  | $ | 35,096       |   |  | $             | 33,983 |   |  | $ | 32,953 |  

|(a) | Trust-preferred securities were deconsolidated at Dec. 31, 2003. See Note 15 of the Corporations 2003 Financial Annual Report for a further discussion.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------



See accompanying Notes to Financial Statements.



4



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##### Table of Contents

CONSOLIDATED STATEMENT OF CASH FLOWS



Mellon
Financial Corporation (and its subsidiaries)

|                     |  |                                                                                    |  |                            |        |   |      |   |         |  
|-------------------- |  | ---------------------------------------------------------------------------------- |  | -------------------------- | ------ | - | ---- | - | ------- | -
|                     |  |                                                                                    |  | Nine months endedSept. 30, |       
|(in millions)        |  |                                                                                    |  | 2004                       |        |   | 2003 |  
|Cash flows from      |  | Net income                                                                         |  | $                          | 604    |   |      | $ | 517     |  
|operating activities |  | Income from discontinued operations                                                |  |                            | 3      |   |      |   | 32      |  
|                     |  | Net income from continuing operations                                              |  |                            | 601    |   |      |   | 485     |  
|                     |  | Adjustments to reconcile net income to net cash provided by operating activities:  |  |                            |        |   |      |   |         |  
|                     |  | Cumulative effect of accounting change                                             |  |                            |       |   |      |   | 7       |  
|                     |  | Depreciation and other amortization                                                |  |                            | 122    |   |      |   | 121     |  
|                     |  | Deferred income tax expense                                                        |  |                            | 189    |   |      |   | 36      |  
|                     |  | Provision for credit losses                                                        |  |                            | (7     | ) |      |   | 7       |  
|                     |  | Net gains on sales of securities                                                   |  |                            | (8     | ) |      |   | (50     | )
|                     |  | Gain on sale of portion of indirect investment in Shinsei Bank                     |  |                            | (93    | ) |      |   |        |  
|                     |  | Pension expense (credit)                                                           |  |                            | 9      |   |      |   | (21     | )
|                     |  | Net decrease in trading account securities                                         |  |                            | 65     |   |      |   | 111     |  
|                     |  | Changes in accruals and other, net                                                 |  |                            | (89    | ) |      |   | (107    | )
|                     |  | Net cash provided by operating activities                                          |  |                            | 789    |   |      |   | 589     |  
|Cash flows from      |  | Net (increase) decrease in term deposits and other money market investments        |  |                            | 26     |   |      |   | (543    | )
|investing activities |  | Net decrease in federal funds sold and securities under resale agreements          |  |                            | 356    |   |      |   | 1,360   |  
|                     |  | Purchases of securities available for sale                                         |  |                            | (6,574 | ) |      |   | (11,953 | )
|                     |  | Proceeds from sales of securities available for sale                               |  |                            | 1,562  |   |      |   | 1,325   |  
|                     |  | Proceeds from maturities of securities available for sale                          |  |                            | 3,228  |   |      |   | 11,272  |  
|                     |  | Purchases of investment securities                                                 |  |                            |       |   |      |   | (9      | )
|                     |  | Proceeds from maturities of investment securities                                  |  |                            | 71     |   |      |   | 172     |  
|                     |  | Proceeds from the sale of portion of indirect investment in Shinsei Bank           |  |                            | 120    |   |      |   |        |  
|                     |  | Net principal repayments (advances) of loans to customers                          |  |                            | (145   | ) |      |   | 826     |  
|                     |  | Loan portfolio purchases                                                           |  |                            | (19    | ) |      |   |        |  
|                     |  | Proceeds from the sales and securitizations of loans                               |  |                            | 553    |   |      |   | 376     |  
|                     |  | Purchases of premises and equipment/capitalized software                           |  |                            | (141   | ) |      |   | (132    | )
|                     |  | Net cash disbursed in acquisitions                                                 |  |                            | (165   | ) |      |   | (33     | )
|                     |  | Net increase (decrease) from other investing activities                            |  |                            | 94     |   |      |   | (127    | )
|                     |  | Net cash (used in) provided by investing activities                                |  |                            | (1,034 | ) |      |   | 2,534   |  
|Cash flows from      |  | Net increase (decrease) in deposits                                                |  |                            | 1,188  |   |      |   | (3,814  | )
|financing activities |  | Net increase in federal funds purchased and securities under repurchase agreements |  |                            | 99     |   |      |   | 46      |  
|                     |  | Net increase (decrease) in other funds borrowed                                    |  |                            | (28    | ) |      |   | 1,010   |  
|                     |  | Net increase (decrease) in commercial paper                                        |  |                            | (3     | ) |      |   | 3       |  
|                     |  | Repayments of longer-term debt                                                     |  |                            | (205   | ) |      |   | (303    | )
|                     |  | Net proceeds from issuance of longer-term debt                                     |  |                            | 298    |   |      |   | 109     |  
|                     |  | Dividends paid on common stock                                                     |  |                            | (221   | ) |      |   | (175    | )
|                     |  | Proceeds from issuance of common stock                                             |  |                            | 32     |   |      |   | 30      |  
|                     |  | Repurchase of common stock                                                         |  |                            | (236   | ) |      |   | (140    | )
|                     |  | Net cash provided by (used in) financing activities                                |  |                            | 924    |   |      |   | (3,234  | )
|                     |  | Effect of foreign currency exchange rates                                          |  |                            | (3     | ) |      |   | 2       |  
|Change in cash and   |  | Net increase (decrease) in cash and due from banks                                 |  |                            | 676    |   |      |   | (109    | )
|due from banks       |  | Cash and due from banks at beginning of period                                     |  |                            | 2,602  |   |      |   | 2,728   |  
|                     |  | Cash and due from banks at end of period                                           |  | $                          | 3,278  |   |      | $ | 2,619   |  
|                     |  |                                                                                    |  |                            |        |   |      |   |         |  
|Supplemental         |  | Interest paid                                                                      |  | $                          | 259    |   |      | $ | 304     |  
|disclosures          |  | Net income taxes paid (a)                                                          |  |                            | 193    |   |      |   | 143     |  

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



See accompanying Notes to Financial Statements.



5



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##### Table of Contents

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY



Mellon Financial Corporation (and its subsidiaries)

|                                                                               |  |              |     |                            |   |                   |  |   |                                                |   |  |                |     |   |                           |   |        |   |  |   |       |  
|------------------------------------------------------------------------------ |  | ------------ | --- | -------------------------- | - | ----------------- |  | - | ---------------------------------------------- | - |  | -------------- | --- | - | ------------------------- | - | ------ | - |  | - | ----- | -
|Quarter ended Sept. 30, 2004 (in millions)                                     |  | Common stock |     | Additional paid-in capital |   | Retained earnings |  |   | Accumulated unrealized gain (loss), net of tax |   |  | Treasury stock |     |   | Total shareholdersequity |  
|Balance at June 30, 2004                                                       |  | $            | 294 |                            | $ | 1,917             |  | $ | 6,179                                          |   |  | $              | (90 | ) |                           | $ | (4,551 | ) |  | $ | 3,749 |  
|Comprehensive results:                                                         |  |              |     |                            |   |                   |  |   |                                                |   |  |                |     |   |                           |   |        |   |  |   |       |  
|Net income                                                                     |  |              |    |                            |   |                  |  |   | 183                                            |   |  |                |    |   |                           |   |       |   |  |   | 183   |  
|Other comprehensive results, net of tax                                        |  |              |    |                            |   |                  |  |   |                                               |   |  |                | 113 |   |                           |   |       |   |  |   | 113   |  
|Total comprehensive results                                                    |  |              |    |                            |   |                  |  |   | 183                                            |   |  |                | 113 |   |                           |   |       |   |  |   | 296   |  
|Dividends on common stock at $.18 per share                                    |  |              |    |                            |   |                  |  |   | (77                                            | ) |  |                |    |   |                           |   |       |   |  |   | (77   | )
|Common stock issued under Direct Stock Purchase and Dividend Reinvestment Plan |  |              |    |                            |   |                  |  |   |                                               |   |  |                |    |   |                           |   | 3      |   |  |   | 3     |  
|Stock awards and options exercised                                             |  |              |    |                            |   | 7                 |  |   | (5                                             | ) |  |                |    |   |                           |   | 13     |   |  |   | 15    |  
|Repurchase of common stock                                                     |  |              |    |                            |   |                  |  |   |                                               |   |  |                |    |   |                           |   | (38    | ) |  |   | (38   | )
|Common stock issued under the Employee Stock Purchase Plan                     |  |              |    |                            |   |                  |  |   |                                               |   |  |                |    |   |                           |   | 2      |   |  |   | 2     |  
|Common stock issued under the 401(k) Retirement Saving Plan                    |  |              |    |                            |   |                  |  |   |                                               |   |  |                |    |   |                           |   | 9      |   |  |   | 9     |  
|Balance at Sept. 30, 2004                                                      |  | $            | 294 |                            | $ | 1,924             |  | $ | 6,280                                          |   |  | $              | 23  |   |                           | $ | (4,562 | ) |  | $ | 3,959 |  



Mellon Financial Corporation
(and its subsidiaries)

|                                                                               |  |              |     |                           |   |                   |  |   |                                                |   |  |                |     |   |                            |   |        |   |  |   |       |  
|------------------------------------------------------------------------------ |  | ------------ | --- | ------------------------- | - | ----------------- |  | - | ---------------------------------------------- | - |  | -------------- | --- | - | -------------------------- | - | ------ | - |  | - | ----- | -
|Quarter ended Sept. 30, 2003 (in millions)                                     |  | Common stock |     | Additionalpaid-in capital |   | Retained earnings |  |   | Accumulated unrealized gain (loss), net of tax |   |  | Treasury stock |     |   | Total shareholders equity |  
|Balance at June 30, 2003                                                       |  | $            | 294 |                           | $ | 1,890             |  | $ | 5,705                                          |   |  | $              | 80  |   |                            | $ | (4,345 | ) |  | $ | 3,624 |  
|Comprehensive results:                                                         |  |              |     |                           |   |                   |  |   |                                                |   |  |                |     |   |                            |   |        |   |  |   |       |  
|Net income                                                                     |  |              |    |                           |   |                  |  |   | 181                                            |   |  |                |    |   |                            |   |       |   |  |   | 181   |  
|Other comprehensive results, net of tax                                        |  |              |    |                           |   |                  |  |   |                                               |   |  |                | (70 | ) |                            |   |       |   |  |   | (70   | )
|Total comprehensive results                                                    |  |              |    |                           |   |                  |  |   | 181                                            |   |  |                | (70 | ) |                            |   |       |   |  |   | 111   |  
|Dividends on common stock at $.14 per share                                    |  |              |    |                           |   |                  |  |   | (60                                            | ) |  |                |    |   |                            |   |       |   |  |   | (60   | )
|Common stock issued under Direct Stock Purchase and Dividend Reinvestment Plan |  |              |    |                           |   | 1                 |  |   |                                               |   |  |                |    |   |                            |   | 2      |   |  |   | 3     |  
|Stock awards and options exercised                                             |  |              |    |                           |   | 3                 |  |   | (4                                             | ) |  |                |    |   |                            |   | 15     |   |  |   | 14    |  
|Repurchase of common stock                                                     |  |              |    |                           |   |                  |  |   |                                               |   |  |                |    |   |                            |   | (54    | ) |  |   | (54   | )
|Common stock issued under the Employee Stock Purchase Plan                     |  |              |    |                           |   |                  |  |   |                                               |   |  |                |    |   |                            |   | 2      |   |  |   | 2     |  
|Common stock issued in connection with the Arden Group, Inc. acquisition       |  |              |    |                           |   | 1                 |  |   |                                               |   |  |                |    |   |                            |   | 10     |   |  |   | 11    |  
|Common stock issued under the 401(k) Retirement Saving Plan                    |  |              |    |                           |   |                  |  |   |                                               |   |  |                |    |   |                            |   | 9      |   |  |   | 9     |  
|Balance at Sept. 30, 2003                                                      |  | $            | 294 |                           | $ | 1,895             |  | $ | 5,822                                          |   |  | $              | 10  |   |                            | $ | (4,361 | ) |  | $ | 3,660 |  

See accompanying Notes to Financial Statements.



(continued)



6



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##### Table of Contents

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY (continued)



Mellon Financial Corporation (and its subsidiaries)

|                                                                               |  |             |     |                          |   |                  |  |   |                                               |   |  |               |    |   |                          |   |        |   |  |   |       |  
|------------------------------------------------------------------------------ |  | ----------- | --- | ------------------------ | - | ---------------- |  | - | --------------------------------------------- | - |  | ------------- | -- | - | ------------------------ | - | ------ | - |  | - | ----- | -
|Nine months ended Sept. 30, 2004 (in millions)                                 |  | Commonstock |     | Additionalpaid-incapital |   | Retainedearnings |  |   | Accumulatedunrealized
gain (loss), net of tax |   |  | Treasurystock |    |   | Totalshareholdersequity |  
|Balance at Dec. 31, 2003                                                       |  | $           | 294 |                          | $ | 1,901            |  | $ | 5,934                                         |   |  | $             | 26 |   |                          | $ | (4,453 | ) |  | $ | 3,702 |  
|Comprehensive results:                                                         |  |             |     |                          |   |                  |  |   |                                               |   |  |               |    |   |                          |   |        |   |  |   |       |  
|Net income                                                                     |  |             |    |                          |   |                 |  |   | 604                                           |   |  |               |   |   |                          |   |       |   |  |   | 604   |  
|Other comprehensive results, net of tax                                        |  |             |    |                          |   |                 |  |   |                                              |   |  |               | (3 | ) |                          |   |       |   |  |   | (3    | )
|Total comprehensive results                                                    |  |             |    |                          |   |                 |  |   | 604                                           |   |  |               | (3 | ) |                          |   |       |   |  |   | 601   |  
|Dividends on common stock at $.52 per share                                    |  |             |    |                          |   |                 |  |   | (221                                          | ) |  |               |   |   |                          |   |       |   |  |   | (221  | )
|Common stock issued under Direct Stock Purchase and Dividend Reinvestment Plan |  |             |    |                          |   |                 |  |   | (1                                            | ) |  |               |   |   |                          |   | 10     |   |  |   | 9     |  
|Stock awards and options exercised                                             |  |             |    |                          |   | 23               |  |   | (35                                           | ) |  |               |   |   |                          |   | 83     |   |  |   | 71    |  
|Repurchase of common stock                                                     |  |             |    |                          |   |                 |  |   |                                              |   |  |               |   |   |                          |   | (236   | ) |  |   | (236  | )
|Common stock issued under the Employee Stock Purchase Plan                     |  |             |    |                          |   |                 |  |   |                                              |   |  |               |   |   |                          |   | 5      |   |  |   | 5     |  
|Common stock issued in connection with the Arden Group, Inc. acquisition       |  |             |    |                          |   |                 |  |   |                                              |   |  |               |   |   |                          |   | 2      |   |  |   | 2     |  
|Common stock issued under the 401(k) Retirement Saving Plan                    |  |             |    |                          |   |                 |  |   | (1                                            | ) |  |               |   |   |                          |   | 27     |   |  |   | 26    |  
|Balance at Sept. 30, 2004                                                      |  | $           | 294 |                          | $ | 1,924            |  | $ | 6,280                                         |   |  | $             | 23 |   |                          | $ | (4,562 | ) |  | $ | 3,959 |  



Mellon Financial Corporation (and its subsidiaries)

|                                                                               |  |             |     |                          |   |                  |  |   |                                             |   |  |               |     |   |                          |   |        |   |  |   |       |  
|------------------------------------------------------------------------------ |  | ----------- | --- | ------------------------ | - | ---------------- |  | - | ------------------------------------------- | - |  | ------------- | --- | - | ------------------------ | - | ------ | - |  | - | ----- | -
|Nine months ended Sept. 30, 2003 (in millions)                                 |  | Commonstock |     | Additionalpaid-incapital |   | Retainedearnings |  |   | Accumulatedunrealizedgain (loss),net of tax |   |  | Treasurystock |     |   | Totalshareholdersequity |  
|Balance at Dec. 31, 2002                                                       |  | $           | 294 |                          | $ | 1,886            |  | $ | 5,514                                       |   |  | $             | 41  |   |                          | $ | (4,340 | ) |  | $ | 3,395 |  
|Comprehensive results:                                                         |  |             |     |                          |   |                  |  |   |                                             |   |  |               |     |   |                          |   |        |   |  |   |       |  
|Net income                                                                     |  |             |    |                          |   |                 |  |   | 517                                         |   |  |               |    |   |                          |   |       |   |  |   | 517   |  
|Other comprehensive results, net of tax                                        |  |             |    |                          |   |                 |  |   |                                            |   |  |               | (31 | ) |                          |   |       |   |  |   | (31   | )
|Total comprehensive results                                                    |  |             |    |                          |   |                 |  |   | 517                                         |   |  |               | (31 | ) |                          |   |       |   |  |   | 486   |  
|Dividends on common stock at $.41 per share                                    |  |             |    |                          |   |                 |  |   | (175                                        | ) |  |               |    |   |                          |   |       |   |  |   | (175  | )
|Common stock issued under Direct Stock Purchase and Dividend Reinvestment Plan |  |             |    |                          |   | 1                |  |   | (1                                          | ) |  |               |    |   |                          |   | 8      |   |  |   | 8     |  
|Stock awards and options exercised                                             |  |             |    |                          |   | 6                |  |   | (31                                         | ) |  |               |    |   |                          |   | 64     |   |  |   | 39    |  
|Repurchase of common stock                                                     |  |             |    |                          |   |                 |  |   |                                            |   |  |               |    |   |                          |   | (140   | ) |  |   | (140  | )
|Common stock issued under the Employee Stock Purchase Plan                     |  |             |    |                          |   |                 |  |   | (1                                          | ) |  |               |    |   |                          |   | 10     |   |  |   | 9     |  
|Common stock issued in connection with the Arden Group, Inc. acquisition       |  |             |    |                          |   | 1                |  |   |                                            |   |  |               |    |   |                          |   | 10     |   |  |   | 11    |  
|Common stock issued under the 401(k) Retirement Saving Plan                    |  |             |    |                          |   | 1                |  |   | (1                                          | ) |  |               |    |   |                          |   | 27     |   |  |   | 27    |  
|Balance at Sept. 30, 2003                                                      |  | $           | 294 |                          | $ | 1,895            |  | $ | 5,822                                       |   |  | $             | 10  |   |                          | $ | (4,361 | ) |  | $ | 3,660 |  

See accompanying Notes to Financial Statements.



7



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##### Table of Contents

NOTES TO FINANCIAL STATEMENTS

---



Note 1  Basis of presentation and informational disclosures



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 2003 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. Certain prior period balance sheet amounts have been reclassified to conform with current period presentation.



Pro forma cost of stock options



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 of 2004, options totaling 240,765 shares were granted with a weighted-average fair value of $6.10 per
share. Stock option expense was determined by using the Black-Scholes option pricing model and totaled $3 million after-tax in the third quarter of 2004, less than $1 million after-tax in the third quarter of 2003 and $3 million after-tax in the
second quarter of 2004. 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 2004 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.



Pro forma income from continuing operations



|                                                                                                                                                           |  |                |     |   |                   |   |     |                |  |   |                |   |  |                    |      |   |  |   |      |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | --- | - | ----------------- | - | --- | -------------- |  | - | -------------- | - |  | ------------------ | ---- | - |  | - | ---- | -
|                                                                                                                                                           |  | Quarter ended  |     |   | Nine months ended |  
|(dollar amount in millions)                                                                                                                                |  | Sept. 30, 2004 |     |   | June 30, 2004     |   |     | Sept. 30, 2003 |  |   | Sept. 30, 2004 |   |  | Sept. 30, 2003 (a) |     
|Income as reported                                                                                                                                         |  | $              | 181 |   |                   | $ | 176 |                |  | $ | 153            |   |  | $                  | 601  |   |  | $ | 492  |  
|Add: Stock-based employee compensation expense, using prospective method, included in reported net income, net of tax
(b)                                  |  |                | 7   |   |                   |   | 7   |                |  |   | 5              |   |  |                    | 22   |   |  |   | 13   |  
|Deduct: Total stock-based employee compensation expense, using retroactive method, determined under
fair value based method for all awards, net of tax (b) |  |                | (13 | ) |                   |   | (12 | )              |  |   | (14            | ) |  |                    | (39  | ) |  |   | (39  | )
|Pro forma income                                                                                                                                           |  | $              | 175 |   |                   | $ | 171 |                |  | $ | 144            |   |  | $                  | 584  |   |  | $ | 466  |  
|Earnings per share:                                                                                                                                        |  |                |     |   |                   |   |     |                |  |   |                |   |  |                    |      |   |  |   |      |  
|Basic - as reported                                                                                                                                        |  | $              | .43 |   |                   | $ | .42 |                |  | $ | .37            |   |  | $                  | 1.43 |   |  | $ | 1.16 |  
|Basic - pro forma                                                                                                                                          |  | $              | .42 |   |                   | $ | .41 |                |  | $ | .34            |   |  | $                  | 1.39 |   |  | $ | 1.09 |  
|Diluted - as reported                                                                                                                                      |  | $              | .43 |   |                   | $ | .42 |                |  | $ | .36            |   |  | $                  | 1.42 |   |  | $ | 1.14 |  
|Diluted - pro forma                                                                                                                                        |  | $              | .41 |   |                   | $ | .40 |                |  | $ | .34            |   |  | $                  | 1.38 |   |  | $ | 1.08 |  

|(a) | 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 2004,
second quarter of 2004, and third quarter of 2003, respectively, and $13 million and $12 million for the first nine months of 2004 and first nine months of 2003, respectively.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



8



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##### Table of Contents

NOTES TO FINANCIAL STATEMENTS (continued)

---



Note 1  Basis of presentation and informational disclosures (continued)



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. The fair value of each stock option was estimated on the date of the
grant using the following weighted-average assumptions for 2004 and 2003, respectively: (1) expected dividend yields of 2.3% and 2.1%; (2) risk-free interest rates of 3.7% and 3.4%; (3) expected volatility of 25% and 27%; and (4) expected lives of
options of 5.6 years and 5.5 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



At Sept. 30, 2004, the Corporation had a liability of $7 million related to standby letters of credit issued or modified since Dec. 31, 2002. As required by FASB Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (FIN 45), the fair value of the liability, which was recorded with a corresponding asset in Other assets, was estimated as the
present value of contractual customer fees. For details of guarantees, see Other guarantees and indemnities in the table on page 45, and the paragraphs under the subheading Other guarantees and indemnities on page 46 as well
as the Three Rivers Funding Corp. (TRFC) discussion on pages 10, 11, 46 and 47. The information in the table and those paragraphs on pages 46 and 47 are incorporated by reference into these Notes to Financial Statements.



Pension and other postretirement benefits



In December 2003, the FASB issued SFAS No. 132 (revised 2003), Employers
Disclosures about Pensions and other Postretirement Benefits, an amendment of FASB Statements No. 87, 88 and 106. SFAS 132 (revised 2003) requires interim period disclosures of the components of net periodic benefit cost (credit).



9



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##### Table of Contents

NOTES TO FINANCIAL STATEMENTS (continued)

---



Net periodic benefit cost (credit)



|                                   |  |                 |     |                   |                               |                |                 |                |   |                               |   |                 |   |   |                               |   |                 |   |  |                               |   |                 |   |      |                               |  |   |   |  |   |      |   |  |   |  
|---------------------------------- |  | --------------- | --- | ----------------- | ----------------------------- | -------------- | --------------- | -------------- | - | ----------------------------- | - | --------------- | - | - | ----------------------------- | - | --------------- | - |  | ----------------------------- | - | --------------- | - | ---- | ----------------------------- |  | - | - |  | - | ---- | - |  | - | -
|                                   |  | Quarter ended   |     | Nine months ended
|                                   |  | Sept. 30, 2004  |     | June 30, 2004     |                               | Sept. 30, 2003 |                 | Sept. 30, 2004 |   | Sept. 30, 2003               
|(in millions)                      |  | Pensionbenefits |     |                   | Other post-retirementbenefits |                | Pensionbenefits |                |   | Other post-retirementbenefits |   | Pensionbenefits |   |   | Other post-retirementbenefits |   | Pensionbenefits |   |  | Other post-retirementbenefits |   | Pensionbenefits |   |      | Other post-retirementbenefits
|Service cost                       |  | $               | 14  |                   |                               | $              |                |                | $ | 14                            |   |                 | $ |  |                               | $ | 12              |   |  | $                             |  |                 | $ | 41   |                               |  | $ | 1 |  | $ | 35   |   |  | $ | 1
|Interest cost                      |  |                 | 20  |                   |                               |                | 1               |                |   | 20                            |   |                 |   | 1 |                               |   | 19              |   |  |                               | 1 |                 |   | 61   |                               |  |   | 3 |  |   | 57   |   |  |   | 4
|Expected return on plan assets     |  |                 | (40 | )                 |                               |                |                |                |   | (40                           | ) |                 |   |  |                               |   | (40             | ) |  |                               |  |                 |   | (119 | )                             |  |   |  |  |   | (119 | ) |  |   | 
|Amortization of transition asset   |  |                 |    |                   |                               |                | 1               |                |   |                              |   |                 |   | 1 |                               |   |                |   |  |                               | 1 |                 |   |     |                               |  |   | 1 |  |   | (1   | ) |  |   | 1
|Amortization of prior service cost |  |                 | 1   |                   |                               |                |                |                |   | 1                             |   |                 |   |  |                               |   | 1               |   |  |                               |  |                 |   | 4    |                               |  |   |  |  |   | 4    |   |  |   | 
|Recognized net actuarial loss      |  |                 | 8   |                   |                               |                |                |                |   | 8                             |   |                 |   |  |                               |   | 1               |   |  |                               |  |                 |   | 22   |                               |  |   |  |  |   | 3    |   |  |   | 
|Net periodic benefit cost (credit) |  | $               | 3   |                   |                               | $              | 2               |                | $ | 3                             |   |                 | $ | 2 |                               | $ | (7              | ) |  | $                             | 2 |                 | $ | 9    |                               |  | $ | 5 |  | $ | (21  | ) |  | $ | 6



Note 2FIN 46 Revised



In December 2003 the FASB issued Interpretation No. 46, (revised December 2003)
Consolidation of Variable Interest Entities (FIN 46 Revised). This Interpretation addresses consolidation by business enterprises of VIEs. A VIE is a corporation, limited liability company, partnership, trust or other legal structure
that is used to conduct activities or hold assets that, by design, cannot support its financial activities without additional subordinated financial support from other parties or whose equity investors, if any, do not have: (1) the ability to make
decisions about its activities through voting or similar rights; (2) the obligation to absorb the expected losses of the entity; or (3) the right to receive the expected residual returns of the entity. An entity is also considered a VIE if its
equity investors have voting rights that are not proportionate to their economic interests and the activities of the entity are conducted on behalf of an equity investor with a disproportionately small voting interest. FIN 46 Revised 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.



Three Rivers Funding Corporation (TRFC)



The Corporations primary banking subsidiary, Mellon Bank, N.A. (the Bank) has a
referral relationship with TRFC, a special purpose entity that issues commercial paper. TRFC is owned by an independent third party, is not a subsidiary of either the Bank or the Corporation and 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 make loans secured by, and to purchase, pools of receivables. The Bank operates as a referral agent and refers
transactions to TRFC, as well as providing all administrative services. TRFC sold subordinated notes to an unrelated third party in 2003 and as a result of that sale the Corporation is not its primary beneficiary, as defined by FIN 46 Revised.



At Sept. 30, 2004, TRFCs receivables and commercial paper outstanding
each totaled $397 million compared with $560 million at June 30, 2004. A letter of credit provided by the Bank in support of TRFCs commercial paper totaled $32 million at Sept. 30, 2004 compared with $45 million at June 30, 2004. The
Corporations maximum loss exposure related to TRFC is the amount of liquidity facilities provided by the Bank of up to the full amount of commercial paper outstanding, or $397 million, at Sept. 30, 2004. However, the probability of this loss
scenario is remote as it would mean that all of TRFCs receivables were wholly uncollectible. The facilities that provide liquidity and credit support to TRFC are included in the off-balance-sheet financial instruments with contract amounts
that represent credit risk table on page 45. The estimated liability for losses related to these



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NOTES TO FINANCIAL STATEMENTS (continued)

---



Note 2FIN 46 Revised (continued)



arrangements, if any, is included in the reserve for unfunded commitments. See Note 7 of the
Corporations 2003 Financial Annual Report for a further discussion of the Corporations relationship with TRFC.



Note 3Contingent and deferred consideration related to acquisitions



The Corporation completed three acquisitions during the third quarter of 2004the 70% of Pareto Partners that the Corporation did not
previously own, Evaluation Associates Capital Markets and Paragon Asset Management Companyfor a total cost of $139 million, primarily paid in cash. Goodwill and intangibles related to these acquisitions totaled $123 million. These three
acquisitions have approximately $48 billion in assets under management, of which $42 billion at Pareto Partners had previously been reported in the Corporations total assets under management. There were three acquisitions during the second
quarter of 2004, with total initial consideration of $20 million, which added approximately $2 billion to assets under management. There were no acquisitions completed in the first quarter of 2004.



The Corporation records contingent purchase payments when amounts are resolved and become
issuable. Amounts become resolved, or determined, and issuable when an acquisition reaches a certain level of performance. At Sept. 30, 2004, the Corporation is potentially obligated to pay contingent additional consideration of a maximum expected
amount of approximately $145 million for all acquisitions, over the next five years. None of the potential contingent additional consideration was recorded as goodwill at Sept. 30, 2004. Additional consideration for prior acquisitions of $15 million
was paid in the third quarter of 2004 including a deferred consideration cash payment of $12.5 million for Standish Mellon. This brings total additional consideration paid for prior acquisitions in the first nine months of 2004 to $20 million,
including approximately $2 million paid with the Corporations common stock. The Corporation is obligated to pay deferred consideration in equal annual installments of $12.5 million for a total of $50 million, for the Standish Mellon
acquisition, the second installment of which was paid in the third quarter of 2004, leaving a remaining obligation of $25 million. The $47 million net present value of this obligation was recorded as additional goodwill in the fourth quarter of
2002.



The Corporation owns 70% of Mellon Financial Services Asset Management
S.A., a Brazilian institutional asset management and asset servicing company. The minority interest owners have exercised a put right which obligates a subsidiary of the Corporation to purchase the remaining 30% of the company. The
purchase price, as defined, is based on the levels of assets under management and under administration, among other things. The Corporation and the minority interest owners disagree on the computation of the purchase price, and the dispute is in
binding arbitration. The Corporation offered $4 million for the remaining 30% of the company and the minority interest owners made an initial request of $42 million.



Note 4Discontinued operations



In the fourth quarter of 2003, the Corporation adopted discontinued operations accounting for the fixed income trading business of Mellon Investor Services, which was
sold to Bonds Direct Securities LLC, a majority owned subsidiary of Jefferies Group, Inc., in December 2003. Securities and other assets not purchased by Bonds Direct Securities totaled $187 million at Dec. 31, 2003 and were all sold by March 31,
2004 at a pre-tax loss of less than $1 million.



In accordance with generally
accepted accounting principles, reflected as discontinued operations in all income statements presented are the final results of the fixed income trading business as well as residual activity from the lines of business servicing retail consumer and
small business/middle market customers that were exited in 2001 and 2002. Because the lines of business included in discontinued operations were discrete lines of business



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NOTES TO FINANCIAL STATEMENTS (continued)

---



Note 4Discontinued operations (continued)



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. An after-tax gain of $2 million was recorded in the third quarter of 2004, resulting from the favorable resolution of liability estimates
made at the time of the disposition of the discontinued businesses. 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.



Note 5Securities



Securities



|                                                 |  |                |        |                  |        |            |  |                |       |                  |        |            |  |   |        |  |   |    |  |   |    |  |   |       
|------------------------------------------------ |  | -------------- | ------ | ---------------- | ------ | ---------- |  | -------------- | ----- | ---------------- | ------ | ---------- |  | - | ------ |  | - | -- |  | - | -- |  | - | ------
|                                                 |  | Sept. 30, 2004 |        | Dec. 31, 2003   
|                                                 |  | Amortized cost |        | Gross unrealized |        | Fair value |  | Amortized cost |       | Gross unrealized |        | Fair value
|(in millions)                                    |  |                | Gains  |                  | Losses |            |  |                | Gains |                  | Losses |           
|Securities available for sale:                   |  |                |        |                  |        |            |  |                |       |                  |        |            |  |   |        |  |   |    |  |   |    |  |   |       
|U.S. Treasury                                    |  | $              | 394    |                  | $      |           |  | $              |      |                  | $      | 394        |  | $ | 471    |  | $ |   |  | $ |   |  | $ | 471   
|Other U.S. agency                                |  |                | 1,505  |                  |        | 1          |  |                | 12    |                  |        | 1,494      |  |   | 5      |  |   | 1  |  |   |   |  |   | 6     
|Obligations of states and political subdivisions |  |                | 668    |                  |        | 16         |  |                | 2     |                  |        | 682        |  |   | 547    |  |   | 13 |  |   | 3  |  |   | 557   
|Mortgage-backed securities:                      |  |                |        |                  |        |            |  |                |       |                  |        |            |  |   |        |  |   |    |  |   |    |  |   |       
|Federal agencies                                 |  |                | 8,100  |                  |        | 55         |  |                | 59    |                  |        | 8,096      |  |   | 8,772  |  |   | 62 |  |   | 63 |  |   | 8,771 
|Other                                            |  |                | 1,754  |                  |        | 1          |  |                | 8     |                  |        | 1,747      |  |   | 743    |  |   | 2  |  |   | 3  |  |   | 742   
|Total mortgage-backed securities                 |  |                | 9,854  |                  |        | 56         |  |                | 67    |                  |        | 9,843      |  |   | 9,515  |  |   | 64 |  |   | 66 |  |   | 9,513 
|Other                                            |  |                | 32     |                  |        |           |  |                |      |                  |        | 32         |  |   | 145    |  |   |   |  |   | 2  |  |   | 143   
|Total securities available for sale              |  | $              | 12,453 |                  | $      | 73         |  | $              | 81    |                  | $      | 12,445     |  | $ | 10,683 |  | $ | 78 |  | $ | 71 |  | $ | 10,690
|Investment securities (held to maturity):        |  |                |        |                  |        |            |  |                |       |                  |        |            |  |   |        |  |   |    |  |   |    |  |   |       
|Mortgage-backed securities:                      |  |                |        |                  |        |            |  |                |       |                  |        |            |  |   |        |  |   |    |  |   |    |  |   |       
|Federal agencies                                 |  | $              | 178    |                  | $      | 7          |  | $              |      |                  | $      | 185        |  | $ | 243    |  | $ | 11 |  | $ |   |  | $ | 254   
|Other                                            |  |                | 1      |                  |        |           |  |                |      |                  |        | 1          |  |   | 1      |  |   |   |  |   |   |  |   | 1     
|Total mortgage-backed securities                 |  |                | 179    |                  |        | 7          |  |                |      |                  |        | 186        |  |   | 244    |  |   | 11 |  |   |   |  |   | 255   
|Stock of Federal Reserve Bank                    |  |                | 47     |                  |        |           |  |                |      |                  |        | 47         |  |   | 53     |  |   |   |  |   |   |  |   | 53    
|Total investment securities                      |  | $              | 226    |                  | $      | 7          |  | $              |      |                  | $      | 233        |  | $ | 297    |  | $ | 11 |  | $ |   |  | $ | 308   



Note: Gross realized gains were $9
million and gross realized losses were $1 million on sales of securities available for sale in the first nine months of 2004. Gross realized gains were $62 million and gross realized losses were less than $1 million on sales of securities available
for sale in the full-year 2003. At Sept. 30, 2004 and Dec. 31, 2003, 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.



The unrealized losses on securities of $81 million was entirely related to interest rates.
Nearly all of the securities with unrealized losses are AAA rated or carry government agency guarantees. Approximately 80% of these 660 investments have been in a continuous unrealized loss position for less than 12 months. Management believes the
collection of the contractual principal and interest is probable and therefore all unrealized losses are considered to be temporary.



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NOTES TO FINANCIAL STATEMENTS (continued)

---



Note 6Goodwill and intangible assets



Goodwill



The following table shows the changes to goodwill, by business sector, for the first nine months of 2004.



Goodwill

|                           |  |                              |     |   |             |   |                         |  |                |     |       |   |     |                  |   |               |   |  |       |     |  |   |    |   |  |   |       |  
|-------------------------- |  | ---------------------------- | --- | - | ----------- | - | ----------------------- |  | -------------- | --- | ----- | - | --- | ---------------- | - | ------------- | - |  | ----- | --- |  | - | -- | - |  | - | ----- | -
|(in millions)              |  | InstitutionalAssetManagement |     |   | MutualFunds |   | PrivateWealthManagement |  | AssetServicing |     | HR&IS |   |     | TreasuryServices |   | OtherActivity |   |  | Total |    
|Balance at Dec. 31, 2003   |  | $                            | 737 |   |             | $ | 242                     |  | $              | 335 |       | $ | 275 |                  | $ | 413           |   |  | $     | 192 |  | $ |   |   |  | $ | 2,194 |  
|Goodwill from acquisitions |  |                              | 75  |   |             |   |                        |  |                | 8   |       |   |    |                  |   |              |   |  |       |    |  |   |   |   |  |   | 83    |  
|Impairment losses          |  |                              |    |   |             |   |                        |  |                |    |       |   |    |                  |   |              |   |  |       |    |  |   | (8 | ) |  |   | (8    | )
|Other (a)                  |  |                              | (4  | ) |             |   |                        |  |                | 10  |       |   |    |                  |   | (5            | ) |  |       |    |  |   | 8  |   |  |   | 9     |  
|Balance at Sept. 30, 2004  |  | $                            | 808 |   |             | $ | 242                     |  | $              | 353 |       | $ | 275 |                  | $ | 408           |   |  | $     | 192 |  | $ |   |   |  | $ | 2,278 |  

|(a) | Other changes in goodwill include the effect of foreign exchange rates on non-dollar denominated goodwill, purchase price adjustments and certain other reclassifications, as well
as the reclassification of the goodwill of a small non-strategic business from the HR&IS sector to the Other Activity sector.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Acquired intangible assets



Acquired intangible assets



|                                            |  |                     |     |               |   |    
|------------------------------------------- |  | ------------------- | --- | ------------- | - | ---
|                                            |  | Net Carrying Amount
|(in millions)                               |  | Sept. 30, 2004      |     | Dec. 31, 2003
|Subject to amortization (a):                |  |                     |     |               |   |    
|Customer base                               |  | $                   | 85  |               | $ | 37 
|Technology based                            |  |                     | 32  |               |   | 35 
|Premium on deposits                         |  |                     | 8   |               |   | 11 
|Other                                       |  |                     | 4   |               |   | 7  
|Total subject to amortization               |  | $                   | 129 |               | $ | 90 
|Not subject to amortization:                |  |                     |     |               |   |    
|Investment management contractual relations |  |                     | 19  |               |   | 10 
|Total acquired intangible assets            |  | $                   | 148 |               | $ | 100

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



Intangible assets are amortized over their estimated useful lives. During the first nine months of 2004, the net carrying amount of acquired
intangible assets increased by $48 million (acquisitions of $62 million, offset by amortization expense of $14 million).



Based upon the current level of intangible assets, the estimated annual amortization expense for the years 2004 through 2009 is as follows.



|                            |  |                                            
|--------------------------- |  | -------------------------------------------
|For the year ended Dec. 31, |  | Estimatedamortization expense (in millions)
|2004                        |  | $20                                        
|2005                        |  | 22                                         
|2006                        |  | 21                                         
|2007                        |  | 20                                         
|2008                        |  | 17                                         
|2009                        |  | 14                                         



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NOTES TO FINANCIAL STATEMENTS (continued)

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Note 7Other assets



Other assets



|                                                                       |  |               |       |     |              |   |       |              |  |   |               |     |  |   |      
|---------------------------------------------------------------------- |  | ------------- | ----- | --- | ------------ | - | ----- | ------------ |  | - | ------------- | --- |  | - | -----
|(in millions)                                                          |  | Sept. 30,2004 |       |     | June 30,2004 |   |       | Dec. 31,2003 |  |   | Sept. 30,2003
|Corporate-owned life insurance                                         |  | $             | 1,763 |     |              | $ | 1,748 |              |  | $ | 1,699         |     |  | $ | 1,632
|Receivables related to foreign exchange and derivative instruments (a) |  |               | 744   |     |              |   | 655   |              |  |   | 1,117         |     |  |   | 1,072
|Prepaid pension assets                                                 |  |               | 1,032 |     |              |   | 1,022 |              |  |   | 1,010         |     |  |   | 993  
|Equity investments and mezzanine financings                            |  |               | 652   | (b) |              |   | 620   |              |  |   | 663           |     |  |   | 647  
|Equity in joint ventures and other investments (c)                     |  |               | 305   |     |              |   | 302   |              |  |   | 337           |     |  |   | 321  
|Other prepaid expenses                                                 |  |               | 147   |     |              |   | 151   |              |  |   | 144           |     |  |   | 131  
|Receivables and other assets                                           |  |               | 952   | (d) |              |   | 1,056 | (d)          |  |   | 951           | (d) |  |   | 1,051
|Total other assets                                                     |  | $             | 5,595 |     |              | $ | 5,554 |              |  | $ | 5,921         |     |  | $ | 5,847

|(a) | Reflects credit risk associated with interest rate swaps used to manage interest rate risk and derivatives used for trading activities. Credit risk associated with these
instruments results from mark to market gains and interest receivables and is calculated after considering master netting agreements, which are generally applicable to derivative instruments used for both trading activities and risk management
purposes.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | Beginning in the third quarter of 2004, includes $47 million of venture capital direct mezzanine investments in the form of subordinated debt that had previously been included in
commercial and financial loans. Prior periods were not reclassified.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(c) | 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 (prior to Sept. 30, 2004), various HR&IS joint ventures, and Banco Brascan.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(d) | Includes the Corporations $31 million ownership of the common capital securities of the statutory business trusts that were deconsolidated at Dec. 31, 2003 in accordance
with FIN 46 Revised.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Note
8Net interest revenue



Net interest revenue



|              |  |                                                                    |  |               |     |                   |   |               |  |               |     |  |   |     |  |   |    
|------------- |  | ------------------------------------------------------------------ |  | ------------- | --- | ----------------- | - | ------------- |  | ------------- | --- |  | - | --- |  | - | ---
|              |  |                                                                    |  | Quarter ended |     | Nine months ended
|(in millions) |  | Sept. 30,2004                                                      |  | June 30,2004  |     | Sept. 30,2003     |   | Sept. 30,2004 |  | Sept. 30,2003
|Interest      |  | Interest and fees on loans (loan fees of $5, $7, $8, $20 and $24)  |  | $             | 65  |                   | $ | 70            |  | $             | 67  |  | $ | 200 |  | $ | 224
|revenue       |  | Interest-bearing deposits with banks                               |  |               | 19  |                   |   | 14            |  |               | 15  |  |   | 49  |  |   | 42 
|              |  | Federal funds sold and securities under resale agreements          |  |               | 3   |                   |   | 2             |  |               | 2   |  |   | 6   |  |   | 7  
|              |  | Other money market investments                                     |  |               |    |                   |   | 1             |  |               |    |  |   | 2   |  |   | 2  
|              |  | Trading account securities                                         |  |               | 1   |                   |   | 1             |  |               | 3   |  |   | 4   |  |   | 11 
|              |  | Securities - taxable                                               |  |               | 107 |                   |   | 102           |  |               | 118 |  |   | 310 |  |   | 385
|              |  | Securities - nontaxable                                            |  |               | 7   |                   |   | 9             |  |               | 8   |  |   | 24  |  |   | 23 
|              |  | Other (a)                                                          |  |               |    |                   |   |              |  |               | 1   |  |   |    |  |   | 23 
|              |  |                                                                   
|              |  | Total interest revenue                                             |  |               | 202 |                   |   | 199           |  |               | 214 |  |   | 595 |  |   | 717
|Interest      |  | Deposits in domestic offices                                       |  |               | 20  |                   |   | 16            |  |               | 13  |  |   | 50  |  |   | 52 
|expense       |  | Deposits in foreign offices                                        |  |               | 15  |                   |   | 10            |  |               | 11  |  |   | 35  |  |   | 37 
|              |  | Federal funds purchased and securities under repurchase agreements |  |               | 3   |                   |   | 3             |  |               | 4   |  |   | 9   |  |   | 13 
|              |  | Other short-term borrowings                                        |  |               | 5   |                   |   | 4             |  |               | 9   |  |   | 15  |  |   | 25 
|              |  | Notes and debentures                                               |  |               | 35  |                   |   | 34            |  |               | 33  |  |   | 103 |  |   | 96 
|              |  | Junior subordinated debentures (b)                                 |  |               | 14  |                   |   | 13            |  |               |    |  |   | 40  |  |   |   
|              |  | Trust-preferred securities (b)                                     |  |               |    |                   |   |              |  |               | 12  |  |   |    |  |   | 45 
|              |  |                                                                   
|              |  | Total interest expense                                             |  |               | 92  |                   |   | 80            |  |               | 82  |  |   | 252 |  |   | 268
|              |  |                                                                   
|              |  | Net interest revenue                                               |  | $             | 110 |                   | $ | 119           |  | $             | 132 |  | $ | 343 |  | $ | 449

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

|(b) | Trust-preferred securities were deconsolidated at Dec. 31, 2003.
|--- | ----------------------------------------------------------------



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NOTES TO FINANCIAL STATEMENTS (continued)

---



Note 9Business sectors



The Corporations business sectors reflect its management structure, the
characteristics of its products and services, and the distinct set 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. See Note 21 of the
Corporations 2003 Financial Annual Report for a brief discussion of products and services offered by each business sector.



For details of business sectors, see the tables, through Average Tier I preferred equity on pages 32 and 33, the paragraphs on pages 32 and 33, and the first
two paragraphs on page 34, as well as the first four paragraphs in the Other Activity section on page 41. The tables and information in those paragraphs are incorporated by reference into these Notes to Financial Statements.



Note 10Accumulated unrealized gain (loss), net of tax



Accumulated unrealized gain (loss), net of tax



|                                                        |               |               |     |              |  |   |               |   |  |   |     |  
|------------------------------------------------------- | ------------- | ------------- | --- | ------------ |  | - | ------------- | - |  | - | --- | -
|(in millions)                                           |               | Quarter ended |    
|                                                        | Sept. 30,2004 |               |     | Dec. 31,2003 |  |   | Sept. 30,2003 |  
|Foreign currency translation adjustment                 |               | $             | 53  |              |  | $ | 44            |   |  | $ | (28 | )
|Minimum pension liability                               |               |               | (25 | )            |  |   | (25           | ) |  |   | (21 | )
|Unrealized gain (loss) on securities available for sale |               |               | (5  | )            |  |   | 7             |   |  |   | 59  |  
|Total accumulated unrealized gain (loss), net of tax    |               | $             | 23  |              |  | $ | 26            |   |  | $ | 10  |  



Note
11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)                                                                   |      | Nine months endedSept. 30, |    
|                                                                                | 2004 |                            |     | 2003 | 
|Purchase acquisitions (a):                                                      |      |                            |     |      |  |   |     |  
|Fair value of noncash assets acquired, including goodwill and other intangibles |      | $                          | 200 |      |  | $ | 44  |  
|Common stock issued                                                             |      |                            | (2  | )    |  |   | (11 | )
|Liabilities assumed                                                             |      |                            | (33 | )    |  |   |    |  
|                                                                                |      |                            |     |      |  |   |     |  
|Net cash disbursed                                                              |      | $                          | 165 |      |  | $ | 33  |  

|(a) | For 2004, purchase acquisitions primarily relate to Talking People Limited, Safeco Trust Company, Paragon Asset Management Company, Evaluation Associates Capital Markets, and the
remaining 70% interest in Pareto Partners, as well as the additional consideration for The Arden Group and Vinings LLC. 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.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Note 12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.



15



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##### Table of Contents

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

---



Overview



For an overview of the Corporations businesses, products, strategy, long-term
financial goals and factors that could influence the achievement of those goals, see pages 3 and 4 of the Corporations 2003 Financial Annual Report.



Third quarter of 2004 compared with the third quarter of 2003 and the second quarter of 2004



Consolidated net income in the third quarter of 2004 totaled $183 million, or $.43 per share. This compares to $181 million, or $.42 per
share, in the third quarter of 2003 and $176 million, or $.42 per share, in the second quarter of 2004. Third quarter 2004 income from continuing operations totaled $181 million, or $.43 per share. This compares to income from continuing operations
of $153 million, or $.36 per share, in the third quarter of 2003 and $176 million, or $.42 per share, in the second quarter of 2004.



The results from the third quarter of 2003 included a $50 million pre-tax charge, with $47 million related to streamlining the organizational structure of the HR&IS
sector and $3 million in the Other Activity sector, which reduced earnings from continuing operations by approximately $.07 per share.



The results from the second quarter of 2004 included a $24 million pre-tax charge related to vacating 10 leased locations in London and moving into the Corporations
new European Headquarters. This charge reduced the Corporations earnings per share by approximately $.04 per share.



Year-to-date 2004 compared with year-to-date 2003



Consolidated net income totaled $604 million, or $1.42 per share, in the first nine months of 2004. This compared with consolidated net income of $517 million, or $1.20
per share, in the first nine months of 2003, which included the charge for the cumulative effect of the accounting change discussed in Note 1. Income from continuing operations totaled $601 million, or $1.42 per share, in the first nine months of
2004, compared with $492 million, or $1.14 per share, before the cumulative effect of a change in accounting principle, in the first nine months of 2003.



In addition to the $24 million pre-tax charge recorded in the second quarter of 2004, the results for the first nine months of 2004 also include the gain from the sale of
approximately 35% of the Corporations indirect investment in Shinsei Bank and the charge associated with a writedown of small non-strategic businesses that the Corporation intends to exit. The combination of these items, which totaled $74
million pre-tax, added approximately $.12 per share to the first quarter 2004 results from continuing 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.



16



---

##### Table of Contents

Summary of financial results (continued)



---



Returns
and margins - continuing operations (a)



|                               |  |               |   |  |                   |   |  |               |   |  |               |   |  |               |  
|------------------------------ |  | ------------- | - |  | ----------------- | - |  | ------------- | - |  | ------------- | - |  | ------------- | -
|                               |  | Quarter ended |   |  | Nine months ended |  
|                               |  | Sept. 30,2004 |   |  | June 30,2004      |   |  | Sept. 30,2003 |   |  | Sept. 30,2004 |   |  | Sept. 30,2003 |  
|Return on equity               |  | 18.9          | % |  | 18.9              | % |  | 17.3          | % |  | 21.2          | % |  | 18.8          | %
|Return on assets               |  | 2.16          | % |  | 2.13              | % |  | 1.84          | % |  | 2.41          | % |  | 1.94          | %
|                               |  |               |   |  |                  
|Pre-tax operating margin (FTE) |  | 25            | % |  | 25                | % |  | 22            | % |  | 27            | % |  | 24            | %

|(a) | Returns and margins 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 19.0%,
18.9% and 20.4% for the third quarter 2004, second quarter 2004 and third quarter 2003, respectively, and 21.3% and 19.8% for the first nine months of 2004 and the first nine months of 2003, respectively. Return on assets on a net income basis was
2.18%, 2.13% and 2.15% for the third quarter 2004, second quarter 2004 and third quarter 2003, respectively, and 2.42% and 2.01% for the first nine months of 2004 and the first nine months of 2003, respectively. For the third quarter and first nine
months of 2003, the return on assets, on a continuing operations basis, was calculated excluding both the results and assets of the fixed income trading business even though the prior period balance sheet was not restated for discontinued
operations. Returns are annualized.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Supplemental
Information - Reconciliation of Reported Results to Certain Non-GAAP Financial Measures



Throughout this Quarterly Report on Form 10-Q, certain measures, which are noted, exclude the $24 million London space consolidation charge recorded in the second quarter of 2004, other items totaling a net positive
$74 million recorded in the first quarter of 2004, as well as the $50 million charge recorded in the third quarter of 2003. The tables below present a reconciliation of reported results presented in accordance with Generally Accepted Accounting
Principles (GAAP), to adjusted non-GAAP results which excludes these items. The Corporation believes these measures are useful in analyzing the financial results and trends of ongoing operations, facilitate the comparisons with other financial
institutions and are the basis on which the Corporations management internally evaluates performance.



Supplemental information - Quarterly data



|                                                       |  |                     |      |   |                     |   |      |                       |  |   |                 |      |  |   |      |   |  |     |  
|------------------------------------------------------ |  | ------------------- | ---- | - | ------------------- | - | ---- | --------------------- |  | - | --------------- | ---- |  | - | ---- | - |  | --- | -
|                                                       |  | Third Quarter 2004  |      |   | Third Quarter 2003  |   |      | Adjusted Growth Rates | 
|(dollar amounts in millions, returns are annualized)   |  | Reported Results(a) |      |   | ReportedResults (a) |   |      | Adjustments           |  |   | AdjustedResults |      | 
|Noninterest revenue:                                   |  |                     |      |   |                     |   |      |                       |  |   |                 |      |  |   |      |   |  |     |  
|Fee and other revenue                                  |  | $                   | 930  |   |                     | $ | 903  |                       |  | $ |                |      |  | $ | 903  |   |  | 3   | %
|Gain on sales of securities                            |  |                     |     |   |                     |   | 18   |                       |  |   |                |      |  |   | 18   |   |  | N/M |  
|                                                       |  |                     |      |   |                     |   |      |                       |  |   |                 |      |  |   |      |   |  |     |  
|Total noninterest revenue                              |  |                     | 930  |   |                     |   | 921  |                       |  |   |                |      |  |   | 921  |   |  | 1   |  
|Net interest revenue                                   |  |                     | 110  |   |                     |   | 132  |                       |  |   |                |      |  |   | 132  |   |  | (17 | )
|Provision for credit losses                            |  |                     |     |   |                     |   |     |                       |  |   |                |      |  |   |     |   |  |    |  
|                                                       |  |                     |      |   |                     |   |      |                       |  |   |                 |      |  |   |      |   |  |     |  
|Net interest revenue after provision for credit losses |  |                     | 110  |   |                     |   | 132  |                       |  |   |                |      |  |   | 132  |   |  | (17 | )
|                                                       |  |                     |      |   |                     |   |      |                       |  |   |                 |      |  |   |      |   |  |     |  
|Operating expense:                                     |  |                     |      |   |                     |   |      |                       |  |   |                 |      |  |   |      |   |  |     |  
|Staff expense                                          |  |                     | 481  |   |                     |   | 494  |                       |  |   | (29             | )    |  |   | 465  |   |  | 3   |  
|Equipment expense                                      |  |                     | 54   |   |                     |   | 70   |                       |  |   | (18             | )    |  |   | 52   |   |  | 4   |  
|Other expense                                          |  |                     | 254  |   |                     |   | 268  |                       |  |   | (3              | )    |  |   | 265  |   |  | (4  | )
|                                                       |  |                     |      |   |                     |   |      |                       |  |   |                 |      |  |   |      |   |  |     |  
|Total operating expense                                |  |                     | 789  |   |                     |   | 832  |                       |  |   | (50             | )(b) |  |   | 782  |   |  | 1   |  
|                                                       |  |                     |      |   |                     |   |      |                       |  |   |                 |      |  |   |      |   |  |     |  
|Income from continuing operations before income taxes  |  |                     | 251  |   |                     |   | 221  |                       |  |   | 50              |      |  |   | 271  |   |  | (7  | )
|Provision for income taxes                             |  |                     | 70   |   |                     |   | 68   |                       |  |   | 19              |      |  |   | 87   |   |  | (20 | )
|                                                       |  |                     |      |   |                     |   |      |                       |  |   |                 |      |  |   |      |   |  |     |  
|Income from continuing operations                      |  | $                   | 181  |   |                     | $ | 153  |                       |  | $ | 31              |      |  | $ | 184  |   |  | (2  | )
|Return on equity                                       |  |                     | 18.9 | % |                     |   | 17.3 | %                     |  |   | N/M             |      |  |   | 20.9 | % |  |     |  
|Pre-tax operating margin (FTE)                         |  |                     | 25   | % |                     |   | 22   | %                     |  |   | N/M             |      |  |   | 27   | % |  |     |  

|(a) | Reported results are presented in accordance with GAAP. There are no adjustments to Reported Results in the third quarter of 2004.
|--- | ----------------------------------------------------------------------------------------------------------------------------------

|(b) | Reflects the $50 million charge recorded in the third quarter of 2003 primarily related to streamlining the organizational structure of the HR&IS sector.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------

N/M  Not meaningful.



17



---

##### Table of Contents

Summary of financial results (continued)



---



Supplemental information - Year-to date data



|                                                                                                 |  |                    |       |   |                |   |     |                      |  |   |                     |   |  |             |       |   |                 |   |     |      |  |   |       |   |  |     |  
|------------------------------------------------------------------------------------------------ |  | ------------------ | ----- | - | -------------- | - | --- | -------------------- |  | - | ------------------- | - |  | ----------- | ----- | - | --------------- | - | --- | ---- |  | - | ----- | - |  | --- | -
|                                                                                                 |  | Nine months ended  |       |   |                |  
|                                                                                                 |  | Sept. 30, 2004     |       |   | Sept. 30, 2003 |   |     | Adjusted GrowthRates | 
|(dollar amounts in millions, returns are annualized)                                             |  | ReportedResults(a) |       |   | Adjustments    |   |     | AdjustedResults      |  |   | ReportedResults (a) |   |  | Adjustments |       |   | AdjustedResults |   |    
|Noninterest revenue:                                                                             |  |                    |       |   |                |   |     |                      |  |   |                     |   |  |             |       |   |                 |   |     |      |  |   |       |   |  |     |  
|Fee and other revenue                                                                            |  | $                  | 2,963 |   |                | $ | (93 | )(b)                 |  | $ | 2,870               |   |  | $           | 2,590 |   |                 | $ |    |      |  | $ | 2,590 |   |  | 11  | %
|Gain on sales of securities                                                                      |  |                    | 8     |   |                |   |    |                      |  |   | 8                   |   |  |             | 50    |   |                 |   |    |      |  |   | 50    |   |  | N/M |  
|                                                                                                 |  |                    |       |   |                |   |     |                      |  |   |                     |   |  |             |       |   |                 |   |     |      |  |   |       |   |  |     |  
|Total noninterest revenue                                                                        |  |                    | 2,971 |   |                |   | (93 | )                    |  |   | 2,878               |   |  |             | 2,640 |   |                 |   |    |      |  |   | 2,640 |   |  | 9   |  
|Net interest revenue                                                                             |  |                    | 343   |   |                |   |    |                      |  |   | 343                 |   |  |             | 449   |   |                 |   |    |      |  |   | 449   |   |  | (24 | )
|Provision for credit losses                                                                      |  |                    | (7    | ) |                |   |    |                      |  |   | (7                  | ) |  |             | 7     |   |                 |   |    |      |  |   | 7     |   |  | N/M |  
|                                                                                                 |  |                    |       |   |                |   |     |                      |  |   |                     |   |  |             |       |   |                 |   |     |      |  |   |       |   |  |     |  
|Net interest revenue after provision for credit losses                                           |  |                    | 350   |   |                |   |    |                      |  |   | 350                 |   |  |             | 442   |   |                 |   |    |      |  |   | 442   |   |  | (21 | )
|                                                                                                 |  |                    |       |   |                |   |     |                      |  |   |                     |   |  |             |       |   |                 |   |     |      |  |   |       |   |  |     |  
|Operating expense:                                                                               |  |                    |       |   |                |   |     |                      |  |   |                     |   |  |             |       |   |                 |   |     |      |  |   |       |   |  |     |  
|Staff expense                                                                                    |  |                    | 1,457 |   |                |   |    |                      |  |   | 1,457               |   |  |             | 1,400 |   |                 |   | (29 | )    |  |   | 1,371 |   |  | 6   |  
|Net occupancy expense                                                                            |  |                    | 227   |   |                |   | (23 | )(c)                 |  |   | 204                 |   |  |             | 197   |   |                 |   |    |      |  |   | 197   |   |  | 4   |  
|Equipment expense                                                                                |  |                    | 161   |   |                |   |    |                      |  |   | 161                 |   |  |             | 174   |   |                 |   | (18 | )    |  |   | 156   |   |  | 3   |  
|Other expense                                                                                    |  |                    | 603   |   |                |   | (20 | )(b)(c)              |  |   | 583                 |   |  |             | 593   |   |                 |   | (3  | )    |  |   | 590   |   |  | (1  | )
|                                                                                                 |  |                    |       |   |                |   |     |                      |  |   |                     |   |  |             |       |   |                 |   |     |      |  |   |       |   |  |     |  
|Total operating expense                                                                          |  |                    | 2,448 |   |                |   | (43 | )                    |  |   | 2,405               |   |  |             | 2,364 |   |                 |   | (50 | )(d) |  |   | 2,314 |   |  | 4   |  
|                                                                                                 |  |                    |       |   |                |   |     |                      |  |   |                     |   |  |             |       |   |                 |   |     |      |  |   |       |   |  |     |  
|Income from continuing operations before income taxes and cumulative effect of accounting change |  |                    | 873   |   |                |   | (50 | )                    |  |   | 823                 |   |  |             | 718   |   |                 |   | 50  |      |  |   | 768   |   |  | 7   |  
|Provision for income taxes                                                                       |  |                    | 272   |   |                |   | (17 | )                    |  |   | 255                 |   |  |             | 226   |   |                 |   | 19  |      |  |   | 245   |   |  | 4   |  
|                                                                                                 |  |                    |       |   |                |   |     |                      |  |   |                     |   |  |             |       |   |                 |   |     |      |  |   |       |   |  |     |  
|Income from continuing operations before cumulative effect of accounting change                  |  | $                  | 601   |   |                | $ | (33 | )                    |  | $ | 568                 |   |  | $           | 492   |   |                 | $ | 31  |      |  | $ | 523   |   |  | 9   |  
|Return on equity (e)                                                                             |  |                    | 21.2  | % |                |   | N/M |                      |  |   | 20.1                | % |  |             | 18.8  | % |                 |   | N/M |      |  |   | 20.0  | % |  |     |  
|Pre-tax operating margin (FTE)                                                                   |  |                    | 27    | % |                |   | N/M |                      |  |   | 27                  | % |  |             | 24    | % |                 |   | N/M |      |  |   | 26    | % |  |     |  

|(a) | Reported results are presented in accordance with GAAP.
|--- | -------------------------------------------------------

|(b) | Includes the $93 million gain from the sale of approximately 35% of the Corporations indirect investment in Shinsei Bank and the $19 million charge associated with a
writedown of small non-strategic businesses that the Corporation intends to exit recorded in the first quarter of 2004.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(c) | Reflects the $24 million charge recorded in the second quarter of 2004 related to vacating 10 leased locations in London and moving into the Corporations new European
Headquarters.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(d) | Reflects the $50 million charge recorded in the third quarter of 2003 primarily related to streamlining the organizational structure of the HR&IS sector.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------

|(e) | Continuing operations results for the first nine months of 2003 exclude the cumulative effect of a change in accounting principle recorded in the first quarter of 2003.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

N/M  Not meaningful.



Acquisition of remaining 70% of Pareto Partners



On Sept. 30, 2004, the Corporation completed the previously announced acquisition of the 70% of Pareto Partners that it did not previously own. The Corporation acquired
Paretos currency management business, which manages $36 billion in assets and Paretos fixed-income asset management business, which manages $3 billion in assets, as well as the New York-based core/core plus and high-yield fixed income
asset management business, with approximately $3 billion under management. In a subsequent transaction that closed in October 2004, the New York-based core/core plus and high-yield fixed income asset management business was sold to MacKay Shields
LLC, a unit of New York Life Insurance. The results of Pareto, which had previously been recorded using the equity method of accounting, will be reported on a fully consolidated basis in the Institutional Asset Management sector.



18



---

##### Table of Contents

Summary of financial results (continued)



---



Acquisition of Evaluation Associates Capital Markets



In
August 2004, the Corporation completed the previously announced acquisition of Evaluation Associates Capital Markets (EACM), a Norwalk, CT-based asset manager that serves clients worldwide. EACM, which has been in business since 1984, has $4.6
billion in assets under management. In its hedge fund-of-fund strategies with managed assets of approximately $2.9 billion, it invests in relative value, event-driven and directional strategies. In its manager of managers strategies, where it
manages $1.7 billion in assets, it selects and oversees diversified teams of long-only equity and fixed income money managers. The results of EACM are reported in the Institutional Asset Management sector.



Currency rate fluctuations, FTE presentation and unrounded numbers



The Corporations financial results, as well as its levels of assets under management,
administration and custody, are impacted by the translation of financial results denominated in non-U.S. currencies to the U.S. Dollar. The Corporation is primarily impacted by activities denominated in the British Pound, and to a lesser extent the
Canadian Dollar and the Euro. As the U.S. Dollar depreciates versus these currencies, the translation impact is a higher level of net interest revenue, fee revenue, operating expense and assets managed, administered and under custody. Conversely, as
the U.S. Dollar appreciates, the translated levels of net interest revenue, fee revenue, operating expense and assets managed, administered and under custody will be lower. At Sept. 30, 2004, the U.S. Dollar depreciated versus the currencies noted
above when compared to Sept. 30, 2003. The U.S. Dollar depreciated versus the British Pound and the Canadian Dollar and appreciated versus the Euro when compared to Dec. 31, 2003. Throughout this report the translation impact of foreign currencies
will be referred to as the effect of foreign exchange rates.



Certain amounts are presented on a fully taxable equivalent (FTE) basis. The Corporation believes that this presentation provides comparability of amounts arising from both taxable and tax-exempt sources and is consistent with industry
standards. The adjustment to an FTE basis has no impact on net income. Throughout this report, all calculations are based on unrounded numbers.



Revenue overview



---



For an overview of the Corporations sources of revenue and the business sectors that
generate the various types of revenue, see page 6 of the Corporations 2003 Financial Annual Report.



19



---

##### Table of Contents

Noninterest revenue

---



Noninterest revenue



|                                                                                   |  |               |       |   |                   |   |       |               |  |   |               |   |  |               |       |   |  |   |       |  
|---------------------------------------------------------------------------------- |  | ------------- | ----- | - | ----------------- | - | ----- | ------------- |  | - | ------------- | - |  | ------------- | ----- | - |  | - | ----- | -
|                                                                                   |  | Quarter ended |       |   | Nine months ended |  
|(in millions, unless otherwise noted)                                              |  | Sept. 30,2004 |       |   | June 30,2004      |   |       | Sept. 30,2003 |  |   | Sept. 30,2004 |   |  | Sept. 30,2003 |      
|Trust and investment fee revenue:                                                  |  |               |       |   |                   |   |       |               |  |   |               |   |  |               |       |   |  |   |       |  
|Investment management                                                              |  | $             | 376   |   |                   | $ | 385   |               |  | $ | 348           |   |  | $             | 1,166 |   |  | $ | 1,000 |  
|Human resources & investor solutions                                               |  |               | 221   |   |                   |   | 233   |               |  |   | 229           |   |  |               | 687   |   |  |   | 714   |  
|Institutional trust and custody                                                    |  |               | 127   |   |                   |   | 133   |               |  |   | 114           |   |  |               | 393   |   |  |   | 339   |  
|Securities lending revenue                                                         |  |               | 16    |   |                   |   | 24    |               |  |   | 16            |   |  |               | 58    |   |  |   | 53    |  
|Total trust and investment fee revenue                                             |  |               | 740   |   |                   |   | 775   |               |  |   | 707           |   |  |               | 2,304 |   |  |   | 2,106 |  
|Cash management revenue                                                            |  |               | 77    |   |                   |   | 79    |               |  |   | 83            |   |  |               | 234   |   |  |   | 226   |  
|Foreign exchange trading revenue                                                   |  |               | 37    |   |                   |   | 50    |               |  |   | 42            |   |  |               | 144   |   |  |   | 108   |  
|Financing-related revenue                                                          |  |               | 32    |   |                   |   | 30    |               |  |   | 30            |   |  |               | 97    |   |  |   | 100   |  
|Equity investment revenue                                                          |  |               | 23    |   |                   |   | 9     |               |  |   | 3             |   |  |               | 130   |   |  |   | (12   | )
|Other revenue                                                                      |  |               | 21    |   |                   |   | 19    |               |  |   | 38            |   |  |               | 54    |   |  |   | 62    |  
|Total fee and other revenue                                                        |  |               | 930   |   |                   |   | 962   |               |  |   | 903           |   |  |               | 2,963 |   |  |   | 2,590 |  
|Gains on sales of securities                                                       |  |               |      |   |                   |   | 8     |               |  |   | 18            |   |  |               | 8     |   |  |   | 50    |  
|Total noninterest revenue                                                          |  | $             | 930   |   |                   | $ | 970   |               |  | $ | 921           |   |  | $             | 2,971 |   |  | $ | 2,640 |  
|Fee revenue as a percentage of fee and net interest revenue (FTE)                  |  |               | 89    | % |                   |   | 89    | %             |  |   | 87            | % |  |               | 89    | % |  |   | 85    | %
|                                                                                   |  |               |       |   |                  
|Market value of assets under management at period-end (in billions)                |  | $             | 670   |   |                   | $ | 679   |               |  | $ | 625           |   |  |               |       |   |  |   |       |  
|Market value of assets under administration or custody at period-end (in
billions) |  | $             | 3,088 |   |                   | $ | 2,968 |               |  | $ | 2,611         |   |  |               |       |   |  |   |       |  



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



S&P 500 Index



|              |  |                |  |                              |       |                |  |               |   |  |                |    |            |     |  |      |  
|------------- |  | -------------- |  | ---------------------------- | ----- | -------------- |  | ------------- | - |  | -------------- | -- | ---------- | --- |  | ---- | -
|              |  | Quarter ended  |  | Sept. 30, 2004 compared with |      
|              |  | Sept. 30, 2004 |  | June 30, 2004                |       | Sept. 30, 2003 |  | June 30, 2004 |   |  | Sept. 30, 2003 |   
|              |  |                |  |                              | Index |                |  | Percentage    |   |  | Index          |    | Percentage |    
|Period-end    |  | 1115           |  | 1141                         |       | 996            |  | (26           | ) |  | (2.3           | )% |            | 119 |  | 11.9 | %
|Daily average |  | 1104           |  | 1123                         |       | 1000           |  | (19           | ) |  | (1.7           | )% |            | 104 |  | 10.3 | %



Fee revenue



Fee revenue of $930 million in the third quarter of 2004 increased $27 million, or 3%, from
$903 million in the third quarter of 2003, primarily due to increases in trust and investment fee revenue, equity investment revenue and the favorable effect of foreign exchange rates. The effect of foreign exchange rates accounted for approximately
$8 million of the increase in fee revenue in the third quarter of 2004 compared with the third quarter of 2003, and is primarily reflected in trust and investment fee revenue.



Fee revenue in the third quarter of 2004 decreased $32 million, or 3% (unannualized) compared to the second quarter of 2004 due to a $35
million decrease in trust and investment fee revenue and lower foreign exchange trading revenue partially offset by higher equity investment revenue. Out-of-pocket expense reimbursements, primarily recorded as trust and investment fee revenue,
totaled $22 million in the third quarter 2004 compared with $25 million in the second quarter 2004 and $22 million in the third quarter 2003. Client reimbursable out-of-pocket expenses are recorded as operating expenses, as discussed on page 31.



20



---

##### Table of Contents

Noninterest revenue (continued)

---



Investment management fee revenue



Investment management fee revenue is dependent on the overall level and mix of assets under
management and the management fees charged for managing those assets. See pages 8 and 9 of the Corporations 2003 Financial Annual Report for a further discussion of the factors that drive the levels of investment management fee revenue and the
impact on investment management fees from changes in the S&P 500 Index.



Investment management revenue in the third quarter of 2004 increased $28 million, or 8%, compared with the third quarter of 2003 and decreased $9 million, or 2% (unannualized), compared with the second quarter 2004. The increase compared
with the third quarter of 2003 resulted from improved equity markets, net inflows and the effect of foreign exchange rates. The decrease compared with the second quarter 2004 resulted from a $6 million decrease in performance fees, weaker equity
markets and net money market mutual fund outflows. Performance fees are earned by investment managers when the investment performance of their products exceeds various benchmarks.



Investment management fee revenue -

by business sector



|                                                      |  |               |     |                   |   |               |  |               |     |               |   |       |  |   |      
|----------------------------------------------------- |  | ------------- | --- | ----------------- | - | ------------- |  | ------------- | --- | ------------- | - | ----- |  | - | -----
|                                                      |  | Quarter ended |     | Nine months ended
|(in millions)                                         |  | Sept. 30,2004 |     | June 30,2004      |   | Sept. 30,2003 |  | Sept. 30,2004 |     | Sept. 30,2003
|Institutional Asset Management                        |  |               |     |                   |   |               |  |               |     |               |   |       |  |   |      
|Institutional clients                                 |  | $             | 95  |                   | $ | 95            |  | $             | 79  |               | $ | 284   |  | $ | 225  
|Performance fees                                      |  |               | 11  |                   |   | 17            |  |               | 8   |               |   | 67    |  |   | 15   
|Mutual funds                                          |  |               | 43  |                   |   | 42            |  |               | 34  |               |   | 124   |  |   | 93   
|Private clients                                       |  |               | 11  |                   |   | 10            |  |               | 9   |               |   | 32    |  |   | 26   
|                                                      |  |               |     |                   |   |               |  |               |     |               |   |       |  |   |      
|Total                                                 |  |               | 160 |                   |   | 164           |  |               | 130 |               |   | 507   |  |   | 359  
|Mutual Funds                                          |  |               |     |                   |   |               |  |               |     |               |   |       |  |   |      
|Mutual funds                                          |  |               | 125 |                   |   | 129           |  |               | 133 |               |   | 383   |  |   | 395  
|Private clients                                       |  |               | 6   |                   |   | 5             |  |               | 4   |               |   | 16    |  |   | 11   
|Institutional clients                                 |  |               | 3   |                   |   | 3             |  |               | 3   |               |   | 10    |  |   | 10   
|                                                      |  |               |     |                   |   |               |  |               |     |               |   |       |  |   |      
|Total                                                 |  |               | 134 |                   |   | 137           |  |               | 140 |               |   | 409   |  |   | 416  
|Private Wealth Management                             |  |               |     |                   |   |               |  |               |     |               |   |       |  |   |      
|Private clients                                       |  |               | 73  |                   |   | 75            |  |               | 69  |               |   | 222   |  |   | 199  
|Mutual funds                                          |  |               | 1   |                   |   |              |  |               |    |               |   | 1     |  |   |     
|                                                      |  |               |     |                   |   |               |  |               |     |               |   |       |  |   |      
|Total                                                 |  |               | 74  |                   |   | 75            |  |               | 69  |               |   | 223   |  |   | 199  
|Human Resources & Investor Solutions Mutual funds (a) |  |               | 8   |                   |   | 9             |  |               | 9   |               |   | 27    |  |   | 26   
|Total investment management fee revenue               |  | $             | 376 |                   | $ | 385           |  | $             | 348 |               | $ | 1,166 |  | $ | 1,000

|(a) | Earned from mutual fund investments in employee benefit plans administered in this sector.
|--- | ------------------------------------------------------------------------------------------



21



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##### Table of Contents

Noninterest revenue (continued)

---



Changes in market value of assets under management for third quarter 2004 - by Business
Sector



|                                                          |  |                              |     |     |             |   |     |                         |  |   |       |   |  |   |     |  
|--------------------------------------------------------- |  | ---------------------------- | --- | --- | ----------- | - | --- | ----------------------- |  | - | ----- | - |  | - | --- | -
|(in billions)                                             |  | InstitutionalAssetManagement |     |     | MutualFunds |   |     | PrivateWealthManagement |  |   | Total |  
|Market value of assets under management at June 30, 2004  |  | $                            | 469 |     |             | $ | 164 |                         |  | $ | 46    |   |  | $ | 679 |  
|Net inflows (outflows):                                   |  |                              |     |     |             |   |     |                         |  |   |       |   |  |   |     |  
|Long-term                                                 |  |                              | 2   |     |             |   | (1  | )                       |  |   | 1     |   |  |   | 2   |  
|Money market                                              |  |                              | (7  | )   |             |   | (7  | )                       |  |   |      |   |  |   | (14 | )
|                                                          |  |                              |     |     |             |   |     |                         |  |   |       |   |  |   |     |  
|Total net inflows (outflows)                              |  |                              | (5  | )   |             |   | (8  | )                       |  |   | 1     |   |  |   | (12 | )
|Net market depreciation (a)                               |  |                              | (2  | )   |             |   |    |                         |  |   | (1    | ) |  |   | (3  | )
|Acquisitions                                              |  |                              | 5   |     |             |   |    |                         |  |   | 1     |   |  |   | 6   |  
|Market value of assets under management at Sept. 30, 2004 |  | $                            | 467 | (b) |             | $ | 156 |                         |  | $ | 47    |   |  | $ | 670 |  

|(a) | Also includes the effect of changes in foreign exchange rates.
|--- | --------------------------------------------------------------

|(b) | Includes securities lending assets advised by Institutional Asset Management of $86 billion. Revenue earned on these assets is reported in Securities lending revenue on the
income statement and in the Asset Servicing sector.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Changes in market value of assets under management from Sept. 30, 2003 to Sept. 30, 2004



|                                                          |  |                              |     |     |             |   |     |                         |  |   |       |   |  |   |     |  
|--------------------------------------------------------- |  | ---------------------------- | --- | --- | ----------- | - | --- | ----------------------- |  | - | ----- | - |  | - | --- | -
|(in billions)                                             |  | InstitutionalAssetManagement |     |     | MutualFunds |   |     | PrivateWealthManagement |  |   | Total |  
|Market value of assets under management at Sept. 30, 2003 |  | $                            | 414 |     |             | $ | 166 |                         |  | $ | 45    |   |  | $ | 625 |  
|Net inflows (outflows):                                   |  |                              |     |     |             |   |     |                         |  |   |       |   |  |   |     |  
|Long-term                                                 |  |                              | 15  |     |             |   | 2   |                         |  |   | (1    | ) |  |   | 16  |  
|Money market                                              |  |                              | 12  |     |             |   | (18 | )                       |  |   |      |   |  |   | (6  | )
|                                                          |  |                              |     |     |             |   |     |                         |  |   |       |   |  |   |     |  
|Total net inflows (outflows)                              |  |                              | 27  |     |             |   | (16 | )                       |  |   | (1    | ) |  |   | 10  |  
|Net market appreciation (a)                               |  |                              | 27  |     |             |   | 4   |                         |  |   | 2     |   |  |   | 33  |  
|Acquisitions (divestitures)                               |  |                              | (1  | )   |             |   | 2   |                         |  |   | 1     |   |  |   | 2   |  
|Market value of assets under management at Sept. 30, 2004 |  | $                            | 467 | (b) |             | $ | 156 |                         |  | $ | 47    |   |  | $ | 670 |  

|(a) | Also includes the effect of changes in foreign exchange rates.
|--- | --------------------------------------------------------------

|(b) | Includes securities lending assets advised by Institutional Asset Management of $86 billion. Revenue earned on these assets is reported in Securities lending revenue on the
income statement and in the Asset Servicing sector.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



As shown
in the following table, the market value of assets under management was $670 billion at Sept. 30, 2004, a $45 billion, or 7%, increase from $625 billion at Sept. 30, 2003 and a $9 billion, or 1%, decrease from $679 billion at June 30, 2004.



Market value of assets under management at period-end



|                                              |  |               |      |              |   |               |  |              |      |               |   |      |  |   |     
|--------------------------------------------- |  | ------------- | ---- | ------------ | - | ------------- |  | ------------ | ---- | ------------- | - | ---- |  | - | ----
|(in billions)                                 |  | Sept. 30,2004 |      | June 30,2004 |   | March 31,2004 |  | Dec. 31,2003 |      | Sept. 30,2003
|Mutual funds                                  |  | $             | 191  |              | $ | 199           |  | $            | 200  |               | $ | 197  |  | $ | 196 
|Institutional                                 |  |               | 419  |              |   | 421           |  |              | 421  |               |   | 403  |  |   | 375 
|Private client                                |  |               | 60   |              |   | 59            |  |              | 58   |               |   | 57   |  |   | 54  
|Total market value of assets under management |  | $             | 670  |              | $ | 679           |  | $            | 679  |               | $ | 657  |  | $ | 625 
|                                              |  |               |      |              |  
|S&P 500 Index - period-end                    |  |               | 1115 |              |   | 1141          |  |              | 1126 |               |   | 1112 |  |   | 996 
|S&P 500 Index - daily average                 |  |               | 1104 |              |   | 1123          |  |              | 1133 |               |   | 1056 |  |   | 1000



22



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##### Table of Contents

Noninterest revenue (continued)

---



Composition of assets under management at period-end



|                                    |  |               |   |  |              |   |  |               |   |  |              |   |  |               |  
|----------------------------------- |  | ------------- | - |  | ------------ | - |  | ------------- | - |  | ------------ | - |  | ------------- | -
|                                    |  | Sept. 30,2004 |   |  | June 30,2004 |   |  | March 31,2004 |   |  | Dec. 31,2003 |   |  | Sept. 30,2003 |  
|Equity funds                        |  | 37            | % |  | 36           | % |  | 36            | % |  | 36           | % |  | 34            | %
|Money market funds                  |  | 21            |   |  | 22           |   |  | 24            |   |  | 25           |   |  | 27            |  
|Fixed-income funds                  |  | 20            |   |  | 21           |   |  | 20            |   |  | 20           |   |  | 21            |  
|Securities lending cash collateral  |  | 13            |   |  | 12           |   |  | 11            |   |  | 10           |   |  | 10            |  
|Overlay and alternative investments |  | 9             |   |  | 9            |   |  | 9             |   |  | 9            |   |  | 8             |  
|Total                               |  | 100           | % |  | 100          | % |  | 100           | % |  | 100          | % |  | 100           | %



The largest category of investment
management fees is from mutual funds. Managed mutual fund fees are based on the daily average net assets of each fund and totaled $177 million in the third quarter of 2004, an increase of $1 million, or 1%, compared with the third quarter of 2003
and a decrease of $3 million, or 1% (unannualized), compared with the second quarter of 2004. The increase compared with the third quarter of 2003 primarily resulted from the positive effect of improved equity markets which more than offset the
effect of a lower average level of managed money market and fixed-income funds. The decrease compared with the second quarter of 2004 primarily resulted from a lower average level of money market funds and weaker equity markets.



Managed mutual fund fee revenue(a)



|                           |  |               |     |                   |   |               |  |               |     |               |   |     |  |   |    
|-------------------------- |  | ------------- | --- | ----------------- | - | ------------- |  | ------------- | --- | ------------- | - | --- |  | - | ---
|                           |  | Quarter ended |     | Nine months ended
|(in millions)              |  | Sept. 30,2004 |     | June 30,2004      |   | Sept. 30,2003 |  | Sept. 30,2004 |     | Sept. 30,2003
|Equity funds               |  | $             | 77  |                   | $ | 79            |  | $             | 61  |               | $ | 230 |  | $ | 167
|Money market funds         |  |               | 55  |                   |   | 59            |  |               | 68  |               |   | 172 |  |   | 209
|Fixed-income funds         |  |               | 32  |                   |   | 31            |  |               | 38  |               |   | 97  |  |   | 112
|Nonproprietary             |  |               | 13  |                   |   | 11            |  |               | 9   |               |   | 36  |  |   | 26 
|Total managed mutual funds |  | $             | 177 |                   | $ | 180           |  | $             | 176 |               | $ | 535 |  | $ | 514

|(a) | Net of mutual fund fees waived and fund expense reimbursements of $11 million, $11 million, $10 million, $32 million and $30 million, respectively.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------



Average assets of proprietary mutual funds



|                                                     |  |               |     |              |   |               |  |   |    
|---------------------------------------------------- |  | ------------- | --- | ------------ | - | ------------- |  | - | ---
|                                                     |  | Quarter ended
|(in billions)                                        |  | Sept. 30,2004 |     | June 30,2004 |   | Sept. 30,2003
|Equity funds                                         |  | $             | 50  |              | $ | 51            |  | $ | 40 
|Money market funds                                   |  |               | 91  |              |   | 96            |  |   | 110
|Fixed-income funds                                   |  |               | 23  |              |   | 23            |  |   | 26 
|Total average proprietary mutual fund assets managed |  | $             | 164 |              | $ | 170           |  | $ | 176



In the third quarter of 2004, total
proprietary managed mutual funds generated 40 basis points, on an annualized basis, compared with 38 basis points in the third quarter of 2003 and 40 basis points in the second quarter of 2004. For the third quarter of 2004, the third quarter of
2003 and the second quarter of 2004, the Corporation generated, on an annualized basis, 62, 61 and 63 basis points of investment management fees on average proprietary equity mutual funds; 24, 24 and 24 basis points on average proprietary money
market funds; and 55, 55 and 55 basis points on average proprietary fixed-income funds, respectively.



Human resources & investor solutions (HR&IS) fee revenue



HR&IS fee revenue is generated from consulting, outsourcing and shareholder services. Consulting fee revenue is somewhat 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 revenue driver, 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



23



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##### Table of Contents

Noninterest revenue (continued)

---



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. HR&IS fee revenue totaled $221
million in the third quarter of 2004, a decrease of $8 million, or 3%, from the third quarter of 2003, and a decrease of $12 million, or 5% (unannualized), from the second quarter of 2004. The decrease compared with the third quarter of 2003
primarily resulted from lower consulting revenue for retirement services. The decrease compared with the second quarter of 2004 primarily resulted from lower investor solutions fees due in part to seasonal factors as well as lower out-of-pocket
expense reimbursements, partially offset by slightly higher outsourcing and consulting fees.



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,
such a performance analytics. It also includes professional and license fees for software products offered by Eagle Investment Systems which are dependent on discretionary spending decisions by investment managers. Institutional trust and custody
revenue increased $13 million, or 12%, in the third quarter of 2004 compared with the third quarter of 2003 and decreased $6 million, or 5% (unannualized), compared to the second quarter of 2004. The increase compared with the third quarter of 2003
primarily resulted from net new business and improved market conditions. The decrease compared with the second quarter of 2004 primarily resulted from lower transaction volumes.



As shown in the following table, assets under administration or custody totaled $3.088 trillion at Sept. 30, 2004, an increase of $477
billion, or 18%, compared with $2.611 trillion at Sept. 30, 2003 and an increase of $120 billion, or 4% (unannualized), compared with $2.968 trillion at June 30, 2004. The increase compared with the prior-year period resulted from net new business
and market appreciation, while the increase from June 30, 2004 resulted in part from higher asset levels in the Corporations joint ventures.



Market value of assets under administration or custody at period-end



|                                                           |  |               |       |              |   |               |  |              |       |               |   |       |  |   |      
|---------------------------------------------------------- |  | ------------- | ----- | ------------ | - | ------------- |  | ------------ | ----- | ------------- | - | ----- |  | - | -----
|(in billions)                                              |  | Sept. 30,2004 |       | June 30,2004 |   | March 31,2004 |  | Dec. 31,2003 |       | Sept. 30,2003
|Market value of assets under administration or custody (a) |  | $             | 3,088 |              | $ | 2,968         |  | $            | 2,944 |               | $ | 2,845 |  | $ | 2,611
|S&P 500 Index - period-end                                 |  |               | 1115  |              |   | 1141          |  |              | 1126  |               |   | 1112  |  |   | 996  

|(a) | Includes the assets under administration or custody of CIBC Mellon Global Securities Services, a joint venture between the Corporation and the Canadian Imperial Bank of Commerce,
of $459 billion, $428 billion, $442 billion, $439 billion and $390 billion, respectively, and of ABN AMRO Mellon Global Securities Services B.V., a joint venture between the Corporation and ABN AMRO, of $363 billion, $320 billion, $312 billion, $299
billion and $272 billion, respectively. The market rate of exchange at the close of business was $.7905, $.7454, $.7607, $.7750 and $.7409, respectively, for one Canadian Dollar. The market rate of exchange at the close of business was $1.2429,
$1.2163, $1.2313, $1.2610 and $1.1669, respectively, for one Euro.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Securities lending revenue



Securities lending revenue totaled
$16 million in the third quarter of 2004 unchanged from $16 million in the third quarter of 2003 as the positive impact from higher volumes was offset by narrower margins in the rising interest rate environment. Securities lending revenue decreased
$8 million, compared with $24 million in the second quarter of 2004, primarily resulting from lower international volumes and margins due to seasonality, as well as narrower domestic margins. The average level of securities on loan totaled $88
billion in the third quarter of 2004 compared with $66 billion in the third quarter of 2003 and $90 billion in the second quarter of 2004.



24



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##### Table of Contents

Noninterest revenue (continued)

---



Cash management revenue



Cash management fee revenue of $77 million in the third quarter of 2004 decreased $6 million compared with the third quarter of 2003 and $2
million compared with the second quarter of 2004. The decreases compared with the prior periods were due, in part, to lower processing volumes. The increase in cash management revenue in the first nine months of 2004 compared with the first nine
months of 2003 resulted from the mid-July 2003 change in the manner in which the Department of the Treasury, a major cash management customer, is paying for certain cash management and merchant card services, as discussed on page 27. This revenue,
which was recorded as cash management fee revenue ($20 million) and as merchant card revenue within other revenue ($10 million), for a total of $30 million in the first half of 2004, previously would have been recorded as net interest revenue
because it was paid via compensating balance earnings.



Foreign exchange
trading revenue



Foreign exchange trading revenue totaled $37 million in
the third quarter of 2004, a $5 million, or 11%, decrease compared with the third quarter of 2003 and a $13 million, or 25% (unannualized), decrease compared with the second quarter of 2004. Both decreases resulted from reduced customer flows and
lower levels of market volatility.



Financing-related revenue



Financing-related revenue primarily includes returns from corporate-owned
life insurance; gains or losses on securitizations; letters of credit and acceptance fees; loan commitment fees; and gains or losses on loan sales and lease residuals. Financing-related revenue totaled $32 million in the third quarter of 2004, an
increase of $2 million compared with both the third quarter of 2003 and the second quarter of 2004. The increase compared with the third quarter of 2003 resulted from writedowns on lease residuals recorded in the prior-year period, while the
increase compared with the second quarter of 2004 primarily resulted in higher death benefits on corporate-owned life insurance.



Equity investment revenue



Equity investment revenue includes realized and unrealized gains and losses on venture capital and non-venture capital investments. 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.



Equity investment revenue - gain (loss)



|                                                                       |  |               |    |                   |   |               |  |               |   |               |   |     |  |   |     |  
|---------------------------------------------------------------------- |  | ------------- | -- | ----------------- | - | ------------- |  | ------------- | - | ------------- | - | --- |  | - | --- | -
|                                                                       |  | Quarter ended |    | Nine months ended |  
|(in millions)                                                          |  | Sept. 30,2004 |    | June 30,2004      |   | Sept. 30,2003 |  | Sept. 30,2004 |   | Sept. 30,2003 |  
|Venture capital activity - realized and unrealized gain (loss):        |  |               |    |                   |   |               |  |               |   |               |   |     |  |   |     |  
|Private and publicly held direct investments                           |  | $             | 9  |                   | $ |              |  | $             | 2 |               | $ | 13  |  | $ | 8   |  
|Third party indirect funds                                             |  |               | 13 |                   |   | 8             |  |               |  |               |   | 18  |  |   | (18 | )
|Total venture capital activity                                         |  |               | 22 |                   |   | 8             |  |               | 2 |               |   | 31  |  |   | (10 | )
|Equity income (loss) and gains on the sale of other equity investments |  |               | 1  |                   |   | 1             |  |               | 1 |               |   | 99  |  |   | (2  | )
|Total equity investment revenue                                        |  | $             | 23 |                   | $ | 9             |  | $             | 3 |               | $ | 130 |  | $ | (12 | )



The $22 million of venture capital net
gains in the third quarter of 2004 resulted from realized gains of: $14 million on direct investments, primarily from the sale of an investment in the technology sector partially offset by net negative valuation adjustments of $5 million; and $15
million of gains from indirect fund



25



---

##### Table of Contents

Noninterest revenue (continued)

---



distributions, partially offset by management fees. The $2 million of venture capital gains
in the third quarter of 2003 primarily resulted from realized gains on the sale of direct investments in the technology sector. The $8 million of venture capital gains in the second quarter of 2004 resulted from realized gains from indirect funds,
as gains from sales of direct investments were offset by net negative valuation adjustments of private direct investments in technology companies.



See pages 61 and 62 of the Corporations 2003 Financial Annual Report for a description of the rating categories and for a further discussion of the factors used in
the valuation process of the venture capital investments. At Sept. 30, 2004, approximately 50% of the direct investment portfolio was rated as superior or meets expectations, the two best ratings, compared with 60% at June
30, 2004. Changing economic conditions and broader equity markets could result in further valuation changes in the future. See the table on page 42 of this report for the third quarter 2004 and life-to-date activity of the Corporations venture
capital investment portfolio, as well as the Corporations strategy for future venture capital investments as disclosed in footnote (g) of the table.



Gains on the sale of other equity investments for the first nine months of 2004 include the $93 million gain on the sale of approximately 35% of the Corporations
indirect non-venture capital investment in Shinsei Bank. The Corporations remaining original book value of this investment is $49 million.



Other revenue



Other revenue totaled $21 million in the third quarter of 2004, compared with $38 million in the third quarter of 2003 and $19 million in the second quarter of 2004. The decrease compared with the prior year period
primarily resulted from lower trading results and lower merchant card revenue.



Year-to-date 2004 compared with year-to-date 2003



Fee revenue
for the first nine months of 2004 totaled $2.963 billion, an increase of $373 million, or 14%, from $2.590 billion in the first nine months of 2003. Excluding the $93 million gain from the sale of a portion of the indirect investment in Shinsei
Bank, fee revenue increased 11% compared with the first nine months of 2003, primarily due to increases in trust and investment fee revenue, equity investment revenue, foreign exchange trading revenue and the favorable effect of foreign exchange
rates. Trust and investment fee revenue increased $198 million, or 9%, primarily due to improved equity markets, higher institutional trust and custody revenue and higher asset management performance fees. The effect of foreign exchange rates
accounted for approximately $29 million of the increase in fee revenue in the first nine months of 2004, compared with the first nine months of 2003, and is primarily reflected in trust and investment fee revenue.



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 equity income from all joint ventures of $8 million, $6 million and $10 million, in the third quarter of 2004, third quarter of 2003 and second quarter of 2004, respectively, recorded primarily as trust and
investment fee revenue. The Corporations share of gross joint venture fee revenue and expenses is not included in the Corporations reported fee revenue and operating expense. The following table presents, for informational purposes, the
components of gross joint venture fee revenue and the trend of revenue growth for the Corporations 50% owned joint ventures that are part of the Asset Servicing sector. The decrease in gross trust and investment fee revenue in the third
quarter of 2004 compared with the second quarter of 2004 was primarily due to a seasonal decrease in securities lending revenue.



26



---

##### Table of Contents

Noninterest revenue (continued)

---



Gross joint venture fee revenue(a)



|                                      |  |               |    |                   |   |               |  |               |    |               |   |     |  |   |    
|------------------------------------- |  | ------------- | -- | ----------------- | - | ------------- |  | ------------- | -- | ------------- | - | --- |  | - | ---
|                                      |  | Quarter ended |    | Nine months ended
|(in millions, preliminary)            |  | Sept. 30,2004 |    | June 30,2004      |   | Sept. 30,2003 |  | Sept. 30,2004 |    | Sept. 30,2003
|Trust and investment                  |  | $             | 79 |                   | $ | 84            |  | $             | 68 |               | $ | 239 |  | $ | 210
|Foreign exchange trading              |  |               | 9  |                   |   | 9             |  |               | 9  |               |   | 30  |  |   | 22 
|Total gross joint venture fee revenue |  | $             | 88 |                   | $ | 93            |  | $             | 77 |               | $ | 269 |  | $ | 232

|(a) | The 50% owned joint ventures are ABN AMRO Mellon Global Securities Services B.V., CIBC Mellon Global Securities Services Company, CIBC Mellon Trust Company and Russell/Mellon
Analytical Services, which are part of the Asset Servicing sector.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Net interest revenue

---



Net interest revenue on a fully taxable equivalent basis totaled $114 million in the third quarter of 2004, a decrease of $23 million, or 17%, compared with $137 million in the third quarter of 2003 and a decrease of $9 million, or 7%
(unannualized), compared with $123 million in the second quarter of 2004. The net interest margin was 2.03% in the third quarter of 2004, down 48 basis points compared with 2.51% in the third quarter of 2003 and 21 basis points compared with 2.24%
in the second quarter of 2004. The decrease in net interest revenue compared with the third quarter of 2003 primarily resulted from lower yields on investment securities combined with moderately higher funding costs and to a lesser extent the
continued reduction in loans.



The decrease in net interest revenue compared
with the second quarter of 2004 resulted from moderately higher funding costs, a lower level of loans and the recognition in the second quarter of 2004 of $3 million of interest previously applied to principal upon repayment of a loan that had been
on nonperforming status.



Year-to-date 2004 compared with year-to-date 2003



Net interest revenue on a fully taxable equivalent basis totaled $355
million in the first nine months of 2004 compared with $462 million in the first nine months of 2003. The net interest margin was 2.14% in the first nine months of 2004 and 2.75% in the first nine months of 2003. The decrease of $107 million and 61
basis points in net interest revenue and the net interest margin, respectively, was due in part to lower yields on investment securities and the lower level of loans. The decrease also resulted from the mid-July 2003 change in the manner in which
the Department of the Treasury is paying for certain cash management and merchant card services. Through mid-July 2003, such revenue was recorded as net interest revenue because it was paid via compensating balance earnings. Subsequently, this
revenue was recorded as cash management fee revenue and other revenue. Excluding the revenue earned from the Department of the Treasury, net interest revenue would have been $417 million for the first nine months of 2003.



The Corporation has narrowed its strategic focus in recent years, which has resulted in a
different mix of businesses and a smaller balance sheet. As a consequence, the Corporation has reduced credit availability to the corporate and institutional marketplace. For the fourth quarter of 2004, net interest revenue is expected to be at the
low end of a $115 million to $120 million range on a fully taxable equivalent basis, assuming a gradual and measured increase in interest rates and allowing for tactical investment securities decisions.



27



---

##### Table of Contents

Net interest revenue (continued)

---



CONSOLIDATED BALANCE SHEET  AVERAGE BALANCES AND INTEREST YIELDS/RATES

|                                                                   |  |                |        |   |                     |      |   |                |   |        |                     |  |      |                |  |   |                     |     |  |       |  
|------------------------------------------------------------------ |  | -------------- | ------ | - | ------------------- | ---- | - | -------------- | - | ------ | ------------------- |  | ---- | -------------- |  | - | ------------------- | --- |  | ----- | -
|                                                                   |  | Quarter ended  |       
|                                                                   |  | Sept. 30, 2004 |        |   | June 30, 2004       |      |   | Sept. 30, 2003 |  
|(dollar amounts in millions)                                       |  | Averagebalance |        |   | Averageyields/rates |      |   | Averagebalance |   |        | Averageyields/rates |  |      | Averagebalance |  |   | Averageyields/rates |    
|Assets                                                             |  |                |        |   |                     |      |   |                |   |        |                     |  |      |                |  |   |                     |     |  |       |  
|Interest-earning assets:                                           |  |                |        |   |                     |      |   |                |   |        |                     |  |      |                |  |   |                     |     |  |       |  
|Interest-bearing deposits with banks (primarily foreign)           |  | $              | 2,371  |   |                     | 3.19 | % |                | $ | 2,048  |                     |  | 2.87 | %              |  | $ | 2,333               |     |  | 2.64  | %
|Federal funds sold and securities under resale agreements          |  |                | 808    |   |                     | 1.46 |   |                |   | 487    |                     |  | 1.10 |                |  |   | 578                 |     |  | 1.06  |  
|Other money market investments                                     |  |                | 131    |   |                     | 2.10 |   |                |   | 168    |                     |  | 1.78 |                |  |   | 155                 |     |  | 1.52  |  
|Trading account securities                                         |  |                | 229    |   |                     | 1.90 |   |                |   | 268    |                     |  | 2.09 |                |  |   | 693                 |     |  | 4.30  |  
|Securities:                                                        |  |                |        |   |                     |      |   |                |   |        |                     |  |      |                |  |   |                     |     |  |       |  
|U.S. Treasury and agency securities (a)                            |  |                | 9,864  |   |                     | 3.66 |   |                |   | 9,831  |                     |  | 3.65 |                |  |   | 9,778               |     |  | 4.22  |  
|Obligations of states and political subdivisions (a)               |  |                | 631    |   |                     | 7.10 |   |                |   | 560    |                     |  | 7.26 |                |  |   | 566                 |     |  | 6.80  |  
|Other (a)                                                          |  |                | 1,374  |   |                     | 4.62 |   |                |   | 1,322  |                     |  | 4.92 |                |  |   | 537                 |     |  | 11.86 |  
|Loans, net of unearned discount                                    |  |                | 7,047  |   |                     | 3.64 |   |                |   | 7,491  |                     |  | 3.75 |                |  |   | 7,425               |     |  | 3.61  |  
|                                                                   |  |                |        |   |                     |      |   |                |   |        |                     |  |      |                |  |   |                     |     |  |       |  
|Total interest-earning assets                                      |  |                | 22,455 |   |                     | 3.65 |   |                |   | 22,175 |                     |  | 3.69 |                |  |   | 22,065              | (b) |  | 4.01  |  
|Cash and due from banks                                            |  |                | 2,544  |   |                     |      |   |                |   | 2,601  |                     |  |      |                |  |   | 2,319               |     |  |       |  
|Premises and equipment                                             |  |                | 688    |   |                     |      |   |                |   | 682    |                     |  |      |                |  |   | 694                 |     |  |       |  
|Other assets                                                       |  |                | 7,946  |   |                     |      |   |                |   | 8,079  |                     |  |      |                |  |   | 8,483               |     |  |       |  
|Reserve for loan losses                                            |  |                | (97    | ) |                     |      |   |                |   | (94    | )                   |  |      |                |  |   | (113                | )   |  |       |  
|Total assets                                                       |  | $              | 33,536 |   |                     |      |   |                | $ | 33,443 |                     |  |      |                |  | $ | 33,448              |     |  |       |  
|Liabilities and shareholders equity                               |  |                |        |   |                     |      |   |                |   |        |                     |  |      |                |  |   |                     |     |  |       |  
|Interest-bearing liabilities:                                      |  |                |        |   |                     |      |   |                |   |        |                     |  |      |                |  |   |                     |     |  |       |  
|Deposits in domestic offices:                                      |  |                |        |   |                     |      |   |                |   |        |                     |  |      |                |  |   |                     |     |  |       |  
|Demand, money market and other savings accounts                    |  | $              | 8,195  |   |                     | 0.84 | % |                | $ | 7,583  |                     |  | 0.68 | %              |  | $ | 6,550               |     |  | 0.69  | %
|Savings certificates                                               |  |                | 222    |   |                     | 2.53 |   |                |   | 218    |                     |  | 2.46 |                |  |   | 232                 |     |  | 2.35  |  
|Other time deposits                                                |  |                | 313    |   |                     | 1.59 |   |                |   | 300    |                     |  | 1.45 |                |  |   | 326                 |     |  | 1.32  |  
|Deposits in foreign offices                                        |  |                | 4,664  |   |                     | 1.26 |   |                |   | 4,760  |                     |  | 0.86 |                |  |   | 4,066               |     |  | 1.08  |  
|                                                                   |  |                |        |   |                     |      |   |                |   |        |                     |  |      |                |  |   |                     |     |  |       |  
|Total interest-bearing deposits                                    |  |                | 13,394 |   |                     | 1.03 |   |                |   | 12,861 |                     |  | 0.79 |                |  |   | 11,174              |     |  | 0.88  |  
|Federal funds purchased and securities under repurchase agreements |  |                | 1,155  |   |                     | 1.12 |   |                |   | 1,478  |                     |  | 0.81 |                |  |   | 1,679               |     |  | 0.78  |  
|U.S. Treasury tax and loan demand notes                            |  |                | 195    |   |                     | 1.38 |   |                |   | 338    |                     |  | 0.86 |                |  |   | 492                 |     |  | 0.88  |  
|Commercial paper                                                   |  |                | 25     |   |                     | 1.29 |   |                |   | 10     |                     |  | 0.52 |                |  |   | 18                  |     |  | 0.53  |  
|Other funds borrowed                                               |  |                | 151    |   |                     | 9.96 |   |                |   | 173    |                     |  | 9.23 |                |  |   | 620                 |     |  | 6.57  |  
|Notes and debentures (with original maturities over one year)      |  |                | 4,254  |   |                     | 3.33 |   |                |   | 4,242  |                     |  | 3.20 |                |  |   | 4,234               |     |  | 3.09  |  
|Junior subordinated debentures (c)                                 |  |                | 1,010  |   |                     | 5.38 |   |                |   | 1,011  |                     |  | 5.28 |                |  |   |                    |     |  |      |  
|Trust-preferred securities (c)                                     |  |                |       |   |                     |      |   |                |   |       |                     |  |     |                |  |   | 999                 |     |  | 5.07  |  
|                                                                   |  |                |        |   |                     |      |   |                |   |        |                     |  |      |                |  |   |                     |     |  |       |  
|Total interest-bearing liabilities                                 |  |                | 20,184 |   |                     | 1.81 |   |                |   | 20,113 |                     |  | 1.60 |                |  |   | 19,216              |     |  | 1.76  |  
|Total noninterest-bearing deposits                                 |  |                | 6,901  |   |                     |      |   |                |   | 6,915  |                     |  |      |                |  |   | 8,011               |     |  |       |  
|Other liabilities (a)                                              |  |                | 2,571  |   |                     |      |   |                |   | 2,619  |                     |  |      |                |  |   | 2,703               |     |  |       |  
|Total liabilities                                                  |  |                | 29,656 |   |                     |      |   |                |   | 29,647 |                     |  |      |                |  |   | 29,930              |     |  |       |  
|Shareholders equity (a)                                           |  |                | 3,880  |   |                     |      |   |                |   | 3,796  |                     |  |      |                |  |   | 3,518               |     |  |       |  
|Total liabilities and shareholders equity                         |  | $              | 33,536 |   |                     |      |   |                | $ | 33,443 |                     |  |      |                |  | $ | 33,448              |     |  |       |  
|Rates                                                              |  |                |        |   |                     |      |   |                |   |        |                     |  |      |                |  |   |                     |     |  |       |  
|Yield on total interest-earning assets                             |  |                |        |   |                     | 3.65 | % |                |   |        |                     |  | 3.69 | %              |  |   |                     |     |  | 4.01  | %
|Cost of funds supporting interest-earning assets                   |  |                |        |   |                     | 1.62 |   |                |   |        |                     |  | 1.45 |                |  |   |                     |     |  | 1.50  |  
|Net interest margin (d):                                           |  |                |        |   |                     |      |   |                |   |        |                     |  |      |                |  |   |                     |     |  |       |  
|Taxable equivalent basis                                           |  |                |        |   |                     | 2.03 | % |                |   |        |                     |  | 2.24 | %              |  |   |                     |     |  | 2.51  | %
|Without taxable equivalent increments                              |  |                |        |   |                     | 1.96 |   |                |   |        |                     |  | 2.16 |                |  |   |                     |     |  | 2.44  |  

|(a) | Amounts and yields exclude adjustments for fair value and the related deferred tax effect required by FAS No. 115. Average shareholders equity including this adjustment was
$3.822 billion, $3.753 billion and $3.519 billion, respectively.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(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 8 of the Notes to Financial Statements.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(c) | Trust-preferred securities were deconsolidated at Dec. 31, 2003. Beginning in the first quarter of 2004, averages are reflected as junior subordinated debentures. The average
rates were impacted by the fair market value of the underlying interest rate swaps.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(d) | Calculated on a continuing operations basis for the impact of the sale of the fixed income trading business even though the prior period balance sheet is not restated for
discontinued operations in accordance with generally accepted accounting principles.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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.



28



---

##### Table of Contents

Net interest revenue (continued)

---



CONSOLIDATED BALANCE SHEET  AVERAGE BALANCES AND INTEREST YIELDS/RATES



|                                                                   |  |                   |        |   |                     |      |   |                |   |        |                     |  |       |    
|------------------------------------------------------------------ |  | ----------------- | ------ | - | ------------------- | ---- | - | -------------- | - | ------ | ------------------- |  | ----- | ---
|                                                                   |  | Nine months ended |       
|                                                                   |  | Sept. 30, 2004    |        |   | Sept. 30, 2003      |     
|(dollar amounts in millions)                                       |  | Averagebalance    |        |   | Averageyields/rates |      |   | Averagebalance |   |        | Averageyields/rates | 
|Assets                                                             |  |                   |        |   |                     |      |   |                |   |        |                     |  |       |    
|Interest-earning assets:                                           |  |                   |        |   |                     |      |   |                |   |        |                     |  |       |    
|Interest-bearing deposits with banks (primarily foreign)           |  | $                 | 2,247  |   |                     | 2.94 | % |                | $ | 2,106  |                     |  | 2.70  | %  
|Federal funds sold and securities under resale agreements          |  |                   | 589    |   |                     | 1.25 |   |                |   | 729    |                     |  | 1.23  |    
|Other money market investments                                     |  |                   | 165    |   |                     | 1.77 |   |                |   | 149    |                     |  | 1.80  |    
|Trading account securities                                         |  |                   | 284    |   |                     | 2.19 |   |                |   | 755    |                     |  | 4.42  |    
|Securities:                                                        |  |                   |        |   |                     |      |   |                |   |        |                     |  |       |    
|U.S. Treasury and agency securities (a)                            |  |                   | 9,667  |   |                     | 3.66 |   |                |   | 9,940  |                     |  | 4.43  |    
|Obligations of states and political subdivisions (a)               |  |                   | 578    |   |                     | 7.23 |   |                |   | 530    |                     |  | 6.86  |    
|Other (a)                                                          |  |                   | 1,274  |   |                     | 5.26 |   |                |   | 823    |                     |  | 10.19 |    
|Loans, net of unearned discount                                    |  |                   | 7,341  |   |                     | 3.63 |   |                |   | 7,848  |                     |  | 3.82  |    
|                                                                   |  |                   |        |   |                     |      |   |                |   |        |                     |  |       |    
|Total interest-earning assets                                      |  |                   | 22,145 |   |                     | 3.66 |   |                |   | 22,880 | (b)                 |  | 4.34  |    
|Cash and due from banks                                            |  |                   | 2,549  |   |                     |      |   |                |   | 2,275  |                     |  |       |    
|Premises and equipment                                             |  |                   | 680    |   |                     |      |   |                |   | 699    |                     |  |       |    
|Other assets                                                       |  |                   | 8,111  |   |                     |      |   |                |   | 8,476  |                     |  |       |    
|Reserve for loan losses                                            |  |                   | (98    | ) |                     |      |   |                |   | (120   | )                   |  |       |    
|Total assets                                                       |  | $                 | 33,387 |   |                     |      |   |                | $ | 34,210 |                     |  |       |    
|Liabilities and shareholders equity                               |  |                   |        |   |                     |      |   |                |   |        |                     |  |       |    
|Interest-bearing liabilities:                                      |  |                   |        |   |                     |      |   |                |   |        |                     |  |       |    
|Deposits in domestic offices:                                      |  |                   |        |   |                     |      |   |                |   |        |                     |  |       |    
|Demand, money market and other savings accounts                    |  | $                 | 7,656  |   |                     | 0.74 | % |                | $ | 6,305  |                     |  | 0.94  | %  
|Savings certificates                                               |  |                   | 226    |   |                     | 2.39 |   |                |   | 236    |                     |  | 2.36  |    
|Other time deposits                                                |  |                   | 308    |   |                     | 1.44 |   |                |   | 365    |                     |  | 1.51  |    
|Deposits in foreign offices                                        |  |                   | 4,763  |   |                     | 0.98 |   |                |   | 4,085  |                     |  | 1.20  |    
|                                                                   |  |                   |        |   |                     |      |   |                |   |        |                     |  |       |    
|Total interest-bearing deposits                                    |  |                   | 12,953 |   |                     | 0.87 |   |                |   | 10,991 |                     |  | 1.09  |    
|Federal funds purchased and securities under repurchase agreements |  |                   | 1,369  |   |                     | 0.91 |   |                |   | 1,728  |                     |  | 0.99  |    
|U.S. Treasury tax and loan demand notes                            |  |                   | 315    |   |                     | 0.98 |   |                |   | 447    |                     |  | 1.10  |    
|Commercial paper                                                   |  |                   | 20     |   |                     | 0.96 |   |                |   | 20     |                     |  | 0.69  |    
|Other funds borrowed                                               |  |                   | 189    |   |                     | 8.82 |   |                |   | 616    |                     |  | 6.52  |    
|Notes and debentures (with original maturities over one year)      |  |                   | 4,231  |   |                     | 3.26 |   |                |   | 4,324  |                     |  | 2.97  | (d)
|Junior subordinated debentures (c)                                 |  |                   | 1,016  |   |                     | 5.29 |   |                |   |       |                     |  |       |    
|Trust-preferred securities (c)                                     |  |                   |       |   |                     |      |   |                |   | 1,016  |                     |  | 5.98  | (d)
|                                                                   |  |                   |        |   |                     |      |   |                |   |        |                     |  |       |    
|Total interest-bearing liabilities                                 |  |                   | 20,093 |   |                     | 1.68 |   |                |   | 19,142 |                     |  | 1.94  |    
|Total noninterest-bearing deposits                                 |  |                   | 6,815  |   |                     |      |   |                |   | 8,877  |                     |  |       |    
|Other liabilities(a)                                               |  |                   | 2,673  |   |                     |      |   |                |   | 2,780  |                     |  |       |    
|Total liabilities                                                  |  |                   | 29,581 |   |                     |      |   |                |   | 30,799 |                     |  |       |    
|Shareholders equity (a)                                           |  |                   | 3,806  |   |                     |      |   |                |   | 3,411  |                     |  |       |    
|Total liabilities and shareholders equity                         |  | $                 | 33,387 |   |                     |      |   |                | $ | 34,210 |                     |  |       |    
|Rates                                                              |  |                   |        |   |                     |      |   |                |   |        |                     |  |       |    
|Yield on total interest-earning assets                             |  |                   |        |   |                     | 3.66 | % |                |   |        |                     |  | 4.34  | %  
|Cost of funds supporting interest-earning assets                   |  |                   |        |   |                     | 1.52 |   |                |   |        |                     |  | 1.59  |    
|Net interest margin (e):                                           |  |                   |        |   |                     |      |   |                |   |        |                     |  |       |    
|Taxable equivalent basis                                           |  |                   |        |   |                     | 2.14 | % |                |   |        |                     |  | 2.75  | %  
|Without taxable equivalent increments                              |  |                   |        |   |                     | 2.07 |   |                |   |        |                     |  | 2.68  |    

|(a) | Amounts and yields exclude adjustments for fair value and the related deferred tax effect required by FAS No. 115. Average shareholders equity including this adjustment was
$3.782 billion and $3.495 billion, respectively.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(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 8 of the Notes to Financial Statements.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(c) | Trust-preferred securities were deconsolidated at Dec. 31, 2003. Beginning in the first quarter of 2004, averages are reflected as junior subordinated debentures. The average
rates were impacted by the fair market value of the underlying interest rate swaps.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(d) | 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, while the rate paid on notes and debentures, excluding the hedge results, would have been 3.18% for the first nine
months of 2003.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(e) | Calculated on a continuing operations basis for the impact of the sale of the fixed income trading business even though the prior period balance sheet is not restated for
discontinued operations in accordance with generally accepted accounting principles.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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.



29



---

##### Table of Contents

Operating expense

---



Operating expense



|                                                           |  |               |        |   |                   |   |        |               |  |   |               |   |  |               |        |   |  |   |        |  
|---------------------------------------------------------- |  | ------------- | ------ | - | ----------------- | - | ------ | ------------- |  | - | ------------- | - |  | ------------- | ------ | - |  | - | ------ | -
|                                                           |  | Quarter ended |        |   | Nine months ended |  
|(dollar amounts in millions)                               |  | Sept. 30,2004 |        |   | June 30,2004      |   |        | Sept. 30,2003 |  |   | Sept. 30,2004 |   |  | Sept. 30,2003 |       
|Staff expense:                                             |  |               |        |   |                   |   |        |               |  |   |               |   |  |               |        |   |  |   |        |  
|Compensation                                               |  | $             | 323    |   |                   | $ | 319    |               |  | $ | 349           |   |  | $             | 958    |   |  | $ | 998    |  
|Incentive (a)                                              |  |               | 91     |   |                   |   | 94     |               |  |   | 87            |   |  |               | 290    |   |  |   | 227    |  
|Employee benefits                                          |  |               | 67     |   |                   |   | 68     |               |  |   | 58            |   |  |               | 209    |   |  |   | 175    |  
|Total staff expense                                        |  |               | 481    |   |                   |   | 481    |               |  |   | 494           |   |  |               | 1,457  |   |  |   | 1,400  |  
|Professional, legal and other purchased services           |  |               | 102    |   |                   |   | 110    |               |  |   | 108           |   |  |               | 316    |   |  |   | 308    |  
|Net occupancy expense                                      |  |               | 66     |   |                   |   | 93     |               |  |   | 68            |   |  |               | 227    |   |  |   | 197    |  
|Equipment expense                                          |  |               | 54     |   |                   |   | 53     |               |  |   | 70            |   |  |               | 161    |   |  |   | 174    |  
|Business development                                       |  |               | 25     |   |                   |   | 26     |               |  |   | 28            |   |  |               | 76     |   |  |   | 78     |  
|Communications expense                                     |  |               | 23     |   |                   |   | 27     |               |  |   | 24            |   |  |               | 78     |   |  |   | 80     |  
|Amortization of intangible assets                          |  |               | 5      |   |                   |   | 4      |               |  |   | 5             |   |  |               | 14     |   |  |   | 14     |  
|Other expense                                              |  |               | 33     |   |                   |   | 34     |               |  |   | 35            |   |  |               | 119    |   |  |   | 113    |  
|Total operating expense                                    |  | $             | 789    |   |                   | $ | 828    |               |  | $ | 832           |   |  | $             | 2,448  |   |  | $ | 2,364  |  
|Total staff expense as a percentage of total revenue (FTE) |  |               | 46     | % |                   |   | 44     | %             |  |   | 46            | % |  |               | 43     | % |  |   | 45     | %
|Employees at period-end                                    |  |               | 20,000 |   |                   |   | 20,300 |               |  |   | 21,300        |   |  |               | 20,000 |   |  |   | 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 approximately $5 million, $4 million, less than $1 million, $13 million and
$2 million, respectively. See Note 1 of Notes to Financial Statements for a further discussion of the impact of recording expense for stock options.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Given the Corporations mix of fee based businesses, the largest category of operating expense is staff expense which comprised
approximately 61% of total operating expense in the third quarter of 2004. The largest component of staff expense is compensation which includes base salary expense, which is primarily driven by headcount, the cost of temporaries, overtime and any
severance expense incurred by the Corporation. Incentive expense represents additional compensation earned under a wide range of sales commission plans and incentive plans designed to reward a combination of individual, line of business and
corporate performance versus goals, as well as the cost of stock options. Employee benefits expense primarily includes the cost of the Corporations employee benefits plans for health and welfare benefits, payroll taxes and retirement benefits.
Other expenses include certain expenses that vary with the levels of business activity. These expenses include professional, legal and other purchased services; business development (travel, entertainment and advertising); communications expense
(telecommunications, postage and delivery); and other expenses (government assessments, forms and supplies, clerical errors, etc.).



Third quarter 2004 compared with third quarter 2003



Summary - Operating expense decreased $43 million, or 5%, compared with the third quarter of 2003. The third quarter of 2003 included a $50 million charge
primarily related to streamlining the organizational structure of the HR&IS sector recorded as severance expense ($29 million), software and fixed asset writedowns ($18 million included in equipment expense in the table above) and other expense
($3 million). Excluding this charge, operating expense increased $7 million, or less than 1%, primarily reflecting the effect of foreign exchange rates, which accounted for approximately $7 million of the increase in total operating expense,
including approximately $3 million in staff expense, as well as an increase in employee benefits expense due to higher pension expense, partially offset by lower non-staff expenses.



Staff expense - Staff expense in the third quarter of 2004 decreased $13 million, or 3%, compared with the third quarter of 2003, due
to the third quarter 2003 severance charge mentioned above. Excluding this charge, staff



30



---

##### Table of Contents

Operating expense (continued)

---



expense increased $16 million, or 3%, primarily reflecting an increase in: employee benefits
expense due to higher pension expense; higher compensation expense reflecting the impact of July 1, 2004 merit increases ($12 million); and higher expense for temporary services partially offset by the impact of lower headcount and lower severance
expense. Employee benefits expense included $3 million of pension expense in the third quarter of 2004 compared with a $7 million pension credit in the third quarter of 2003. The increase in incentive expense resulted from a $5 million increase in
stock option expense. Severance expense of $54 million was recorded in 2003 for the planned reduction of approximately 2,100 positions. The Corporation has utilized approximately $41 million of the severance accrual recorded, with the balance
expected to be used by Dec. 31, 2004.



Non-staff expenses - Non-staff
expenses in the third quarter of 2004 totaled $308 million, a $30 million, or 9%, decrease compared with the third quarter of 2003, primarily reflecting the $21 million of expenses recorded in the third quarter 2003 discussed above. Excluding these
expenses, non-staff expenses decreased 3%.



Third quarter 2004 compared with
second quarter 2004



Operating expense decreased $39 million in the third
quarter of 2004 compared with the second quarter of 2004. The second quarter of 2004 included a $24 million charge related to vacating 10 leased locations in London and moving into the Corporations new European Headquarters, recorded primarily
as occupancy expense in the table above. Excluding this charge, operating expense decreased $15 million, or 2% (unannualized), reflecting expense management efforts, as well as lower client reimbursable out-of-pocket expenses, which totaled $22
million in the third quarter of 2004 compared with $25 million in the second quarter of 2004.



Year-to-date 2004 compared with year-to-date 2003



Operating expense totaled $2.448 billion in the first nine months of 2004, an increase of $84 million, or 4%, compared with the prior-year period. Expenses in 2004 included the $24 million charge discussed above as
well as a first quarter 2004 charge of $19 million, included in other expense in the table above, associated with the writedown of small non-strategic businesses that the Corporation intends to exit. Expenses in 2003 included the $50 million charge
discussed above. Excluding these charges, operating expense increased $91 million, or 4%, primarily due to higher incentive and employee benefits expense. Higher expenses for stock options in the first nine months of 2004 compared with the
prior-year period accounted for $11 million of the increase in incentive expense. The effect of foreign exchange rates also accounted for approximately $27 million of the increase in total operating expense, including approximately $13 million in
staff expense.



Income taxes

---



The provision for income taxes from continuing operations
totaled $70 million in the third quarter of 2004 compared with $68 million in the third quarter of 2003 and $85 million in the second quarter of 2004. The Corporations effective tax rate on income from continuing operations was approximately
28% for the third quarter of 2004, compared with approximately 31% for the third quarter of 2003 and 32.5% for the second quarter of 2004. The rate was lower in the third quarter of 2004 compared to the second quarter of 2004 primarily due to the
favorable resolution of certain state tax issues. It is currently anticipated that the effective tax rate for the fourth quarter will be approximately 31%, which corresponds to the effective tax rate for the nine months ended Sept. 30, 2004.



31



---

##### Table of Contents

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. The Corporations lines of business serve two distinct major classes of customers - corporations and institutions and
high net worth individuals. 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 and divided into two overall reportable groups 
Asset Management and Corporate & Institutional Services. In addition, Other Activity, as discussed further on page 41, consists of all activities not aggregated in the Corporations core business sectors.



|                                                                                                            |      |                                |     |      |              |   |      |                           |  |      |                        |   |      |   |     |      |  |   |      |   |  |      |     |   |      |   |     |      |  |   |      |   |  |      |     |   |  |   |     |   |  |   |     |   |  |   |     |  
|----------------------------------------------------------------------------------------------------------- | ---- | ------------------------------ | --- | ---- | ------------ | - | ---- | ------------------------- |  | ---- | ---------------------- | - | ---- | - | --- | ---- |  | - | ---- | - |  | ---- | --- | - | ---- | - | --- | ---- |  | - | ---- | - |  | ---- | --- | - |  | - | --- | - |  | - | --- | - |  | - | --- | -
|Quarterly data (income statement amounts in millions, averages in billions, presented on an FTE basis)      |      | Institutional Asset Management |     |      | Mutual Funds |   |      | Private Wealth Management |  |      | Total Asset Management |  
|                                                                                                            | 3Q04 |                                |     | 2Q04 |              |   | 3Q03 |                           |  | 3Q04 |                        |   | 2Q04 |   |     | 3Q03 |  |   | 3Q04 |   |  | 2Q04 |     |   | 3Q03 |   |     | 3Q04 |  |   | 2Q04 |   |  | 3Q03 |    
|Total revenue                                                                                               |      | $                              | 180 |      |              | $ | 185  |                           |  | $    | 149                    |   |      | $ | 118 |      |  | $ | 121  |   |  | $    | 122 |   |      | $ | 133 |      |  | $ | 135  |   |  | $    | 133 |   |  | $ | 431 |   |  | $ | 441 |   |  | $ | 404 |  
|Credit quality expense (revenue)                                                                            |      |                                |    |      |              |   |     |                           |  |      |                       |   |      |   |    |      |  |   |     |   |  |      |    |   |      |   |    |      |  |   | 1    |   |  |      |    |   |  |   |    |   |  |   | 1   |   |  |   |    |  
|Operating expense                                                                                           |      |                                | 134 |      |              |   | 135  |                           |  |      | 121                    |   |      |   | 77  |      |  |   | 77   |   |  |      | 80  |   |      |   | 78  |      |  |   | 78   |   |  |      | 76  |   |  |   | 289 |   |  |   | 290 |   |  |   | 277 |  
|Income (loss) from continuing operations before taxes (benefits) and cumulative effect of accounting
change |      | $                              | 46  |      |              | $ | 50   |                           |  | $    | 28                     |   |      | $ | 41  |      |  | $ | 44   |   |  | $    | 42  |   |      | $ | 55  |      |  | $ | 56   |   |  | $    | 57  |   |  | $ | 142 |   |  | $ | 150 |   |  | $ | 127 |  
|Average assets (a)                                                                                          |      | $                              | 1.5 |      |              | $ | 1.5  |                           |  | $    | 1.4                    |   |      | $ | 0.6 |      |  | $ | 0.6  |   |  | $    | 0.6 |   |      | $ | 6.3 |      |  | $ | 6.2  |   |  | $    | 5.5 |   |  | $ | 8.4 |   |  | $ | 8.3 |   |  | $ | 7.5 |  
|Average common equity                                                                                       |      | $                              | 0.6 |      |              | $ | 0.6  |                           |  | $    | 0.5                    |   |      | $ | 0.2 |      |  | $ | 0.2  |   |  | $    | 0.2 |   |      | $ | 0.5 |      |  | $ | 0.5  |   |  | $    | 0.4 |   |  | $ | 1.3 |   |  | $ | 1.3 |   |  | $ | 1.1 |  
|Average Tier I preferred equity                                                                             |      | $                              | 0.3 |      |              | $ | 0.3  |                           |  | $    | 0.3                    |   |      | $ | 0.1 |      |  | $ | 0.1  |   |  | $    | 0.1 |   |      | $ | 0.2 |      |  | $ | 0.2  |   |  | $    | 0.2 |   |  | $ | 0.6 |   |  | $ | 0.6 |   |  | $ | 0.6 |  
|Percentage of core sector revenue                                                                           |      |                                | 18  | %    |              |   | 17   | %                         |  |      | 14                     | % |      |   | 12  | %    |  |   | 12   | % |  |      | 12  | % |      |   | 13  | %    |  |   | 13   | % |  |      | 13  | % |  |   | 43  | % |  |   | 42  | % |  |   | 39  | %
|Percentage of core sector income before taxes                                                               |      |                                | 19  | %    |              |   | 17   | %                         |  |      | 13                     | % |      |   | 17  | %    |  |   | 15   | % |  |      | 20  | % |      |   | 22  | %    |  |   | 19   | % |  |      | 28  | % |  |   | 58  | % |  |   | 51  | % |  |   | 61  | %



|                                                                                                            |      |                 |     |      |                                      |   |      |                   |  |      |                                          |   |      |   |     |      |  |   |      |   |  |      |     |    |      |   |     |      |  |   |      |   |  |      |      |   |  |   |      |   |  |   |      |   |  |   |      |  
|----------------------------------------------------------------------------------------------------------- | ---- | --------------- | --- | ---- | ------------------------------------ | - | ---- | ----------------- |  | ---- | ---------------------------------------- | - | ---- | - | --- | ---- |  | - | ---- | - |  | ---- | --- | -- | ---- | - | --- | ---- |  | - | ---- | - |  | ---- | ---- | - |  | - | ---- | - |  | - | ---- | - |  | - | ---- | -
|Quarterly data (income statement amounts in millions, averages in billions, presented on an FTE basis)      |      | Asset Servicing |     |      | Human Resources & Investor Solutions |   |      | Treasury Services |  |      | Total Corporate & Institutional Services |  
|                                                                                                            | 3Q04 |                 |     | 2Q04 |                                      |   | 3Q03 |                   |  | 3Q04 |                                          |   | 2Q04 |   |     | 3Q03 |  |   | 3Q04 |   |  | 2Q04 |     |    | 3Q03 |   |     | 3Q04 |  |   | 2Q04 |   |  | 3Q03 |     
|Total revenue                                                                                               |      | $               | 173 |      |                                      | $ | 200  |                   |  | $    | 178                                      |   |      | $ | 236 |      |  | $ | 245  |   |  | $    | 241 |    |      | $ | 163 |      |  | $ | 173  |   |  | $    | 198  |   |  | $ | 572  |   |  | $ | 618  |   |  | $ | 617  |  
|Credit quality expense (revenue)                                                                            |      |                 |    |      |                                      |   |     |                   |  |      |                                         |   |      |   |    |      |  |   |     |   |  |      |    |    |      |   | 1   |      |  |   | (1   | ) |  |      | 1    |   |  |   | 1    |   |  |   | (1   | ) |  |   | 1    |  
|Operating expense                                                                                           |      |                 | 142 |      |                                      |   | 143  |                   |  |      | 138                                      |   |      |   | 220 |      |  |   | 230  |   |  |      | 285 |    |      |   | 105 |      |  |   | 103  |   |  |      | 111  |   |  |   | 467  |   |  |   | 476  |   |  |   | 534  |  
|Income (loss) from continuing operations before taxes (benefits) and cumulative effect of accounting
change |      | $               | 31  |      |                                      | $ | 57   |                   |  | $    | 40                                       |   |      | $ | 16  |      |  | $ | 15   |   |  | $    | (44 | )  |      | $ | 57  |      |  | $ | 71   |   |  | $    | 86   |   |  | $ | 104  |   |  | $ | 143  |   |  | $ | 82   |  
|Average assets (a)                                                                                          |      | $               | 7.0 |      |                                      | $ | 6.8  |                   |  | $    | 6.1                                      |   |      | $ | 1.5 |      |  | $ | 1.4  |   |  | $    | 1.7 |    |      | $ | 9.3 |      |  | $ | 9.3  |   |  | $    | 10.4 |   |  | $ | 17.8 |   |  | $ | 17.5 |   |  | $ | 18.2 |  
|Average common equity                                                                                       |      | $               | 0.6 |      |                                      | $ | 0.6  |                   |  | $    | 0.6                                      |   |      | $ | 0.4 |      |  | $ | 0.3  |   |  | $    | 0.4 |    |      | $ | 0.9 |      |  | $ | 1.0  |   |  | $    | 1.1  |   |  | $ | 1.9  |   |  | $ | 1.9  |   |  | $ | 2.1  |  
|Average Tier I preferred equity                                                                             |      | $               | 0.1 |      |                                      | $ | 0.1  |                   |  | $    | 0.1                                      |   |      | $ | 0.2 |      |  | $ | 0.2  |   |  | $    | 0.2 |    |      | $ | 0.1 |      |  | $ | 0.1  |   |  | $    | 0.1  |   |  | $ | 0.4  |   |  | $ | 0.4  |   |  | $ | 0.4  |  
|Percentage of core sector revenue                                                                           |      |                 | 17  | %    |                                      |   | 19   | %                 |  |      | 17                                       | % |      |   | 24  | %    |  |   | 23   | % |  |      | 24  | %  |      |   | 16  | %    |  |   | 16   | % |  |      | 20   | % |  |   | 57   | % |  |   | 58   | % |  |   | 61   | %
|Percentage of core sector income before taxes                                                               |      |                 | 12  | %    |                                      |   | 20   | %                 |  |      | 19                                       | % |      |   | 6   | %    |  |   | 5    | % |  |      | (21 | )% |      |   | 24  | %    |  |   | 24   | % |  |      | 41   | % |  |   | 42   | % |  |   | 49   | % |  |   | 39   | %



|                                                                                                            |      |                    |       |                |      |       |                      |   |       |      |   |     |      |  |   |      |   |      |   |      |   |  |   |       |  |   |       |  |   |      
|----------------------------------------------------------------------------------------------------------- | ---- | ------------------ | ----- | -------------- | ---- | ----- | -------------------- | - | ----- | ---- | - | --- | ---- |  | - | ---- | - | ---- | - | ---- | - |  | - | ----- |  | - | ----- |  | - | -----
|Quarterly data (income statement amounts in millions, averages in billions,
presented on an FTE basis)      |      | Total Core Sectors |       | Other Activity |      |       | Consolidated Results
|                                                                                                            | 3Q04 |                    | 2Q04  |                | 3Q03 |       | 3Q04                 |   |       | 2Q04 |   |     | 3Q03 |  |   | 3Q04 |   | 2Q04 |   | 3Q03
|Total revenue (b)                                                                                           |      | $                  | 1,003 |                | $    | 1,059 |                      | $ | 1,021 |      | $ | 52  |      |  | $ | 44   |   |      | $ | 46   |   |  | $ | 1,055 |  | $ | 1,103 |  | $ | 1,067
|Credit quality expense (revenue)                                                                            |      |                    | 1     |                |      |      |                      |   | 1     |      |   | (1  | )    |  |   |     |   |      |   | (1   | ) |  |   |      |  |   |      |  |   |     
|Operating expense                                                                                           |      |                    | 756   |                |      | 766   |                      |   | 811   |      |   | 33  |      |  |   | 62   |   |      |   | 21   |   |  |   | 789   |  |   | 828   |  |   | 832  
|Income (loss) from continuing operations before taxes (benefits) and cumulative effect of accounting
change |      | $                  | 246   |                | $    | 293   |                      | $ | 209   |      | $ | 20  |      |  | $ | (18  | ) |      | $ | 26   |   |  | $ | 266   |  | $ | 275   |  | $ | 235  
|Average assets(a)                                                                                           |      | $                  | 26.2  |                | $    | 25.8  |                      | $ | 25.7  |      | $ | 7.2 |      |  | $ | 7.6  |   |      | $ | 7.3  |   |  | $ | 33.4  |  | $ | 33.4  |  | $ | 33.4 
|Average common equity                                                                                       |      | $                  | 3.2   |                | $    | 3.2   |                      | $ | 3.2   |      | $ | 0.6 |      |  | $ | 0.5  |   |      | $ | 0.3  |   |  | $ | 3.8   |  | $ | 3.7   |  | $ | 3.5  
|Average Tier I preferred equity                                                                             |      | $                  | 1.0   |                | $    | 1.0   |                      | $ | 1.0   |      | $ |    |      |  | $ |     |   |      | $ |     |   |  | $ | 1.0   |  | $ | 1.0   |  | $ | 1.0  

|(a) | 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, $- million and $.4 billion for the third quarter of 2004, second quarter of 2004 and third quarter of 2003, respectively.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | Consolidated results include FTE impact of $15 million, $14 million and $14 million for the third quarter of 2004, second quarter of 2004 and third quarter of 2003,
respectively.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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



32



---

##### Table of Contents

Business sectors (continued)

---



|                                                                                                                            |      |                              |     |      |             |   |      |                          |  |      |                       |   |      |   |     |      |  |   |      |   |  |      |     |   |  |   |       |   |  |   |       |  
|--------------------------------------------------------------------------------------------------------------------------- | ---- | ---------------------------- | --- | ---- | ----------- | - | ---- | ------------------------ |  | ---- | --------------------- | - | ---- | - | --- | ---- |  | - | ---- | - |  | ---- | --- | - |  | - | ----- | - |  | - | ----- | -
|For the nine months ended Sept. 30, (income statement amounts in millions, averages in billions;
presented on an FTE basis) |      | InstitutionalAssetManagement |     |      | MutualFunds |   |      | Private WealthManagement |  |      | Total AssetManagement |  
|                                                                                                                            | 2004 |                              |     | 2003 |             |   | 2004 |                          |  | 2003 |                       |   | 2004 |   |     | 2003 |  |   | 2004 |   |  | 2003 |    
|Total revenue                                                                                                               |      | $                            | 576 |      |             | $ | 413  |                          |  | $    | 359                   |   |      | $ | 365 |      |  | $ | 402  |   |  | $    | 396 |   |  | $ | 1,337 |   |  | $ | 1,174 |  
|Credit quality expense (revenue)                                                                                            |      |                              |    |      |             |   |     |                          |  |      |                      |   |      |   |    |      |  |   | 1    |   |  |      |    |   |  |   | 1     |   |  |   |      |  
|Operating expense                                                                                                           |      |                              | 413 |      |             |   | 350  |                          |  |      | 231                   |   |      |   | 236 |      |  |   | 233  |   |  |      | 217 |   |  |   | 877   |   |  |   | 803   |  
|Income from continuing operations before taxes (benefits) and cumulative effect of accounting
change                        |      | $                            | 163 |      |             | $ | 63   |                          |  | $    | 128                   |   |      | $ | 129 |      |  | $ | 168  |   |  | $    | 179 |   |  | $ | 459   |   |  | $ | 371   |  
|Average assets (a)                                                                                                          |      | $                            | 1.5 |      |             | $ | 1.4  |                          |  | $    | 0.5                   |   |      | $ | 0.6 |      |  | $ | 6.2  |   |  | $    | 5.5 |   |  | $ | 8.2   |   |  | $ | 7.5   |  
|Average common equity                                                                                                       |      | $                            | 0.6 |      |             | $ | 0.5  |                          |  | $    | 0.2                   |   |      | $ | 0.2 |      |  | $ | 0.5  |   |  | $    | 0.4 |   |  | $ | 1.3   |   |  | $ | 1.1   |  
|Average Tier I preferred equity                                                                                             |      | $                            | 0.3 |      |             | $ | 0.3  |                          |  | $    | 0.1                   |   |      | $ | 0.1 |      |  | $ | 0.2  |   |  | $    | 0.2 |   |  | $ | 0.6   |   |  | $ | 0.6   |  
|Percentage of core sector revenue                                                                                           |      |                              | 18  | %    |             |   | 14   | %                        |  |      | 12                    | % |      |   | 12  | %    |  |   | 13   | % |  |      | 13  | % |  |   | 43    | % |  |   | 39    | %
|Percentage of core sector income before taxes                                                                               |      |                              | 19  | %    |             |   | 9    | %                        |  |      | 15                    | % |      |   | 18  | %    |  |   | 20   | % |  |      | 25  | % |  |   | 54    | % |  |   | 52    | %



|                                                                                                                            |      |                |     |      |                                     |   |      |                  |  |      |                                         |   |      |   |     |      |  |   |      |   |  |      |      |   |  |   |       |   |  |   |       |  
|--------------------------------------------------------------------------------------------------------------------------- | ---- | -------------- | --- | ---- | ----------------------------------- | - | ---- | ---------------- |  | ---- | --------------------------------------- | - | ---- | - | --- | ---- |  | - | ---- | - |  | ---- | ---- | - |  | - | ----- | - |  | - | ----- | -
|For the nine months ended Sept. 30, (income statement amounts in millions, averages in billions;
presented on an FTE basis) |      | AssetServicing |     |      | Human Resources &Investor Solutions |   |      | TreasuryServices |  |      | Total Corporate & InstitutionalServices |  
|                                                                                                                            | 2004 |                |     | 2003 |                                     |   | 2004 |                  |  | 2003 |                                         |   | 2004 |   |     | 2003 |  |   | 2004 |   |  | 2003 |     
|Total revenue                                                                                                               |      | $              | 569 |      |                                     | $ | 518  |                  |  | $    | 727                                     |   |      | $ | 736 |      |  | $ | 511  |   |  | $    | 594  |   |  | $ | 1,807 |   |  | $ | 1,848 |  
|Credit quality expense (revenue)                                                                                            |      |                |    |      |                                     |   |     |                  |  |      |                                        |   |      |   |    |      |  |   |     |   |  |      | 5    |   |  |   |      |   |  |   | 5     |  
|Operating expense                                                                                                           |      |                | 430 |      |                                     |   | 394  |                  |  |      | 680                                     |   |      |   | 782 |      |  |   | 312  |   |  |      | 321  |   |  |   | 1,422 |   |  |   | 1,497 |  
|Income (loss) from continuing operations before taxes (benefits) and cumulative effect of accounting
change                 |      | $              | 139 |      |                                     | $ | 124  |                  |  | $    | 47                                      |   |      | $ | (46 | )    |  | $ | 199  |   |  | $    | 268  |   |  | $ | 385   |   |  | $ | 346   |  
|Average assets (a)                                                                                                          |      | $              | 7.0 |      |                                     | $ | 5.7  |                  |  | $    | 1.4                                     |   |      | $ | 1.8 |      |  | $ | 9.2  |   |  | $    | 11.5 |   |  | $ | 17.6  |   |  | $ | 19.0  |  
|Average common equity                                                                                                       |      | $              | 0.6 |      |                                     | $ | 0.6  |                  |  | $    | 0.4                                     |   |      | $ | 0.4 |      |  | $ | 1.0  |   |  | $    | 1.1  |   |  | $ | 2.0   |   |  | $ | 2.1   |  
|Average Tier I preferred equity                                                                                             |      | $              | 0.1 |      |                                     | $ | 0.1  |                  |  | $    | 0.2                                     |   |      | $ | 0.2 |      |  | $ | 0.1  |   |  | $    | 0.1  |   |  | $ | 0.4   |   |  | $ | 0.4   |  
|Percentage of core sector revenue                                                                                           |      |                | 18  | %    |                                     |   | 17   | %                |  |      | 23                                      | % |      |   | 24  | %    |  |   | 16   | % |  |      | 20   | % |  |   | 57    | % |  |   | 61    | %
|Percentage of core sector income before taxes                                                                               |      |                | 16  | %    |                                     |   | 17   | %                |  |      | 6                                       | % |      |   | (6  | )%   |  |   | 24   | % |  |      | 37   | % |  |   | 46    | % |  |   | 48    | %



|                                                                                                                            |      |                    |       |               |      |                     |  |      |     |      |  |   |      |  |   |       |   |  |   |      
|--------------------------------------------------------------------------------------------------------------------------- | ---- | ------------------ | ----- | ------------- | ---- | ------------------- |  | ---- | --- | ---- |  | - | ---- |  | - | ----- | - |  | - | -----
|For the nine months ended Sept. 30, (income statement amounts in millions, averages in billions;
presented on an FTE basis) |      | Total Core Sectors |       | OtherActivity |      | ConsolidatedResults
|                                                                                                                            | 2004 |                    | 2003  |               | 2004 |                     |  | 2003 |     | 2004 |  |   | 2003
|Total revenue(b)                                                                                                            |      | $                  | 3,144 |               | $    | 3,022               |  | $    | 215 |      |  | $ | 110  |  | $ | 3,359 |   |  | $ | 3,132
|Credit quality expense (revenue)                                                                                            |      |                    | 1     |               |      | 5                   |  |      | (8  | )    |  |   | 2    |  |   | (7    | ) |  |   | 7    
|Operating expense                                                                                                           |      |                    | 2,299 |               |      | 2,300               |  |      | 149 |      |  |   | 64   |  |   | 2,448 |   |  |   | 2,364
|Income from continuing operations before taxes (benefits) and cumulative effect of accounting
change                        |      | $                  | 844   |               | $    | 717                 |  | $    | 74  |      |  | $ | 44   |  | $ | 918   |   |  | $ | 761  
|Average assets(a)                                                                                                           |      | $                  | 25.8  |               | $    | 26.5                |  | $    | 7.5 |      |  | $ | 7.4  |  | $ | 33.3  |   |  | $ | 34.3 
|Average common equity                                                                                                       |      | $                  | 3.3   |               | $    | 3.2                 |  | $    | 0.5 |      |  | $ | 0.3  |  | $ | 3.8   |   |  | $ | 3.5  
|Average Tier I preferred equity                                                                                             |      | $                  | 1.0   |               | $    | 1.0                 |  | $    |    |      |  | $ |     |  | $ | 1.0   |   |  | $ | 1.0  

|(a) | 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 $.4 billion for the first nine months of 2004 and the first nine months of 2003, respectively.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | Consolidated results include FTE impact of $45 million and $43 million for the first nine months of 2004 and 2003, respectively.
|--- | --------------------------------------------------------------------------------------------------------------------------------

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



The results of the Corporations core business sectors are presented
and analyzed on an internal management reporting basis. Revenue amounts reflect fee revenue generated directly by each sector, as well as fee revenue transferred between sectors under revenue transfer agreements, with net interest revenue generated
directly by or allocated to the sector. 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 2003 Financial Annual Report to Shareholders
except: other fee revenue and net interest revenue 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 (recovery) basis. Capital is allocated to the business sectors to reflect managements assessment of credit risk, market risk and operating risk using internal risk models and,
where appropriate, regulatory guidelines generally consistent with the proposed Basel accord. 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 2004, the



33



---

##### Table of Contents

Business sectors (continued)

---



Corporation revised prospectively its capital allocations to the core business sectors to
better reflect the economic capital required for these businesses. The increase in allocated capital was approximately $100 million. Effective January 2004, the Corporation reclassified the results of the small non-strategic businesses that the
Corporation intends to exit to the Other Activity sector. The Corporation also revised prospectively expense allocations to the core business sectors to better reflect the business drivers of those expenses. The impact on any single sector was not
material and in the aggregate was unchanged. The 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.



See pages 20 through 32 of the Corporations 2003 Financial Annual Report for a discussion of the products and services offered by each business sector, the
distribution channels for the products and services and the factors that drive the performance of the sectors.



34



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##### Table of Contents

Business sectors (continued)

---



Institutional Asset Management



|                                                                                |  |               |     |   |                   |   |     |               |  |   |               |   |  |               |     |   |  |   |     |  
|------------------------------------------------------------------------------- |  | ------------- | --- | - | ----------------- | - | --- | ------------- |  | - | ------------- | - |  | ------------- | --- | - |  | - | --- | -
|                                                                                |  | Quarter ended |     |   | Nine months ended |  
|(income statement dollar amounts in millions, asset dollar amounts in billions) |  | Sept. 30,2004 |     |   | June 30,2004      |   |     | Sept. 30,2003 |  |   | Sept. 30,2004 |   |  | Sept. 30,2003 |    
|Institutional clients                                                           |  | $             | 106 |   |                   | $ | 112 |               |  | $ | 87            |   |  | $             | 351 |   |  | $ | 240 |  
|Mutual funds                                                                    |  |               | 43  |   |                   |   | 42  |               |  |   | 34            |   |  |               | 124 |   |  |   | 93  |  
|Private clients                                                                 |  |               | 11  |   |                   |   | 10  |               |  |   | 9             |   |  |               | 32  |   |  |   | 26  |  
|                                                                                |  |               |     |   |                   |   |     |               |  |   |               |   |  |               |     |   |  |   |     |  
|Total investment management revenue                                             |  | $             | 160 |   |                   | $ | 164 |               |  | $ | 130           |   |  | $             | 507 |   |  | $ | 359 |  
|Institutional trust and custody revenue                                         |  |               | 11  |   |                   |   | 10  |               |  |   | 10            |   |  |               | 31  |   |  |   | 29  |  
|Transfer revenue(a)                                                             |  |               | 10  |   |                   |   | 15  |               |  |   | 9             |   |  |               | 37  |   |  |   | 26  |  
|                                                                                |  |               |     |   |                   |   |     |               |  |   |               |   |  |               |     |   |  |   |     |  
|Total trust and investment fee revenue                                          |  | $             | 181 |   |                   | $ | 189 |               |  | $ | 149           |   |  | $             | 575 |   |  | $ | 414 |  
|Other fee revenue                                                               |  |               | 3   |   |                   |   |    |               |  |   | 6             |   |  |               | 13  |   |  |   | 13  |  
|Net interest revenue (expense)                                                  |  |               | (4  | ) |                   |   | (4  | )             |  |   | (6            | ) |  |               | (12 | ) |  |   | (14 | )
|                                                                                |  |               |     |   |                   |   |     |               |  |   |               |   |  |               |     |   |  |   |     |  
|Total revenue                                                                   |  | $             | 180 |   |                   | $ | 185 |               |  | $ | 149           |   |  | $             | 576 |   |  | $ | 413 |  
|Total operating expense                                                         |  | $             | 134 |   |                   | $ | 135 |               |  | $ | 121           |   |  | $             | 413 |   |  | $ | 350 |  
|                                                                                |  |               |     |   |                   |   |     |               |  |   |               |   |  |               |     |   |  |   |     |  
|Income before taxes                                                             |  | $             | 46  |   |                   | $ | 50  |               |  | $ | 28            |   |  | $             | 163 |   |  | $ | 63  |  
|Return on common equity (annualized)                                            |  |               | 21  | % |                   |   | 22  | %             |  |   | 15            | % |  |               | 25  | % |  |   | 12  | %
|Pre-tax operating margin                                                        |  |               | 26  | % |                   |   | 27  | %             |  |   | 19            | % |  |               | 28  | % |  |   | 15  | %
|                                                                                |  |               |     |   |                  
|Assets under management (b)                                                     |  | $             | 467 |   |                   | $ | 469 |               |  | $ | 414           |   |  |               |     |   |  |   |     |  
|Plus: subadvised for other Mellon sectors                                       |  |               | 22  |   |                   |   | 22  |               |  |   | 19            |   |  |               |     |   |  |   |     |  
|                                                                                |  |               |     |   |                   |   |     |               |  |   |               |   |  |               |     |   |  |   |     |  
|                                                                                |  | $             | 489 |   |                   | $ | 491 |               |  | $ | 433           |   |  |               |     |   |  |   |     |  
|                                                                                |  |               |     |   |                  
|Assets under administration or custody                                          |  | $             | 17  |   |                   | $ | 15  |               |  | $ | 17            |   |  |               |     |   |  |   |     |  

|(a) | Consists largely of sub-advisory and distribution fees credited to the Institutional Asset Management sector by the Mutual Fund sector.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------

|(b) | Includes $86 billion, $82 billion and $63 billion of securities lending assets advised by Institutional Asset Management. However, fees earned on these assets are shown as
securities lending fees in the Asset Servicing sector.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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.



The $31 million, or 21%, increase in revenue in the third quarter of 2004 compared with the third quarter of 2003 primarily resulted from an increase in investment management fees, primarily due to the impact of
improved equity markets, net new business, a $3 million increase in performance fees and the effect of foreign exchange rates. As shown in the table on page 22, assets under management for this sector, before amounts subadvised for other sectors,
increased $53 billion from Sept. 30, 2003, resulting from $27 billion of net inflows and $27 billion of market appreciation, partially offset by $1 billion from divestitures. Operating expense increased $13 million, or 10%, compared with the third
quarter of 2003, primarily due to higher incentive expense related in part to higher performance fees and trust fees, as well as the effect of foreign exchange rates. Income before taxes increased $18 million, or 67%, compared with the third quarter
of 2003.



The $5 million, or 2%, decrease in revenue in the third quarter of
2004 compared with the second quarter of 2004 was due primarily to a $6 million seasonal decrease in performance fees. As shown in the table on page 22, assets under management for this sector, before amounts subadvised for other sectors, decreased
$2 million, or less than 1%, from June 30, 2004, primarily due to money market outflows, partially offset by the impact of acquisitions. Operating expense decreased $1 million, or 1%, in the third quarter of 2004 compared with the second quarter of
2004, due primarily to lower incentive expense on lower performance fees. Income before taxes decreased $4 million, or 7%, compared with the prior quarter.



35



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##### Table of Contents

Business sectors (continued)

---



On a year-to-date basis, income before taxes increased $100 million compared to the first
nine months of 2003. Revenue increased 39% from the prior year, primarily resulting from a $148 million increase in investment management fees, including a $52 million increase in performance fees. The increase in investment management fees was
driven by new business generation, market appreciation and the effect of foreign exchange rates. Operating expense increased 18% from the first nine months of 2003, largely due to increased incentives as a result of revenue growth.



Mutual Funds



|                                                                                |  |               |     |   |                   |   |     |               |  |   |               |      |  |               |     |   |  |   |     |      
|------------------------------------------------------------------------------- |  | ------------- | --- | - | ----------------- | - | --- | ------------- |  | - | ------------- | ---- |  | ------------- | --- | - |  | - | --- | -----
|                                                                                |  | Quarter ended |     |   | Nine months ended |  
|(income statement dollar amounts in millions, asset dollar amounts in billions) |  | Sept. 30,2004 |     |   | June 30,2004      |   |     | Sept. 30,2003 |  |   | Sept. 30,2004 |      |  | Sept. 30,2003 |    
|Mutual funds                                                                    |  | $             | 125 |   |                   | $ | 129 |               |  | $ | 133           |      |  | $             | 383 |   |  | $ | 395 |      
|Private clients                                                                 |  |               | 6   |   |                   |   | 5   |               |  |   | 4             |      |  |               | 16  |   |  |   | 11  |      
|Institutional clients                                                           |  |               | 3   |   |                   |   | 3   |               |  |   | 3             |      |  |               | 10  |   |  |   | 10  |      
|                                                                                |  |               |     |   |                   |   |     |               |  |   |               |      |  |               |     |   |  |   |     |      
|Total investment management revenue                                             |  | $             | 134 |   |                   | $ | 137 |               |  | $ | 140           |      |  | $             | 409 |   |  | $ | 416 |      
|Institutional trust and custody revenue                                         |  |               |    |   |                   |   | 1   |               |  |   | (3            | )(a) |  |               |    |   |  |   | (5  | ) (a)
|Transfer revenue (b)                                                            |  |               | (15 | ) |                   |   | (14 | )             |  |   | (14           | )    |  |               | (44 | ) |  |   | (42 | )    
|                                                                                |  |               |     |   |                   |   |     |               |  |   |               |      |  |               |     |   |  |   |     |      
|Total trust and investment fee revenue                                          |  | $             | 119 |   |                   | $ | 124 |               |  | $ | 123           |      |  | $             | 365 |   |  | $ | 369 |      
|Other fee revenue                                                               |  |               |    |   |                   |   | (1  | )             |  |   | (1            | )    |  |               | (2  | ) |  |   | (1  | )    
|Net interest revenue (expense)                                                  |  |               | (1  | ) |                   |   | (2  | )             |  |   |              |      |  |               | (4  | ) |  |   | (3  | )    
|                                                                                |  |               |     |   |                   |   |     |               |  |   |               |      |  |               |     |   |  |   |     |      
|Total revenue                                                                   |  | $             | 118 |   |                   | $ | 121 |               |  | $ | 122           |      |  | $             | 359 |   |  | $ | 365 |      
|Total operating expense                                                         |  | $             | 77  |   |                   | $ | 77  |               |  | $ | 80            |      |  | $             | 231 |   |  | $ | 236 |      
|                                                                                |  |               |     |   |                   |   |     |               |  |   |               |      |  |               |     |   |  |   |     |      
|Income before taxes                                                             |  | $             | 41  |   |                   | $ | 44  |               |  | $ | 42            |      |  | $             | 128 |   |  | $ | 129 |      
|Return on common equity (annualized)                                            |  |               | 52  | % |                   |   | 54  | %             |  |   | 47            | %    |  |               | 52  | % |  |   | 48  | %    
|Pre-tax operating margin                                                        |  |               | 35  | % |                   |   | 36  | %             |  |   | 34            | %    |  |               | 36  | % |  |   | 35  | %    
|                                                                                |  |               |     |   |                  
|Assets under management                                                         |  | $             | 156 |   |                   | $ | 164 |               |  | $ | 166           |      |  |               |     |   |  |   |     |      
|Less: subadvised by other Mellon sectors                                        |  |               | (22 | ) |                   |   | (22 | )             |  |   | (20           | )    |  |               |     |   |  |   |     |      
|                                                                                |  |               |     |   |                   |   |     |               |  |   |               |      |  |               |     |   |  |   |     |      
|                                                                                |  | $             | 134 |   |                   | $ | 142 |               |  | $ | 146           |      |  |               |     |   |  |   |     |      

|(a) | Administration fees paid to third parties in excess of amounts collected.
|--- | -------------------------------------------------------------------------

|(b) | Consists of sub-advisory and distribution fees credited to other sectors.
|--- | -------------------------------------------------------------------------



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 annuities.



Revenue decreased $4 million, or 3%, compared with the third quarter of 2003 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. Operating expense decreased $3 million, or 4%, compared with the third quarter of 2003 reflecting expense management efforts, resulting in a
$1 million, or 1%, decrease in income before taxes. Assets under management for this sector, before amounts subadvised for other sectors, of $156 billion were down 6% from $166 billion at Sept. 30, 2003, and down 5% from $164 billion at June 30,
2004, resulting from institutional money market outflows.



Revenue decreased $3
million, or 2%, in the third quarter of 2004 compared with the second quarter of 2004, primarily due to lower management fee revenue from a lower average level of institutional money market funds and weaker equity markets. Operating expense remained
unchanged resulting in a $3 million, or 6%, decrease in income before taxes.



36



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##### Table of Contents

Business sectors (continued)

---



On a year-to-date basis, revenue decreased $6 million, or 2%, from the prior year, due in
part 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 and the positive impact of improved equity markets.
Operating expense decreased 2% principally due to lower staff and other expense, resulting in a $1 million, or 1%, decrease in income before taxes from the first nine months of 2003.



Private Wealth Management



|                                                                                |  |               |     |   |                   |   |     |               |  |   |               |   |  |               |     |   |  |   |     |  
|------------------------------------------------------------------------------- |  | ------------- | --- | - | ----------------- | - | --- | ------------- |  | - | ------------- | - |  | ------------- | --- | - |  | - | --- | -
|                                                                                |  | Quarter ended |     |   | Nine months ended |  
|(income statement dollar amounts in millions, asset dollar amounts in billions) |  | Sept. 30,2004 |     |   | June 30,2004      |   |     | Sept. 30,2003 |  |   | Sept. 30,2004 |   |  | Sept. 30,2003 |    
|Investment management revenue - private clients                                 |  | $             | 73  |   |                   | $ | 75  |               |  | $ | 69            |   |  | $             | 222 |   |  | $ | 199 |  
|Investment management revenue - mutual funds                                    |  |               | 1   |   |                   |   |    |               |  |   |              |   |  |               | 1   |   |  |   |    |  
|Institutional trust and custody revenue                                         |  |               | 3   |   |                   |   | 2   |               |  |   | 2             |   |  |               | 7   |   |  |   | 6   |  
|Transfer revenue                                                                |  |               | 1   |   |                   |   | 1   |               |  |   | 4             |   |  |               | 4   |   |  |   | 9   |  
|                                                                                |  |               |     |   |                   |   |     |               |  |   |               |   |  |               |     |   |  |   |     |  
|Total trust and investment fee revenue                                          |  | $             | 78  |   |                   | $ | 78  |               |  | $ | 75            |   |  | $             | 234 |   |  | $ | 214 |  
|Other fee revenue                                                               |  |               | 2   |   |                   |   | 2   |               |  |   | 3             |   |  |               | 8   |   |  |   | 10  |  
|Net interest revenue                                                            |  |               | 53  |   |                   |   | 55  |               |  |   | 55            |   |  |               | 160 |   |  |   | 172 |  
|                                                                                |  |               |     |   |                   |   |     |               |  |   |               |   |  |               |     |   |  |   |     |  
|Total revenue                                                                   |  | $             | 133 |   |                   | $ | 135 |               |  | $ | 133           |   |  | $             | 402 |   |  | $ | 396 |  
|Credit quality expense                                                          |  | $             |    |   |                   | $ | 1   |               |  | $ |              |   |  | $             | 1   |   |  | $ |    |  
|Total operating expense                                                         |  | $             | 78  |   |                   | $ | 78  |               |  | $ | 76            |   |  | $             | 233 |   |  | $ | 217 |  
|                                                                                |  |               |     |   |                   |   |     |               |  |   |               |   |  |               |     |   |  |   |     |  
|Income before taxes                                                             |  | $             | 55  |   |                   | $ | 56  |               |  | $ | 57            |   |  | $             | 168 |   |  | $ | 179 |  
|Return on common equity(annualized)                                             |  |               | 31  | % |                   |   | 30  | %             |  |   | 35            | % |  |               | 31  | % |  |   | 36  | %
|Pre-tax operating margin                                                        |  |               | 41  | % |                   |   | 41  | %             |  |   | 43            | % |  |               | 42  | % |  |   | 45  | %
|                                                                                |  |               |     |   |                  
|Total client assets at beginning of quarter                                     |  | $             | 76  |   |                   | $ | 76  |               |  | $ | 69            |   |  |               |     |   |  |   |     |  
|Assets under management net inflows (outflows)                                  |  |               | 1   |   |                   |   | (1  | )             |  |   |              |   |  |               |     |   |  |   |     |  
|Acquisitions                                                                    |  |               | 1   |   |                   |   |    |               |  |   | 1             |   |  |               |     |   |  |   |     |  
|Market appreciation (depreciation)                                              |  |               | (2  | ) |                   |   | 1   |               |  |   | 1             |   |  |               |     |   |  |   |     |  
|                                                                                |  |               |     |   |                   |   |     |               |  |   |               |   |  |               |     |   |  |   |     |  
|Total client assets at end of quarter (a)                                       |  | $             | 76  |   |                   | $ | 76  |               |  | $ | 71            |   |  |               |     |   |  |   |     |  

|(a) | Includes assets under management, before amounts subadvised for other sectors, of $47 billion, $46 billion and $45 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 60 locations in 15 states.



Revenue was unchanged compared with the third quarter of 2003, as an increase in trust and
investment fee revenue from improved equity markets was offset by a decrease in net interest and other fee revenue. Operating expense increased $2 million, or 3%, primarily reflecting higher incentive and compensation expense. Income before taxes
decreased $2 million, or 4%, compared with the third quarter of 2003. Client assets were $76 billion at Sept. 30, 2004, unchanged from June 30, 2004, and an increase of $5 billion from Sept. 30, 2003, primarily reflecting the impact of equity market
appreciation.



Revenue decreased $2 million, or 2%, in the third quarter of
2004 compared with the second quarter of 2004, reflecting lower net interest revenue. Total expenses, including credit quality expense, decreased $1 million, resulting in a $1 million decrease in income before taxes compared with the second quarter
of 2004.



On a year-to-date basis, revenue increased $6 million, or 2% from the
prior year, primarily due to a $20 million, or 10% increase in trust and investment fee revenue, partially offset by lower net interest revenue. Operating expense increased 7%, principally due to higher incentive expense, resulting in an $11
million, or 6%, decrease in income before taxes compared with the first nine months of 2003.



37



---

##### Table of Contents

Business sectors (continued)

---



Asset Servicing



|                                                                              |  |               |       |   |                   |   |       |               |  |   |               |   |  |               |     |   |  |   |     |  
|----------------------------------------------------------------------------- |  | ------------- | ----- | - | ----------------- | - | ----- | ------------- |  | - | ------------- | - |  | ------------- | --- | - |  | - | --- | -
|                                                                              |  | Quarter ended |       |   | Nine months ended |  
|(income statement dollar amounts inmillions,asset dollar amounts in billions) |  | Sept. 30,2004 |       |   | June 30,2004      |   |       | Sept. 30,2003 |  |   | Sept. 30,2004 |   |  | Sept. 30,2003 |    
|Institutional trust and custody revenue                                       |  | $             | 113   |   |                   | $ | 118   |               |  | $ | 104           |   |  | $             | 351 |   |  | $ | 309 |  
|Securities lending revenue (a)                                                |  |               | 16    |   |                   |   | 24    |               |  |   | 16            |   |  |               | 58  |   |  |   | 53  |  
|Transfer revenue                                                              |  |               |      |   |                   |   | (2    | )             |  |   |              |   |  |               | (2  | ) |  |   | 1   |  
|                                                                              |  |               |       |   |                   |   |       |               |  |   |               |   |  |               |     |   |  |   |     |  
|Total trust and investment fee revenue                                        |  | $             | 129   |   |                   | $ | 140   |               |  | $ | 120           |   |  | $             | 407 |   |  | $ | 363 |  
|Other fee revenue (b)                                                         |  |               | 27    |   |                   |   | 42    |               |  |   | 37            |   |  |               | 113 |   |  |   | 91  |  
|Net interest revenue                                                          |  |               | 17    |   |                   |   | 18    |               |  |   | 21            |   |  |               | 49  |   |  |   | 64  |  
|                                                                              |  |               |       |   |                   |   |       |               |  |   |               |   |  |               |     |   |  |   |     |  
|Total revenue                                                                 |  | $             | 173   |   |                   | $ | 200   |               |  | $ | 178           |   |  | $             | 569 |   |  | $ | 518 |  
|Total operating expense                                                       |  | $             | 142   |   |                   | $ | 143   |               |  | $ | 138           |   |  | $             | 430 |   |  | $ | 394 |  
|                                                                              |  |               |       |   |                   |   |       |               |  |   |               |   |  |               |     |   |  |   |     |  
|Income before taxes                                                           |  | $             | 31    |   |                   | $ | 57    |               |  | $ | 40            |   |  | $             | 139 |   |  | $ | 124 |  
|Return on common equity (annualized)                                          |  |               | 14    | % |                   |   | 25    | %             |  |   | 18            | % |  |               | 20  | % |  |   | 19  | %
|Pre-tax operating margin                                                      |  |               | 18    | % |                   |   | 29    | %             |  |   | 22            | % |  |               | 24  | % |  |   | 24  | %
|                                                                              |  |               |       |   |                  
|Assets under administration or custody                                        |  | $             | 2,946 |   |                   | $ | 2,826 |               |  | $ | 2,463         |   |  |               |     |   |  |   |     |  

|(a) | Securities lending assets are included in assets under management in the Institutional Asset Management sector. Fees on those assets are recorded above as securities lending
revenue.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | 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, fund administration, Web-based investment management software and foreign exchange and derivative products.



Revenue in the third quarter of 2004 compared to the third quarter of 2003 decreased $5 million, or 3%, primarily due to lower foreign
exchange and net interest revenue, partially offset by higher institutional trust and custody revenue from net new business and improved market conditions. Operating expense increased $4 million, or 3%, primarily in support of new business growth
and development around enhancements to existing products. Income before taxes decreased $9 million, or 23%, compared with the third quarter of 2003. Assets under administration or custody for this sector were $2.946 trillion at Sept. 30, 2004, an
increase of $483 billion, or 20%, compared with Sept. 30, 2003, and an increase of $120 billion, or 4%, compared with June 30, 2004. The increase compared with Sept. 30, 2003, resulted from net new business, market appreciation and the effect of
foreign exchange rates.



The $27 million, or 13%, decrease in revenue compared
with the second quarter of 2004 was primarily due to lower foreign exchange revenue, seasonally lower securities lending revenue and lower institutional trust and custody transaction volumes. Operating expense was down $1 million, resulting in a
decrease in income before taxes of $26 million, or 47%, compared with the second quarter of 2004.



On a year-to-date basis, revenue increased $51 million, or 10%, from the prior year, primarily due to higher institutional trust and custody revenue from net new business and improved market conditions and higher
foreign exchange revenue, partially offset by lower net interest revenue. Operating expense increased 9%, primarily in support of new business growth. Income before taxes reflected this positive operating leverage by increasing 11% compared with the
first nine months of 2003.



38



---

##### Table of Contents

Business sectors (continued)

---



Human Resources & Investor Solutions



|                                                                                |  |               |     |   |                   |   |     |               |  |   |               |    |  |               |     |   |  |   |     |   
|------------------------------------------------------------------------------- |  | ------------- | --- | - | ----------------- | - | --- | ------------- |  | - | ------------- | -- |  | ------------- | --- | - |  | - | --- | --
|                                                                                |  | Quarter ended |     |   | Nine months ended |  
|(income statement dollar amounts in millions, asset dollar amounts in billions) |  | Sept. 30,2004 |     |   | June 30,2004      |   |     | Sept. 30,2003 |  |   | Sept. 30,2004 |    |  | Sept. 30,2003 |    
|Human resources & investor solutions revenue                                    |  | $             | 220 |   |                   | $ | 232 |               |  | $ | 229           |    |  | $             | 685 |   |  | $ | 714 |   
|Investment management - mutual funds (a)                                        |  |               | 8   |   |                   |   | 9   |               |  |   | 9             |    |  |               | 27  |   |  |   | 26  |   
|Transfer revenue                                                                |  |               | 1   |   |                   |   | (1  | )             |  |   | 1             |    |  |               | (1  | ) |  |   |    |   
|                                                                                |  |               |     |   |                   |   |     |               |  |   |               |    |  |               |     |   |  |   |     |   
|Total trust and investment fee revenue                                          |  | $             | 229 |   |                   | $ | 240 |               |  | $ | 239           |    |  | $             | 711 |   |  | $ | 740 |   
|Other fee revenue                                                               |  |               | 2   |   |                   |   | 1   |               |  |   |              |    |  |               | 3   |   |  |   | (2  | ) 
|Net interest revenue (expense)                                                  |  |               | 5   |   |                   |   | 4   |               |  |   | 2             |    |  |               | 13  |   |  |   | (2  | ) 
|                                                                                |  |               |     |   |                   |   |     |               |  |   |               |    |  |               |     |   |  |   |     |   
|Total revenue                                                                   |  | $             | 236 |   |                   | $ | 245 |               |  | $ | 241           |    |  | $             | 727 |   |  | $ | 736 |   
|Total operating expense                                                         |  | $             | 220 |   |                   | $ | 230 |               |  | $ | 285           |    |  | $             | 680 |   |  | $ | 782 |   
|                                                                                |  |               |     |   |                   |   |     |               |  |   |               |    |  |               |     |   |  |   |     |   
|Income (loss) before taxes                                                      |  | $             | 16  |   |                   | $ | 15  |               |  | $ | (44           | )  |  | $             | 47  |   |  | $ | (46 | ) 
|Return on common equity (annualized)                                            |  |               | 12  | % |                   |   | 10  | %             |  |   | (25           | )% |  |               | 11  | % |  |   | (8  | )%
|Pre-tax operating margin                                                        |  |               | 7   | % |                   |   | 6   | %             |  |   | (18           | )% |  |               | 6   | % |  |   | (6  | )%
|                                                                                |  |               |     |   |                  
|Assets under administration or custody                                          |  | $             | 101 |   |                   | $ | 103 |               |  | $ | 110           |    |  |               |     |   |  |   |     |   

|(a) | Earned from mutual fund investments in employee benefit plans administered in this sector.
|--- | ------------------------------------------------------------------------------------------



The Human Resources & Investor Solutions (HR&IS) sector is organized around consolidated lines of business and the Mellon brand for
retirement, employee benefits, human resources (HR) outsourcing and investor solutions. 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. Within the HR&IS business sector, shareholder services revenues include earnings related to customer deposit balances maintained in an agency capacity. Customer balances held in an agency capacity and
not reflected on the Corporations balance sheet totaled $132 million at Sept. 30, 2004. Earnings on these balances are classified as HR&IS revenue. Earnings on customer balances reflected on the Corporations balance sheet are
classified as net interest revenue.



Results for the third quarter of 2004
compared with the third quarter of 2003 reflect a $60 million increase in income before taxes resulting from the $47 million HR&IS streamlining charge recorded in the third quarter of 2003 (an additional $3 million was recorded in the Other
Activity sector). Excluding the impact of the charge, income before taxes increased $13 million, as an $18 million, or 7%, reduction in expense more than offset a $5 million, or 2%, decrease in revenue. The lower expense reflects the favorable
impact of expense reduction initiatives, while the lower revenue compared with the third quarter of 2003 was primarily due to lower consulting revenue.



Compared with the second quarter of 2004, revenue decreased $9 million, or 4%, primarily due to lower investor solutions revenue due in part to seasonal factors, as well
as lower out-of-pocket expense reimbursements, partially offset by slightly higher outsourcing and consulting fees. Operating expense decreased $10 million, or 5%, due to lower out-of-pocket and other general expenses. Income before taxes increased
$1 million compared with the second quarter of 2004.



On a year-to-date basis,
income before taxes increased $93 million from the prior year, including the $47 million streamlining charge recorded in 2003 mentioned above. Excluding the impact of the charge, income before taxes increased $46 million, as a 7% reduction in
expense more than offset a 1% decrease in revenue. The decrease in revenue was due to lower retirement consulting and outsourcing revenue partially offset by higher investor solutions revenue and higher net interest revenue.



39



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##### Table of Contents

Business sectors (continued)

---



Treasury Services



|                                            |  |               |     |   |                   |   |     |               |  |   |               |   |  |               |     |   |  |   |     |  
|------------------------------------------- |  | ------------- | --- | - | ----------------- | - | --- | ------------- |  | - | ------------- | - |  | ------------- | --- | - |  | - | --- | -
|                                            |  | Quarter ended |     |   | Nine months ended |  
|(dollar amounts in millions)                |  | Sept. 30,2004 |     |   | June 30,2004      |   |     | Sept. 30,2003 |  |   | Sept. 30,2004 |   |  | Sept. 30,2003 |    
|Fee revenue:                                |  |               |     |   |                   |   |     |               |  |   |               |   |  |               |     |   |  |   |     |  
|Cash management revenue                     |  | $             | 75  |   |                   | $ | 77  |               |  | $ | 82            |   |  | $             | 229 |   |  | $ | 222 |  
|Other fee revenue                           |  |               | 16  |   |                   |   | 14  |               |  |   | 18            |   |  |               | 45  |   |  |   | 52  |  
|Institutional trust and custody revenue (a) |  |               |    |   |                   |   | 1   |               |  |   |              |   |  |               | 1   |   |  |   |    |  
|Transfer revenue (a)                        |  |               | 2   |   |                   |   | 1   |               |  |   | 1             |   |  |               | 5   |   |  |   | 6   |  
|                                            |  |               |     |   |                   |   |     |               |  |   |               |   |  |               |     |   |  |   |     |  
|Total fee revenue                           |  | $             | 93  |   |                   | $ | 93  |               |  | $ | 101           |   |  | $             | 280 |   |  | $ | 280 |  
|Net interest revenue                        |  |               | 70  |   |                   |   | 80  |               |  |   | 97            |   |  |               | 231 |   |  |   | 314 |  
|                                            |  |               |     |   |                   |   |     |               |  |   |               |   |  |               |     |   |  |   |     |  
|Total revenue                               |  | $             | 163 |   |                   | $ | 173 |               |  | $ | 198           |   |  | $             | 511 |   |  | $ | 594 |  
|Credit quality expense (revenue)            |  | $             | 1   |   |                   | $ | (1  | )             |  | $ | 1             |   |  | $             |    |   |  | $ | 5   |  
|Total operating expense                     |  | $             | 105 |   |                   | $ | 103 |               |  | $ | 111           |   |  | $             | 312 |   |  | $ | 321 |  
|                                            |  |               |     |   |                   |   |     |               |  |   |               |   |  |               |     |   |  |   |     |  
|Income before taxes                         |  | $             | 57  |   |                   | $ | 71  |               |  | $ | 86            |   |  | $             | 199 |   |  | $ | 268 |  
|Return on common equity (annualized)        |  |               | 16  | % |                   |   | 18  | %             |  |   | 20            | % |  |               | 17  | % |  |   | 21  | %
|Pre-tax operating margin                    |  |               | 35  | % |                   |   | 41  | %             |  |   | 43            | % |  |               | 39  | % |  |   | 45  | %

|(a) | Included in trust and investment fee revenue.
|--- | ---------------------------------------------



Treasury Services includes global cash management, credit products for large corporations, insurance premium financing (AFCO), commercial real estate lending, corporate
finance, securities underwriting and trading, and the activities of Mellon 1stBusiness Bank, National Association,
in California.



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. As also discussed in Other Activity, 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.



Revenue for this sector decreased $35 million, or 18%, in the third quarter of 2004 compared
to the third quarter of 2003, primarily due to lower net interest revenue and to a lesser degree cash management revenue. Net interest revenue decreased $27 million resulting from a lower average level of loans and a lower spread. Operating expenses
decreased $6 million, or 6%, primarily due to lower general expenses, resulting in a $29 million, or 33%, reduction in income before taxes.



Revenue decreased $10 million, or 6%, in the third quarter of 2004 compared to the second quarter of 2004, while operating and credit quality expenses increased $4
million, or 3%, resulting in a $14 million, or 19%, decrease in income before taxes from the prior quarter. The decrease in revenue was primarily due to lower net interest revenue from a lower average level of loans. The increase in credit quality
expense was due to credit losses recorded in the third quarter of 2004 compared with net recoveries in the prior period.



On a year-to-date basis, revenue decreased 14% from the prior year due to lower net interest revenue resulting from a lower average level of loans, as well as from the
change in payment methodology by the Department of the Treasury as further discussed on page 25, which also accounts for the increase in cash management revenue. Operating expense decreased 3% principally due to lower general, equipment and
occupancy expenses. Income before taxes decreased 25% compared with the first nine months of 2003.



40



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##### Table of Contents

Business sectors (continued)

---



Other Activity



Other Activity includes business exits activity consisting of the results for large ticket leasing, which is in a runoff mode; several small
non-strategic businesses; the merchant card business; 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)



|                         |  |               |    |   |                   |   |     |               |  |   |               |   |               |   |    |  |   |     |  
|------------------------ |  | ------------- | -- | - | ----------------- | - | --- | ------------- |  | - | ------------- | - | ------------- | - | -- |  | - | --- | -
|                         |  | Quarter ended |    |   | Nine months ended |  
|(in millions)            |  | Sept. 30,2004 |    |   | June 30,2004      |   |     | Sept. 30,2003 |  |   | Sept. 30,2004 |   | Sept. 30,2003 |  
|Business exits activity  |  | $             | 13 |   |                   | $ | 9   |               |  | $ | 16            |   |               | $ | 13 |  | $ | 39  |  
|Venture capital activity |  |               | 12 |   |                   |   | (2  | )             |  |   | (8            | ) |               |   | 1  |  |   | (41 | )
|Corporate activity/other |  |               | (5 | ) |                   |   | (25 | )             |  |   | 18            |   |               |   | 60 |  |   | 46  |  
|Total - Other Activity   |  | $             | 20 |   |                   | $ | (18 | )             |  | $ | 26            |   |               | $ | 74 |  | $ | 44  |  



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 funding costs of the Mellon Ventures
portfolio. 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 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 (recovery) basis and totaled $1 million in the third quarter of 2004. 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 quality expense (revenue) is reported in Other Activity and
not in the core business sectors. The Corporations credit 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. The
loans and leases transferred to business exits 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. 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 in the third quarter of 2004 are net gains from venture capital activities of $22 million. In the second quarter of 2004, Other Activity included the $24 million London space consolidation charge, as well as the $8 million gain from the
sale of securities and net gains of $8 million from venture capital activities. Included in Other Activity in the third quarter of 2003 are $18 million of gains from the sale of mortgage-backed securities and net gains from venture capital
activities of $2 million, as well as $3 million of organizational streamlining charges discussed previously and write-downs on lease residuals. In addition, on a year-to-date basis for 2004, the Other Activity sector holds the $93 million gain from
the sale of a portion of the Corporations indirect investment in Shinsei Bank, the $19 million charge associated with the writedown of small non-strategic businesses the Corporation intends to exit and a $7 million negative provision for
credit losses.



41



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##### Table of Contents

Business sectors (continued)

---



Venture capital investments



Venture capital investment portfolio activity



|                                                          |  |                            |     |      |                      |   |      |  
|--------------------------------------------------------- |  | -------------------------- | --- | ---- | -------------------- | - | ---- | -
|(in millions)                                             |  | Third Quarter2004 Activity |     |      | Life toDate Activity |  
|                                                          |  |                           
|Direct investments:                                       |  |                            |     |      |                      |   |      |  
|Beginning carrying value                                  |  | $                          | 388 |      |                      | $ |     |  
|Investments - new investments                             |  |                            |    |      |                      |   | 630  |  
|Investments - additional funding for existing investments |  |                            | 12  |      |                      |   | 329  |  
|Realized - cost basis of exits (a) and write-offs         |  |                            | (40 | )(b) |                      |   | (517 | )
|Change in net unrealized gains (losses)                   |  |                            | 17  | (b)  |                      |   | (65  | )
|Ending carrying value (c)                                 |  | $                          | 377 |      |                      | $ | 377  |  
|                                                          |  |                           
|Fund investments (indirect):                              |  |                            |     |      |                      |   |      |  
|Beginning carrying value                                  |  | $                          | 212 |      |                      | $ |     |  
|Draws against fund capital commitments                    |  |                            | 11  |      |                      |   | 474  |  
|Realized - cost basis of exits (d) and write-offs         |  |                            | (12 | )    |                      |   | (241 | )
|Change in net unrealized gains (losses)                   |  |                            |    |      |                      |   | (22  | )
|Ending carrying value (e)                                 |  | $                          | 211 |      |                      | $ | 211  |  
|                                                          |  |                           
|Total investments(f):                                     |  |                            |     |      |                      |   |      |  
|Active investments cost basis                             |  |                            |     |      |                      | $ | 675  |  
|Unrealized gains (losses)                                 |  |                            |     |      |                      |   | (87  | )
|Ending carrying value (g)                                 |  |                            |     |      |                      | $ | 588  |  

|(a) | Cash receipts on exits totaled $34 million in the third quarter of 2004 and $307 million life to date.
|--- | ------------------------------------------------------------------------------------------------------

|(b) | The realization of the $(40) million cost basis of exits, attributable to both sales and realized losses, was offset by a $17 million reduction in unrealized losses (a reversal
of unrealized losses recorded in previous quarters). During the third quarter of 2004, approximately $22 million of previously reduced carrying values were realized with a current quarter adjustment of $(5) million).
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(c) | At Sept. 30, 2004, there were 68 actively managed investments with an average cost basis of $6 million. At Sept. 30, 2004, the Corporation was committed to provide $4 million of
additional funding for direct investments. Direct investments continue to include the $47 million of venture capital direct mezzanine investments in the form of subordinated debt.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(d) | Cash receipts on exits totaled $26 million in the third quarter of 2004 and $234 million life to date.
|--- | ------------------------------------------------------------------------------------------------------

|(e) | At Sept. 30, 2004, the Corporation was committed to provide additional funding of $129 million for indirect fund investments. No new commitments for indirect funds have been made
in 2004.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(f) | This summary of active investments includes both direct and indirect investments. The ending carrying values represent 85% of direct investments cost basis and 91% of indirect
investments cost basis, for a combined 87% of all active investments cost basis.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(g) | In September 2004, the Corporation confirmed that Mellon Ventures will not make new direct investments except in support of the existing portfolio. It will continue to provide
follow-on investments with the objective of maximizing the return on the existing portfolio. See footnotes (c) and (e) above for information on existing funding commitments.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



42



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##### Table of Contents

Capital

---



Capital



|                                                                                   |  |               |         |   |              |   |         |              |  |   |               |   |  |   |         |  
|---------------------------------------------------------------------------------- |  | ------------- | ------- | - | ------------ | - | ------- | ------------ |  | - | ------------- | - |  | - | ------- | -
|(dollar amounts in millions, except per share amounts; common shares in thousands) |  | Sept. 30,2004 |         |   | June 30,2004 |   |         | Dec. 31,2003 |  |   | Sept. 30,2003 |  
|Total shareholders equity                                                         |  | $             | 3,959   |   |              | $ | 3,749   |              |  | $ | 3,702         |   |  | $ | 3,660   |  
|Total shareholders equity to assets ratio                                         |  |               | 11.28   | % |              |   | 10.68   | %            |  |   | 10.89         | % |  |   | 11.11   | %
|                                                                                   |  |               |         |  
|Tangible shareholders equity (a)                                                  |  | $             | 2,088   |   |              | $ | 1,949   |              |  | $ | 1,913         |   |  | $ | 1,929   |  
|Tangible shareholders equity to assets ratio (a)                                  |  |               | 6.28    | % |              |   | 5.86    | %            |  |   | 5.94          | % |  |   | 6.18    | %
|                                                                                   |  |               |         |  
|Tier I capital ratio (b)                                                           |  |               | 9.96    | % |              |   | 9.33    | %            |  |   | 8.55          | % |  |   | 8.89    | %
|Total (Tier I plus Tier II) capital ratio (b)                                      |  |               | 15.61   | % |              |   | 14.61   | %            |  |   | 13.46         | % |  |   | 14.01   | %
|Leverage capital ratio (b)                                                         |  |               | 8.13    | % |              |   | 8.19    | %            |  |   | 7.92          | % |  |   | 7.67    | %
|Total Tier I capital                                                               |  | $             | 2,513   |   |              | $ | 2,525   |              |  | $ | 2,370         |   |  | $ | 2,380   |  
|Total (Tier I plus Tier II) capital                                                |  | $             | 3,938   |   |              | $ | 3,957   |              |  | $ | 3,732         |   |  | $ | 3,751   |  
|Total risk-adjusted assets                                                         |  | $             | 25,228  |   |              | $ | 27,076  |              |  | $ | 27,725        |   |  | $ | 26,773  |  
|Average assets - leverage capital basis                                            |  | $             | 30,889  |   |              | $ | 30,824  |              |  | $ | 29,911        |   |  | $ | 31,011  |  
|                                                                                   |  |               |         |  
|Book value per common share                                                        |  | $             | 9.35    |   |              | $ | 8.84    |              |  | $ | 8.67          |   |  | $ | 8.51    |  
|Tangible book value per common share                                               |  | $             | 4.93    |   |              | $ | 4.60    |              |  | $ | 4.48          |   |  | $ | 4.48    |  
|                                                                                   |  |               |         |  
|Closing common stock price per share                                               |  | $             | 27.69   |   |              | $ | 29.33   |              |  | $ | 32.11         |   |  | $ | 30.14   |  
|Market capitalization                                                              |  | $             | 11,728  |   |              | $ | 12,436  |              |  | $ | 13,712        |   |  | $ | 12,967  |  
|Common shares outstanding                                                          |  |               | 423,549 |   |              |   | 424,003 |              |  |   | 427,032       |   |  |   | 430,232 |  

|(a) | Shareholders equity plus minority interest less goodwill and intangible assets divided by total assets less goodwill and intangible assets. Minority interest totaled $10
million, $10 million, $13 million and $11 million, respectively. The amount of goodwill and intangible assets subtracted from shareholders equity and total assets is net of expected tax benefits. Expected tax benefits related to tax deductible
goodwill and intangible assets totaled $545 million, $494 million, $492 million and $459 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 shareholders and tangible shareholders equity to assets ratios increased at Sept. 30, 2004 compared with June 30, 2004, reflecting a lower accumulated unrealized loss, primarily in
the securities available for sale portfolio, and earnings retention. The accumulated unrealized loss, net of tax, in the securities available for sale portfolio totaled $5 million at Sept. 30, 2004 compared with an unrealized loss, net of tax, of
$108 million at June 30, 2004, which increased the tangible shareholders equity to assets ratio by approximately 25 basis points.



The higher risk-based capital ratios, which exclude the accumulated unrealized gains/(losses) on securities available for sale, improved due to a lower level of
risk-adjusted assets, and earnings retention partially offset by a higher level of goodwill and intangibles from acquisitions. The Sept. 30, 2004 acquisition of the 70% of Pareto Partners that the Corporation did not previously own and the August
2004 acquisition of Evaluation Associates Capital Markets were the primary reasons for the increase in goodwill and intangibles. The lower level of risk-adjusted assets resulted in part from a reduction in the guarantee provided to the ABN AMRO
Mellon custody joint venture for securities lending activity. At Sept. 30, 2004, that guarantee decreased Tier I and Total capital ratios by approximately 80 basis points and 125 basis points, respectively, compared with approximately 110 basis
points and 170 basis points, respectively, at June 30, 2004. In the third quarter of 2004, the regulatory agencies issued new capital guidelines concerning the risk-based capital treatment of asset-backed commercial paper programs. The agencies now
require banks to hold risk-based capital against short-term liquidity facilities provided to asset-backed commercial paper programs. At Sept. 30, 2004, these new guidelines decreased the Corporations Tier I and Total risk-based capital ratios
by approximately 5 basis points and 8 basis points, respectively.



43



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##### Table of Contents

Capital (continued)

---



In October 2002, the Corporations Board of Directors authorized a share repurchase
program of up to 25 million shares of common stock. During the third quarter of 2004, 1.300 million common shares were repurchased by the Corporation under this publicly announced program, bringing year-to-date purchases to 7.350 million common
shares. At Sept. 30, 2004, an additional 10.458 million common shares were available for repurchase under this program, which does not have an expiration date. Share reissuances, primarily for employee benefit plan purposes, totaled .9 million and
4.1 million common shares, for the third quarter and first nine months of 2004, respectively.



Share repurchases third quarter 2004



|                             |  |                         |     |  |                            |       |                                                             |      
|---------------------------- |  | ----------------------- | --- |  | -------------------------- | ----- | ----------------------------------------------------------- | -----
|(common shares in thousands) |  | Total sharesrepurchased |     |  | Averageprice per share (a) |       | Total shares repurchasedas part of a publiclyannounced plan
|July 2004                    |  | 92                      |     |  | $                          | 27.83 |                                                             | 60   
|August 2004                  |  | 799                     |     |  |                            | 28.07 |                                                             | 790  
|September 2004               |  | 458                     |     |  |                            | 28.91 |                                                             | 450  
|Third quarter of 2004        |  | 1,349                   | (b) |  | $                          | 28.34 |                                                             | 1,300

|(a) | Amounts include commissions paid, which were not significant. Total purchase price in the third quarter of 2004 was $38 million.
|--- | --------------------------------------------------------------------------------------------------------------------------------

|(b) | Includes 49 thousand shares, at a purchase price of $1 million, purchased from employees in connection with the employees payment of taxes upon the vesting of restricted
stock.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Credit risk

---



For a discussion of credit risk and the process of
controlling and monitoring credit risk, see pages 37 and 38 of the Corporations 2003 Financial Annual Report.



Composition of loan portfolio

---



The loan portfolio at Sept. 30, 2004 increased $62 million compared with June 30, 2004, decreased $442 million compared with Dec. 31,
2003 and decreased $198 million compared with Sept. 30, 2003. The increase compared with June 30, 2004, reflects a higher level of commercial and financial loans, primarily insurance premium finance loans, partially offset by lower levels of
commercial real estate loans. The decrease compared with Dec. 31, 2003 and Sept. 30, 2003 reflects lower levels of commercial real estate and commercial and financial loans, partially offset by a higher level of personal loans.



At Sept. 30, 2004, approximately 65% of the Corporations large corporate commercial and
financial loans had an investment grade credit rating. Investment grade loans 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.



44



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##### Table of Contents

Composition of loan portfolio (continued)

---



Composition of loan portfolio



|                                                 |  |               |       |     |              |   |              |  |               |       |  |   |      
|------------------------------------------------ |  | ------------- | ----- | --- | ------------ | - | ------------ |  | ------------- | ----- |  | - | -----
|(in millions)                                    |  | Sept. 30,2004 |       |     | June 30,2004 |   | Dec. 31,2003 |  | Sept. 30,2003
|Domestic loans and leases:                       |  |               |       |     |              |   |              |  |               |       |  |   |      
|Commercial and financial                         |  | $             | 2,506 | (a) |              | $ | 2,294        |  | $             | 2,757 |  | $ | 2,714
|Commercial real estate                           |  |               | 1,852 |     |              |   | 2,003        |  |               | 2,131 |  |   | 2,168
|Personal (b)                                     |  |               | 1,941 |     |              |   | 1,900        |  |               | 1,714 |  |   | 1,508
|Lease finance assets (c)                         |  |               | 483   |     |              |   | 494          |  |               | 505   |  |   | 508  
|Total domestic loans and leases                  |  |               | 6,782 |     |              |   | 6,691        |  |               | 7,107 |  |   | 6,898
|International loans and leases                   |  |               | 243   |     |              |   | 272          |  |               | 360   |  |   | 325  
|Total loans and leases, net of unearned discount |  | $             | 7,025 | (d) |              | $ | 6,963        |  | $             | 7,467 |  | $ | 7,223

|(a) | Previously included venture capital direct mezzanine investments in the form of subordinated debt. At Sept. 30, 2004, these investments totaled $47 million and were reclassified
to Other assets on the balance sheet. Prior periods are not reclassified.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | Primarily consists of secured personal credit lines and mortgages for customers in the Private Wealth Management sector.
|--- | ------------------------------------------------------------------------------------------------------------------------

|(c) | Represents large ticket lease assets that will continue to run-off through repayments, possible sales and no new originations.
|--- | ------------------------------------------------------------------------------------------------------------------------------

|(d) | Includes $3.385 billion of loans to Private Wealth Management customers and $898 million of loans to Mellon 1stBusiness Bank, National Association, customers.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------



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

---



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



|                                                                                              |  |               |        |              |   |              |  |               |        |  |   |       
|--------------------------------------------------------------------------------------------- |  | ------------- | ------ | ------------ | - | ------------ |  | ------------- | ------ |  | - | ------
|(in millions)                                                                                 |  | Sept. 30,2004 |        | June 30,2004 |   | Dec. 31,2003 |  | Sept. 30,2003
|Unfunded commitments to extend credit (b):                                                    |  |               |        |              |   |              |  |               |        |  |   |       
|Expire within one year                                                                        |  | $             | 6,442  |              | $ | 6,613        |  | $             | 8,305  |  | $ | 9,511 
|Expire within one to five years                                                               |  |               | 7,261  |              |   | 7,189        |  |               | 7,211  |  |   | 7,060 
|Expire over five years                                                                        |  |               | 133    |              |   | 168          |  |               | 164    |  |   | 93    
|Total unfunded commitments to extend credit                                                   |  |               | 13,836 |              |   | 13,970       |  |               | 15,680 |  |   | 16,664
|                                                                                              |  |               |        |             
|Commercial letters of credit (c)                                                              |  |               | 6      |              |   | 8            |  |               | 8      |  |   | 14    
|                                                                                              |  |               |        |             
|Other guarantees and indemnities:                                                             |  |               |        |              |   |              |  |               |        |  |   |       
|Standby letters of credit and foreign and other guarantees (d)                                |  |               | 1,418  |              |   | 1,494        |  |               | 1,351  |  |   | 1,550 
|Custodian securities lent with indemnification against broker default of return of securities |  |               | 79,311 |              |   | 78,140       |  |               | 67,299 |  |   | 63,988
|Liquidity support provided to TRFC                                                            |  |               | 397    |              |   | 560          |  |               | 822    |  |   | 926   

|(a) | For a discussion of off-balance-sheet financial instruments with contract amounts that represent credit risk, see pages 113 through 116 of the Corporations 2003 Financial
Annual Report. In addition, the Corporation had commitments to fund venture capital investments of $133 million, $141 million, $175 million and $193 million, respectively.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | Net of participations totaling $398 million, $438 million, $439 million and $445 million, respectively.
|--- | -------------------------------------------------------------------------------------------------------

|(c) | Net of participations and collateral totaling $46 million, $47 million, $31 million and $44 million, respectively.
|--- | ------------------------------------------------------------------------------------------------------------------

|(d) | Net of participations and cash collateral totaling $169 million, $166 million, $208 million and $230 million, respectively. At Sept. 30, 2004, standby letters of credit and
foreign and other guarantees had a weighted average maturity of approximately 1 year.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



45



---

##### Table of Contents

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

---



Commitments to
extend credit



Total unfunded commitments to extend credit decreased $134
million, or 1%, compared with June 30, 2004, $1.844 billion, or 12%, compared with Dec. 31, 2003 and $2.828 billion, or 17%, compared with Sept. 30, 2003. Unfunded commitments to extend credit expiring over one year at Sept. 30, 2004 increased $37
million, or less than 1%, compared with June 30, 2004. At Sept. 30, 2004, approximately 97% of unfunded loan commitments to large corporate customers had an investment grade credit rating.



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.



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 standby letters of credit and foreign and other guarantees, a liability for the fair value of the obligation undertaken in issuing the guarantee. At Sept. 30, 2004,
the Corporation had a liability of $7 million related to letters of credit issued or modified since Dec. 31, 2002. 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 115 and 116 of the Corporations 2003 Financial Annual Report.



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 if the joint venture would default, and totaled approximately $15.8 billion at Sept. 30, 2004 primarily relating to securities lending activity. This potential
exposure 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.



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. The Corporation has purchased insurance to 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. It is not possible to estimate a maximum potential amount of payments that could be required with such
agreements.



Referral arrangements with Three Rivers Funding Corp. (TRFC),
an asset-backed commercial paper entity



The Corporations primary
banking subsidiary, Mellon Bank, N.A. (the Bank) has a referral relationship with TRFC, a special purpose entity that issues commercial paper. TRFC is owned by an independent third party, is not a subsidiary of either the Bank or the Corporation and
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 make loans secured by, and to purchase, pools of receivables. Fee
revenue of less than



46



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##### Table of Contents

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

---



$1 million was received
from this entity in both the third and second quarters of 2004, compared with $1 million in the third quarter of 2003, for the services and the liquidity and credit support facilities. See Note 2 of Notes to Financial Statements of this Report and
Note 7 of the Corporations 2003 Financial Annual Report for a further discussion of the Corporations relationship with TRFC.



Nonperforming assets

---



Nonperforming loans increased $6 million from June 30, 2004, due to the addition of a $7 million loan to a privately held manufacturer and distributor of eyewear, with
the remaining balance of total nonperforming loans at Sept. 30, 2004 comprised of $6 million to a cable television operator and $7 million of various smaller loans. 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 2003 Financial Annual Report.



Nonperforming assets



|                                                                                        |  |               |     |   |              |   |     |              |  |   |               |   |  |   |      |  
|--------------------------------------------------------------------------------------- |  | ------------- | --- | - | ------------ | - | --- | ------------ |  | - | ------------- | - |  | - | ---- | -
|(dollar amounts in millions)                                                            |  | Sept. 30,2004 |     |   | June 30,2004 |   |     | Dec. 31,2003 |  |   | Sept. 30,2003 |  
|Nonperforming loans:                                                                    |  |               |     |   |              |   |     |              |  |   |               |   |  |   |      |  
|Commercial and financial                                                                |  | $             | 17  |   |              | $ | 11  |              |  | $ | 49            |   |  | $ | 51   |  
|Personal                                                                                |  |               | 3   |   |              |   | 3   |              |  |   | 2             |   |  |   | 2    |  
|Lease finance assets                                                                    |  |               |    |   |              |   |    |              |  |   |              |   |  |   | 9    |  
|Total nonperforming loans (a)                                                           |  |               | 20  |   |              |   | 14  |              |  |   | 51            |   |  |   | 62   |  
|Total acquired property                                                                 |  |               | 1   |   |              |   | 1   |              |  |   | 1             |   |  |   | 1    |  
|Total nonperforming assets                                                              |  | $             | 21  |   |              | $ | 15  |              |  | $ | 52            |   |  | $ | 63   |  
|Nonperforming loans as a percentage of total loans                                      |  |               | .30 | % |              |   | .20 | %            |  |   | .69           | % |  |   | .86  | %
|Nonperforming assets as a percentage of Tier I capital plus the
reserve for loan losses |  |               | .82 | % |              |   | .56 | %            |  |   | 2.09          | % |  |   | 2.48 | %

|(a) | Includes $15 million, $9 million, $13 million and $23 million, respectively, of loans with both principal and interest less than 90 days past due but placed on nonaccrual status
by management discretion.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



At Sept. 30, 2004 loans that were
30-59 days, 60-89 days and 90 days or more past due as to principal or interest totaled $7 million, $1 million and $1 million, respectively. 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.



47



---

##### 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. For a further discussion of the Corporations accounting policies relating to the reserve for credit exposure see pages 62 and 63 of the
Corporations 2003 Financial Annual Report.



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



|                                          |  |               |     |              |   |              |  |               |     |  |   |    
|----------------------------------------- |  | ------------- | --- | ------------ | - | ------------ |  | ------------- | --- |  | - | ---
|(in millions)                             |  | Sept. 30,2004 |     | June 30,2004 |   | Dec. 31,2003 |  | Sept. 30,2003
|Reserve for loan losses:                  |  |               |     |              |   |              |  |               |     |  |   |    
|Base reserves:                            |  |               |     |              |   |              |  |               |     |  |   |    
|Commercial and financial                  |  | $             | 37  |              | $ | 40           |  | $             | 48  |  | $ | 49 
|Commercial real estate                    |  |               | 10  |              |   | 12           |  |               | 13  |  |   | 14 
|Personal                                  |  |               | 5   |              |   | 5            |  |               | 6   |  |   | 6  
|Lease assets                              |  |               | 16  |              |   | 13           |  |               | 12  |  |   | 12 
|Total domestic base reserve               |  |               | 68  |              |   | 70           |  |               | 79  |  |   | 81 
|International                             |  |               | 2   |              |   | 3            |  |               | 9   |  |   | 10 
|Total base reserve                        |  |               | 70  |              |   | 73           |  |               | 88  |  |   | 91 
|Impairment/judgmental                     |  |               | 10  |              |   | 2            |  |               | 2   |  |   | 5  
|Unallocated                               |  |               | 18  |              |   | 21           |  |               | 13  |  |   | 14 
|Total loan loss reserve                   |  | $             | 98  |              | $ | 96           |  | $             | 103 |  | $ | 110
|Reserve for unfunded commitments:         |  |               |     |              |   |              |  |               |     |  |   |    
|Commitments                               |  | $             | 58  |              | $ | 59           |  | $             | 61  |  | $ | 58 
|Letters of credit and bankers acceptances |  |               | 13  |              |   | 14           |  |               | 14  |  |   | 13 
|Total unfunded commitments reserve        |  | $             | 71  |              | $ | 73           |  | $             | 75  |  | $ | 71 
|Total reserve for credit exposure         |  | $             | 169 |              | $ | 169          |  | $             | 178 |  | $ | 181



The decrease in the total base reserve
at Sept. 30, 2004 compared with June 30, 2004 is related to a continuing decline in loan volume in the large corporate and real estate portfolios. The increase in the impairment/judgmental reserve is related to a new judgmental reserve on a leasing
credit, which has been reviewed for potential loss content. The unallocated reserve at Sept. 30, 2004 reflects uncertainty about customers sensitive to increases in oil prices and decreasing travel such as airlines as well as certain real estate,
cable, automotive and pharmaceutical customers. The decrease in the reserves for unfunded commitments at Sept. 30, 2004 from June 30, 2004 is primarily related to the lower level of unfunded loan commitments. The Corporations management
concluded that, at Sept. 30, 2004, the overall reserve level was appropriate to recognize inherent losses in the loan portfolio. The Audit Committee of the Board of Directors reviewed and concurred.



There was no net provision for credit losses in the third quarter of 2004, third quarter of
2003 or second quarter of 2004. There were no net credit-related losses in either the third quarter or second quarter of 2004 compared with $2 million of net credit recoveries in the third quarter of 2003, as detailed in the table on the following
page.



48



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##### Table of Contents

Provision and reserve for credit exposure (continued)

---



Reserve activity Quarter ended



|                                                                             |  |                |      |   |                     |   |     |                |  |   |                     |   |  |            |     |   |                     |   |      |    |  |   |     |  
|---------------------------------------------------------------------------- |  | -------------- | ---- | - | ------------------- | - | --- | -------------- |  | - | ------------------- | - |  | ---------- | --- | - | ------------------- | - | ---- | -- |  | - | --- | -
|                                                                             |  | Sept. 30, 2004 |      |   | June 30, 2004       |   |     | Sept. 30, 2003 | 
|(dollar amounts in millions)                                                 |  | Loanlosses     |      |   | Unfundedcommitments |   |     | Loanlosses     |  |   | Unfundedcommitments |   |  | Loanlosses |     |   | Unfundedcommitments |  
|Reserve at beginning of period                                               |  | $              | 96   |   |                     | $ | 73  |                |  | $ | 94                  |   |  | $          | 77  |   |                     | $ | 113  |    |  | $ | 66  |  
|Total credit losses                                                          |  |                | (1   | ) |                     |   |    |                |  |   | (2                  | ) |  |            |    |   |                     |   | (2   | )  |  |   |    |  
|Total recoveries                                                             |  |                | 1    |   |                     |   |    |                |  |   | 2                   |   |  |            |    |   |                     |   | 4    |    |  |   |    |  
|Total net credit recoveries (losses)                                         |  |                |     |   |                     |   |    |                |  |   |                    |   |  |            |    |   |                     |   | 2    |    |  |   |    |  
|Securitizations                                                              |  |                |     |   |                     |   |    |                |  |   | (2                  | ) |  |            |    |   |                     |   |     |    |  |   |    |  
|Provision for credit losses                                                  |  |                | 2    |   |                     |   | (2  | )              |  |   | 4                   |   |  |            | (4  | ) |                     |   | (5   | )  |  |   | 5   |  
|Reserve at end of period                                                     |  | $              | 98   |   |                     | $ | 71  |                |  | $ | 96                  |   |  | $          | 73  |   |                     | $ | 110  |    |  | $ | 71  |  
|Reserve for loan losses as a percentage of total loans (a)                   |  |                | 1.40 | % |                     |   | N/M |                |  |   | 1.39                | % |  |            | N/M |   |                     |   | 1.52 | %  |  |   | N/M |  
|Reserve for unfunded commitments as a percentage of unfunded commitments (a) |  |                | N/M  |   |                     |   | .47 | %              |  |   | N/M                 |   |  |            | .47 | % |                     |   | N/M  |    |  |   | .39 | %
|Annualized net credit losses (recoveries) to average
loans                   |  |                |     | % |                     |   | N/M |                |  |   |                    | % |  |            | N/M |   |                     |   | (.12 | )% |  |   | N/M |  
|                                                                            
|Reserve activity Nine months ended                                           | 
|                                                                             |  |                |      |   |                     |   |     | Sept. 30, 2004 |  |   | Sept. 30, 2003      |  
|(dollar amounts in millions)                                                 |  |                |      |   |                     |   |     | Loanlosses     |  |   | Unfundedcommitments |   |  | Loanlosses |     |   | Unfundedcommitments |  
|Reserve at beginning of period                                               |  |                |      |   |                     |   |     |                |  | $ | 103                 |   |  | $          | 75  |   |                     | $ | 127  |    |  | $ | 52  |  
|Total credit losses                                                          |  |                |      |   |                     |   |     |                |  |   | (3                  | ) |  |            |    |   |                     |   | (4   | )  |  |   |    |  
|Total recoveries                                                             |  |                |      |   |                     |   |     |                |  |   | 3                   |   |  |            |    |   |                     |   | 15   |    |  |   |    |  
|Sub-total - net credit recoveries (losses)                                   |  |                |      |   |                     |   |     |                |  |   |                    |   |  |            |    |   |                     |   | 11   |    |  |   |    |  
|Credit losses on loans transferred to held for sale                          |  |                |      |   |                     |   |     |                |  |   |                    |   |  |            |    |   |                     |   | (13  | )  |  |   |    |  
|Total net credit recoveries (losses)                                         |  |                |      |   |                     |   |     |                |  |   |                    |   |  |            |    |   |                     |   | (2   | )  |  |   |    |  
|Securitizations                                                              |  |                |      |   |                     |   |     |                |  |   | (2                  | ) |  |            |    |   |                     |   |     |    |  |   |    |  
|Loss on sale of commitments                                                  |  |                |      |   |                     |   |     |                |  |   |                    |   |  |            |    |   |                     |   |     |    |  |   | (3  | )
|Provision for credit losses                                                  |  |                |      |   |                     |   |     |                |  |   | (3                  | ) |  |            | (4  | ) |                     |   | (15  | )  |  |   | 22  |  
|Reserve at end of period                                                     |  |                |      |   |                     |   |     |                |  | $ | 98                  |   |  | $          | 71  |   |                     | $ | 110  |    |  | $ | 71  |  
|Annualized net credit losses to average loans                                |  |                |      |   |                     |   |     |                |  |   |                    | % |  |            | N/M |   |                     |   | .03  | %  |  |   | N/M |  

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

|N/M |  Not meaningful.
|--- | -----------------



49



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##### Table of Contents

Market and liquidity risk

---



For a discussion of the management of market and liquidity risk see page 48 of the
Corporations 2003 Financial Annual Report.



Asset/liability management

---



Asset/liability
management activities address management of on-balance-sheet assets and liabilities from an interest rate risk, currency risk and liquidity management perspective as well as the use of derivatives for asset/liability management purposes.



Selected average balances



|                               |  |               |        |   |                   |   |        |               |  |   |               |   |  |               |        |   |  |   |        |  
|------------------------------ |  | ------------- | ------ | - | ----------------- | - | ------ | ------------- |  | - | ------------- | - |  | ------------- | ------ | - |  | - | ------ | -
|                               |  | Quarter ended |        |   | Nine months ended |  
|(in millions)                  |  | Sept. 30,2004 |        |   | June 30,2004      |   |        | Sept. 30,2003 |  |   | Sept. 30,2004 |   |  | Sept. 30,2003 |       
|Assets:                        |  |               |        |   |                   |   |        |               |  |   |               |   |  |               |        |   |  |   |        |  
|Money market investments       |  | $             | 3,310  |   |                   | $ | 2,703  |               |  | $ | 3,066         |   |  | $             | 3,001  |   |  | $ | 2,984  |  
|Trading account securities     |  |               | 229    |   |                   |   | 268    |               |  |   | 693           |   |  |               | 284    |   |  |   | 755    |  
|Securities                     |  |               | 11,780 |   |                   |   | 11,647 |               |  |   | 10,882        |   |  |               | 11,481 |   |  |   | 11,423 |  
|Loans                          |  |               | 7,047  |   |                   |   | 7,491  |               |  |   | 7,425         |   |  |               | 7,341  |   |  |   | 7,848  |  
|Total interest-earning assets  |  |               | 22,366 |   |                   |   | 22,109 |               |  |   | 22,066        |   |  |               | 22,107 |   |  |   | 23,010 |  
|Noninterest-earning assets     |  |               | 11,178 |   |                   |   | 11,362 |               |  |   | 11,496        |   |  |               | 11,340 |   |  |   | 11,450 |  
|Reserve for loan losses        |  |               | (97    | ) |                   |   | (94    | )             |  |   | (113          | ) |  |               | (98    | ) |  |   | (120   | )
|Total assets                   |  | $             | 33,447 |   |                   | $ | 33,377 |               |  | $ | 33,449        |   |  | $             | 33,349 |   |  | $ | 34,340 |  
|Funds supporting total assets: |  |               |        |   |                   |   |        |               |  |   |               |   |  |               |        |   |  |   |        |  
|Core funds                     |  | $             | 31,268 |   |                   | $ | 30,606 |               |  | $ | 29,649        |   |  | $             | 30,705 |   |  | $ | 30,355 |  
|Purchased funds                |  |               | 2,179  |   |                   |   | 2,771  |               |  |   | 3,800         |   |  |               | 2,644  |   |  |   | 3,985  |  
|Funds supporting total assets  |  | $             | 33,447 |   |                   | $ | 33,377 |               |  | $ | 33,449        |   |  | $             | 33,349 |   |  | $ | 34,340 |  



The increase in average
interest-earning assets in the third quarter of 2004 compared with the third quarter of 2003 primarily resulted from higher levels of securities and money market investments, partially offset by lower levels of trading account securities and loans.
The increase in average securities was due to purchases of floating rate and other short duration mortgage-backed securities. The decrease in trading account securities resulted from the sale of the fixed income trading business in December 2003.
The lower level of loans was due to the continued reduction of commercial loans. The increase in average interest-earning assets compared with the second quarter of 2004 primarily resulted from higher levels of money market investments and
securities partially offset by lower levels of loans. The increase in average money market investments was primarily due to higher levels of custody deposits. The increase in the proportion of average core funds to average total funds supporting
total assets in the third quarter of 2004 compared with the third quarter of 2003, was primarily due to higher levels of custody, cash management and private wealth deposits. See pages 48 and 49 of the Corporations 2003 Financial Annual Report
for a definition of core and purchased funds.



50



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##### Table of Contents

Liquidity and dividends

---



The Corporation manages its liquidity position with the objective of maintaining the ability
to fund commitments and to repay liabilities in accordance with their terms, even during periods of market or financial stress. Through active liquidity management, the Corporation seeks to ensure that changes in funding requirements can be
accommodated without materially impacting 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 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 Corporations 2003 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, 2004 of up to approximately $240 million, less any dividends declared and plus or minus net profits or losses, as defined, earned between Oct. 1, 2004 and the date of any such dividend declaration. To comply
with regulatory guidelines, the Corporation and its subsidiary banks continually evaluate the level of cash dividends in relation to their respective operating income, capital needs, asset quality and overall financial condition.



At Sept. 30, 2004, the Parent Corporation held cash and marketable securities of $779
million. The Parent Corporation has a $200 million revolving credit agreement with Mellon Bank, N.A., the Corporations primary bank subsidiary, with a June 2005 expiration date. The agreement was executed at market terms. Under this agreement
any borrowings are to be collateralized with eligible assets of non-bank subsidiaries of the Corporation. There were no borrowings under this facility at Sept. 30, 2004. The Parent Corporation also has the ability to access the capital markets with
$1.45 billion of unused capacity under an effective shelf registration statement. 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, 2004

|                              |  |                   |  |         |  |      
|----------------------------- |  | ----------------- |  | ------- |  | -----
|                              |  | Standard & Poors |  | Moodys |  | Fitch
|Mellon Financial Corporation: |  |                   |  |         |  |      
|Issuer rating                 |  |                  |  | A1      |  |     
|Senior debt                   |  | A+                |  | A1      |  | AA-  
|Subordinated debt             |  | A                 |  | A2      |  | A+   
|Mellon Bank, N.A.:            |  |                   |  |         |  |      
|Long-term deposits            |  | AA-               |  | Aa3     |  | AA   
|Subordinated debt             |  | A+                |  | A1      |  | A+   



There were no contractual maturities
of the Corporations long-term debt in the third quarter of 2004, and none is scheduled for the remainder of 2004. Contractual maturities will total approximately $650 million in 2005.



51



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##### Table of Contents

Liquidity and dividends (continued)

---



The Corporation paid $77 million in common stock dividends in the third quarter of 2004
compared with $60 million in the third quarter of 2003. The common dividend payout ratio, on a net income basis, was 42% in the third quarter of 2004 on a dividend of $.18 per share compared with 33% in the third quarter of 2003 on a dividend of
$.14 per share. Based upon shares outstanding at Sept. 30, 2004 and the current quarterly common stock dividend rate of $.18 per share, the annual common stock dividend is expected to be approximately $305 million.



As shown in the consolidated statement of cash flows, cash and due from banks increased by
$676 million during the first nine months of 2004 to $3.278 billion. The increase resulted from $924 million of net cash provided by financing activities and $789 million of net cash provided by operating activities, partially offset by $1.034
billion of net cash used in investing activities. Net cash provided by financing activities primarily resulted from a higher level of deposits, partially offset by the repurchase of common stock. Net cash used in investing activities primarily
resulted from a higher level of securities available for sale, partially offset by the proceeds from a loan securitization.



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 short-term 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 2004, 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, 2004. 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, 2004
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 on pages 51 through 53 in the Corporations 2003 Financial Annual Report.



Interest rate simulation sensitivity analysis

|                                                                     |  |                                                       |     |    |          |   |     |        |  |   |       |     |  |        |      |     |  |   |      |    
|-------------------------------------------------------------------- |  | ----------------------------------------------------- | --- | -- | -------- | - | --- | ------ |  | - | ----- | --- |  | ------ | ---- | --- |  | - | ---- | ---
|                                                                     |  | Movements in interest rates from Sept. 30, 2004 rates |    
|                                                                     |  | Increase                                              |     |    | Decrease |  
|                                                                     |  | +50bp                                                 |     |    | +100bp   |   |     | +200bp |  |   | -50bp |     |  | -100bp |     
|Simulated impact in the next 12 months compared with Sept. 30, 2004: |  |                                                       |     |    |          |   |     |        |  |   |       |     |  |        |      |     |  |   |      |    
|Net interest revenue increase (decrease)                             |  |                                                       | 0.4 | %  |          |   | 0.5 | %      |  |   | (0.2  | )%  |  |        | (1.1 | )%  |  |   | (3.6 | )% 
|Earnings per share increase (decrease)                               |  | $                                                     |    |    |          | $ |    |        |  | $ |      |     |  | $      | (.01 | )   |  | $ | (.03 | )  
|Return on equity increase (decrease)                                 |  |                                                       | 3   | bp |          |   | 4   | bp     |  |   | (2    | )bp |  |        | (8   | )bp |  |   | (27  | )bp



The anticipated impact on net interest
revenue under the various scenarios did not exceed the Corporations guidelines for assuming interest rate risk at both Sept. 30, 2004 and Sept. 30, 2003. The simulation results reflect the Corporations efforts to manage the repricing
characteristics of its interest-earning assets and supporting funds.



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Interest rate sensitivity analysis (continued)

---



Securities available for sale



The amortized cost basis of securities available for sale totaled $12.4 billion at Sept. 30,
2004, as shown in Note 5 of this report. The average yields and repricing lives for the fixed and adjustable/floating rate securities are as follows.



Securities available for sale



|                                          |  |                |      |                   |       |                                     |          
|----------------------------------------- |  | -------------- | ---- | ----------------- | ----- | ----------------------------------- | ---------
|                                          |  | Sept. 30, 2004
|(dollar amounts in billions)              |  | Amortized cost |      | Average yield (a) |       | Estimated averagerepricing life (b)
|Fixed rate:                               |  |                |      |                   |       |                                     |          
|Mortgage-backed                           |  | $              | 4.8  |                   | 4.62% |                                     | 3.8 yrs. 
|U.S. Treasury and agency                  |  |                | 1.9  |                   | 3.06% |                                     | 2.1 yrs. 
|State and political subdivisions          |  |                | 0.7  |                   | 7.03% |                                     | 15.1 yrs.
|Adjustable/floating rate mortgage-backed: |  |                |      |                   |       |                                     |          
|Floating rate                             |  |                | 3.3  |                   | 2.26% |                                     | 0.1 yrs. 
|Adjustable rate                           |  |                | 1.7  |                   | 3.37% |                                     | 1.8 yrs. 
|                                          |  |                |      |                   |       |                                     |          
|Total                                     |  | $              | 12.4 |                   | 3.70% |                                     | 2.9 yrs. 

|(a) | Average yields are weighted averages and are presented on an FTE basis using a 35% federal income tax rate.
|--- | -----------------------------------------------------------------------------------------------------------

|(b) | Estimated lives for mortgage-backed securities include the effect of estimated prepayments, while the estimated lives for U.S. Treasury and agencies and state and political
subdivisions securities are final maturities.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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 total notional amount of interest rate swaps used to manage interest rate risk was $2.778 billion at Sept. 30, 2004,
compared with $2.720 billion at Dec. 31, 2003 and $2.761 billion at Sept. 30, 2003. The notional value at Sept. 30, 2004 was primarily comprised of receive fixed instruments associated with long-term debt and junior subordinated debentures with a
weighted average maturity of approximately 9 years and weighted average interest rates received and paid of 5.67% and 1.93%, respectively. The net interest differential between interest revenue and interest expense resulted in interest revenue of
$34 million and $108 million in the third quarter and first nine months of 2004, compared with interest revenue of $37 million and $104 million in the third quarter and first nine months of 2003. Additional information regarding these contracts is
presented in Note 28 in the Corporations 2003 Financial Annual Report.



The Corporation enters into interest rate swaps designated as fair value hedges, to convert portions of its fixed rate junior subordinated debentures to floating rate debt, its fixed rate long-term debt to floating rate debt and, to a small
degree, certain fixed rate deposits and loans to variable rate. 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, 2004 and Sept. 30, 2003. At Sept. 30, 2004, there were no outstanding cash flow hedges. The Corporation
uses five year yen denominated debt to hedge its remaining investment in Tokyo-based Shinsei Bank. The purpose of this hedge is to protect against adverse movements in exchange rates.



53



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##### Table of Contents

Derivative 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 trading revenue
and other revenue. Additional information regarding these contracts is presented in the Corporations 2003 Financial Annual Report on pages 53 and 54 and in Note 28.



Derivative instruments used for trading activities



|                                                            |  |               |        |              |   |              |  |               |        |  |   |       
|----------------------------------------------------------- |  | ------------- | ------ | ------------ | - | ------------ |  | ------------- | ------ |  | - | ------
|(notional amounts in millions)                              |  | Sept. 30,2004 |        | June 30,2004 |   | Dec. 31,2003 |  | Sept. 30,2003
|Commitments to purchase and sell foreign currency contracts |  | $             | 77,939 |              | $ | 77,583       |  | $             | 54,319 |  | $ | 52,622
|Foreign currency option contracts purchased                 |  |               | 4,705  |              |   | 5,046        |  |               | 5,602  |  |   | 14,384
|Foreign currency option contracts written                   |  |               | 8,719  |              |   | 8,549        |  |               | 4,928  |  |   | 14,031
|Interest rate agreements:                                   |  |               |        |              |   |              |  |               |        |  |   |       
|Interest rate swaps                                         |  |               | 10,064 |              |   | 10,197       |  |               | 9,886  |  |   | 10,118
|Options, caps and floors purchased                          |  |               | 895    |              |   | 667          |  |               | 542    |  |   | 591   
|Options, caps and floors written                            |  |               | 734    |              |   | 820          |  |               | 513    |  |   | 825   
|Futures and forward contracts                               |  |               | 13,921 |              |   | 16,727       |  |               | 13,220 |  |   | 14,406
|Equity options                                              |  |               | 3,616  |              |   | 2,804        |  |               | 508    |  |   | 495   
|Credit default swaps                                        |  |               | 692    |              |   | 671          |  |               | 612    |  |   | 410   
|Other products                                              |  |               | 38     |              |   | 36           |  |               | 48     |  |   | 53    



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 and credit default swaps was approximately $5 million at Sept. 30, 2004 compared with approximately $4 million at Dec. 31, 2003 and approximately $7 million at Sept. 30, 2003.



Critical accounting policies

---



The Corporations significant accounting policies are
discussed in Note 1 in the Corporations 2003 Financial Annual Report. The Corporations critical accounting policies are those related to valuing venture capital investments, provision and reserve for credit exposure, and accounting for
pensions. For a discussion of these policies, see pages 61 through 64 and pages 105 and 106 of the Corporations 2003 Financial Annual Report.



Item 4. Controls and Procedures

---



The Corporations management, with the participation of its principal executive officer and principal financial officer, has evaluated the effectiveness, as of Sept. 30, 2004, 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). Based upon their evaluation, the principal executive officer and
principal financial officer concluded that the Corporations disclosure controls and procedures, as of Sept. 30, 2004, were 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 Securities and Exchange Commissions (SEC) rules and forms, and to provide reasonable



54



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##### Table of Contents

Item 4. Controls and Procedures (continued)

---



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, 2004 that has materially affected, or is reasonably likely to materially affect, the Corporations internal
control over financial reporting.



In response to the requirements of Section
404 of the Sarbanes-Oxley Act of 2002, the Corporation has created a multi-disciplinary project team to oversee its compliance efforts. The Corporations objective is to achieve compliance with the requirements of Section 404 for 2004. At Sept.
30, 2004, the Corporation had substantially completed the initial testing phase and management has undertaken the enhancement of certain controls. The Corporation expects to be able to timely make the assertion that the Corporations internal
controls over financial reporting are effective.



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: the intention to exit certain small non-strategic businesses; annual occupancy expense; the fair value of guarantee
obligations; expected return on pension plan assets; maximum loss exposure related to Three Rivers Funding Corporation (TRFC); amounts of contingent and deferred consideration payable for acquisitions; collectability of securities; expected
amortization expense; the impact on investment management fees of changes in the Standard & Poors 500 Index; potential future venture capital gains or losses and possible changes in the value of the portfolio; expected 2004 quarterly net
interest revenue; the Corporations intention not to renew certain credit relationships; planned reduction of positions and utilization of the severance accrual; anticipated effective tax rate; liabilities for guarantees and indemnities; credit
exposure reserve appropriateness; the Corporations liquidity management and interest rate risk management objectives; simulation of changes in interest rates; the estimated average repricing lives of securities held by the Corporation; the
value-at-risk for trading activities and credit default swaps; the Corporations ability to assert, when required, that internal controls over financial reporting are effective; 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;
relevant benchmark to estimate future changes in investment management fees; equity and fixed-income market fluctuations; changes in the mix of assets under management; the effects of the adoption of new accounting standards; customers
sensitivity to increases in oil prices and decreasing travel; inflation; levels of tax-free income; customer spending and savings habits; interest rate fluctuations; monetary fluctuations; acquisitions and integrations of acquired businesses;
changes in law; changes in fiscal, monetary, regulatory, trade and tax policies and laws; the uncertainties inherent in the litigation process; and the effects of recent and any further terrorist acts and the results of the war on terrorism; as well
as other risks and uncertainties detailed elsewhere or incorporated by reference in this Quarterly Report on Form 10-Q and in subsequent reports filed by the Corporation with the Securities and Exchange Commission pursuant to the Securities Exchange
Act of 1934.



55



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##### Table of Contents

Cautionary Statement (continued)

---



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, Use of Proceeds and Issuer Purchases of Equity Securities.



|(c) | Information regarding repurchases by the Corporation of its equity securities appears under Capital on page 44 of this Report and is incorporated into this Item by
reference.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Item 6. Exhibits.



|     |  |                                                                                                                                                                                              
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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.                                              
|     | 
|3.2  |  | By-Laws of Mellon Financial Corporation, as amended, effective Oct. 19, 1999.                                                                                                                
|     | 
|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.
|     | 
|10.1 |  | Form of Mellon Financial Corporation, Long-Term Profit Incentive Plan, Type I Stock Option Agreement.                                                                                        
|     | 
|12.1 |  | Computation of Ratio of Earnings to Fixed Charges (Parent Corporation).                                                                                                                      
|     | 
|12.2 |  | Computation of Ratio of Earnings to Fixed Charges (Mellon Financial Corporation and its subsidiaries).                                                                                       
|     | 
|31.1 |  | Rule 13a-14(a) Certification of Chief Executive Officer.                                                                                                                                     
|     | 
|31.2 |  | Rule 13a-14(a) Certification of Chief Financial Officer.                                                                                                                                     
|     | 
|32.1 |  | Section 1350 Certification of Chief Executive Officer.                                                                                                                                       
|     | 
|32.2 |  | Section 1350 Certification of Chief Financial Officer.                                                                                                                                       
|     | 
|99.1 |  | Pages 64 through 67, inclusive, of the Corporations 2003 Financial Annual Report to Shareholders.                                                                                           



56



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##### Table of Contents

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 5, 2004 |  | By:                          |  | /s/ Michael A. Bryson         
|                       |  |                              |  | Michael A. Bryson             
|                       |  |                              |  | Chief Financial Officer       
|                       |  |                              |  | (Duly Authorized Officer and  
|                       |  |                              |  | Principal Financial Officer of
|                       |  |                              |  | the Registrant)               



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##### Table of Contents

CORPORATE INFORMATION

---



|                                                 |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|------------------------------------------------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Businessof theCorporation                        |  | Mellon Financial Corporation is a global financial services company, headquartered in Pittsburgh, Pennsylvania, providing a broad range of financial products and services in domestic and
selected international markets. Through its six core business sectors (Institutional Asset Management, Mutual Funds, Private Wealth Management, Asset Servicing, Human Resources & Investor Solutions and Treasury Services), the Corporation serves
two distinct major classes of customers - corporations and institutions and high net worth individuals. For corporations and institutions, the Corporation provides investment management, trust and custody, foreign exchange, securities lending,
performance analytics, fund administration, outsourcing solutions for investment managers, retirement and employee benefits consulting, outsourcing services for benefit plans, comprehensive end-to-end human resources outsourcing solutions,
shareholder services, treasury management and banking services. For individuals, the Corporation provides mutual funds and wealth management. The Corporations asset management subsidiaries, which include The Dreyfus Corporation and U.K.-based
Newton Investment Management, as well as a number of additional subsidiaries and investment management boutiques, provide investment products in many asset classes and investment styles. Mellons principal executive office is located at One
Mellon Center, 500 Grant Street, Pittsburgh, PA 15258 (telephone: (412) 234-5000).
|                                                 | 
|CorporateCommunications/Media Relations          |  | Members of the media should direct inquiries to media@mellon.comor (412) 234-7157.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|                                                 | 
|Direct StockPurchase andDividendReinvestmentPlan |  | The Direct Stock Purchase and Dividend Reinvestment Plan provides a way to purchase shares of common stock directly from the Corporation at the current market value. Nonshareholders may
purchase their first shares of the Corporations common stock through the Plan, and shareholders may increase their shareholding by reinvesting cash dividends and through optional cash investments. Plan details are in a prospectus, which may be
obtained from Mellon Investor Services by e-mailing shrrelations@melloninvestor.com or by calling 1 800 205-7699.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|                                                 | 
|DividendPayments                                 |  | Subject to approval of the Board of Directors, dividends are paid on Mellons common stock on or about the 15th day of February, May, August and November.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|                                                 | 
|ExchangeListing                                  |  | Mellons common stock is traded on the New York Stock Exchange under the trading symbol MEL. Our transfer agent and registrar is Mellon Investor Services, P.O. Box 3315, South
Hackensack, NJ 07606. For more information, please visit www.melloninvestor.com or call 1 800 205-7699.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|                                                 | 
|Form 10-KandShareholderPublications              |  | For a free copy of the Corporations Annual Report on Form 10-K or the quarterly earnings news release on Form 8-K, as filed with the Securities and Exchange Commission, please send a
written request by e-mail to mellon_10-K/8-K@mellon.com or by mail to the Secretary of the Corporation, One Mellon Center, Room 4826, Pittsburgh, PA 15258-0001. The 2003 Summary and Financial Annual Reports, as well as Forms 10-K, 8-K and
10-Q, and quarterly earnings and other news releases can be viewed and printed at www.mellon.com.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|                                                 | 
|Internet Access                                  |  | Mellon: www.mellon.com Mellon Investor
Services: www.melloninvestor.com                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|                                                 |  | See also Internet access for Business Groups/Principal Entities in the 2003 Mellon Summary Annual Report.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|                                                 | 
|InvestorRelations                                |  | Visit www.mellon.com/investorrelations/ or call (412) 234-5601.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|                                                 | 
|SecuritiesTransferAgent                          |  | To address issues regarding stock holdings, certificate replacement/transfer, dividends and address changes, visit www.melloninvestor.com or call 1 800 205-7699.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|                                                 | 
|Stock Prices                                     |  | Current prices for Mellons common stock can be viewed at www.mellon.com.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  



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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##### Table of Contents

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        |  | Form of Mellon Financial Corporation, Long - Term Profit Incentive Plan, Type I Stock Option Agreement.                                                                                       |  | Filed herewith.                                                                                                                                                
|            |  |                                                                                                                                                                                              
|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.                                                                                                                                                
|            |  |                                                                                                                                                                                              
|32.1        |  | Section 1350 Certification of Chief Executive Officer.                                                                                                                                        |  | Furnished herewith.                                                                                                                                            
|            |  |                                                                                                                                                                                              
|32.2        |  | Section 1350 Certification of Chief Financial Officer.                                                                                                                                        |  | Furnished herewith.                                                                                                                                            
|            |  |                                                                                                                                                                                              
|99.1        |  | Pages 64 through 67, inclusive, of the Corporations 2003 Financial Annual Report to Shareholders.                                                                                            |  | Previously filed as part of Exhibit 13.1 to Annual Report on Form 10-K (File No. 1-7410) for the year ended Dec. 31, 2003 and incorporated herein by reference.



Certain instruments, which define the
rights of holders of long-term debt of the Corporation and its subsidiaries, are not filed herewith because the total amount of securities authorized under each of them does not exceed 10% of the total assets of the Corporation and its subsidiaries
on a consolidated basis. The Corporation hereby agrees to furnish a copy of such instruments to the Securities and Exchange Commission upon request.



59