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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10-Q



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



For the Quarterly Period Ended June 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  þ    No ̈



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



Yes  þ     No ̈



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



|                             |  |                               
|---------------------------- |  | ------------------------------
|Class                        |  | Outstanding as ofJune 30, 2004
|Common Stock, $.50 par value |  | 424,003,220                   



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##### Table of Contents

MELLON FINANCIAL CORPORATION

SECOND QUARTER 2004 FORM 10-Q

TABLE OF CONTENTS AND 10-Q CROSS-REFERENCE INDEX



|                                                                                                                                                                  |  |         
|----------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------
|                                                                                                                                                                  |  | Page No.
|Part I - Financial Information                                                                                                                                    |  |         
|                                                                                                                                                                  | 
|Financial Statements (Item 1):                                                                                                                                    |  |         
|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       
|                                                                                                                                                                  | 
|Managements Discussion and Analysis of Financial Condition and Results of Operations; Quantitative and Qualitative Disclosures About Market Risk (Items 2 and 3) |  | 16      
|                                                                                                                                                                  | 
|Controls and Procedures (Item 4)                                                                                                                                  |  | 55      
|                                                                                                                                                                  | 
|Cautionary Statement                                                                                                                                              |  | 56      
|                                                                                                                                                                  | 
|Part II - Other Information                                                                                                                                       |  |         
|                                                                                                                                                                  | 
|Legal Proceedings (Item 1)                                                                                                                                        |  | 57      
|                                                                                                                                                                  | 
|Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities (Item 2)                                                                         |  | 57      
|                                                                                                                                                                  | 
|Submission of Matters to a Vote of Security Holders (Item 4)                                                                                                      |  | 57      
|                                                                                                                                                                  | 
|Exhibits and Reports on Form 8-K (Item 6)                                                                                                                         |  | 58      
|                                                                                                                                                                  | 
|Signature                                                                                                                                                         |  | 60      
|                                                                                                                                                                  | 
|Corporate Information                                                                                                                                             |  | 61      
|                                                                                                                                                                  | 
|Index to Exhibits                                                                                                                                                 |  | 62      





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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 |     |  | Six months ended |      
|(dollar amounts in millions) |  | June 30,2004                                                                                     |  | March 31,2004 |     |  | June 30,2003     |       |   | June 30,2004 |   |     | June 30,2003 | 
|Noninterest                  |  | Trust and investment fee revenue:                                                                |  |               |     |  |                  |       |   |              |   |     |              |  |   |       |   |  |   |       |  
|revenue                      |  | Investment management                                                                            |  | $             | 385 |  | $                | 405   |   |              | $ | 334 |              |  | $ | 790   |   |  | $ | 652   |  
|                             |  | Human resources & investor solutions                                                             |  |               | 233 |  |                  | 233   |   |              |   | 245 |              |  |   | 466   |   |  |   | 485   |  
|                             |  | Institutional trust and custody                                                                  |  |               | 133 |  |                  | 133   |   |              |   | 116 |              |  |   | 266   |   |  |   | 225   |  
|                             |  | Securities lending revenue                                                                       |  |               | 24  |  |                  | 18    |   |              |   | 22  |              |  |   | 42    |   |  |   | 37    |  
|                             |  |                                                                                                  |  |               |     |  |                  |       |   |              |   |     |              |  |   |       |   |  |   |       |  
|                             |  | Total trust and investment fee revenue                                                           |  |               | 775 |  |                  | 789   |   |              |   | 717 |              |  |   | 1,564 |   |  |   | 1,399 |  
|                             |  | Cash management revenue                                                                          |  |               | 79  |  |                  | 78    |   |              |   | 71  |              |  |   | 157   |   |  |   | 143   |  
|                             |  | Foreign exchange trading revenue                                                                 |  |               | 50  |  |                  | 57    |   |              |   | 28  |              |  |   | 107   |   |  |   | 66    |  
|                             |  | Financing-related revenue                                                                        |  |               | 30  |  |                  | 35    |   |              |   | 38  |              |  |   | 65    |   |  |   | 70    |  
|                             |  | Equity investment revenue                                                                        |  |               | 9   |  |                  | 98    |   |              |   | (18 | )            |  |   | 107   |   |  |   | (15   | )
|                             |  | Other revenue                                                                                    |  |               | 19  |  |                  | 14    |   |              |   | 13  |              |  |   | 33    |   |  |   | 24    |  
|                             |  |                                                                                                  |  |               |     |  |                  |       |   |              |   |     |              |  |   |       |   |  |   |       |  
|                             |  | Total fee and other revenue                                                                      |  |               | 962 |  |                  | 1,071 |   |              |   | 849 |              |  |   | 2,033 |   |  |   | 1,687 |  
|                             |  | Gains on sales of securities                                                                     |  |               | 8   |  |                  |      |   |              |   | 21  |              |  |   | 8     |   |  |   | 32    |  
|                             |  |                                                                                                  |  |               |     |  |                  |       |   |              |   |     |              |  |   |       |   |  |   |       |  
|                             |  | Total noninterest revenue                                                                        |  |               | 970 |  |                  | 1,071 |   |              |   | 870 |              |  |   | 2,041 |   |  |   | 1,719 |  
|                             |  |                                                                                                  |  |               |     |  |                  |       |   |              |   |     |              |  |   |       |   |  |   |       |  
|Net interest                 |  | Interest revenue                                                                                 |  |               | 199 |  |                  | 194   |   |              |   | 256 |              |  |   | 393   |   |  |   | 503   |  
|revenue                      |  | Interest expense                                                                                 |  |               | 80  |  |                  | 80    |   |              |   | 93  |              |  |   | 160   |   |  |   | 186   |  
|                             |  |                                                                                                  |  |               |     |  |                  |       |   |              |   |     |              |  |   |       |   |  |   |       |  
|                             |  | Net interest revenue                                                                             |  |               | 119 |  |                  | 114   |   |              |   | 163 |              |  |   | 233   |   |  |   | 317   |  
|                             |  | Provision for credit losses                                                                      |  |               |    |  |                  | (7    | ) |              |   | 3   |              |  |   | (7    | ) |  |   | 7     |  
|                             |  |                                                                                                  |  |               |     |  |                  |       |   |              |   |     |              |  |   |       |   |  |   |       |  
|                             |  | Net interest revenue after provision for credit losses                                           |  |               | 119 |  |                  | 121   |   |              |   | 160 |              |  |   | 240   |   |  |   | 310   |  
|                             |  |                                                                                                  |  |               |     |  |                  |       |   |              |   |     |              |  |   |       |   |  |   |       |  
|Operating                    |  | Staff expense                                                                                    |  |               | 481 |  |                  | 495   |   |              |   | 457 |              |  |   | 976   |   |  |   | 906   |  
|expense                      |  | Professional, legal and other purchased services                                                 |  |               | 110 |  |                  | 104   |   |              |   | 108 |              |  |   | 214   |   |  |   | 200   |  
|                             |  | Net occupancy expense                                                                            |  |               | 93  |  |                  | 68    |   |              |   | 65  |              |  |   | 161   |   |  |   | 129   |  
|                             |  | Equipment expense                                                                                |  |               | 53  |  |                  | 54    |   |              |   | 50  |              |  |   | 107   |   |  |   | 104   |  
|                             |  | Business development                                                                             |  |               | 26  |  |                  | 25    |   |              |   | 25  |              |  |   | 51    |   |  |   | 50    |  
|                             |  | Communications expense                                                                           |  |               | 27  |  |                  | 28    |   |              |   | 29  |              |  |   | 55    |   |  |   | 56    |  
|                             |  | Amortization of intangible assets                                                                |  |               | 4   |  |                  | 5     |   |              |   | 4   |              |  |   | 9     |   |  |   | 9     |  
|                             |  | Other expense                                                                                    |  |               | 34  |  |                  | 52    |   |              |   | 40  |              |  |   | 86    |   |  |   | 78    |  
|                             |  |                                                                                                  |  |               |     |  |                  |       |   |              |   |     |              |  |   |       |   |  |   |       |  
|                             |  | Total operating expense                                                                          |  |               | 828 |  |                  | 831   |   |              |   | 778 |              |  |   | 1,659 |   |  |   | 1,532 |  
|                             |  |                                                                                                  |  |               |     |  |                  |       |   |              |   |     |              |  |   |       |   |  |   |       |  
|Income                       |  | Income from continuing operations before income taxes and cumulative effect of accounting change |  |               | 261 |  |                  | 361   |   |              |   | 252 |              |  |   | 622   |   |  |   | 497   |  
|                             |  | Provision for income taxes                                                                       |  |               | 85  |  |                  | 117   |   |              |   | 79  |              |  |   | 202   |   |  |   | 158   |  
|                             |  |                                                                                                  |  |               |     |  |                  |       |   |              |   |     |              |  |   |       |   |  |   |       |  
|                             |  | Income from continuing operations before cumulative effect of accounting change                  |  |               | 176 |  |                  | 244   |   |              |   | 173 |              |  |   | 420   |   |  |   | 339   |  
|                             |  | Cumulative effect of accounting change, net of tax                                               |  |               |    |  |                  |      |   |              |   |    |              |  |   |      |   |  |   | (7    | )
|                             |  |                                                                                                  |  |               |     |  |                  |       |   |              |   |     |              |  |   |       |   |  |   |       |  
|                             |  | Income from continuing operations                                                                |  |               | 176 |  |                  | 244   |   |              |   | 173 |              |  |   | 420   |   |  |   | 332   |  
|                             |  | Discontinued operations:                                                                         |  |               |     |  |                  |       |   |              |   |     |              |  |   |       |   |  |   |       |  
|                             |  | Income from operations (net of tax of $-, $-, $-, $-, and $-)                                    |  |               |    |  |                  |      |   |              |   |    |              |  |   |      |   |  |   | 1     |  
|                             |  | Net gain on disposals (net of tax of $-, $1, $1, $1 and $2)                                      |  |               |    |  |                  | 1     |   |              |   | 2   |              |  |   | 1     |   |  |   | 3     |  
|                             |  |                                                                                                  |  |               |     |  |                  |       |   |              |   |     |              |  |   |       |   |  |   |       |  
|                             |  | Income from discontinued operations (net of tax of $-, $1, $1, $1 and $2)                        |  |               |    |  |                  | 1     |   |              |   | 2   |              |  |   | 1     |   |  |   | 4     |  
|                             |  |                                                                                                  |  |               |     |  |                  |       |   |              |   |     |              |  |   |       |   |  |   |       |  
|                             |  | Net income                                                                                       |  | $             | 176 |  | $                | 245   |   |              | $ | 175 |              |  | $ | 421   |   |  | $ | 336   |  



(continued)



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##### Table of Contents

CONSOLIDATED INCOME STATEMENT (continued)



Mellon Financial Corporation(and its subsidiaries)



|                             |  |                                                                                 |  |               |         |                  |   |              |  |              |         |  |   |         |  |   |         |  
|---------------------------- |  | ------------------------------------------------------------------------------- |  | ------------- | ------- | ---------------- | - | ------------ |  | ------------ | ------- |  | - | ------- |  | - | ------- | -
|                             |  |                                                                                 |  | Quarter ended |         | Six months ended |  
|(share amounts in thousands) |  | June 30,2004                                                                    |  | March 31,2004 |         | June 30,2003     |   | June 30,2004 |  | June 30,2003 |        
|Earnings per                 |  | Basic:                                                                          |  |               |         |                  |   |              |  |              |         |  |   |         |  |   |         |  
|share(a)                     |  | Income from continuing operations before cumulative effect of accounting change |  | $             | .42     |                  | $ | .58          |  | $            | .40     |  | $ | 1.00    |  | $ | .79     |  
|                             |  | Cumulative effect of accounting change                                          |  |               |        |                  |   |             |  |              |        |  |   |        |  |   | (.02    | )
|                             |  |                                                                                 |  |               |         |                  |   |              |  |              |         |  |   |         |  |   |         |  
|                             |  | Continuing operations                                                           |  | $             | .42     |                  | $ | .58          |  | $            | .40     |  | $ | 1.00    |  | $ | .77     |  
|                             |  | Discontinued operations                                                         |  | $             |        |                  | $ |             |  | $            | .01     |  | $ |        |  | $ | .01     |  
|                             |  |                                                                                 |  |               |         |                  |   |              |  |              |         |  |   |         |  |   |         |  
|                             |  | Net income                                                                      |  | $             | .42     |                  | $ | .58          |  | $            | .41     |  | $ | 1.00    |  | $ | .78     |  
|                             |  | Diluted:                                                                        |  |               |         |                  |   |              |  |              |         |  |   |         |  |   |         |  
|                             |  | Income from continuing operations before cumulative effect of accounting change |  | $             | .42     |                  | $ | .57          |  | $            | .40     |  | $ | .99     |  | $ | .78     |  
|                             |  | Cumulative effect of accounting change                                          |  |               |        |                  |   |             |  |              |        |  |   |        |  |   | (.01    | )
|                             |  |                                                                                 |  |               |         |                  |   |              |  |              |         |  |   |         |  |   |         |  
|                             |  | Continuing operations                                                           |  | $             | .42     |                  | $ | .57          |  | $            | .40     |  | $ | .99     |  | $ | .77     |  
|                             |  | Discontinued operations                                                         |  | $             |        |                  | $ |             |  | $            | .01     |  | $ |        |  | $ | .01     |  
|                             |  |                                                                                 |  |               |         |                  |   |              |  |              |         |  |   |         |  |   |         |  
|                             |  | Net income                                                                      |  | $             | .42     |                  | $ | .57          |  | $            | .41     |  | $ | .99     |  | $ | .78     |  
|                             |  |                                                                                 |  |               |         |                  |   |              |  |              |         |  |   |         |  |   |         |  
|Shares                       |  | Basic average shares outstanding                                                |  |               | 419,015 |                  |   | 421,668      |  |              | 431,253 |  |   | 420,341 |  |   | 431,341 |  
|outstanding                  |  | Common stock equivalents                                                        |  |               | 4,780   |                  |   | 5,435        |  |              | 2,051   |  |   | 5,134   |  |   | 1,792   |  
|                             |  |                                                                                 |  |               |         |                  |   |              |  |              |         |  |   |         |  |   |         |  
|                             |  | Diluted average shares outstanding                                              |  |               | 423,795 |                  |   | 427,103      |  |              | 433,304 |  |   | 425,475 |  |   | 433,133 |  



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



See accompanying Notes to Financial Statements.



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##### Table of Contents

CONSOLIDATED BALANCE SHEET



Mellon Financial
Corporation(and its subsidiaries)



|                             |  |                                                                                                                      |  |   |              |   |  |              |        |   |  |   |        |  
|---------------------------- |  | -------------------------------------------------------------------------------------------------------------------- |  | - | ------------ | - |  | ------------ | ------ | - |  | - | ------ | -
|(dollar amounts in millions) |  | June 30,2004                                                                                                         |  |   | Dec. 31,2003 |   |  | June 30,2003 |       
|Assets                       |  | Cash and due from banks                                                                                              |  | $ | 3,172        |   |  | $            | 2,602  |   |  | $ | 3,026  |  
|                             |  | Interest-bearing deposits with banks                                                                                 |  |   | 2,928        |   |  |              | 2,775  |   |  |   | 2,429  |  
|                             |  | Federal funds sold and securities under resale agreements                                                            |  |   | 1,676        |   |  |              | 703    |   |  |   | 3,164  |  
|                             |  | Other money market investments                                                                                       |  |   | 121          |   |  |              | 216    |   |  |   | 146    |  
|                             |  | Trading account securities                                                                                           |  |   | 219          |   |  |              | 266    |   |  |   | 707    |  
|                             |  | Securities available for sale                                                                                        |  |   | 11,331       |   |  |              | 10,690 |   |  |   | 12,538 |  
|                             |  | Investment securities (approximate fair value of $251, $308 and $431)                                                |  |   | 244          |   |  |              | 297    |   |  |   | 415    |  
|                             |  | Loans, net of unearned discount of $27, $30 and $34                                                                  |  |   | 6,963        |   |  |              | 7,467  |   |  |   | 7,692  |  
|                             |  | Reserve for loan losses                                                                                              |  |   | (96          | ) |  |              | (103   | ) |  |   | (113   | )
|                             |  |                                                                                                                      |  |   |              |   |  |              |        |   |  |   |        |  
|                             |  | Net loans                                                                                                            |  |   | 6,867        |   |  |              | 7,364  |   |  |   | 7,579  |  
|                             |  | Premises and equipment                                                                                               |  |   | 678          |   |  |              | 668    |   |  |   | 696    |  
|                             |  | Goodwill                                                                                                             |  |   | 2,200        |   |  |              | 2,194  |   |  |   | 2,074  |  
|                             |  | Other intangibles                                                                                                    |  |   | 104          |   |  |              | 100    |   |  |   | 106    |  
|                             |  | Assets of discontinued operations                                                                                    |  |   |             |   |  |              | 187    |   |  |   |       |  
|                             |  | Other assets                                                                                                         |  |   | 5,554        |   |  |              | 5,921  |   |  |   | 6,064  |  
|                             |  |                                                                                                                      |  |   |              |   |  |              |        |   |  |   |        |  
|                             |  | Total assets                                                                                                         |  | $ | 35,094       |   |  | $            | 33,983 |   |  | $ | 38,944 |  
|                             |  |                                                                                                                      |  |   |              |   |  |              |        |   |  |   |        |  
|Liabilities                  |  | Noninterest-bearing deposits in domestic offices                                                                     |  | $ | 7,461        |   |  | $            | 7,310  |   |  | $ | 13,007 |  
|                             |  | Interest-bearing deposits in domestic offices                                                                        |  |   | 9,604        |   |  |              | 8,099  |   |  |   | 7,298  |  
|                             |  | Interest-bearing deposits in foreign offices                                                                         |  |   | 5,437        |   |  |              | 5,434  |   |  |   | 4,190  |  
|                             |  |                                                                                                                      |  |   |              |   |  |              |        |   |  |   |        |  
|                             |  | Total deposits                                                                                                       |  |   | 22,502       |   |  |              | 20,843 |   |  |   | 24,495 |  
|                             |  | Federal funds purchased and securities under repurchase agreements                                                   |  |   | 862          |   |  |              | 754    |   |  |   | 942    |  
|                             |  | U.S. Treasury tax and loan demand notes                                                                              |  |   | 4            |   |  |              | 6      |   |  |   | 6      |  
|                             |  | Commercial paper                                                                                                     |  |   | 6            |   |  |              | 10     |   |  |   | 4      |  
|                             |  | Other funds borrowed                                                                                                 |  |   | 214          |   |  |              | 314    |   |  |   | 871    |  
|                             |  | Reserve for unfunded commitments                                                                                     |  |   | 73           |   |  |              | 75     |   |  |   | 66     |  
|                             |  | Other liabilities                                                                                                    |  |   | 2,421        |   |  |              | 2,861  |   |  |   | 3,558  |  
|                             |  | Notes and debentures (with original maturities over one year)                                                        |  |   | 4,221        |   |  |              | 4,209  |   |  |   | 4,320  |  
|                             |  | Junior subordinated deferrable interest debentures held by trusts that issued guaranteed capital debt securities (a) |  |   | 1,042        |   |  |              | 1,057  |   |  |   |       |  
|                             |  | Guaranteed preferred beneficial interests in capital debt securities issued by consolidated trusts (a)               |  |   |             |   |  |              |       |   |  |   | 1,058  |  
|                             |  | Liabilities of discontinued operations                                                                               |  |   |             |   |  |              | 152    |   |  |   |       |  
|                             |  |                                                                                                                      |  |   |              |   |  |              |        |   |  |   |        |  
|                             |  | Total liabilities                                                                                                    |  |   | 31,345       |   |  |              | 30,281 |   |  |   | 35,320 |  
|                             |  |                                                                                                                      |  |   |              |   |  |              |        |   |  |   |        |  
|Shareholders                |  | Common stock - $.50 par value                                                                                        |  |   |              |   |  |              |        |   |  |   |        |  
|equity                       |  | Authorized - 800,000,000 shares                                                                                      |  |   |              |   |  |              |        |   |  |   |        |  
|                             |  | Issued  588,661,920 shares                                                                                          |  |   | 294          |   |  |              | 294    |   |  |   | 294    |  
|                             |  | Additional paid-in capital                                                                                           |  |   | 1,917        |   |  |              | 1,901  |   |  |   | 1,890  |  
|                             |  | Retained earnings                                                                                                    |  |   | 6,179        |   |  |              | 5,934  |   |  |   | 5,705  |  
|                             |  | Accumulated unrealized gain (loss), net of tax                                                                       |  |   | (90          | ) |  |              | 26     |   |  |   | 80     |  
|                             |  | Treasury stock of 164,658,700; 161,629,563; and 158,046,228 shares at cost                                           |  |   | (4,551       | ) |  |              | (4,453 | ) |  |   | (4,345 | )
|                             |  |                                                                                                                      |  |   |              |   |  |              |        |   |  |   |        |  
|                             |  | Total shareholders equity                                                                                           |  |   | 3,749        |   |  |              | 3,702  |   |  |   | 3,624  |  
|                             |  |                                                                                                                      |  |   |              |   |  |              |        |   |  |   |        |  
|                             |  | Total liabilities and shareholders equity                                                                           |  | $ | 35,094       |   |  | $            | 33,983 |   |  | $ | 38,944 |  



|(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.



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##### Table of Contents

CONSOLIDATED STATEMENT OF CASH FLOWS



Mellon
Financial Corporation(and its subsidiaries)



|                     |  |                                                                                    |  |                          |        |   |      |   |        |  
|-------------------- |  | ---------------------------------------------------------------------------------- |  | ------------------------ | ------ | - | ---- | - | ------ | -
|                     |  |                                                                                    |  | Six months endedJune 30, |       
|(in millions)        |  |                                                                                    |  | 2004                     |        |   | 2003 |  
|Cash flows from      |  | Net income                                                                         |  | $                        | 421    |   |      | $ | 336    |  
|operating activities |  | Income from discontinued operations                                                |  |                          | 1      |   |      |   | 4      |  
|                     |  |                                                                                    |  |                          |        |   |      |   |        |  
|                     |  | Net income from continuing operations                                              |  |                          | 420    |   |      |   | 332    |  
|                     |  | Adjustments to reconcile net income to net cash provided by operating activities:  |  |                          |        |   |      |   |        |  
|                     |  | Cumulative effect of accounting change                                             |  |                          |       |   |      |   | 7      |  
|                     |  | Depreciation and other amortization                                                |  |                          | 82     |   |      |   | 79     |  
|                     |  | Deferred income tax expense                                                        |  |                          | 143    |   |      |   | 53     |  
|                     |  | Provision for credit losses                                                        |  |                          | (7     | ) |      |   | 7      |  
|                     |  | Net gains on sales of securities                                                   |  |                          | (8     | ) |      |   | (32    | )
|                     |  | Gain on sale of portion of indirect investment in Shinsei Bank                     |  |                          | (93    | ) |      |   |       |  
|                     |  | Pension expense (credit)                                                           |  |                          | 6      |   |      |   | (14    | )
|                     |  | Net (increase) decrease in trading account securities                              |  |                          | 47     |   |      |   | (40    | )
|                     |  | Changes in accruals and other, net                                                 |  |                          | (81    | ) |      |   | (162   | )
|                     |  |                                                                                    |  |                          |        |   |      |   |        |  
|                     |  | Net cash provided by operating activities                                          |  |                          | 509    |   |      |   | 230    |  
|                     |  |                                                                                    |  |                          |        |   |      |   |        |  
|Cash flows from      |  | Net increase in term deposits and other money market investments                   |  |                          | (58    | ) |      |   | (644   | )
|investing activities |  | Net increase in federal funds sold and securities under resale agreements          |  |                          | (973   | ) |      |   | (935   | )
|                     |  | Purchases of securities available for sale                                         |  |                          | (3,823 | ) |      |   | (9,197 | )
|                     |  | Proceeds from sales of securities available for sale                               |  |                          | 626    |   |      |   | 895    |  
|                     |  | Proceeds from maturities of securities available for sale                          |  |                          | 2,251  |   |      |   | 7,511  |  
|                     |  | Purchases of investment securities                                                 |  |                          |       |   |      |   | (9     | )
|                     |  | Proceeds from maturities of investment securities                                  |  |                          | 53     |   |      |   | 120    |  
|                     |  | Proceeds from the sale of portion of indirect investment in Shinsei Bank           |  |                          | 120    |   |      |   |       |  
|                     |  | Net principal repayments (advances) of loans to customers                          |  |                          | (57    | ) |      |   | 400    |  
|                     |  | Proceeds from the sales and securitizations of loans                               |  |                          | 553    |   |      |   | 335    |  
|                     |  | Purchases of premises and equipment/capitalized software                           |  |                          | (91    | ) |      |   | (90    | )
|                     |  | Net cash disbursed in acquisitions                                                 |  |                          | (23    | ) |      |   | (7     | )
|                     |  | Net increase (decrease) from other investing activities                            |  |                          | 53     |   |      |   | (89    | )
|                     |  |                                                                                    |  |                          |        |   |      |   |        |  
|                     |  | Net cash used in investing activities                                              |  |                          | (1,369 | ) |      |   | (1,710 | )
|                     |  |                                                                                    |  |                          |        |   |      |   |        |  
|Cash flows from      |  | Net increase in deposits                                                           |  |                          | 1,659  |   |      |   | 1,838  |  
|financing activities |  | Net increase in federal funds purchased and securities under repurchase agreements |  |                          | 108    |   |      |   | 209    |  
|                     |  | Net increase (decrease) in other funds borrowed                                    |  |                          | (102   | ) |      |   | 110    |  
|                     |  | Net decrease in commercial paper                                                   |  |                          | (4     | ) |      |   | (5     | )
|                     |  | Repayments of longer-term debt                                                     |  |                          | (205   | ) |      |   | (303   | )
|                     |  | Net proceeds from issuance of longer-term debt                                     |  |                          | 298    |   |      |   | 109    |  
|                     |  | Dividends paid on common stock                                                     |  |                          | (144   | ) |      |   | (115   | )
|                     |  | Proceeds from issuance of common stock                                             |  |                          | 21     |   |      |   | 18     |  
|                     |  | Repurchase of common stock                                                         |  |                          | (198   | ) |      |   | (86    | )
|                     |  |                                                                                    |  |                          |        |   |      |   |        |  
|                     |  | Net cash provided by financing activities                                          |  |                          | 1,433  |   |      |   | 1,775  |  
|                     |  | Effect of foreign currency exchange rates                                          |  |                          | (3     | ) |      |   | 3      |  
|                     |  |                                                                                    |  |                          |        |   |      |   |        |  
|Change in cash and   |  | Net increase in cash and due from banks                                            |  |                          | 570    |   |      |   | 298    |  
|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                                           |  | $                        | 3,172  |   |      | $ | 3,026  |  
|                     |  |                                                                                    |  |                          |        |   |      |   |        |  
|Supplemental         |  | Interest paid                                                                      |  | $                        | 146    |   |      | $ | 200    |  
|disclosures          |  | Net income taxes paid (a)                                                          |  |                          | 154    |   |      |   | 73     |  



|(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 June 30, 2004(in millions)                                       |  | Commonstock |     | Additionalpaid-incapital |   | Retainedearnings |  |   | Accumulatedunrealizedgain (loss),net of tax |   |  | Treasurystock |      |   | Totalshareholdersequity |  
|Balance at March 31, 2004                                                      |  | $           | 294 |                          | $ | 1,910            |  | $ | 6,095                                       |   |  | $             | 106  |   |                          | $ | (4,539 | ) |  | $ | 3,866 |  
|Comprehensive results:                                                         |  |             |     |                          |   |                  |  |   |                                             |   |  |               |      |   |                          |   |        |   |  |   |       |  
|Net income                                                                     |  |             |    |                          |   |                 |  |   | 176                                         |   |  |               |     |   |                          |   |       |   |  |   | 176   |  
|Other comprehensive results, net of tax                                        |  |             |    |                          |   |                 |  |   |                                            |   |  |               | (196 | ) |                          |   |       |   |  |   | (196  | )
|                                                                               |  |             |     |                          |   |                  |  |   |                                             |   |  |               |      |   |                          |   |        |   |  |   |       |  
|Total comprehensive results                                                    |  |             |    |                          |   |                 |  |   | 176                                         |   |  |               | (196 | ) |                          |   |       |   |  |   | (20   | )
|Dividends on common stock at $.18 per share                                    |  |             |    |                          |   |                 |  |   | (76                                         | ) |  |               |     |   |                          |   |       |   |  |   | (76   | )
|Common stock issued under Direct Stock Purchase and Dividend Reinvestment Plan |  |             |    |                          |   |                 |  |   | (1                                          | ) |  |               |     |   |                          |   | 4      |   |  |   | 3     |  
|Stock awards and options exercised                                             |  |             |    |                          |   | 7                |  |   | (14                                         | ) |  |               |     |   |                          |   | 19     |   |  |   | 12    |  
|Repurchase of common stock                                                     |  |             |    |                          |   |                 |  |   |                                            |   |  |               |     |   |                          |   | (46    | ) |  |   | (46   | )
|Common stock issued under the Employee Stock Purchase Plan                     |  |             |    |                          |   |                 |  |   |                                            |   |  |               |     |   |                          |   | 1      |   |  |   | 1     |  
|Common stock issued under the 401(k) Retirement Saving Plan                    |  |             |    |                          |   |                 |  |   | (1                                          | ) |  |               |     |   |                          |   | 10     |   |  |   | 9     |  
|                                                                               |  |             |     |                          |   |                  |  |   |                                             |   |  |               |      |   |                          |   |        |   |  |   |       |  
|Balance at June 30, 2004                                                       |  | $           | 294 |                          | $ | 1,917            |  | $ | 6,179                                       |   |  | $             | (90  | ) |                          | $ | (4,551 | ) |  | $ | 3,749 |  



Mellon Financial Corporation(and its subsidiaries)



|                                                                               |  |             |     |                          |   |                  |  |   |                                             |   |               |   |    |                          |   |        |   |  |   |       |  
|------------------------------------------------------------------------------ |  | ----------- | --- | ------------------------ | - | ---------------- |  | - | ------------------------------------------- | - | ------------- | - | -- | ------------------------ | - | ------ | - |  | - | ----- | -
|Quarter ended June 30, 2003(in millions)                                       |  | Commonstock |     | Additionalpaid-incapital |   | Retainedearnings |  |   | Accumulatedunrealizedgain (loss),net of tax |   | Treasurystock |   |    | Totalshareholdersequity |  
|Balance at March 31, 2003                                                      |  | $           | 294 |                          | $ | 1,887            |  | $ | 5,601                                       |   |               | $ | 60 |                          | $ | (4,319 | ) |  | $ | 3,523 |  
|Comprehensive results:                                                         |  |             |     |                          |   |                  |  |   |                                             |   |               |   |    |                          |   |        |   |  |   |       |  
|Net income                                                                     |  |             |    |                          |   |                 |  |   | 175                                         |   |               |   |   |                          |   |       |   |  |   | 175   |  
|Other comprehensive results, net of tax                                        |  |             |    |                          |   |                 |  |   |                                            |   |               |   | 20 |                          |   |       |   |  |   | 20    |  
|                                                                               |  |             |     |                          |   |                  |  |   |                                             |   |               |   |    |                          |   |        |   |  |   |       |  
|Total comprehensive results                                                    |  |             |    |                          |   |                 |  |   | 175                                         |   |               |   | 20 |                          |   |       |   |  |   | 195   |  
|Dividends on common stock at $.14 per share                                    |  |             |    |                          |   |                 |  |   | (59                                         | ) |               |   |   |                          |   |       |   |  |   | (59   | )
|Common stock issued under Direct Stock Purchase and Dividend Reinvestment Plan |  |             |    |                          |   |                 |  |   |                                            |   |               |   |   |                          |   | 3      |   |  |   | 3     |  
|Stock awards and options exercised                                             |  |             |    |                          |   | 2                |  |   | (12                                         | ) |               |   |   |                          |   | 19     |   |  |   | 9     |  
|Repurchase of common stock                                                     |  |             |    |                          |   |                 |  |   |                                            |   |               |   |   |                          |   | (58    | ) |  |   | (58   | )
|Common stock issued under the Employee Stock Purchase Plan                     |  |             |    |                          |   |                 |  |   |                                            |   |               |   |   |                          |   | 2      |   |  |   | 2     |  
|Common stock issued under the 401(k) Retirement Saving Plan                    |  |             |    |                          |   | 1                |  |   |                                            |   |               |   |   |                          |   | 8      |   |  |   | 9     |  
|                                                                               |  |             |     |                          |   |                  |  |   |                                             |   |               |   |    |                          |   |        |   |  |   |       |  
|Balance at June 30, 2003                                                       |  | $           | 294 |                          | $ | 1,890            |  | $ | 5,705                                       |   |               | $ | 80 |                          | $ | (4,345 | ) |  | $ | 3,624 |  



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)



|                                                                               |  |              |     |                            |   |                   |  |   |                                                |   |  |                |      |   |                            |   |        |   |  |   |       |  
|------------------------------------------------------------------------------ |  | ------------ | --- | -------------------------- | - | ----------------- |  | - | ---------------------------------------------- | - |  | -------------- | ---- | - | -------------------------- | - | ------ | - |  | - | ----- | -
|Six months ended June 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 Dec. 31, 2003                                                       |  | $            | 294 |                            | $ | 1,901             |  | $ | 5,934                                          |   |  | $              | 26   |   |                            | $ | (4,453 | ) |  | $ | 3,702 |  
|Comprehensive results:                                                         |  |              |     |                            |   |                   |  |   |                                                |   |  |                |      |   |                            |   |        |   |  |   |       |  
|Net income                                                                     |  |              |    |                            |   |                  |  |   | 421                                            |   |  |                |     |   |                            |   |       |   |  |   | 421   |  
|Other comprehensive results, net of tax                                        |  |              |    |                            |   |                  |  |   |                                               |   |  |                | (116 | ) |                            |   |       |   |  |   | (116  | )
|                                                                               |  |              |     |                            |   |                   |  |   |                                                |   |  |                |      |   |                            |   |        |   |  |   |       |  
|Total comprehensive results                                                    |  |              |    |                            |   |                  |  |   | 421                                            |   |  |                | (116 | ) |                            |   |       |   |  |   | 305   |  
|Dividends on common stock at $.34 per share                                    |  |              |    |                            |   |                  |  |   | (144                                           | ) |  |                |     |   |                            |   |       |   |  |   | (144  | )
|Common stock issued under Direct Stock Purchase and Dividend Reinvestment Plan |  |              |    |                            |   |                  |  |   | (1                                             | ) |  |                |     |   |                            |   | 7      |   |  |   | 6     |  
|Stock awards and options exercised                                             |  |              |    |                            |   | 16                |  |   | (30                                            | ) |  |                |     |   |                            |   | 70     |   |  |   | 56    |  
|Repurchase of common stock                                                     |  |              |    |                            |   |                  |  |   |                                               |   |  |                |     |   |                            |   | (198   | ) |  |   | (198  | )
|Common stock issued under the Employee Stock Purchase Plan                     |  |              |    |                            |   |                  |  |   |                                               |   |  |                |     |   |                            |   | 3      |   |  |   | 3     |  
|Common stock issued in connection with the Arden Group, Inc. acquisition       |  |              |    |                            |   |                  |  |   |                                               |   |  |                |     |   |                            |   | 2      |   |  |   | 2     |  
|Common stock issued under the 401(k) Retirement Saving Plan                    |  |              |    |                            |   |                  |  |   | (1                                             | ) |  |                |     |   |                            |   | 18     |   |  |   | 17    |  
|                                                                               |  |              |     |                            |   |                   |  |   |                                                |   |  |                |      |   |                            |   |        |   |  |   |       |  
|Balance at June 30, 2004                                                       |  | $            | 294 |                            | $ | 1,917             |  | $ | 6,179                                          |   |  | $              | (90  | ) |                            | $ | (4,551 | ) |  | $ | 3,749 |  



Mellon Financial Corporation(and its subsidiaries)



|                                                                               |  |             |     |                           |   |                  |  |   |                                               |   |               |   |    |                          |   |        |   |  |   |       |  
|------------------------------------------------------------------------------ |  | ----------- | --- | ------------------------- | - | ---------------- |  | - | --------------------------------------------- | - | ------------- | - | -- | ------------------------ | - | ------ | - |  | - | ----- | -
|Six months ended June 30, 2003(in millions)                                    |  | Commonstock |     | Additional paid-incapital |   | Retainedearnings |  |   | Accumulated unrealized gain (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                                                                     |  |             |    |                           |   |                 |  |   | 336                                           |   |               |   |   |                          |   |       |   |  |   | 336   |  
|Other comprehensive results, net of tax                                        |  |             |    |                           |   |                 |  |   |                                              |   |               |   | 39 |                          |   |       |   |  |   | 39    |  
|                                                                               |  |             |     |                           |   |                  |  |   |                                               |   |               |   |    |                          |   |        |   |  |   |       |  
|Total comprehensive results                                                    |  |             |    |                           |   |                 |  |   | 336                                           |   |               |   | 39 |                          |   |       |   |  |   | 375   |  
|Dividends on common stock at $.27 per share                                    |  |             |    |                           |   |                 |  |   | (115                                          | ) |               |   |   |                          |   |       |   |  |   | (115  | )
|Common stock issued under Direct Stock Purchase and Dividend Reinvestment Plan |  |             |    |                           |   |                 |  |   | (1                                            | ) |               |   |   |                          |   | 6      |   |  |   | 5     |  
|Stock awards and options exercised                                             |  |             |    |                           |   | 3                |  |   | (27                                           | ) |               |   |   |                          |   | 49     |   |  |   | 25    |  
|Repurchase of common stock                                                     |  |             |    |                           |   |                 |  |   |                                              |   |               |   |   |                          |   | (86    | ) |  |   | (86   | )
|Common stock issued under the Employee Stock Purchase Plan                     |  |             |    |                           |   |                 |  |   | (1                                            | ) |               |   |   |                          |   | 8      |   |  |   | 7     |  
|Common stock issued under the 401(k) Retirement Saving Plan                    |  |             |    |                           |   | 1                |  |   | (1                                            | ) |               |   |   |                          |   | 18     |   |  |   | 18    |  
|                                                                               |  |             |     |                           |   |                  |  |   |                                               |   |               |   |    |                          |   |        |   |  |   |       |  
|Balance at June 30, 2003                                                       |  | $           | 294 |                           | $ | 1,890            |  | $ | 5,705                                         |   |               | $ | 80 |                          | $ | (4,345 | ) |  | $ | 3,624 |  



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 second quarter of 2004, options totaling 472,383 shares were granted with a weighted-average fair value of $6.69 per
share. Stock option expense was determined by using the Black-Scholes option pricing model and totaled $3 million after-tax in the second quarter of 2004, less than $1 million after-tax in the second quarter of 2003 and $3 million after-tax in the
first 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(dollar amount in millions)                                                                                    |               | Quarter ended |     |               | Six months ended |  
|                                                                                                                                                          | June 30, 2004 |               |     | March 31,2004 |                  |   | June 30,2003 |   |  | June 30,2004 |     |   | June 30,2003(a) |  
|Income as reported                                                                                                                                        |               | $             | 176 |               |                  | $ | 244          |   |  | $            | 173 |   |                 | $ | 420  |   |  | $ | 339 |  
|Add: Stock-based employee compensation expense, using prospective method, included in reported net income, net of tax(b)                                  |               |               | 7   |               |                  |   | 8            |   |  |              | 4   |   |                 |   | 15   |   |  |   | 8   |  
|Deduct: Total stock-based employee compensation expense, using retroactive method, determined under fair value based method for all awards,
net of tax(b) |               |               | (12 | )             |                  |   | (14          | ) |  |              | (12 | ) |                 |   | (26  | ) |  |   | (25 | )
|                                                                                                                                                          |               |               |     |               |                  |   |              |   |  |              |     |   |                 |   |      |   |  |   |     |  
|Pro forma income                                                                                                                                          |               | $             | 171 |               |                  | $ | 238          |   |  | $            | 165 |   |                 | $ | 409  |   |  | $ | 322 |  
|                                                                                                                                                          |               |               |     |               |                  |   |              |   |  |              |     |   |                 |   |      |   |  |   |     |  
|Earnings per share:                                                                                                                                       |               |               |     |               |                  |   |              |   |  |              |     |   |                 |   |      |   |  |   |     |  
|Basic - as reported                                                                                                                                       |               | $             | .42 |               |                  | $ | .58          |   |  | $            | .40 |   |                 | $ | 1.00 |   |  | $ | .79 |  
|Basic - pro forma                                                                                                                                         |               | $             | .41 |               |                  | $ | .56          |   |  | $            | .38 |   |                 | $ | .97  |   |  | $ | .75 |  
|Diluted - as reported                                                                                                                                     |               | $             | .42 |               |                  | $ | .57          |   |  | $            | .40 |   |                 | $ | .99  |   |  | $ | .78 |  
|Diluted - pro forma                                                                                                                                       |               | $             | .40 |               |                  | $ | .56          |   |  | $            | .38 |   |                 | $ | .96  |   |  | $ | .74 |  



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



|(b) | Reported and pro forma results include compensation
expense for restricted stock awards, net of tax, of $4 million, $5 million and $4 million for the second quarter of 2004, first quarter of 2004, and second quarter of 2003, respectively, and $9 million and $8 million for the first six months of 2004
and first six 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 2.2% 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 5.7 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 June 30, 2004, the Corporation had a liability of $10 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 46, and the paragraphs under the subheading Other guarantees and indemnities on page 47 as well
as the Three Rivers Funding Corp. (TRFC) discussion on pages 10, 11 and 47. The information in the table and those paragraphs 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).



|                                                 |                 |               |                |                                |               |                 |   |  |                               |     |                 |  |   |                               |  |   |     |   |  |   |  
|------------------------------------------------ | --------------- | ------------- | -------------- | ------------------------------ | ------------- | --------------- | - |  | ----------------------------- | --- | --------------- |  | - | ----------------------------- |  | - | --- | - |  | - | -
|Net periodic benefit cost (credit) (in millions) |                 | Quarter ended
|                                                 | June 30, 2004   |               | March 31, 2004 |                                | June 30, 2003
|                                                 | Pensionbenefits |               |                | Other post- retirementbenefits |               | Pensionbenefits |   |  | Other post-retirementbenefits |     | Pensionbenefits |  |   | Other post-retirementbenefits
|Service cost                                     |                 | $             | 14             |                                |               | $               |  |  | $                             | 14  |                 |  | $ |                              |  | $ | 12  |   |  | $ | 
|Interest cost                                    |                 |               | 20             |                                |               |                 | 1 |  |                               | 20  |                 |  |   | 1                             |  |   | 19  |   |  |   | 1
|Expected return on plan assets                   |                 |               | (40            | )                              |               |                 |  |  |                               | (40 | )               |  |   |                              |  |   | (40 | ) |  |   | 
|Amortization of transition asset                 |                 |               |               |                                |               |                 | 1 |  |                               |    |                 |  |   | 1                             |  |   |    |   |  |   | 1
|Amortization of prior service cost               |                 |               | 1              |                                |               |                 |  |  |                               | 1   |                 |  |   |                              |  |   | 1   |   |  |   | 
|Recognized net actuarial (gain) loss             |                 |               | 8              |                                |               |                 |  |  |                               | 8   |                 |  |   |                              |  |   | 1   |   |  |   | 
|                                                 |                 |               |                |                                |               |                 |   |  |                               |     |                 |  |   |                               |  |   |     |   |  |   |  
|Net periodic benefit cost (credit)               |                 | $             | 3              |                                |               | $               | 2 |  | $                             | 3   |                 |  | $ | 2                             |  | $ | (7  | ) |  | $ | 2



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##### Table of Contents

NOTES TO FINANCIAL STATEMENTS (continued)



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 and is not a subsidiary of either the Bank or the Corporation. Its financial results are not included in the
financial statements of the Bank or the Corporation. TRFC was formed in 1990 and can issue up to $5 billion of commercial paper to make loans secured by, and to purchase, pools of receivables. The Bank operates as a referral agent and refers
transactions to TRFC. The Bank provides all administrative services for TRFC. TRFC sold subordinated notes to an unrelated third party in 2003 and as a result of that sale the Corporation is not the primary beneficiary.



Every transaction in TRFC is structured to provide substantial loss protection and to
minimize credit risk. Transactions are overcollateralized with customer receivables and structured to the equivalent of an investment grade credit rating before consideration of any liquidity or credit support by the Bank. By agreement, liquidity
support is provided by the Bank up to the full amount of commercial paper outstanding. Such liquidity is provided through transaction specific funding agreements for individual sales of receivables from third parties. The Bank is obligated to
provide liquidity support if collections on receivable pools are not sufficient to cover associated commercial paper that has matured and the receivables related to maturing commercial paper or proceeds from the issuance of commercial paper are
insufficient to pay maturing commercial paper related to a specific third party seller (not the Bank). An obligation to make purchases under the funding agreements continues as long as TRFC is not bankrupt and the amount of the purchase does not
exceed the available liquidity commitment. Liquidity support is also provided in the event of noncredit related operational reasons, or if there were to be a systemic issue with the commercial paper market that would prevent the rollover of
commercial paper. Finally, the Bank has also provided a letter of credit for TRFC in support of the commercial paper issued. The maximum exposure for the letter of credit is the lesser of $400 million or 8% of the outstanding commercial paper. A
drawing under the letter of credit would occur only after: a first loss credit enhancement, provided by a third party seller (not the Bank), built into each transaction is completely exhausted; the subordinated notes sold to an unrelated third party
are completely exhausted and; there are not sufficient funds available from the liquidity providers to repay maturing commercial paper. 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 46. The estimated liability for losses related to these arrangements, if any, is included in the reserve for unfunded commitments.



At June 30, 2004, TRFCs receivables and commercial paper outstanding each totaled
approximately $560 million compared with approximately $740 million at March 31, 2004. A letter of credit provided by the Bank in support of TRFCs commercial paper totaled $45 million at June 30, 2004 compared with $60 million at



10



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##### Table of Contents

NOTES TO FINANCIAL STATEMENTS (continued)



Note 2  FIN 46 Revised (continued)



March 31, 2004. The Corporations maximum loss exposure related to TRFC is the full amount of the liquidity facility, or approximately $560 million, at
June 30, 2004. However, the probability of this loss scenario is remote as it would mean that all of TRFCs receivables were wholly uncollectible.



|Note | 3  Contingent and deferred consideration related to acquisitions
|---- | -----------------------------------------------------------------



The Corporation completed three acquisitions during the second quarter of 2004 with total initial consideration of $20 million. These acquisitions added approximately $2
billion to assets under management. Additional consideration for prior acquisitions of $2 million was also paid in the second quarter of 2004. There were no acquisitions completed during the first quarter of 2004. Additional consideration for prior
acquisitions of $3 million was paid during the first quarter including approximately $2 million paid with the Corporations common stock.



The Corporation records contingent purchase payments when amounts are resolved and become issuable. At June 30, 2004, the Corporation was potentially obligated to pay
contingent additional consideration of a minimum expected amount of approximately $45 million to a maximum expected amount of approximately $85 million for all acquisitions, over the next five years, depending on the performance of the acquired
companies. None of the contingent additional consideration was recorded as goodwill at June 30, 2004. In addition, 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 first of which was paid in the third quarter of 2003, leaving a remaining obligation of $37.5 million. The $47 million net present value of this obligation was recorded as additional goodwill in the fourth
quarter of 2002.



The Corporation owns 70% of Mellon Brascan 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 currently disagree on the methodology of how to compute the purchase price
and are in the process of submitting the dispute to 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. As part of the Corporations streamlining of the
organizational structure of the HR&IS sector, it was decided that this business was no longer consistent with the sectors strategic objectives. 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. 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. Because the lines of business included in discontinued operations were discrete lines of business serving classes of customers no longer served
by the Corporations continuing lines of business, the disposition of these businesses has no material impact on continuing operations going forward.



11



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##### Table of Contents

NOTES TO FINANCIAL STATEMENTS (continued)



Note 5  Securities



|                                                 |                |               |                  |               |            |    |                |       |                  |        |            |        |  |   |        |  |   |    |  |   |    |  |   |       
|------------------------------------------------ | -------------- | ------------- | ---------------- | ------------- | ---------- | -- | -------------- | ----- | ---------------- | ------ | ---------- | ------ |  | - | ------ |  | - | -- |  | - | -- |  | - | ------
|Securities (in
millions)                         |                | June 30, 2004 |                  | Dec. 31, 2003
|                                                 | Amortized cost |               | Gross unrealized |               | Fair value |    | Amortized cost |       | Gross unrealized |        | Fair value
|                                                 |                | Gains         |                  | Losses        |            |    |                | Gains |                  | Losses |           
|Securities available for sale:                   |                |               |                  |               |            |    |                |       |                  |        |            |        |  |   |        |  |   |    |  |   |    |  |   |       
|U.S. Treasury                                    |                | $             | 399              |               | $          |   |                | $     |                 |        | $          | 399    |  | $ | 471    |  | $ |   |  | $ |   |  | $ | 471   
|Other U.S. agency                                |                |               | 1,695            |               |            | 1  |                |       | 31               |        |            | 1,665  |  |   | 5      |  |   | 1  |  |   |   |  |   | 6     
|Obligations of states and political subdivisions |                |               | 624              |               |            | 7  |                |       | 10               |        |            | 621    |  |   | 547    |  |   | 13 |  |   | 3  |  |   | 557   
|Mortgage-backed securities:                      |                |               |                  |               |            |    |                |       |                  |        |            |        |  |   |        |  |   |    |  |   |    |  |   |       
|Federal agencies                                 |                |               | 7,690            |               |            | 14 |                |       | 142              |        |            | 7,562  |  |   | 8,772  |  |   | 62 |  |   | 63 |  |   | 8,771 
|Other                                            |                |               | 1,058            |               |            |   |                |       | 10               |        |            | 1,048  |  |   | 743    |  |   | 2  |  |   | 3  |  |   | 742   
|                                                 |                |               |                  |               |            |    |                |       |                  |        |            |        |  |   |        |  |   |    |  |   |    |  |   |       
|Total mortgage-backed securities                 |                |               | 8,748            |               |            | 14 |                |       | 152              |        |            | 8,610  |  |   | 9,515  |  |   | 64 |  |   | 66 |  |   | 9,513 
|Other                                            |                |               | 36               |               |            |   |                |       |                 |        |            | 36     |  |   | 145    |  |   |   |  |   | 2  |  |   | 143   
|                                                 |                |               |                  |               |            |    |                |       |                  |        |            |        |  |   |        |  |   |    |  |   |    |  |   |       
|Total securities available for sale              |                | $             | 11,502           |               | $          | 22 |                | $     | 193              |        | $          | 11,331 |  | $ | 10,683 |  | $ | 78 |  | $ | 71 |  | $ | 10,690
|                                                 |                |               |                  |               |            |    |                |       |                  |        |            |        |  |   |        |  |   |    |  |   |    |  |   |       
|Investment securities (held to maturity):        |                |               |                  |               |            |    |                |       |                  |        |            |        |  |   |        |  |   |    |  |   |    |  |   |       
|Mortgage-backed securities:                      |                |               |                  |               |            |    |                |       |                  |        |            |        |  |   |        |  |   |    |  |   |    |  |   |       
|Federal agencies                                 |                | $             | 196              |               | $          | 8  |                | $     | 1                |        | $          | 203    |  | $ | 243    |  | $ | 11 |  | $ |   |  | $ | 254   
|Other                                            |                |               | 1                |               |            |   |                |       |                 |        |            | 1      |  |   | 1      |  |   |   |  |   |   |  |   | 1     
|                                                 |                |               |                  |               |            |    |                |       |                  |        |            |        |  |   |        |  |   |    |  |   |    |  |   |       
|Total mortgage-backed securities                 |                |               | 197              |               |            | 8  |                |       | 1                |        |            | 204    |  |   | 244    |  |   | 11 |  |   |   |  |   | 255   
|Stock of Federal Reserve Bank                    |                |               | 47               |               |            |   |                |       |                 |        |            | 47     |  |   | 53     |  |   |   |  |   |   |  |   | 53    
|                                                 |                |               |                  |               |            |    |                |       |                  |        |            |        |  |   |        |  |   |    |  |   |    |  |   |       
|Total investment securities                      |                | $             | 244              |               | $          | 8  |                | $     | 1                |        | $          | 251    |  | $ | 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 both the second quarter of 2004 and the first six 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 June 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 loss on securities of $194
million primarily relates to mortgage-backed securities and was caused by interest rate increases. Approximately 97% of the temporary impairment of the securities has been in a continuous unrealized loss position for less than 12 months. There are
approximately 1,100 positions that are temporarily impaired. Management believes the collection of the contractual principal and interest is probable and therefore all impairment is considered to be temporary.



12



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##### Table of Contents

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 six 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 |  
|Acquired goodwill        |  |                              |    |             |   |                        |  |                | 6   |       |   |    |                  |   |              |   |  |       |    |  |   |   |   |  |   | 6     |  
|Impairment losses        |  |                              |    |             |   |                        |  |                |    |       |   |    |                  |   |              |   |  |       |    |  |   | (8 | ) |  |   | (8    | )
|Other(a)                 |  |                              | 3   |             |   |                        |  |                | 2   |       |   |    |                  |   | (5            | ) |  |       |    |  |   | 8  |   |  |   | 8     |  
|                         |  |                              |     |             |   |                         |  |                |     |       |   |     |                  |   |               |   |  |       |     |  |   |    |   |  |   |       |  
|Balance at June 30, 2004 |  | $                            | 740 |             | $ | 242                     |  | $              | 343 |       | $ | 275 |                  | $ | 408           |   |  | $     | 192 |  | $ |   |   |  | $ | 2,200 |  
|                         |  |                              |     |             |   |                         |  |                |     |       |   |     |                  |   |               |   |  |       |     |  |   |    |   |  |   |       |  



|(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 to the Other Activity sector.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Acquired intangible assets



|                                            |               |                     |               |  |   |    
|------------------------------------------- | ------------- | ------------------- | ------------- |  | - | ---
|Acquired intangible assets(in millions)     |               | Net Carrying Amount
|                                            | June 30, 2004 |                     | Dec. 31, 2003
|Subject to amortization(a):                 |               |                     |               |  |   |    
|Customer base                               |               | $                   | 39            |  | $ | 37 
|Technology based                            |               |                     | 33            |  |   | 35 
|Premium on deposits                         |               |                     | 10            |  |   | 11 
|Other                                       |               |                     | 5             |  |   | 7  
|                                            |               |                     |               |  |   |    
|Total subject to amortization               |               | $                   | 87            |  | $ | 90 
|                                            |               |                     |               |  |   |    
|Not subject to amortization:                |               |                     |               |  |   |    
|Investment management contractual relations |               |                     | 17            |  |   | 10 
|                                            |               |                     |               |  |   |    
|Total acquired intangible assets            |               | $                   | 104           |  | $ | 100
|                                            |               |                     |               |  |   |    



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

N/A - Not applicable.



Intangible assets are amortized over their estimated useful lives. During the first six months of 2004, the net carrying amount of acquired
intangible assets increased by $4 million due to acquisitions ($13 million), offset by amortization expense ($9 million). Based upon the current level of intangible assets, the annual amortization expense for the years 2004 through 2009 is expected
to be approximately $18 million, $15 million, $15 million, $14 million, $12 million and $9 million, respectively.



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NOTES TO FINANCIAL STATEMENTS (continued)



Note 7  Other assets



|                                                                       |  |              |       |     |               |   |       |               |  |   |              |     |  |   |      
|---------------------------------------------------------------------- |  | ------------ | ----- | --- | ------------- | - | ----- | ------------- |  | - | ------------ | --- |  | - | -----
|Other assets (in
millions)                                             |  | June 30,2004 |       |     | March 31,2004 |   |       | Dec. 31, 2003 |  |   | June 30,2003
|Corporate-owned life insurance                                         |  | $            | 1,748 |     |               | $ | 1,729 |               |  | $ | 1,699        |     |  | $ | 1,614
|Receivables related to foreign exchange and derivative instruments (a) |  |              | 655   |     |               |   | 1,013 |               |  |   | 1,117        |     |  |   | 1,349
|Prepaid pension assets                                                 |  |              | 1,022 |     |               |   | 1,017 |               |  |   | 1,010        |     |  |   | 978  
|Equity investments                                                     |  |              | 620   |     |               |   | 626   |               |  |   | 663          |     |  |   | 625  
|Equity in joint ventures and other investments (b)                     |  |              | 302   |     |               |   | 330   |               |  |   | 337          |     |  |   | 307  
|Other prepaid expenses                                                 |  |              | 151   |     |               |   | 158   |               |  |   | 144          |     |  |   | 147  
|Receivables and other assets                                           |  |              | 1,056 | (c) |               |   | 985   | (c)           |  |   | 951          | (c) |  |   | 1,044
|                                                                       |  |              |       |     |               |   |       |               |  |   |              |     |  |   |      
|Total other assets                                                     |  | $            | 5,554 |     |               | $ | 5,858 |               |  | $ | 5,921        |     |  | $ | 6,064
|                                                                       |  |              |       |     |               |   |       |               |  |   |              |     |  |   |      



|(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) | 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, various HR&IS joint ventures, and Banco
Brascan.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(c) | 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



|                                   |  |                                                                    |  |                  |     |              |   |              |  |              |     |  |   |     |  |   |    
|---------------------------------- |  | ------------------------------------------------------------------ |  | ---------------- | --- | ------------ | - | ------------ |  | ------------ | --- |  | - | --- |  | - | ---
|                                   |  | Quarter ended                                                      |  | Six months ended
|Net interest revenue (in
millions) |  | June 30,2004                                                       |  | March 31,2004    |     | June 30,2003 |   | June 30,2004 |  | June 30,2003
|Interest                           |  | Interest and fees on loans (loan fees of $7, $8, $8, $15 and $16)  |  | $                | 70  |              | $ | 65           |  | $            | 76  |  | $ | 135 |  | $ | 157
|revenue                            |  | Interest-bearing deposits with banks                               |  |                  | 14  |              |   | 16           |  |              | 13  |  |   | 30  |  |   | 27 
|                                   |  | Federal funds sold and securities under resale agreements          |  |                  | 2   |              |   | 1            |  |              | 2   |  |   | 3   |  |   | 5  
|                                   |  | Other money market investments                                     |  |                  | 1   |              |   | 1            |  |              | 1   |  |   | 2   |  |   | 2  
|                                   |  | Trading account securities                                         |  |                  | 1   |              |   | 2            |  |              | 5   |  |   | 3   |  |   | 8  
|                                   |  | Securities - taxable                                               |  |                  | 102 |              |   | 101          |  |              | 133 |  |   | 203 |  |   | 267
|                                   |  | Securities - nontaxable                                            |  |                  | 9   |              |   | 8            |  |              | 7   |  |   | 17  |  |   | 15 
|                                   |  | Other (a)                                                          |  |                  |    |              |   |             |  |              | 19  |  |   |    |  |   | 22 
|                                   |  |                                                                    |  |                  |     |              |   |              |  |              |     |  |   |     |  |   |    
|                                   |  | Total interest revenue                                             |  |                  | 199 |              |   | 194          |  |              | 256 |  |   | 393 |  |   | 503
|                                   |  |                                                                    |  |                  |     |              |   |              |  |              |     |  |   |     |  |   |    
|Interest                           |  | Deposits in domestic offices                                       |  |                  | 16  |              |   | 14           |  |              | 18  |  |   | 30  |  |   | 39 
|expense                            |  | Deposits in foreign offices                                        |  |                  | 10  |              |   | 10           |  |              | 13  |  |   | 20  |  |   | 26 
|                                   |  | Federal funds purchased and securities under repurchase agreements |  |                  | 3   |              |   | 3            |  |              | 7   |  |   | 6   |  |   | 9  
|                                   |  | Other short-term borrowings                                        |  |                  | 4   |              |   | 6            |  |              | 8   |  |   | 10  |  |   | 16 
|                                   |  | Notes and debentures                                               |  |                  | 34  |              |   | 34           |  |              | 34  |  |   | 68  |  |   | 63 
|                                   |  | Junior subordinated debentures (b)                                 |  |                  | 13  |              |   | 13           |  |              |    |  |   | 26  |  |   |   
|                                   |  | Trust-preferred securities (b)                                     |  |                  |    |              |   |             |  |              | 13  |  |   |    |  |   | 33 
|                                   |  |                                                                    |  |                  |     |              |   |              |  |              |     |  |   |     |  |   |    
|                                   |  | Total interest expense                                             |  |                  | 80  |              |   | 80           |  |              | 93  |  |   | 160 |  |   | 186
|                                   |  |                                                                    |  |                  |     |              |   |              |  |              |     |  |   |     |  |   |    
|                                   |  | Net interest revenue                                               |  | $                | 119 |              | $ | 114          |  | $            | 163 |  | $ | 233 |  | $ | 317



|(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.
|--- | ----------------------------------------------------------------



14



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##### Table of Contents

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 through 34, and the first three paragraphs on page 35, as
well as the first four paragraphs in the Other Activity section on page 42. 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



|                                                             |  |               |      |   |              |   |     |              |  |   |     |  
|------------------------------------------------------------ |  | ------------- | ---- | - | ------------ | - | --- | ------------ |  | - | --- | -
|                                                             |  | Quarter ended |     
|Accumulated unrealized gain (loss), net of tax (in millions) |  | June 30,2004  |      |   | Dec. 31,2003 |   |     | June 30,2003 | 
|Foreign currency translation adjustment                      |  | $             | 43   |   |              | $ | 44  |              |  | $ | (27 | )
|Minimum pension liability                                    |  |               | (25  | ) |              |   | (25 | )            |  |   | (21 | )
|Unrealized gain (loss) on securities available for sale      |  |               | (108 | ) |              |   | 7   |              |  |   | 129 |  
|Unrealized gain (loss) on cash flow hedges                   |  |               |     |   |              |   |    |              |  |   | (1  | )
|                                                             |  |               |      |   |              |   |     |              |  |   |     |  
|Total accumulated unrealized gain (loss), net of tax         |  | $             | (90  | ) |              | $ | 26  |              |  | $ | 80  |  
|                                                             |  |               |      |   |              |   |     |              |  |   |     |  



Note
11  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.



Second quarter of 2004 compared with the second quarter of 2003 and the first quarter of 2004



Consolidated net income in the second quarter of 2004 totaled $176 million, or $.42 per share. This compares to $175 million, or $.41 per share, in the second quarter of
2003 and $245 million, or $.57 per share, in the first quarter of 2004. Second quarter 2004 income from continuing operations totaled $176 million, or $.42 per share. This compares to income from continuing operations of $173 million, or $.40 per
share in the second quarter of 2003 and $244 million, or $.57 per share, in the first quarter of 2004.



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.



The results
from the first quarter of 2004 included a pre-tax gain of $93 million from the sale of approximately 35% of the Corporations indirect investment in Tokyo-based Shinsei Bank, as a result of its initial public offering. Partially offsetting the
gain was a pre-tax charge of $19 million associated with a writedown of small non-strategic businesses that the Corporation intends to exit. These items added approximately $.12 to the Corporations earnings per share from continuing operations
in the first quarter of 2004.



In April 2004, the Corporation increased its
quarterly common stock dividend by 13% to $.18 per common share. Over the past twelve months, the Corporation has increased its quarterly common stock dividend by 38%.



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



Consolidated net income totaled $421 million, or $.99 per share, in the first six months of 2004. This compared with consolidated net income
of $336 million, or $.78 per share, in the first six months of 2003, and included the charge for the cumulative effect of the accounting change discussed in Note 1. Income from continuing operations totaled $420 million, or $.99 per share, in the
first six months of 2004, compared with $339 million, or $.78 per share, before the cumulative effect of a change in accounting principle, in the first six months of 2003.



16



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##### Table of Contents

Summary of financial results (continued)



|                                     |  |               |   |  |                  |   |  |              |   |  |              |   |  |              |  
|------------------------------------ |  | ------------- | - |  | ---------------- | - |  | ------------ | - |  | ------------ | - |  | ------------ | -
|                                     |  | Quarter ended |   |  | Six months ended |  
|Returns and margin                   |  | June 30,2004  |   |  | March 31,2004    |   |  | June 30,2003 |   |  | June 30,2004 |   |  | June 30,2003 |  
|Return on equity (annualized) (a)(b) |  | 18.9          | % |  | 26.0             | % |  | 19.5         | % |  | 22.4         | % |  | 19.6         | %
|Return on assets (annualized) (a)(b) |  | 2.13          | % |  | 2.95             | % |  | 2.04         | % |  | 2.54         | % |  | 1.99         | %
|Pre-tax operating margin (FTE) (a)   |  | 25            | % |  | 31               | % |  | 25           | % |  | 28           | % |  | 25           | %



|(a) | Second quarter 2004 results include a $24 million,
or $.04 per share, charge relating to vacating 10 leased locations in London and moving into the Corporations new European Headquarters. Excluding this charge, return on equity and return on assets on a continuing operations basis would have
been 20.7% and 2.32%, respectively, and the pre-tax operating margin would have been 27%. First quarter 2004 results 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 $.12 per share to the first quarter 2004 results. Excluding these items,
return on equity and return on assets on a continuing operations basis would have been 20.7% and 2.35%, respectively, and the pre-tax operating margin would have been 27%. The return on equity and return on assets on a continuing operations basis
for the first six months of 2004, excluding the items mentioned above for the first and second quarters, would have been 20.7% and 2.34%, respectively.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(b) | Returns presented in the table for the first six
months of 2003 are before the cumulative effect of a change in accounting principle. Return on equity on a net income basis was 18.9%, 26.1% and 19.7% for the second quarter 2004, first quarter 2004, and second quarter 2003, respectively, and 22.5%
and 19.4% for the first six months of 2004 and the first six months of 2003, respectively. Return on assets on a net income basis was 2.13%, 2.96% and 2.04% for the second quarter 2004, first quarter 2004, and second quarter 2003, respectively, and
2.54% and 1.95% for the first six months of 2004 and the first six months of 2003, respectively. For the second quarter and first six 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.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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. 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 and the other items totaling a positive $74 million recorded in the first quarter of 2004. The Corporation believes these measures are useful in analyzing the financial results and
trends of ongoing operations and facilitate the comparisons with other financial institutions and are the basis on which the Corporations management internally evaluates performance.



Acquisition of remaining 70% of Pareto Partners



In July 2004, the Corporation announced that it has signed a definitive agreement to acquire
the 70% of Pareto Partners that it does not currently own. The Corporation will acquire Paretos currency management business, which manages $35 billion in assets and Paretos fixed-income asset management business, which manages $3
billion in assets. In a separate transaction, Pareto will sell its New York-based core/core plus and high-yield fixed income asset management business, with approximately $3 billion under management, to MacKay Shields LLC, a unit of New York Life
Insurance. The transaction is expected to close in the third quarter of 2004, subject to regulatory and other approvals.



Acquisition of Evaluation Associates Capital Markets



In August 2004, the Corporation completed its 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, EACM invests in a wide range of approaches,
including relative value, event-driven and directional strategies. In its manager of managers strategies, where it manages $1.7 billion in assets, EACM selects and oversees diversified teams of long-only equity and fixed income money managers.



17



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##### Table of Contents

Summary of financial results (continued)



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 June 30, 2004 the U.S. dollar depreciated versus the currencies noted
above when compared to June 30, 2003. The U.S. Dollar depreciated versus the British Pound and appreciated versus the Canadian Dollar and 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.



18



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##### Table of Contents

Noninterest revenue



|                                                                                   |  |               |       |   |                  |   |       |              |  |   |              |   |  |              |       |      |  |   |       |  
|---------------------------------------------------------------------------------- |  | ------------- | ----- | - | ---------------- | - | ----- | ------------ |  | - | ------------ | - |  | ------------ | ----- | ---- |  | - | ----- | -
|                                                                                   |  | Quarter ended |       |   | Six months ended |  
|Noninterest revenue (dollar amounts in
millions, unless otherwise noted)           |  | June 30,2004  |       |   | March 31,2004    |   |       | June 30,2003 |  |   | June 30,2004 |   |  | June 30,2003 |      
|Trust and investment fee revenue:                                                  |  |               |       |   |                  |   |       |              |  |   |              |   |  |              |       |      |  |   |       |  
|Investment management                                                              |  | $             | 385   |   |                  | $ | 405   |              |  | $ | 334          |   |  | $            | 790   |      |  | $ | 652   |  
|Human resources & investor solutions                                               |  |               | 233   |   |                  |   | 233   |              |  |   | 245          |   |  |              | 466   |      |  |   | 485   |  
|Institutional trust and custody                                                    |  |               | 133   |   |                  |   | 133   |              |  |   | 116          |   |  |              | 266   |      |  |   | 225   |  
|Securities lending revenue                                                         |  |               | 24    |   |                  |   | 18    |              |  |   | 22           |   |  |              | 42    |      |  |   | 37    |  
|                                                                                   |  |               |       |   |                  |   |       |              |  |   |              |   |  |              |       |      |  |   |       |  
|Total trust and investment fee revenue                                             |  |               | 775   |   |                  |   | 789   |              |  |   | 717          |   |  |              | 1,564 |      |  |   | 1,399 |  
|Cash management revenue                                                            |  |               | 79    |   |                  |   | 78    |              |  |   | 71           |   |  |              | 157   |      |  |   | 143   |  
|Foreign exchange trading revenue                                                   |  |               | 50    |   |                  |   | 57    |              |  |   | 28           |   |  |              | 107   |      |  |   | 66    |  
|Financing-related revenue                                                          |  |               | 30    |   |                  |   | 35    |              |  |   | 38           |   |  |              | 65    |      |  |   | 70    |  
|Equity investment revenue                                                          |  |               | 9     |   |                  |   | 98    |              |  |   | (18          | ) |  |              | 107   |      |  |   | (15   | )
|Other revenue                                                                      |  |               | 19    |   |                  |   | 14    |              |  |   | 13           |   |  |              | 33    |      |  |   | 24    |  
|                                                                                   |  |               |       |   |                  |   |       |              |  |   |              |   |  |              |       |      |  |   |       |  
|Total fee and other revenue                                                        |  |               | 962   |   |                  |   | 1,071 |              |  |   | 849          |   |  |              | 2,033 |      |  |   | 1,687 |  
|Gains on sales of securities                                                       |  |               | 8     |   |                  |   |      |              |  |   | 21           |   |  |              | 8     |      |  |   | 32    |  
|                                                                                   |  |               |       |   |                  |   |       |              |  |   |              |   |  |              |       |      |  |   |       |  
|Total noninterest revenue                                                          |  | $             | 970   |   |                  | $ | 1,071 |              |  | $ | 870          |   |  | $            | 2,041 |      |  | $ | 1,719 |  
|                                                                                   |  |               |       |   |                  |   |       |              |  |   |              |   |  |              |       |      |  |   |       |  
|Fee revenue as a percentage of fee and net interest revenue (FTE)                  |  |               | 89    | % |                  |   | 90    | % (a)        |  |   | 84           | % |  |              | 90    | %(a) |  |   | 84    | %
|Market value of assets under management at period-end (in billions)                |  | $             | 679   |   |                  | $ | 679   |              |  | $ | 612          |   |  |              |       |      |  |   |       |  
|Market value of assets under administration or custody at period-end (in billions) |  | $             | 2,968 |   |                  | $ | 2,944 |              |  | $ | 2,510        |   |  |              |       |      |  |   |       |  
|S&P 500 Index - period-end                                                         |  |               | 1141  |   |                  |   | 1126  |              |  |   | 975          |   |  |              | 1141  |      |  |   | 975   |  
|S&P 500 Index - daily average                                                      |  |               | 1123  |   |                  |   | 1133  |              |  |   | 938          |   |  |              | 1128  |      |  |   | 900   |  
|                                                                                   |  |               |       |   |                  |   |       |              |  |   |              |   |  |              |       |      |  |   |       |  



|(a) | Excluding the gain on the sale of approximately 35%
of the Corporations indirect investment in Shinsei Bank, fee revenue as a percentage of fee and net interest revenue (FTE) would have totaled 89% in both the first quarter of 2004 and first six months of 2004.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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.



Fee revenue



Fee revenue of $962 million in the second quarter of 2004 increased $113 million, or 13%,
from $849 million in the second quarter of 2003, primarily due to increases in trust and investment fee revenue, equity investment revenue, foreign exchange trading revenue and the favorable translation impact of the weaker U.S. dollar on non-U.S.
revenues. The effect of foreign exchange rates accounted for $8 million of the increase in fee revenue in the second quarter of 2004 compared with the second quarter of 2003, and is primarily reflected in trust and investment fee revenue.



Fee revenue in the first quarter of 2004 included a pre-tax gain of $93
million from the sale of approximately 35% of the Corporations indirect investment in Shinsei Bank. This gain is included in equity investment revenue in the table above. Excluding this gain, fee revenue decreased $16 million compared to the
first quarter of 2004 resulting from a $22 million seasonal decrease in performance fees (included in investment management revenue in the table above), as well as lower foreign exchange trading and financing-related revenue partially offset by a
seasonal increase in securities lending revenue and higher other revenue. Out-of-pocket expense reimbursements recorded as fee revenue totaled $25 million in the second quarter 2004 compared with $21 million in the first quarter 2004 and $31 million
in the second quarter 2003. Client reimbursable out-of-pocket expenses are recorded as operating expenses, as discussed on page 31.



19



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##### Table of Contents

Noninterest revenue (continued)



Investment management fee revenue



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



|                                                          |  |                                |     |     |              |   |     |                           |  |   |       |   |  |   |     |  
|--------------------------------------------------------- |  | ------------------------------ | --- | --- | ------------ | - | --- | ------------------------- |  | - | ----- | - |  | - | --- | -
|(in billions)                                             |  | Institutional Asset Management |     |     | Mutual Funds |   |     | Private Wealth Management |  |   | Total |  
|Market value of assets under management at March 31, 2004 |  | $                              | 469 | (a) |              | $ | 163 |                           |  | $ | 47    |   |  | $ | 679 |  
|Net inflows (outflows):                                   |  |                                |     |     |              |   |     |                           |  |   |       |   |  |   |     |  
|Long-term                                                 |  |                                |    |     |              |   | 1   |                           |  |   | (1    | ) |  |   |    |  
|Money market                                              |  |                                |    |     |              |   | (2  | )                         |  |   |      |   |  |   | (2  | )
|                                                          |  |                                |     |     |              |   |     |                           |  |   |       |   |  |   |     |  
|Total net (outflows)                                      |  |                                |    |     |              |   | (1  | )                         |  |   | (1    | ) |  |   | (2  | )
|Net market appreciation                                   |  |                                |    |     |              |   |    |                           |  |   |      |   |  |   |    |  
|Acquisitions                                              |  |                                |    |     |              |   | 2   |                           |  |   |      |   |  |   | 2   |  
|                                                          |  |                                |     |     |              |   |     |                           |  |   |       |   |  |   |     |  
|Market value of assets under management at June 30, 2004  |  | $                              | 469 | (a) |              | $ | 164 |                           |  | $ | 46    |   |  | $ | 679 |  



|(a) | Includes securities lending assets advised by
Institutional Asset Management of $64 billion and $68 billion at March 31, 2004 and June 30, 2004, respectively. 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 June 30, 2003 to June 30, 2004



|                                                         |  |                              |     |     |             |   |     |                         |  |   |       |   |  |   |     |  
|-------------------------------------------------------- |  | ---------------------------- | --- | --- | ----------- | - | --- | ----------------------- |  | - | ----- | - |  | - | --- | -
|(in billions)                                            |  | InstitutionalAssetManagement |     |     | MutualFunds |   |     | PrivateWealthManagement |  |   | Total |  
|Market value of assets under management at June 30, 2003 |  | $                            | 392 | (a) |             | $ | 176 |                         |  | $ | 44    |   |  | $ | 612 |  
|Net inflows (outflows):                                  |  |                              |     |     |             |   |     |                         |  |   |       |   |  |   |     |  
|Long-term                                                |  |                              | 20  |     |             |   | 2   |                         |  |   | (2    | ) |  |   | 20  |  
|Money market                                             |  |                              | 24  |     |             |   | (23 | )                       |  |   |      |   |  |   | 1   |  
|                                                         |  |                              |     |     |             |   |     |                         |  |   |       |   |  |   |     |  
|Total net inflows (outflows)                             |  |                              | 44  |     |             |   | (21 | )                       |  |   | (2    | ) |  |   | 21  |  
|Net market appreciation (b)                              |  |                              | 39  |     |             |   | 7   |                         |  |   | 3     |   |  |   | 49  |  
|Acquisitions (divestitures)                              |  |                              | (6  | )   |             |   | 2   |                         |  |   | 1     |   |  |   | (3  | )
|                                                         |  |                              |     |     |             |   |     |                         |  |   |       |   |  |   |     |  
|Market value of assets under management at June 30, 2004 |  | $                            | 469 | (a) |             | $ | 164 |                         |  | $ | 46    |   |  | $ | 679 |  



|(a) | Includes securities lending assets advised by
Institutional Asset Management of $51 billion and $68 billion at June 30, 2003 and June 30, 2004, respectively. Revenue earned on these assets is reported in Securities lending revenue on the income statement and in the Asset Servicing
sector.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



20



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##### Table of Contents

Noninterest revenue (continued)



|                                                                     |  |               |     |                  |   |              |  |              |     |              |   |     |  |   |    
|-------------------------------------------------------------------- |  | ------------- | --- | ---------------- | - | ------------ |  | ------------ | --- | ------------ | - | --- |  | - | ---
|                                                                     |  | Quarter ended |     | Six months ended
|Investment management fee revenue - by business sector (in millions) |  | June 30,2004  |     | March 31,2004    |   | June 30,2003 |  | June 30,2004 |     | June 30,2003
|Institutional Asset Management                                       |  |               |     |                  |   |              |  |              |     |              |   |     |  |   |    
|Institutional and private clients                                    |  | $             | 105 |                  | $ | 105          |  | $            | 83  |              | $ | 210 |  | $ | 163
|Performance fees                                                     |  |               | 17  |                  |   | 39           |  |              | 8   |              |   | 56  |  |   | 7  
|Mutual funds                                                         |  |               | 42  |                  |   | 39           |  |              | 31  |              |   | 81  |  |   | 59 
|                                                                     |  |               |     |                  |   |              |  |              |     |              |   |     |  |   |    
|Total                                                                |  |               | 164 |                  |   | 183          |  |              | 122 |              |   | 347 |  |   | 229
|Mutual Funds                                                         |  |               |     |                  |   |              |  |              |     |              |   |     |  |   |    
|Mutual funds                                                         |  |               | 129 |                  |   | 129          |  |              | 130 |              |   | 258 |  |   | 262
|Institutional and private clients                                    |  |               | 8   |                  |   | 9            |  |              | 8   |              |   | 17  |  |   | 14 
|                                                                     |  |               |     |                  |   |              |  |              |     |              |   |     |  |   |    
|Total                                                                |  |               | 137 |                  |   | 138          |  |              | 138 |              |   | 275 |  |   | 276
|Private Wealth Management                                            |  |               |     |                  |   |              |  |              |     |              |   |     |  |   |    
|Private clients                                                      |  |               | 75  |                  |   | 74           |  |              | 65  |              |   | 149 |  |   | 130
|Human Resources & Investor Solutions                                 |  |               |     |                  |   |              |  |              |     |              |   |     |  |   |    
|Mutual funds(a)                                                      |  |               | 9   |                  |   | 10           |  |              | 9   |              |   | 19  |  |   | 17 
|                                                                     |  |               |     |                  |   |              |  |              |     |              |   |     |  |   |    
|Total investment management fee revenue                              |  | $             | 385 |                  | $ | 405          |  | $            | 334 |              | $ | 790 |  | $ | 652
|                                                                     |  |               |     |                  |   |              |  |              |     |              |   |     |  |   |    



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



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. The Corporation estimates that a sustained (one-year) 100-point change in the Standard & Poors (S&P) 500 Index, when applied to
the Corporations mix of assets under management, would result in a change of approximately $40 million to $50 million annually in investment management fees, excluding performance fees. For any given quarterly reporting period, the actual
impact may vary from what might be estimated using that sensitivity, since Institutional Asset Management records investment management revenue based on quarter-end asset under management levels, Mutual Funds based on daily asset under management
levels and Private Wealth Management based on prior months asset under management levels. The actual impact will also vary with changes in asset mix, the timing of flows, the relationship of other benchmarks used versus the S&P 500 Index
and other factors. It should also be noted that there is a corresponding change in incentive expense with a change in investment management fees. The relevant changes in the S&P 500 Index for the second quarter of 2004 compared with prior
quarters are as follows.



|              |               |               |                |                             |               |               |       |     |   |            |      |    |       |     |            |      |  
|------------- | ------------- | ------------- | -------------- | --------------------------- | ------------- | ------------- | ----- | --- | - | ---------- | ---- | -- | ----- | --- | ---------- | ---- | -
|              |               | Quarter ended |                | June 30, 2004 compared with |              
|S&P 500 Index |               |               | March 31, 2004 |                             |               | June 30, 2003 |      
|              | June 30, 2004 |               | March 31, 2004 |                             | June 30, 2003 |               | Index |     |   | Percentage |      |    | Index |     | Percentage |     
|Period-end    |               | 1141          |                | 1126                        |               | 975           |       | 15  |   |            | 1.3  | %  |       | 166 |            | 17.1 | %
|Daily average |               | 1123          |                | 1133                        |               | 938           |       | (10 | ) |            | (0.8 | )% |       | 185 |            | 19.7 | %



Investment management revenue in the
second quarter of 2004 increased $51 million, or 15%, compared with the second quarter of 2003 and decreased $20 million, or 5% (unannualized), compared with the first quarter 2004. The increase compared with the second quarter of 2003 resulted from
improved equity markets, net inflows, a $9 million increase in performance fees and the effect of foreign exchange rates. The decrease compared with the first quarter 2004 resulted from a $22 million decrease in performance fees. Performance fees
are earned by investment managers when the investment performance of their products exceeds various benchmarks and tend to be highest for the Corporation in the fourth quarter, followed by the first quarter.



The largest category of investment management fees is from mutual funds. Managed mutual fund
fees totaled $180 million in the second quarter of 2004, an increase of $10 million, or 6%, compared with the second quarter of 2003 and an increase of $2 million, or less than 1%, compared with the first quarter of 2004. The increase



21



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##### Table of Contents

Noninterest revenue (continued)



compared with the second 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 bond and fixed-income funds.



|                                                 |  |               |     |                  |   |              |  |              |     |              |   |     |  |   |    
|------------------------------------------------ |  | ------------- | --- | ---------------- | - | ------------ |  | ------------ | --- | ------------ | - | --- |  | - | ---
|                                                 |  | Quarter ended |     | Six months ended
|Managed mutual fund fee revenue(a) (in millions) |  | June 30,2004  |     | March 31,2004    |   | June 30,2003 |  | June 30,2004 |     | June 30,2003
|Equity funds                                     |  | $             | 79  |                  | $ | 74           |  | $            | 55  |              | $ | 153 |  | $ | 106
|Money market funds                               |  |               | 59  |                  |   | 58           |  |              | 68  |              |   | 117 |  |   | 141
|Bond and fixed-income funds                      |  |               | 31  |                  |   | 34           |  |              | 39  |              |   | 65  |  |   | 74 
|Nonproprietary                                   |  |               | 11  |                  |   | 12           |  |              | 8   |              |   | 23  |  |   | 17 
|                                                 |  |               |     |                  |   |              |  |              |     |              |   |     |  |   |    
|Total managed mutual funds                       |  | $             | 180 |                  | $ | 178          |  | $            | 170 |              | $ | 358 |  | $ | 338
|                                                 |  |               |     |                  |   |              |  |              |     |              |   |     |  |   |    



|(a) | Net of mutual fund fees waived and fund expense reimbursements of $11 million, $10 million, $10 million $21 million and $20
million, respectively.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------



Mutual fund management fees
are based upon the daily average net assets of each fund. The average net assets of proprietary mutual funds managed decreased $5 billion in the second quarter of 2004 compared with the second quarter of 2003 primarily resulting from outflows of
institutional money market funds partially offset by equity market appreciation.



|                                                         |  |               |     |               |   |              |  |   |    
|-------------------------------------------------------- |  | ------------- | --- | ------------- | - | ------------ |  | - | ---
|                                                         |  | Quarter ended
|Average assets of proprietary mutual funds (in billions) |  | June 30,2004  |     | March 31,2004 |   | June 30,2003
|Equity funds                                             |  | $             | 51  |               | $ | 48           |  | $ | 37 
|Money market funds                                       |  |               | 96  |               |   | 96           |  |   | 112
|Bond and fixed-income funds                              |  |               | 23  |               |   | 25           |  |   | 26 
|                                                         |  |               |     |               |   |              |  |   |    
|Total average proprietary mutual fund assets managed     |  | $             | 170 |               | $ | 169          |  | $ | 175
|                                                         |  |               |     |               |   |              |  |   |    



In the second quarter of 2004, total
proprietary managed mutual funds generated 40 basis points, on an annualized basis, compared with 37 basis points in the second quarter of 2003 and 40 basis points in the first quarter of 2004. For the second quarter of 2004, the second quarter of
2003 and the first quarter of 2004, the Corporation generated, on an annualized basis, 63, 60 and 62 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, 57 and 56 basis points on average proprietary bond and fixed-income funds, respectively.



22



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##### Table of Contents

Noninterest revenue (continued)



As shown in the following table, the market value of assets under management was $679 billion at June 30, 2004, a $67
billion, or 11%, increase from $612 billion at June 30, 2003 and unchanged from March 31, 2004.



|                                                                    |  |              |      |               |   |              |  |               |      |              |   |      |  |   |    
|------------------------------------------------------------------- |  | ------------ | ---- | ------------- | - | ------------ |  | ------------- | ---- | ------------ | - | ---- |  | - | ---
|Market value of assets under management at period-end (in billions) |  | June 30,2004 |      | March 31,2004 |   | Dec. 31,2003 |  | Sept. 30,2003 |      | June 30,2003
|Mutual funds managed:                                               |  |              |      |               |   |              |  |               |      |              |   |      |  |   |    
|Equity funds                                                        |  | $            | 52   |               | $ | 49           |  | $             | 47   |              | $ | 41   |  | $ | 38 
|Money market funds                                                  |  |              | 94   |               |   | 96           |  |               | 99   |              |   | 105  |  |   | 117
|Bond and fixed-income funds                                         |  |              | 23   |               |   | 24           |  |               | 25   |              |   | 26   |  |   | 27 
|Nonproprietary                                                      |  |              | 30   |               |   | 31           |  |               | 26   |              |   | 24   |  |   | 21 
|                                                                    |  |              |      |               |   |              |  |               |      |              |   |      |  |   |    
|Total mutual funds managed                                          |  |              | 199  |               |   | 200          |  |               | 197  |              |   | 196  |  |   | 203
|Institutional and private client assets under management(a)         |  |              | 480  |               |   | 479          |  |               | 460  |              |   | 429  |  |   | 409
|                                                                    |  |              |      |               |   |              |  |               |      |              |   |      |  |   |    
|Total market value of assets under management                       |  | $            | 679  |               | $ | 679          |  | $             | 657  |              | $ | 625  |  | $ | 612
|S&P 500 Index - period-end                                          |  |              | 1141 |               |   | 1126         |  |               | 1112 |              |   | 996  |  |   | 975
|S&P 500 Index - daily average                                       |  |              | 1123 |               |   | 1133         |  |               | 1056 |              |   | 1000 |  |   | 938
|                                                                    |  |              |      |               |   |              |  |               |      |              |   |      |  |   |    



|(a) | Includes assets managed at Pareto Partners of $41 billion, $40 billion, $40 billion, $37 billion and $35 billion,
respectively. The Corporation has a 30% equity interest in Pareto Partners, which is accounted for under the equity method of accounting. As discussed on page 17, in July 2004, the Corporation signed a definitive agreement to acquire the 70% of
Pareto Partners that it does not currently own.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                     |  |              |   |  |               |   |  |              |   |  |               |   |  |              |  
|---------------------------------------------------- |  | ------------ | - |  | ------------- | - |  | ------------ | - |  | ------------- | - |  | ------------ | -
|Composition of assets under management at period-end |  | June 30,2004 |   |  | March 31,2004 |   |  | Dec. 31,2003 |   |  | Sept. 30,2003 |   |  | June 30,2003 |  
|Equity funds                                         |  | 36           | % |  | 36            | % |  | 36           | % |  | 34            | % |  | 32           | %
|Money market funds                                   |  | 22           |   |  | 24            |   |  | 25           |   |  | 27            |   |  | 29           |  
|Bond and fixed-income funds                          |  | 21           |   |  | 20            |   |  | 20           |   |  | 21            |   |  | 21           |  
|Securities lending cash collateral                   |  | 12           |   |  | 11            |   |  | 10           |   |  | 10            |   |  | 10           |  
|Overlay and global fixed-income products             |  | 9            |   |  | 9             |   |  | 9            |   |  | 8             |   |  | 8            |  
|                                                     |  |              |   |  |               |   |  |              |   |  |               |   |  |              |  
|Total                                                |  | 100          | % |  | 100           | % |  | 100          | % |  | 100           | % |  | 100          | %
|                                                     |  |              |   |  |               |   |  |              |   |  |               |   |  |              |  



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 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 $233 million in the second quarter of
2004, a decrease of $12 million, or 5%, from the second quarter of 2003, reflecting lower out-of-pocket expense reimbursements, lower consulting revenue primarily in the retirement business, and lower client volumes. HR&IS fee revenue was
unchanged from the first quarter of 2004 as higher out-of-pocket expense reimbursements were offset by lower consulting revenue in the retirement business and lower client volumes.



23



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##### Table of Contents

Noninterest revenue (continued)



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 as 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 $17 million, or 15%, in the second quarter of 2004 compared with the second quarter of 2003 and was unchanged compared to the
first quarter of 2004. The increase primarily resulted from net new business and improved market conditions.



As shown in the following table, assets under administration or custody totaled $2.968 trillion at June 30, 2004, an increase of $458 billion, or 18%, compared with $2.510 trillion at June 30, 2003 and an increase of
$24 billion, or less than 1% (unannualized), compared with $2.944 trillion at March 31, 2004. The increases compared with the prior periods resulted from net new business and market appreciation. The increase compared with the second quarter of 2003
also reflected the effect of foreign exchange rates.



|                                                                                   |  |              |       |               |   |              |  |               |       |              |   |       |  |   |      
|---------------------------------------------------------------------------------- |  | ------------ | ----- | ------------- | - | ------------ |  | ------------- | ----- | ------------ | - | ----- |  | - | -----
|Market value of assets under administration or custody at period-end (in billions) |  | June 30,2004 |       | March 31,2004 |   | Dec. 31,2003 |  | Sept. 30,2003 |       | June 30,2003
|Market value of assets under administration or custody(a)                          |  | $            | 2,968 |               | $ | 2,944        |  | $             | 2,845 |              | $ | 2,611 |  | $ | 2,510
|S&P 500 Index - period-end                                                         |  |              | 1141  |               |   | 1126         |  |               | 1112  |              |   | 996   |  |   | 975  



|(a) | Includes assets under administration or custody by CIBC Mellon Global Securities Services, a joint venture between the
Corporation and the Canadian Imperial Bank of Commerce, of $428 billion, $442 billion, $439 billion, $390 billion and $382 billion, respectively, and, by ABN AMRO Mellon Global Securities Services B.V., a joint venture between the Corporation and
ABN AMRO, of $320 billion, $312 billion, $299 billion, $272 billion and $262 billion, respectively. The market rate of exchange at the close of business was $.7454, $.7607, $.7750, $.7409 and $.7373, respectively, for one Canadian dollar. The market
rate of exchange at the close of business was $1.2163, $1.2313, $1.2610, $1.1669 and $1.1496, respectively, for one Euro.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Securities lending revenue



Securities lending revenue totaled $24 million in the second quarter of 2004 compared with $22 million in the second quarter of 2003 and $18 million in the first quarter
of 2004. The increase compared with the second quarter of 2003 primarily resulted from higher domestic volumes partially offset by narrower domestic and international margins in the historically low interest rate environment. The increase compared
with the first quarter of 2004 primarily resulted from higher seasonal international volumes and margins, which more than offset narrower domestic margins. The average level of securities on loan totaled $90 billion in the second quarter of 2004
compared with $67 billion in the second quarter of 2003 and $83 billion in the first quarter of 2004.



Cash management revenue



Cash
management fee revenue of $79 million in the second quarter of 2004 increased $8 million compared with the second quarter of 2003 and increased $1 million compared with the first quarter of 2004. The increase compared with the second quarter of 2003
resulted from a change in the manner in which the Corporation was paid for certain cash management and merchant card services by the Department of the Treasury, a major cash management customer, beginning in mid-July 2003. This revenue, which
totaled $11 million in the second quarter of 2004, previously would have been recorded as net interest revenue, because it was paid via



24



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##### Table of Contents

Noninterest revenue (continued)



compensating balance earnings. The decrease in cash management fee revenue, excluding the impact of this classification change, compared to the second
quarter of 2003 was primarily due to lower processing revenues.



Foreign
exchange trading revenue



Foreign exchange trading revenue totaled $50
million in the second quarter of 2004, a $22 million, or 82%, increase compared with the second quarter of 2003 and a $7 million, or 12% (unannualized), decrease compared with the first quarter of 2004. The increase compared with the prior year
period resulted in part from costs in the second quarter of 2003 associated with hedging specific customer-driven options contracts during a period of market volatility. The increase over the prior year period also related to higher client trading
volumes in the second quarter of 2004. The decrease compared with the first quarter of 2004 primarily resulted from slightly lower client volumes and lower volatility in key currencies.



Financing-related revenue



Financing-related revenue primarily includes loan commitment fees; letters of credit and acceptance fees; gains or losses on securitizations, loan sales and lease
residuals; and returns from corporate-owned life insurance. Financing-related revenue totaled $30 million in the second quarter of 2004, a decrease of $8 million compared with the second quarter of 2003 and a decrease of $5 million compared with the
first quarter of 2004 primarily reflecting lower death benefits and yields 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. The following table shows the components of equity investment revenue.



|                                                                       |  |               |   |               |                  |    |              |  |   |              |   |              |   |     |  |   |     |  
|---------------------------------------------------------------------- |  | ------------- | - | ------------- | ---------------- | -- | ------------ |  | - | ------------ | - | ------------ | - | --- |  | - | --- | -
|                                                                       |  | Quarter ended |   |               | Six months ended |   
|Equity investment revenue - gain (loss) (in
millions)                  |  | June 30,2004  |   | March 31,2004 |                  |    | June 30,2003 |  |   | June 30,2004 |   | June 30,2003 |  
|Venture capital activity - realized and unrealized gain (loss):        |  |               |   |               |                  |    |              |  |   |              |   |              |   |     |  |   |     |  
|Private and publicly held direct investments                           |  | $             |  |               | $                | 4  |              |  | $ | (5           | ) |              | $ | 4   |  | $ | 6   |  
|Third party indirect funds                                             |  |               | 8 |               |                  | (3 | )            |  |   | (8           | ) |              |   | 5   |  |   | (18 | )
|                                                                       |  |               |   |               |                  |    |              |  |   |              |   |              |   |     |  |   |     |  
|Total venture capital activity                                         |  |               | 8 |               |                  | 1  |              |  |   | (13          | ) |              |   | 9   |  |   | (12 | )
|Equity income (loss) and gains on the sale of other equity investments |  |               | 1 |               |                  | 97 |              |  |   | (5           | ) |              |   | 98  |  |   | (3  | )
|                                                                       |  |               |   |               |                  |    |              |  |   |              |   |              |   |     |  |   |     |  
|Total equity investment revenue                                        |  | $             | 9 |               | $                | 98 |              |  | $ | (18          | ) |              | $ | 107 |  | $ | (15 | )
|                                                                       |  |               |   |               |                  |    |              |  |   |              |   |              |   |     |  |   |     |  



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 negative valuation adjustments of private direct investments in technology companies. The $13 million of
venture capital losses in the second quarter of 2003 primarily resulted from $13 million of negative fair value adjustments and management fees for third party indirect funds across all sectors, partially offset by $5 million of realized gains from
third party indirect funds. The $5 million of losses from direct investments primarily resulted from a negative valuation adjustment of a telecommunication company in the technology sector. The first quarter of 2004 included the $93 million gain on
the sale of a portion of the Shinsei Bank non-venture capital indirect investment. The Corporations remaining book value of this investment is $49 million.



25



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##### Table of Contents

Noninterest revenue (continued)



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 both June 30, 2004 and March 31, 2004, approximately 60% of the direct investment portfolio was rated as superior or
meets expectations, the two best ratings. However, changing economic conditions and broader equity markets could result in valuation changes in the future. See the table on page 43 of this report for the second quarter 2004 and
life-to-date activity of the Corporations venture capital investment portfolio.



Other revenue



Other revenue totaled $19 million in the second
quarter of 2004, compared with $13 million in the second quarter of 2003 and $14 million in the first quarter of 2004. The increase compared with the prior year period primarily resulted from higher merchant card revenue, as the revenue earned from
the Department of the Treasury was recorded as net interest revenue prior to mid-July 2003. The increase compared with the first quarter of 2004 resulted from several factors, including a gain on the sale of assets and higher merchant card revenue.



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



Fee revenue for the first six months of 2004 totaled $2.033 billion, an increase of $346
million, or 20%, from $1.687 billion in the first six months of 2003. Excluding the $93 million gain from the sale of the indirect investment in Shinsei Bank, fee revenue increased 15% compared with the first six 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. The effect of foreign exchange rates accounted for $21 million of the increase in fee
revenue in the first six months of 2004, compared with the first six months of 2003, and is primarily reflected in trust and investment fee revenue. Trust and investment fee revenue increased $165 million, or 12%, primarily due to improved equity
markets, higher performance fees and higher institutional trust and custody revenue.



Gains on sales of securities



The gains on the sales of
securities of $8 million in the second quarter of 2004 primarily resulted from the sale of $106 million of preferred stock received as consideration for the disposition of commercial loans and commitments in late 2001.



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 $10 million, $10 million and $9 million, in the second quarter of 2004, second quarter of 2003 and first quarter of 2004, respectively, recorded primarily as trust and
investment fee revenue. The Corporations share of gross joint venture fee revenues 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.



26



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##### Table of Contents

Noninterest revenue (continued)



|                                                              |  |               |    |                  |   |              |  |              |    |              |   |     |  |   |    
|------------------------------------------------------------- |  | ------------- | -- | ---------------- | - | ------------ |  | ------------ | -- | ------------ | - | --- |  | - | ---
|                                                              |  | Quarter ended |    | Six months ended
|Gross joint venture fee revenue(a) (in millions, preliminary) |  | June 30,2004  |    | March 31,2004    |   | June 30,2003 |  | June 30,2004 |    | June 30,2003
|Trust and investment                                          |  | $             | 83 |                  | $ | 76           |  | $            | 77 |              | $ | 159 |  | $ | 142
|Foreign exchange trading                                      |  |               | 9  |                  |   | 12           |  |              | 8  |              |   | 21  |  |   | 13 
|                                                              |  |               |    |                  |   |              |  |              |    |              |   |     |  |   |    
|Total gross joint venture fee revenue                         |  | $             | 92 |                  | $ | 88           |  | $            | 85 |              | $ | 180 |  | $ | 155
|                                                              |  |               |    |                  |   |              |  |              |    |              |   |     |  |   |    



|(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 $123 million in the second quarter of 2004, a decrease of $44 million compared with $167 million in the second quarter of 2003 and an increase of $5
million compared with $118 million in the first quarter of 2004. The net interest margin was 2.24% in the second quarter of 2004, down 73 basis points compared with 2.97% in the second quarter of 2003 and up 7 basis points compared with 2.17% in the
first quarter of 2004. The decrease in net interest revenue compared with the second quarter of 2003 resulted in part 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, as well as the continued reduction in loans. The revenue from the Department of the Treasury, which totaled $17 million in the second quarter of 2004, was recorded as cash management fee revenue ($11 million) and other
revenue ($6 million). In the second quarter of 2003, such revenue was recorded as net interest revenue because it was paid via compensating balance earnings. Excluding the revenue earned from the Department of the Treasury, net interest revenue
would have been $144 million for the quarter ended June 30, 2003.



The increase
in net interest revenue compared with the first quarter of 2004 included recognition of $3 million of interest previously applied to principal, upon repayment of a loan to a California-based electric and natural gas utility company that had been on
nonperforming status as discussed on page 48, as well as a higher level of average securities.



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



Net interest revenue on a fully taxable equivalent basis totaled $241 million in the first six months of 2004 compared with $325 million in the first six months of 2003. The net interest margin was 2.20% in the first
six months of 2004 and 2.86% in the first six months of 2003. The decrease of $84 million and 66 basis points in net interest revenue and the net interest margin, respectively, was primarily due to the same factors that resulted in the decrease in
the second quarter of 2004 compared with the second quarter of 2003, as well as a lower level of higher coupon mortgage-backed securities.



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 remainder of 2004, quarterly net interest revenue is expected to range between $115 million and $120 million on a fully taxable equivalent basis,
assuming a gradual and measured increase in interest rates and allowing for tactical investment decisions.



27



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##### Table of Contents

Net interest revenue (continued)



CONSOLIDATED BALANCE SHEET  AVERAGE BALANCES AND INTEREST YIELDS/RATES



|                                                                   |  |                 |        |   |                      |      |   |                 |   |        |                      |  |      |                 |  |   |                      |     |  |       |  
|------------------------------------------------------------------ |  | --------------- | ------ | - | -------------------- | ---- | - | --------------- | - | ------ | -------------------- |  | ---- | --------------- |  | - | -------------------- | --- |  | ----- | -
|                                                                   |  | Quarter ended   |       
|                                                                   |  | June 30, 2004   |        |   | March 31, 2004       |      |   | June 30, 2003   |  
|(dollar amounts in millions)                                       |  | Average balance |        |   | Average yields/rates |      |   | Average balance |   |        | Average yields/rates |  |      | Average balance |  |   | Average yields/rates |    
|Assets                                                             |  |                 |        |   |                      |      |   |                 |   |        |                      |  |      |                 |  |   |                      |     |  |       |  
|Interest-earning assets:                                           |  |                 |        |   |                      |      |   |                 |   |        |                      |  |      |                 |  |   |                      |     |  |       |  
|Interest-bearing deposits with banks (primarily foreign)           |  | $               | 2,048  |   |                      | 2.87 | % |                 | $ | 2,319  |                      |  | 2.73 | %               |  | $ | 2,013                |     |  | 2.69  | %
|Federal funds sold and securities under resale agreements          |  |                 | 487    |   |                      | 1.10 |   |                 |   | 469    |                      |  | 1.05 |                 |  |   | 605                  |     |  | 1.29  |  
|Other money market investments                                     |  |                 | 168    |   |                      | 1.78 |   |                 |   | 198    |                      |  | 1.55 |                 |  |   | 147                  |     |  | 2.30  |  
|Trading account securities                                         |  |                 | 268    |   |                      | 2.09 |   |                 |   | 356    |                      |  | 2.47 |                 |  |   | 761                  |     |  | 4.71  |  
|Securities:                                                        |  |                 |        |   |                      |      |   |                 |   |        |                      |  |      |                 |  |   |                      |     |  |       |  
|U.S. Treasury and agency securities (a)                            |  |                 | 9,831  |   |                      | 3.65 |   |                 |   | 9,305  |                      |  | 3.66 |                 |  |   | 10,238               |     |  | 4.53  |  
|Obligations of states and political subdivisions (a)               |  |                 | 560    |   |                      | 7.26 |   |                 |   | 543    |                      |  | 7.35 |                 |  |   | 519                  |     |  | 6.83  |  
|Other (a)                                                          |  |                 | 1,322  |   |                      | 4.92 |   |                 |   | 1,124  |                      |  | 6.45 |                 |  |   | 687                  |     |  | 11.34 |  
|Loans, net of unearned discount                                    |  |                 | 7,491  |   |                      | 3.75 |   |                 |   | 7,489  |                      |  | 3.51 |                 |  |   | 7,915                |     |  | 3.84  |  
|                                                                   |  |                 |        |   |                      |      |   |                 |   |        |                      |  |      |                 |  |   |                      |     |  |       |  
|Total interest-earning assets                                      |  |                 | 22,175 |   |                      | 3.69 |   |                 |   | 21,803 |                      |  | 3.65 |                 |  |   | 22,885               | (b) |  | 4.63  |  
|Cash and due from banks                                            |  |                 | 2,601  |   |                      |      |   |                 |   | 2,503  |                      |  |      |                 |  |   | 2,181                |     |  |       |  
|Premises and equipment                                             |  |                 | 682    |   |                      |      |   |                 |   | 670    |                      |  |      |                 |  |   | 699                  |     |  |       |  
|Other assets                                                       |  |                 | 8,079  |   |                      |      |   |                 |   | 8,308  |                      |  |      |                 |  |   | 8,480                |     |  |       |  
|Reserve for loan losses                                            |  |                 | (94    | ) |                      |      |   |                 |   | (103   | )                    |  |      |                 |  |   | (117                 | )   |  |       |  
|                                                                   |  |                 |        |   |                      |      |   |                 |   |        |                      |  |      |                 |  |   |                      |     |  |       |  
|Total assets                                                       |  | $               | 33,443 |   |                      |      |   |                 | $ | 33,181 |                      |  |      |                 |  | $ | 34,128               |     |  |       |  
|                                                                   |  |                 |        |   |                      |      |   |                 |   |        |                      |  |      |                 |  |   |                      |     |  |       |  
|Liabilities and shareholders equity                               |  |                 |        |   |                      |      |   |                 |   |        |                      |  |      |                 |  |   |                      |     |  |       |  
|Interest-bearing liabilities:                                      |  |                 |        |   |                      |      |   |                 |   |        |                      |  |      |                 |  |   |                      |     |  |       |  
|Deposits in domestic offices:                                      |  |                 |        |   |                      |      |   |                 |   |        |                      |  |      |                 |  |   |                      |     |  |       |  
|Demand, money market and other savings accounts                    |  | $               | 7,583  |   |                      | 0.68 | % |                 | $ | 7,151  |                      |  | 0.69 | %               |  | $ | 6,308                |     |  | 0.93  | %
|Savings certificates                                               |  |                 | 218    |   |                      | 2.46 |   |                 |   | 240    |                      |  | 2.19 |                 |  |   | 240                  |     |  | 2.40  |  
|Other time deposits                                                |  |                 | 300    |   |                      | 1.45 |   |                 |   | 310    |                      |  | 1.29 |                 |  |   | 400                  |     |  | 1.46  |  
|Deposits in foreign offices                                        |  |                 | 4,760  |   |                      | 0.86 |   |                 |   | 4,865  |                      |  | 0.83 |                 |  |   | 4,550                |     |  | 1.17  |  
|                                                                   |  |                 |        |   |                      |      |   |                 |   |        |                      |  |      |                 |  |   |                      |     |  |       |  
|Total interest-bearing deposits                                    |  |                 | 12,861 |   |                      | 0.79 |   |                 |   | 12,566 |                      |  | 0.79 |                 |  |   | 11,498               |     |  | 1.07  |  
|Federal funds purchased and securities under repurchase agreements |  |                 | 1,478  |   |                      | 0.81 |   |                 |   | 1,476  |                      |  | 0.83 |                 |  |   | 2,515                |     |  | 1.16  |  
|U.S. Treasury tax and loan demand notes                            |  |                 | 338    |   |                      | 0.86 |   |                 |   | 414    |                      |  | 0.88 |                 |  |   | 597                  |     |  | 1.23  |  
|Commercial paper                                                   |  |                 | 10     |   |                      | 0.52 |   |                 |   | 25     |                      |  | 0.80 |                 |  |   | 16                   |     |  | 0.75  |  
|Other funds borrowed                                               |  |                 | 173    |   |                      | 9.23 |   |                 |   | 244    |                      |  | 7.81 |                 |  |   | 583                  |     |  | 6.76  |  
|Notes and debentures (with original maturities over one year)      |  |                 | 4,242  |   |                      | 3.20 |   |                 |   | 4,196  |                      |  | 3.25 |                 |  |   | 4,312                |     |  | 3.16  |  
|Junior subordinated debentures (c)                                 |  |                 | 1,011  |   |                      | 5.28 |   |                 |   | 1,026  |                      |  | 5.19 |                 |  |   |                     |     |  |      |  
|Trust-preferred securities(c)                                      |  |                 |       |   |                      |     |   |                 |   |       |                      |  |     |                 |  |   | 1,040                |     |  | 5.00  |  
|                                                                   |  |                 |        |   |                      |      |   |                 |   |        |                      |  |      |                 |  |   |                      |     |  |       |  
|Total interest-bearing liabilities                                 |  |                 | 20,113 |   |                      | 1.60 |   |                 |   | 19,947 |                      |  | 1.62 |                 |  |   | 20,561               |     |  | 1.88  |  
|Total noninterest-bearing deposits                                 |  |                 | 6,915  |   |                      |      |   |                 |   | 6,661  |                      |  |      |                 |  |   | 7,569                |     |  |       |  
|Other liabilities(a)                                               |  |                 | 2,619  |   |                      |      |   |                 |   | 2,831  |                      |  |      |                 |  |   | 2,582                |     |  |       |  
|                                                                   |  |                 |        |   |                      |      |   |                 |   |        |                      |  |      |                 |  |   |                      |     |  |       |  
|Total liabilities                                                  |  |                 | 29,647 |   |                      |      |   |                 |   | 29,439 |                      |  |      |                 |  |   | 30,712               |     |  |       |  
|Shareholders equity (a)                                           |  |                 | 3,796  |   |                      |      |   |                 |   | 3,742  |                      |  |      |                 |  |   | 3,416                |     |  |       |  
|                                                                   |  |                 |        |   |                      |      |   |                 |   |        |                      |  |      |                 |  |   |                      |     |  |       |  
|Total liabilities and shareholders equity                         |  | $               | 33,443 |   |                      |      |   |                 | $ | 33,181 |                      |  |      |                 |  | $ | 34,128               |     |  |       |  
|                                                                   |  |                 |        |   |                      |      |   |                 |   |        |                      |  |      |                 |  |   |                      |     |  |       |  
|Rates                                                              |  |                 |        |   |                      |      |   |                 |   |        |                      |  |      |                 |  |   |                      |     |  |       |  
|Yield on total interest-earning assets                             |  |                 |        |   |                      | 3.69 | % |                 |   |        |                      |  | 3.65 | %               |  |   |                      |     |  | 4.63  | %
|Cost of funds supporting interest-earning assets                   |  |                 |        |   |                      | 1.45 |   |                 |   |        |                      |  | 1.48 |                 |  |   |                      |     |  | 1.66  |  
|                                                                   |  |                 |        |   |                      |      |   |                 |   |        |                      |  |      |                 |  |   |                      |     |  |       |  
|Net interest margin (d):                                           |  |                 |        |   |                      |      |   |                 |   |        |                      |  |      |                 |  |   |                      |     |  |       |  
|Taxable equivalent basis                                           |  |                 |        |   |                      | 2.24 | % |                 |   |        |                      |  | 2.17 | %               |  |   |                      |     |  | 2.97  | %
|Without taxable equivalent increments                              |  |                 |        |   |                      | 2.16 |   |                 |   |        |                      |  | 2.09 |                 |  |   |                      |     |  | 2.91  |  



|(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 $3,753, $3,769 and $3,554, 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.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(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



|                                                                   |  |                  |        |   |                     |      |   |                 |   |        |                      |  |      |    
|------------------------------------------------------------------ |  | ---------------- | ------ | - | ------------------- | ---- | - | --------------- | - | ------ | -------------------- |  | ---- | ---
|                                                                   |  | Six months ended |       
|                                                                   |  | June 30, 2004    |        |   | June 30, 2003       |     
|(dollar amounts in millions)                                       |  | Average balance  |        |   | Averageyields/rates |      |   | Average balance |   |        | Average yields/rates | 
|Assets                                                             |  |                  |        |   |                     |      |   |                 |   |        |                      |  |      |    
|Interest-earning assets:                                           |  |                  |        |   |                     |      |   |                 |   |        |                      |  |      |    
|Interest-bearing deposits with banks (primarily foreign)           |  | $                | 2,183  |   |                     | 2.79 | % |                 | $ | 1,991  |                      |  | 2.74 | %  
|Federal funds sold and securities under resale agreements          |  |                  | 478    |   |                     | 1.08 |   |                 |   | 806    |                      |  | 1.29 |    
|Other money market investments                                     |  |                  | 183    |   |                     | 1.65 |   |                 |   | 146    |                      |  | 1.96 |    
|Trading account securities                                         |  |                  | 312    |   |                     | 2.30 |   |                 |   | 787    |                      |  | 4.48 |    
|Securities:                                                        |  |                  |        |   |                     |      |   |                 |   |        |                      |  |      |    
|U.S. Treasury and agency securities (a)                            |  |                  | 9,568  |   |                     | 3.65 |   |                 |   | 10,023 |                      |  | 4.53 |    
|Obligations of states and political subdivisions(a)                |  |                  | 552    |   |                     | 7.30 |   |                 |   | 512    |                      |  | 6.90 |    
|Other(a)                                                           |  |                  | 1,223  |   |                     | 5.62 |   |                 |   | 968    |                      |  | 9.72 |    
|Loans, net of unearned discount                                    |  |                  | 7,490  |   |                     | 3.63 |   |                 |   | 8,063  |                      |  | 3.92 |    
|                                                                   |  |                  |        |   |                     |      |   |                 |   |        |                      |  |      |    
|Total interest-earning assets                                      |  |                  | 21,989 |   |                     | 3.67 |   |                 |   | 23,296 | (b)                  |  | 4.50 |    
|Cash and due from banks                                            |  |                  | 2,552  |   |                     |      |   |                 |   | 2,252  |                      |  |      |    
|Premises and equipment                                             |  |                  | 676    |   |                     |      |   |                 |   | 701    |                      |  |      |    
|Other assets                                                       |  |                  | 8,193  |   |                     |      |   |                 |   | 8,473  |                      |  |      |    
|Reserve for loan losses                                            |  |                  | (98    | ) |                     |      |   |                 |   | (124   | )                    |  |      |    
|                                                                   |  |                  |        |   |                     |      |   |                 |   |        |                      |  |      |    
|Total assets                                                       |  | $                | 33,312 |   |                     |      |   |                 | $ | 34,598 |                      |  |      |    
|                                                                   |  |                  |        |   |                     |      |   |                 |   |        |                      |  |      |    
|Liabilities and shareholders equity                               |  |                  |        |   |                     |      |   |                 |   |        |                      |  |      |    
|Interest-bearing liabilities:                                      |  |                  |        |   |                     |      |   |                 |   |        |                      |  |      |    
|Deposits in domestic offices:                                      |  |                  |        |   |                     |      |   |                 |   |        |                      |  |      |    
|Demand, money market and other savings accounts                    |  | $                | 7,367  |   |                     | 0.68 | % |                 | $ | 6,181  |                      |  | 1.08 | %  
|Savings certificates                                               |  |                  | 229    |   |                     | 2.32 |   |                 |   | 238    |                      |  | 2.36 |    
|Other time deposits                                                |  |                  | 305    |   |                     | 1.37 |   |                 |   | 385    |                      |  | 1.60 |    
|Deposits in foreign offices                                        |  |                  | 4,813  |   |                     | 0.84 |   |                 |   | 4,094  |                      |  | 1.27 |    
|                                                                   |  |                  |        |   |                     |      |   |                 |   |        |                      |  |      |    
|Total interest-bearing deposits                                    |  |                  | 12,714 |   |                     | 0.79 |   |                 |   | 10,898 |                      |  | 1.19 |    
|Federal funds purchased and securities under repurchase agreements |  |                  | 1,477  |   |                     | 0.82 |   |                 |   | 1,753  |                      |  | 1.09 |    
|U.S. Treasury tax and loan demand notes                            |  |                  | 376    |   |                     | 0.87 |   |                 |   | 425    |                      |  | 1.23 |    
|Commercial paper                                                   |  |                  | 17     |   |                     | 0.72 |   |                 |   | 21     |                      |  | 0.76 |    
|Other funds borrowed                                               |  |                  | 208    |   |                     | 8.40 |   |                 |   | 614    |                      |  | 6.49 |    
|Notes and debentures (with original maturities over one year)      |  |                  | 4,219  |   |                     | 3.23 |   |                 |   | 4,370  |                      |  | 2.91 | (d)
|Junior subordinated debentures(c)                                  |  |                  | 1,019  |   |                     | 5.24 |   |                 |   |       |                      |  |      |    
|Trust-preferred securities(c)                                      |  |                  |       |   |                     |     |   |                 |   | 1,024  |                      |  | 6.43 | (d)
|                                                                   |  |                  |        |   |                     |      |   |                 |   |        |                      |  |      |    
|Total interest-bearing liabilities                                 |  |                  | 20,030 |   |                     | 1.61 |   |                 |   | 19,105 |                      |  | 2.03 |    
|Total noninterest-bearing deposits                                 |  |                  | 6,788  |   |                     |      |   |                 |   | 9,317  |                      |  |      |    
|Other liabilities(a)                                               |  |                  | 2,725  |   |                     |      |   |                 |   | 2,819  |                      |  |      |    
|                                                                   |  |                  |        |   |                     |      |   |                 |   |        |                      |  |      |    
|Total liabilities                                                  |  |                  | 29,543 |   |                     |      |   |                 |   | 31,241 |                      |  |      |    
|Shareholders equity(a)                                            |  |                  | 3,769  |   |                     |      |   |                 |   | 3,357  |                      |  |      |    
|                                                                   |  |                  |        |   |                     |      |   |                 |   |        |                      |  |      |    
|Total liabilities and shareholders equity                         |  | $                | 33,312 |   |                     |      |   |                 | $ | 34,598 |                      |  |      |    
|                                                                   |  |                  |        |   |                     |      |   |                 |   |        |                      |  |      |    
|Rates                                                              |  |                  |        |   |                     |      |   |                 |   |        |                      |  |      |    
|Yield on total interest-earning assets                             |  |                  |        |   |                     | 3.67 | % |                 |   |        |                      |  | 4.50 | %  
|Cost of funds supporting interest-earning assets                   |  |                  |        |   |                     | 1.47 |   |                 |   |        |                      |  | 1.64 |    
|                                                                   |  |                  |        |   |                     |      |   |                 |   |        |                      |  |      |    
|Net interest margin (e):                                           |  |                  |        |   |                     |      |   |                 |   |        |                      |  |      |    
|Taxable equivalent basis                                           |  |                  |        |   |                     | 2.20 | % |                 |   |        |                      |  | 2.86 | %  
|Without taxable equivalent increments                              |  |                  |        |   |                     | 2.12 |   |                 |   |        |                      |  | 2.80 |    



|(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 $3,761 and $3,483, 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.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(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 six months of 2003, while the rate paid on notes and debentures, excluding
the hedge results, would have been 3.23% for the first six 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



|                                                 |  |               |        |                  |   |               |  |               |        |               |   |        |  |   |       
|------------------------------------------------ |  | ------------- | ------ | ---------------- | - | ------------- |  | ------------- | ------ | ------------- | - | ------ |  | - | ------
|                                                 |  | Quarter ended |        | Six months ended
|Operating expense (dollar amounts in
millions)   |  | June 30, 2004 |        | March 31, 2004   |   | June 30, 2003 |  | June 30, 2004 |        | June 30, 2003
|Staff expense:                                   |  |               |        |                  |   |               |  |               |        |               |   |        |  |   |       
|Compensation                                     |  | $             | 319    |                  | $ | 316           |  | $             | 323    |               | $ | 635    |  | $ | 649   
|Incentive(a)                                     |  |               | 94     |                  |   | 105           |  |               | 76     |               |   | 199    |  |   | 140   
|Employee benefits                                |  |               | 68     |                  |   | 74            |  |               | 58     |               |   | 142    |  |   | 117   
|                                                 |  |               |        |                  |   |               |  |               |        |               |   |        |  |   |       
|Total staff expense                              |  | $             | 481    |                  | $ | 495           |  | $             | 457    |               | $ | 976    |  | $ | 906   
|Professional, legal and other purchased services |  |               | 110    |                  |   | 104           |  |               | 108    |               |   | 214    |  |   | 200   
|Net occupancy expense                            |  |               | 93     |                  |   | 68            |  |               | 65     |               |   | 161    |  |   | 129   
|Equipment expense                                |  |               | 53     |                  |   | 54            |  |               | 50     |               |   | 107    |  |   | 104   
|Business development                             |  |               | 26     |                  |   | 25            |  |               | 25     |               |   | 51     |  |   | 50    
|Communications expense                           |  |               | 27     |                  |   | 28            |  |               | 29     |               |   | 55     |  |   | 56    
|Amortization of intangible assets                |  |               | 4      |                  |   | 5             |  |               | 4      |               |   | 9      |  |   | 9     
|Other expense                                    |  |               | 34     |                  |   | 52            |  |               | 40     |               |   | 86     |  |   | 78    
|                                                 |  |               |        |                  |   |               |  |               |        |               |   |        |  |   |       
|Total operating expense                          |  | $             | 828    |                  | $ | 831           |  | $             | 778    |               | $ | 1,659  |  | $ | 1,532 
|                                                 |  |               |        |                  |   |               |  |               |        |               |   |        |  |   |       
|Employees at period-end                          |  |               | 20,300 |                  |   | 20,500        |  |               | 21,700 |               |   | 20,300 |  |   | 21,700
|                                                 |  |               |        |                  |   |               |  |               |        |               |   |        |  |   |       



|(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 $4
million in both the second quarter of 2004 and the first quarter of 2004 and less than $1 million in both the second quarter of 2003 and first six months of 2003. 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 58% of total operating expense in the second 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.).



Second quarter 2004 compared with second quarter
2003



Summary - Operating expense increased $50 million, or 6%,
compared with the second quarter of 2003. The second quarter of 2004 includes a $24 million charge related to vacating 10 leased locations in London and moving into the Corporations new European Headquarters. Nearly all of the charge was
recorded as occupancy expense in the table above. Excluding this charge, operating expense increased 3%. The effect of foreign exchange rates also accounted for $8 million of the increase in total operating expense, including $4 million in staff
expense.



30



---

##### Table of Contents

Operating expense (continued)



Staff expense -Staff expense in the second quarter of 2004 increased $24 million, or 5%, compared with the
second quarter of 2003, due to higher incentive expense primarily resulting from fee-based business growth and a $4 million increase in stock option expense, and higher employee benefits expense due to pensions. These increases were partially offset
by lower compensation expense despite the negative impact of the weaker dollar. Employee benefits expense included $3 million of pension expense in the second quarter of 2004 compared with a $7 million pension credit in the second quarter of 2003.
Severance expense, included in compensation expense, totaled $1 million in the second quarter of 2004 compared with $7 million in the second quarter of 2003. Severance expense of $54 million was recorded in 2003 for the planned reduction of
approximately 2,100 positions. The Corporation has utilized approximately $39 million of the severance accrual recorded, with the balance expected to be used by Dec. 31, 2004.



Other expenses -Other expenses in the second quarter of 2004 increased $26 million, or 8%, compared with the second quarter of 2003
reflecting the $24 million space consolidation charge in London. Excluding this charge, other expenses were virtually unchanged, as increases in support of business growth were partially offset by lower client reimbursable out-of-pocket expenses
which totaled $25 million in the second quarter of 2004 compared with $31 million in the second quarter of 2003, and lower operational error charges recorded in other expense.



Second quarter 2004 compared with first quarter 2004



Operating expense decreased $3 million in the second quarter of 2004 compared with the first quarter of 2004, reflecting a $14 million, or
2% (unannualized), decrease in staff expense partially offset by higher client reimbursable out-of-pocket expenses which totaled $25 million in the second quarter of 2004 compared with $21 million in the first quarter of 2004. In addition, the
second quarter of 2004 included the $24 million London space consolidation charge discussed previously, while the first quarter of 2004 included a 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. The decrease in staff expense primarily resulted from lower incentive expense reflecting a lower level of performance fees, and lower employee benefits expense reflecting lower
payroll taxes. Severance expense totaled $1 million in the second quarter of 2004 compared with $1 million in the first quarter of 2004.



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



Operating expense totaled $1.659 billion in the first six months of 2004, an increase of 8% compared with the prior-year period and included the $24 million and $19
million charges discussed above. Excluding these charges, operating expense increased $84 million, or 5%, primarily due to higher incentive and employee benefits expense. The effect of foreign exchange rates also accounted for $20 million of the
increase in total operating expense, including $10 million in staff expense.



Income taxes



The provision for income taxes from continuing
operations totaled $85 million in the second quarter of 2004 compared with $79 million in the second quarter of 2003 and $117 million in the first quarter of 2004. The Corporations effective tax rate on income from continuing operations was
approximately 32.5% for the second quarter of 2004, compared with approximately 31.5% for the second quarter of 2003.



31



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##### Table of Contents

Business sectors



|                                                                                                            |      |                              |     |      |              |   |      |                         |  |      |                      |   |      |   |     |      |  |   |      |   |  |      |     |   |      |   |     |      |  |   |      |   |  |      |     |   |  |   |     |   |  |   |     |   |  |   |     |  
|----------------------------------------------------------------------------------------------------------- | ---- | ---------------------------- | --- | ---- | ------------ | - | ---- | ----------------------- |  | ---- | -------------------- | - | ---- | - | --- | ---- |  | - | ---- | - |  | ---- | --- | - | ---- | - | --- | ---- |  | - | ---- | - |  | ---- | --- | - |  | - | --- | - |  | - | --- | - |  | - | --- | -
|Quarterly data (dollar amounts
in millions, averages inbillions; presented on an FTE basis)                 |      | InstitutionalAssetManagement |     |      | Mutual Funds |   |      | PrivateWealthManagement |  |      | TotalAssetManagement |  
|                                                                                                            | 2Q04 |                              |     | 1Q04 |              |   | 2Q03 |                         |  | 2Q04 |                      |   | 1Q04 |   |     | 2Q03 |  |   | 2Q04 |   |  | 1Q04 |     |   | 2Q03 |   |     | 2Q04 |  |   | 1Q04 |   |  | 2Q03 |    
|Revenue:                                                                                                    |      |                              |     |      |              |   |      |                         |  |      |                      |   |      |   |     |      |  |   |      |   |  |      |     |   |      |   |     |      |  |   |      |   |  |      |     |   |  |   |     |   |  |   |     |   |  |   |     |  
|Trust and investment fee revenue                                                                            |      | $                            | 189 |      |              | $ | 205  |                         |  | $    | 143                  |   |      | $ | 124 |      |  | $ | 122  |   |  | $    | 122 |   |      | $ | 78  |      |  | $ | 78   |   |  | $    | 69  |   |  | $ | 391 |   |  | $ | 405 |   |  | $ | 334 |  
|Other fee revenue                                                                                           |      |                              |    |      |              |   | 10   |                         |  |      | 3                    |   |      |   | (1  | )    |  |   | (1   | ) |  |      |    |   |      |   | 2   |      |  |   | 4    |   |  |      | 4   |   |  |   | 1   |   |  |   | 13  |   |  |   | 7   |  
|Net interest revenue (expense)                                                                              |      |                              | (4  | )    |              |   | (4   | )                       |  |      | (4                   | ) |      |   | (2  | )    |  |   | (1   | ) |  |      | (1  | ) |      |   | 55  |      |  |   | 52   |   |  |      | 59  |   |  |   | 49  |   |  |   | 47  |   |  |   | 54  |  
|                                                                                                            |      |                              |     |      |              |   |      |                         |  |      |                      |   |      |   |     |      |  |   |      |   |  |      |     |   |      |   |     |      |  |   |      |   |  |      |     |   |  |   |     |   |  |   |     |   |  |   |     |  
|Total revenue                                                                                               |      |                              | 185 |      |              |   | 211  |                         |  |      | 142                  |   |      |   | 121 |      |  |   | 120  |   |  |      | 121 |   |      |   | 135 |      |  |   | 134  |   |  |      | 132 |   |  |   | 441 |   |  |   | 465 |   |  |   | 395 |  
|Credit quality expense                                                                                      |      |                              |    |      |              |   |     |                         |  |      |                     |   |      |   |    |      |  |   |     |   |  |      |    |   |      |   | 1   |      |  |   |     |   |  |      |    |   |  |   | 1   |   |  |   |    |   |  |   |    |  
|Operating expense                                                                                           |      |                              | 135 |      |              |   | 144  |                         |  |      | 115                  |   |      |   | 77  |      |  |   | 77   |   |  |      | 79  |   |      |   | 78  |      |  |   | 77   |   |  |      | 73  |   |  |   | 290 |   |  |   | 298 |   |  |   | 267 |  
|                                                                                                            |      |                              |     |      |              |   |      |                         |  |      |                      |   |      |   |     |      |  |   |      |   |  |      |     |   |      |   |     |      |  |   |      |   |  |      |     |   |  |   |     |   |  |   |     |   |  |   |     |  
|Income (loss) from continuing operations before taxes (benefits) and cumulative effect of accounting change |      |                              | 50  |      |              |   | 67   |                         |  |      | 27                   |   |      |   | 44  |      |  |   | 43   |   |  |      | 42  |   |      |   | 56  |      |  |   | 57   |   |  |      | 59  |   |  |   | 150 |   |  |   | 167 |   |  |   | 128 |  
|Income taxes (benefits)                                                                                     |      |                              | 18  |      |              |   | 24   |                         |  |      | 10                   |   |      |   | 16  |      |  |   | 15   |   |  |      | 15  |   |      |   | 20  |      |  |   | 20   |   |  |      | 21  |   |  |   | 54  |   |  |   | 59  |   |  |   | 46  |  
|                                                                                                            |      |                              |     |      |              |   |      |                         |  |      |                      |   |      |   |     |      |  |   |      |   |  |      |     |   |      |   |     |      |  |   |      |   |  |      |     |   |  |   |     |   |  |   |     |   |  |   |     |  
|Income (loss) from continuing operations before cumulative effect of accounting change                      |      |                              | 32  |      |              |   | 43   |                         |  |      | 17                   |   |      |   | 28  |      |  |   | 28   |   |  |      | 27  |   |      |   | 36  |      |  |   | 37   |   |  |      | 38  |   |  |   | 96  |   |  |   | 108 |   |  |   | 82  |  
|Cumulative effect of accounting change (a)                                                                  |      |                              |    |      |              |   |     |                         |  |      |                     |   |      |   |    |      |  |   |     |   |  |      |    |   |      |   |    |      |  |   |     |   |  |      |    |   |  |   |    |   |  |   |    |   |  |   |    |  
|                                                                                                            |      |                              |     |      |              |   |      |                         |  |      |                      |   |      |   |     |      |  |   |      |   |  |      |     |   |      |   |     |      |  |   |      |   |  |      |     |   |  |   |     |   |  |   |     |   |  |   |     |  
|Income (loss) from continuing operations                                                                    |      |                              | 32  |      |              |   | 43   |                         |  |      | 17                   |   |      |   | 28  |      |  |   | 28   |   |  |      | 27  |   |      |   | 36  |      |  |   | 37   |   |  |      | 38  |   |  |   | 96  |   |  |   | 108 |   |  |   | 82  |  
|                                                                                                            |      |                              |     |      |              |   |      |                         |  |      |                      |   |      |   |     |      |  |   |      |   |  |      |     |   |      |   |     |      |  |   |      |   |  |      |     |   |  |   |     |   |  |   |     |   |  |   |     |  
|Income from discontinued operations after-tax (a)                                                           |      |                              |    |      |              |   |     |                         |  |      |                     |   |      |   |    |      |  |   |     |   |  |      |    |   |      |   |    |      |  |   |     |   |  |      |    |   |  |   |    |   |  |   |    |   |  |   |    |  
|Net income (loss)                                                                                           |      | $                            | 32  |      |              | $ | 43   |                         |  | $    | 17                   |   |      | $ | 28  |      |  | $ | 28   |   |  | $    | 27  |   |      | $ | 36  |      |  | $ | 37   |   |  | $    | 38  |   |  | $ | 96  |   |  | $ | 108 |   |  | $ | 82  |  
|Average loans                                                                                               |      | $                            |    |      |              | $ |     |                         |  | $    |                     |   |      | $ |    |      |  | $ |     |   |  | $    |    |   |      | $ | 3.4 |      |  | $ | 3.3  |   |  | $    | 2.8 |   |  | $ | 3.4 |   |  | $ | 3.3 |   |  | $ | 2.8 |  
|Average assets (b)                                                                                          |      | $                            | 1.5 |      |              | $ | 1.5  |                         |  | $    | 1.4                  |   |      | $ | 0.6 |      |  | $ | 0.5  |   |  | $    | 0.7 |   |      | $ | 6.2 |      |  | $ | 6.0  |   |  | $    | 5.5 |   |  | $ | 8.3 |   |  | $ | 8.0 |   |  | $ | 7.6 |  
|Average deposits                                                                                            |      | $                            |    |      |              | $ |     |                         |  | $    |                     |   |      | $ |    |      |  | $ |     |   |  | $    |    |   |      | $ | 5.3 |      |  | $ | 5.0  |   |  | $    | 4.6 |   |  | $ | 5.3 |   |  | $ | 5.0 |   |  | $ | 4.6 |  
|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 |  
|                                                                                                            |      |                              |     |      |              |   |      |                         |  |      |                      |   |      |   |     |      |  |   |      |   |  |      |     |   |      |   |     |      |  |   |      |   |  |      |     |   |  |   |     |   |  |   |     |   |  |   |     |  
|Return on common equity (c) (d)                                                                             |      |                              | 22  | %    |              |   | 30   | %                       |  |      | 15                   | % |      |   | 54  | %    |  |   | 51   | % |  |      | 47  | % |      |   | 30  | %    |  |   | 31   | % |  |      | 36  | % |  |   | 31  | % |  |   | 34  | % |  |   | 30  | %
|Pre-tax operating margin (c)                                                                                |      |                              | 27  | %    |              |   | 31   | %                       |  |      | 19                   | % |      |   | 36  | %    |  |   | 36   | % |  |      | 35  | % |      |   | 41  | %    |  |   | 43   | % |  |      | 45  | % |  |   | 34  | % |  |   | 36  | % |  |   | 32  | %
|Percentage of core sector revenue                                                                           |      |                              | 17  | %    |              |   | 20   | %                       |  |      | 14                   | % |      |   | 12  | %    |  |   | 11   | % |  |      | 12  | % |      |   | 13  | %    |  |   | 12   | % |  |      | 13  | % |  |   | 42  | % |  |   | 43  | % |  |   | 39  | %
|Percentage of core sector income before taxes                                                               |      |                              | 17  | %    |              |   | 22   | %                       |  |      | 10                   | % |      |   | 15  | %    |  |   | 14   | % |  |      | 16  | % |      |   | 19  | %    |  |   | 19   | % |  |      | 23  | % |  |   | 51  | % |  |   | 55  | % |  |   | 49  | %



|                                                                                                               |      |                              |     |      |              |   |      |                         |  |      |                       |   |      |   |     |      |  |   |      |   |  |      |     |   |  |   |     |   |  |   |     |  
|-------------------------------------------------------------------------------------------------------------- | ---- | ---------------------------- | --- | ---- | ------------ | - | ---- | ----------------------- |  | ---- | --------------------- | - | ---- | - | --- | ---- |  | - | ---- | - |  | ---- | --- | - |  | - | --- | - |  | - | --- | -
|For the six months ended June 30, (dollar amounts in millions, averages inbillions; presented on an FTE basis) |      | InstitutionalAssetManagement |     |      | Mutual Funds |   |      | PrivateWealthManagement |  |      | Total Assetmanagement |  
|                                                                                                               | 2004 |                              |     | 2003 |              |   | 2004 |                         |  | 2003 |                       |   | 2004 |   |     | 2003 |  |   | 2004 |   |  | 2003 |    
|Revenue:                                                                                                       |      |                              |     |      |              |   |      |                         |  |      |                       |   |      |   |     |      |  |   |      |   |  |      |     |   |  |   |     |   |  |   |     |  
|Trust and investment fee revenue                                                                               |      | $                            | 394 |      |              | $ | 265  |                         |  | $    | 246                   |   |      | $ | 246 |      |  | $ | 156  |   |  | $    | 139 |   |  | $ | 796 |   |  | $ | 650 |  
|Other fee revenue                                                                                              |      |                              | 10  |      |              |   | 7    |                         |  |      | (2                    | ) |      |   |    |      |  |   | 6    |   |  |      | 7   |   |  |   | 14  |   |  |   | 14  |  
|Net interest revenue (expense)                                                                                 |      |                              | (8  | )    |              |   | (8   | )                       |  |      | (3                    | ) |      |   | (3  | )    |  |   | 107  |   |  |      | 117 |   |  |   | 96  |   |  |   | 106 |  
|                                                                                                               |      |                              |     |      |              |   |      |                         |  |      |                       |   |      |   |     |      |  |   |      |   |  |      |     |   |  |   |     |   |  |   |     |  
|Total revenue                                                                                                  |      |                              | 396 |      |              |   | 264  |                         |  |      | 241                   |   |      |   | 243 |      |  |   | 269  |   |  |      | 263 |   |  |   | 906 |   |  |   | 770 |  
|Credit quality expense                                                                                         |      |                              |    |      |              |   |     |                         |  |      |                      |   |      |   |    |      |  |   | 1    |   |  |      |    |   |  |   | 1   |   |  |   |    |  
|Operating expense                                                                                              |      |                              | 279 |      |              |   | 229  |                         |  |      | 154                   |   |      |   | 156 |      |  |   | 155  |   |  |      | 141 |   |  |   | 588 |   |  |   | 526 |  
|                                                                                                               |      |                              |     |      |              |   |      |                         |  |      |                       |   |      |   |     |      |  |   |      |   |  |      |     |   |  |   |     |   |  |   |     |  
|Income from continuing operations before taxes (benefits) and cumulative effect of accounting change           |      |                              | 117 |      |              |   | 35   |                         |  |      | 87                    |   |      |   | 87  |      |  |   | 113  |   |  |      | 122 |   |  |   | 317 |   |  |   | 244 |  
|Income taxes (benefits)                                                                                        |      |                              | 42  |      |              |   | 13   |                         |  |      | 31                    |   |      |   | 31  |      |  |   | 40   |   |  |      | 43  |   |  |   | 113 |   |  |   | 87  |  
|                                                                                                               |      |                              |     |      |              |   |      |                         |  |      |                       |   |      |   |     |      |  |   |      |   |  |      |     |   |  |   |     |   |  |   |     |  
|Income (loss) from continuing operations before cumulative effect of accounting change                         |      |                              | 75  |      |              |   | 22   |                         |  |      | 56                    |   |      |   | 56  |      |  |   | 73   |   |  |      | 79  |   |  |   | 204 |   |  |   | 157 |  
|Cumulative effect of accounting change (a)                                                                     |      |                              |    |      |              |   |     |                         |  |      |                      |   |      |   |    |      |  |   |     |   |  |      |    |   |  |   |    |   |  |   |    |  
|                                                                                                               |      |                              |     |      |              |   |      |                         |  |      |                       |   |      |   |     |      |  |   |      |   |  |      |     |   |  |   |     |   |  |   |     |  
|Income (loss) from continuing operations                                                                       |      |                              | 75  |      |              |   | 22   |                         |  |      | 56                    |   |      |   | 56  |      |  |   | 73   |   |  |      | 79  |   |  |   | 204 |   |  |   | 157 |  
|Income from discontinued operations after-tax (a)                                                              |      |                              |    |      |              |   |     |                         |  |      |                      |   |      |   |    |      |  |   |     |   |  |      |    |   |  |   |    |   |  |   |    |  
|                                                                                                               |      |                              |     |      |              |   |      |                         |  |      |                       |   |      |   |     |      |  |   |      |   |  |      |     |   |  |   |     |   |  |   |     |  
|Net income (loss)                                                                                              |      | $                            | 75  |      |              | $ | 22   |                         |  | $    | 56                    |   |      | $ | 56  |      |  | $ | 73   |   |  | $    | 79  |   |  | $ | 204 |   |  | $ | 157 |  
|                                                                                                               |      |                              |     |      |              |   |      |                         |  |      |                       |   |      |   |     |      |  |   |      |   |  |      |     |   |  |   |     |   |  |   |     |  
|Average loans                                                                                                  |      | $                            |    |      |              | $ |     |                         |  | $    |                      |   |      | $ |    |      |  | $ | 3.3  |   |  | $    | 2.8 |   |  | $ | 3.3 |   |  | $ | 2.8 |  
|Average assets (b)                                                                                             |      | $                            | 1.5 |      |              | $ | 1.4  |                         |  | $    | 0.5                   |   |      | $ | 0.6 |      |  | $ | 6.1  |   |  | $    | 5.5 |   |  | $ | 8.1 |   |  | $ | 7.5 |  
|Average deposits                                                                                               |      | $                            |    |      |              | $ |     |                         |  | $    |                      |   |      | $ |    |      |  | $ | 5.2  |   |  | $    | 4.6 |   |  | $ | 5.2 |   |  | $ | 4.6 |  
|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 |  
|                                                                                                               |      |                              |     |      |              |   |      |                         |  |      |                       |   |      |   |     |      |  |   |      |   |  |      |     |   |  |   |     |   |  |   |     |  
|Return on common equity (c) (d)                                                                                |      |                              | 26  | %    |              |   | 10   | %                       |  |      | 52                    | % |      |   | 49  | %    |  |   | 31   | % |  |      | 37  | % |  |   | 32  | % |  |   | 28  | %
|Pre-tax operating margin(c)                                                                                    |      |                              | 29  | %    |              |   | 13   | %                       |  |      | 36                    | % |      |   | 36  | %    |  |   | 42   | % |  |      | 46  | % |  |   | 35  | % |  |   | 32  | %
|Percentage of core sector revenue                                                                              |      |                              | 18  | %    |              |   | 13   | %                       |  |      | 11                    | % |      |   | 12  | %    |  |   | 13   | % |  |      | 13  | % |  |   | 42  | % |  |   | 38  | %
|Percentage of core sector income before taxes                                                                  |      |                              | 19  | %    |              |   | 7    | %                       |  |      | 15                    | % |      |   | 17  | %    |  |   | 19   | % |  |      | 24  | % |  |   | 53  | % |  |   | 48  | %



|(a) | Income from discontinued operations for the second quarter of 2004, first quarter of 2004 and second quarter of 2003,
respectively, and the cumulative effect of accounting change recorded in the first quarter of 2003 have not been allocated to any of the Corporations reportable sectors.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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



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



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



32



---

##### Table of Contents

Business sectors (continued)



|                                                                                                            |      |                 |     |      |                                     |   |      |                   |  |      |                                          |   |      |   |     |      |  |   |      |   |  |      |     |    |      |   |     |      |  |   |      |   |  |      |      |   |  |   |      |   |  |   |      |   |  |   |      |  
|----------------------------------------------------------------------------------------------------------- | ---- | --------------- | --- | ---- | ----------------------------------- | - | ---- | ----------------- |  | ---- | ---------------------------------------- | - | ---- | - | --- | ---- |  | - | ---- | - |  | ---- | --- | -- | ---- | - | --- | ---- |  | - | ---- | - |  | ---- | ---- | - |  | - | ---- | - |  | - | ---- | - |  | - | ---- | -
|Quarterly data (dollar amounts
in millions, averages inbillions; presented on an FTE basis)                 |      | Asset Servicing |     |      | Human Resources &Investor Solutions |   |      | Treasury Services |  |      | Total Corporate & Institutional Services |  
|                                                                                                            | 2Q04 |                 |     | 1Q04 |                                     |   | 2Q03 |                   |  | 2Q04 |                                          |   | 1Q04 |   |     | 2Q03 |  |   | 2Q04 |   |  | 1Q04 |     |    | 2Q03 |   |     | 2Q04 |  |   | 1Q04 |   |  | 2Q03 |     
|Revenue:                                                                                                    |      |                 |     |      |                                     |   |      |                   |  |      |                                          |   |      |   |     |      |  |   |      |   |  |      |     |    |      |   |     |      |  |   |      |   |  |      |      |   |  |   |      |   |  |   |      |   |  |   |      |  
|Trust and investment fee revenue                                                                            |      | $               | 140 |      |                                     | $ | 138  |                   |  | $    | 127                                      |   |      | $ | 240 |      |  | $ | 242  |   |  | $    | 253 |    |      | $ | 2   |      |  | $ | 2    |   |  | $    | 3    |   |  | $ | 382  |   |  | $ | 382  |   |  | $ | 383  |  
|Other fee revenue                                                                                           |      |                 | 42  |      |                                     |   | 44   |                   |  |      | 21                                       |   |      |   | 1   |      |  |   |     |   |  |      | (2  | )  |      |   | 91  |      |  |   | 92   |   |  |      | 87   |   |  |   | 134  |   |  |   | 136  |   |  |   | 106  |  
|Net interest revenue (expense)                                                                              |      |                 | 18  |      |                                     |   | 14   |                   |  |      | 23                                       |   |      |   | 4   |      |  |   | 4    |   |  |      |    |    |      |   | 80  |      |  |   | 81   |   |  |      | 108  |   |  |   | 102  |   |  |   | 99   |   |  |   | 131  |  
|                                                                                                            |      |                 |     |      |                                     |   |      |                   |  |      |                                          |   |      |   |     |      |  |   |      |   |  |      |     |    |      |   |     |      |  |   |      |   |  |      |      |   |  |   |      |   |  |   |      |   |  |   |      |  
|Total revenue                                                                                               |      |                 | 200 |      |                                     |   | 196  |                   |  |      | 171                                      |   |      |   | 245 |      |  |   | 246  |   |  |      | 251 |    |      |   | 173 |      |  |   | 175  |   |  |      | 198  |   |  |   | 618  |   |  |   | 617  |   |  |   | 620  |  
|Credit quality expense                                                                                      |      |                 |    |      |                                     |   |     |                   |  |      |                                         |   |      |   |    |      |  |   |     |   |  |      |    |    |      |   | (1  | )    |  |   |     |   |  |      |     |   |  |   | (1   | ) |  |   |     |   |  |   |     |  
|Operating expense                                                                                           |      |                 | 143 |      |                                     |   | 145  |                   |  |      | 128                                      |   |      |   | 230 |      |  |   | 230  |   |  |      | 254 |    |      |   | 103 |      |  |   | 104  |   |  |      | 104  |   |  |   | 476  |   |  |   | 479  |   |  |   | 486  |  
|                                                                                                            |      |                 |     |      |                                     |   |      |                   |  |      |                                          |   |      |   |     |      |  |   |      |   |  |      |     |    |      |   |     |      |  |   |      |   |  |      |      |   |  |   |      |   |  |   |      |   |  |   |      |  
|Income (loss) from continuing operations before taxes (benefits) and cumulative effect of accounting change |      |                 | 57  |      |                                     |   | 51   |                   |  |      | 43                                       |   |      |   | 15  |      |  |   | 16   |   |  |      | (3  | )  |      |   | 71  |      |  |   | 71   |   |  |      | 94   |   |  |   | 143  |   |  |   | 138  |   |  |   | 134  |  
|Income taxes (benefits)                                                                                     |      |                 | 20  |      |                                     |   | 18   |                   |  |      | 15                                       |   |      |   | 5   |      |  |   | 6    |   |  |      | (2  | )  |      |   | 26  |      |  |   | 25   |   |  |      | 33   |   |  |   | 51   |   |  |   | 49   |   |  |   | 46   |  
|                                                                                                            |      |                 |     |      |                                     |   |      |                   |  |      |                                          |   |      |   |     |      |  |   |      |   |  |      |     |    |      |   |     |      |  |   |      |   |  |      |      |   |  |   |      |   |  |   |      |   |  |   |      |  
|Income (loss) from continuing operations before cumulative effect of accounting change                      |      |                 | 37  |      |                                     |   | 33   |                   |  |      | 28                                       |   |      |   | 10  |      |  |   | 10   |   |  |      | (1  | )  |      |   | 45  |      |  |   | 46   |   |  |      | 61   |   |  |   | 92   |   |  |   | 89   |   |  |   | 88   |  
|Cumulative effect of accounting change (a)                                                                  |      |                 |    |      |                                     |   |     |                   |  |      |                                         |   |      |   |    |      |  |   |     |   |  |      |    |    |      |   |    |      |  |   |     |   |  |      |     |   |  |   |     |   |  |   |     |   |  |   |     |  
|                                                                                                            |      |                 |     |      |                                     |   |      |                   |  |      |                                          |   |      |   |     |      |  |   |      |   |  |      |     |    |      |   |     |      |  |   |      |   |  |      |      |   |  |   |      |   |  |   |      |   |  |   |      |  
|Income (loss) from continuing operations                                                                    |      |                 | 37  |      |                                     |   | 33   |                   |  |      | 28                                       |   |      |   | 10  |      |  |   | 10   |   |  |      | (1  | )  |      |   | 45  |      |  |   | 46   |   |  |      | 61   |   |  |   | 92   |   |  |   | 89   |   |  |   | 88   |  
|Income from discontinued operations after-tax (a)                                                           |      |                 |    |      |                                     |   |     |                   |  |      |                                         |   |      |   |    |      |  |   |     |   |  |      |    |    |      |   |    |      |  |   |     |   |  |      |     |   |  |   |     |   |  |   |     |   |  |   |     |  
|                                                                                                            |      |                 |     |      |                                     |   |      |                   |  |      |                                          |   |      |   |     |      |  |   |      |   |  |      |     |    |      |   |     |      |  |   |      |   |  |      |      |   |  |   |      |   |  |   |      |   |  |   |      |  
|Net income (loss)                                                                                           |      | $               | 37  |      |                                     | $ | 33   |                   |  | $    | 28                                       |   |      | $ | 10  |      |  | $ | 10   |   |  | $    | (1  | )  |      | $ | 45  |      |  | $ | 46   |   |  | $    | 61   |   |  | $ | 92   |   |  | $ | 89   |   |  | $ | 88   |  
|                                                                                                            |      |                 |     |      |                                     |   |      |                   |  |      |                                          |   |      |   |     |      |  |   |      |   |  |      |     |    |      |   |     |      |  |   |      |   |  |      |      |   |  |   |      |   |  |   |      |   |  |   |      |  
|Average loans                                                                                               |      | $               | 0.1 |      |                                     | $ | 0.1  |                   |  | $    | 0.1                                      |   |      | $ |    |      |  | $ |     |   |  | $    |    |    |      | $ | 3.1 |      |  | $ | 3.1  |   |  | $    | 3.7  |   |  | $ | 3.2  |   |  | $ | 3.2  |   |  | $ | 3.8  |  
|Average assets (b)                                                                                          |      | $               | 6.8 |      |                                     | $ | 7.1  |                   |  | $    | 5.7                                      |   |      | $ | 1.4 |      |  | $ | 1.4  |   |  | $    | 1.7 |    |      | $ | 9.3 |      |  | $ | 9.0  |   |  | $    | 10.1 |   |  | $ | 17.5 |   |  | $ | 17.5 |   |  | $ | 17.5 |  
|Average deposits                                                                                            |      | $               | 5.4 |      |                                     | $ | 5.5  |                   |  | $    | 4.2                                      |   |      | $ | 0.8 |      |  | $ | 0.7  |   |  | $    | 0.3 |    |      | $ | 7.7 |      |  | $ | 7.4  |   |  | $    | 8.5  |   |  | $ | 13.9 |   |  | $ | 13.6 |   |  | $ | 13.0 |  
|Average common equity                                                                                       |      | $               | 0.6 |      |                                     | $ | 0.6  |                   |  | $    | 0.6                                      |   |      | $ | 0.3 |      |  | $ | 0.4  |   |  | $    | 0.4 |    |      | $ | 1.0 |      |  | $ | 1.0  |   |  | $    | 1.1  |   |  | $ | 1.9  |   |  | $ | 2.0  |   |  | $ | 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  |  
|                                                                                                            |      |                 |     |      |                                     |   |      |                   |  |      |                                          |   |      |   |     |      |  |   |      |   |  |      |     |    |      |   |     |      |  |   |      |   |  |      |      |   |  |   |      |   |  |   |      |   |  |   |      |  
|Return on common equity (c) (d)                                                                             |      |                 | 25  | %    |                                     |   | 22   | %                 |  |      | 19                                       | % |      |   | 10  | %    |  |   | 11   | % |  |      |    | %  |      |   | 18  | %    |  |   | 18   | % |  |      | 22   | % |  |   | 19   | % |  |   | 18   | % |  |   | 17   | %
|Pre-tax operating margin (c)                                                                                |      |                 | 29  | %    |                                     |   | 26   | %                 |  |      | 25                                       | % |      |   | 6   | %    |  |   | 7    | % |  |      | (1  | )% |      |   | 41  | %    |  |   | 41   | % |  |      | 47   | % |  |   | 23   | % |  |   | 22   | % |  |   | 22   | %
|Percentage of core sector revenue                                                                           |      |                 | 19  | %    |                                     |   | 18   | %                 |  |      | 17                                       | % |      |   | 23  | %    |  |   | 23   | % |  |      | 25  | %  |      |   | 16  | %    |  |   | 16   | % |  |      | 19   | % |  |   | 58   | % |  |   | 57   | % |  |   | 61   | %
|Percentage of core sector income before taxes                                                               |      |                 | 20  | %    |                                     |   | 17   | %                 |  |      | 16                                       | % |      |   | 5   | %    |  |   | 5    | % |  |      | (1  | )% |      |   | 24  | %    |  |   | 23   | % |  |      | 36   | % |  |   | 49   | % |  |   | 45   | % |  |   | 51   | %



|                                                                                                            |  |                |     |   |                                   |   |     |                  |  |   |                                        |   |  |      |     |   |      |   |     |      |  |   |      |   |  |   |       |   |  |   |       |  
|----------------------------------------------------------------------------------------------------------- |  | -------------- | --- | - | --------------------------------- | - | --- | ---------------- |  | - | -------------------------------------- | - |  | ---- | --- | - | ---- | - | --- | ---- |  | - | ---- | - |  | - | ----- | - |  | - | ----- | -
|For the six months ended June 30,                                                                           |  | AssetServicing |     |   | HumanResources &InvestorSolutions |   |     | TreasuryServices |  |   | Total Corporate &InstitutionalServices |  
|(dollar amounts in millions, averages inbillions; presented on an FTE basis)                                |  | 2004           |     |   | 2003                              |   |     | 2004             |  |   | 2003                                   |   |  | 2004 |     |   | 2003 |   |     | 2004 |  |   | 2003 |  
|Revenue:                                                                                                    |  |                |     |   |                                   |   |     |                  |  |   |                                        |   |  |      |     |   |      |   |     |      |  |   |      |   |  |   |       |   |  |   |       |  
|Trust and investment fee revenue                                                                            |  | $              | 278 |   |                                   | $ | 243 |                  |  | $ | 482                                    |   |  | $    | 501 |   |      | $ | 4   |      |  | $ | 5    |   |  | $ | 764   |   |  | $ | 749   |  
|Other fee revenue                                                                                           |  |                | 86  |   |                                   |   | 54  |                  |  |   | 1                                      |   |  |      | (2  | ) |      |   | 183 |      |  |   | 174  |   |  |   | 270   |   |  |   | 226   |  
|Net interest revenue (expense)                                                                              |  |                | 32  |   |                                   |   | 43  |                  |  |   | 8                                      |   |  |      | (4  | ) |      |   | 161 |      |  |   | 217  |   |  |   | 201   |   |  |   | 256   |  
|                                                                                                            |  |                |     |   |                                   |   |     |                  |  |   |                                        |   |  |      |     |   |      |   |     |      |  |   |      |   |  |   |       |   |  |   |       |  
|Total revenue                                                                                               |  |                | 396 |   |                                   |   | 340 |                  |  |   | 491                                    |   |  |      | 495 |   |      |   | 348 |      |  |   | 396  |   |  |   | 1,235 |   |  |   | 1,231 |  
|Credit quality expense                                                                                      |  |                |    |   |                                   |   |    |                  |  |   |                                       |   |  |      |    |   |      |   | (1  | )    |  |   | 4    |   |  |   | (1    | ) |  |   | 4     |  
|Operating expense                                                                                           |  |                | 288 |   |                                   |   | 256 |                  |  |   | 460                                    |   |  |      | 497 |   |      |   | 207 |      |  |   | 210  |   |  |   | 955   |   |  |   | 963   |  
|                                                                                                            |  |                |     |   |                                   |   |     |                  |  |   |                                        |   |  |      |     |   |      |   |     |      |  |   |      |   |  |   |       |   |  |   |       |  
|Income (loss) from continuing operations before taxes (benefits) and cumulative effect of accounting change |  |                | 108 |   |                                   |   | 84  |                  |  |   | 31                                     |   |  |      | (2  | ) |      |   | 142 |      |  |   | 182  |   |  |   | 281   |   |  |   | 264   |  
|Income taxes (benefits)                                                                                     |  |                | 38  |   |                                   |   | 30  |                  |  |   | 11                                     |   |  |      | (2  | ) |      |   | 51  |      |  |   | 64   |   |  |   | 100   |   |  |   | 92    |  
|                                                                                                            |  |                |     |   |                                   |   |     |                  |  |   |                                        |   |  |      |     |   |      |   |     |      |  |   |      |   |  |   |       |   |  |   |       |  
|Income (loss) from continuing operations before cumulative effect of accounting change                      |  |                | 70  |   |                                   |   | 54  |                  |  |   | 20                                     |   |  |      |    |   |      |   | 91  |      |  |   | 118  |   |  |   | 181   |   |  |   | 172   |  
|Cumulative effect of accounting change (a)                                                                  |  |                |    |   |                                   |   |    |                  |  |   |                                       |   |  |      |    |   |      |   |    |      |  |   |     |   |  |   |      |   |  |   |      |  
|                                                                                                            |  |                |     |   |                                   |   |     |                  |  |   |                                        |   |  |      |     |   |      |   |     |      |  |   |      |   |  |   |       |   |  |   |       |  
|Income (loss) from continuing operations                                                                    |  |                | 70  |   |                                   |   | 54  |                  |  |   | 20                                     |   |  |      |    |   |      |   | 91  |      |  |   | 118  |   |  |   | 181   |   |  |   | 172   |  
|Income from discontinued operations after-tax (a)                                                           |  |                |    |   |                                   |   |    |                  |  |   |                                       |   |  |      |    |   |      |   |    |      |  |   |     |   |  |   |      |   |  |   |      |  
|                                                                                                            |  |                |     |   |                                   |   |     |                  |  |   |                                        |   |  |      |     |   |      |   |     |      |  |   |      |   |  |   |       |   |  |   |       |  
|Net income (loss)                                                                                           |  | $              | 70  |   |                                   | $ | 54  |                  |  | $ | 20                                     |   |  | $    |    |   |      | $ | 91  |      |  | $ | 118  |   |  | $ | 181   |   |  | $ | 172   |  
|                                                                                                            |  |                |     |   |                                   |   |     |                  |  |   |                                        |   |  |      |     |   |      |   |     |      |  |   |      |   |  |   |       |   |  |   |       |  
|Average loans                                                                                               |  | $              | 0.1 |   |                                   | $ |    |                  |  | $ |                                       |   |  | $    |    |   |      | $ | 3.1 |      |  | $ | 3.9  |   |  | $ | 3.2   |   |  | $ | 3.9   |  
|Average assets (b)                                                                                          |  | $              | 7.0 |   |                                   | $ | 5.6 |                  |  | $ | 1.4                                    |   |  | $    | 1.7 |   |      | $ | 9.1 |      |  | $ | 12.0 |   |  | $ | 17.5  |   |  | $ | 19.3  |  
|Average deposits                                                                                            |  | $              | 5.4 |   |                                   | $ | 3.8 |                  |  | $ | 0.7                                    |   |  | $    | 0.2 |   |      | $ | 7.6 |      |  | $ | 10.4 |   |  | $ | 13.7  |   |  | $ | 14.4  |  
|Average common equity                                                                                       |  | $              | 0.6 |   |                                   | $ | 0.5 |                  |  | $ | 0.4                                    |   |  | $    | 0.4 |   |      | $ | 1.0 |      |  | $ | 1.2  |   |  | $ | 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   |  
|                                                                                                            |  |                |     |   |                                   |   |     |                  |  |   |                                        |   |  |      |     |   |      |   |     |      |  |   |      |   |  |   |       |   |  |   |       |  
|Return on common equity (c) (d)                                                                             |  |                | 23  | % |                                   |   | 20  | %                |  |   | 11                                     | % |  |      |    | % |      |   | 18  | %    |  |   | 21   | % |  |   | 18    | % |  |   | 16    | %
|Pre-tax operating margin (c)                                                                                |  |                | 27  | % |                                   |   | 25  | %                |  |   | 6                                      | % |  |      |    | % |      |   | 41  | %    |  |   | 46   | % |  |   | 23    | % |  |   | 21    | %
|Percentage of core sector revenue                                                                           |  |                | 19  | % |                                   |   | 17  | %                |  |   | 23                                     | % |  |      | 25  | % |      |   | 16  | %    |  |   | 20   | % |  |   | 58    | % |  |   | 62    | %
|Percentage of core sector income before taxes                                                               |  |                | 18  | % |                                   |   | 16  | %                |  |   | 5                                      | % |  |      |    | % |      |   | 24  | %    |  |   | 36   | % |  |   | 47    | % |  |   | 52    | %



|(a) | Income from discontinued operations for the second quarter of 2004, first quarter of 2004 and second quarter of 2003,
respectively, and the cumulative effect of accounting change recorded in the first quarter of 2003 have not been allocated to any of the Corporations reportable sectors.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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



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



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



33



---

##### Table of Contents

Business sectors (continued)



|                                                                                                            |      |                    |       |      |                |   |       |                      |  |      |       |   |      |   |     |      |  |   |      |   |  |      |     |   |      |   |       |   |  |   |       |   |  |   |       |  
|----------------------------------------------------------------------------------------------------------- | ---- | ------------------ | ----- | ---- | -------------- | - | ----- | -------------------- |  | ---- | ----- | - | ---- | - | --- | ---- |  | - | ---- | - |  | ---- | --- | - | ---- | - | ----- | - |  | - | ----- | - |  | - | ----- | -
|Quarterly data (dollar amounts
in millions, averages in billions; presented on an FTE basis)                |      | Total Core Sectors |       |      | Other Activity |   |       | Consolidated Results | 
|                                                                                                            | 2Q04 |                    |       | 1Q04 |                |   | 2Q03  |                      |  | 2Q04 |       |   | 1Q04 |   |     | 2Q03 |  |   | 2Q04 |   |  | 1Q04 |     |   | 2Q03 |  
|Revenue:                                                                                                    |      |                    |       |      |                |   |       |                      |  |      |       |   |      |   |     |      |  |   |      |   |  |      |     |   |      |   |       |   |  |   |       |   |  |   |       |  
|Trust and investment fee revenue                                                                            |      | $                  | 773   |      |                | $ | 787   |                      |  | $    | 717   |   |      | $ | 2   |      |  | $ | 2    |   |  | $    |    |   |      | $ | 775   |   |  | $ | 789   |   |  | $ | 717   |  
|Other fee revenue (a)                                                                                       |      |                    | 135   |      |                |   | 149   |                      |  |      | 113   |   |      |   | 70  |      |  |   | 145  |   |  |      | 52  |   |      |   | 205   |   |  |   | 294   |   |  |   | 165   |  
|Net interest revenue (expense) (b)                                                                          |      |                    | 151   |      |                |   | 146   |                      |  |      | 185   |   |      |   | (28 | )    |  |   | (28  | ) |  |      | (18 | ) |      |   | 123   |   |  |   | 118   |   |  |   | 167   |  
|                                                                                                            |      |                    |       |      |                |   |       |                      |  |      |       |   |      |   |     |      |  |   |      |   |  |      |     |   |      |   |       |   |  |   |       |   |  |   |       |  
|Total revenue                                                                                               |      |                    | 1,059 |      |                |   | 1,082 |                      |  |      | 1,015 |   |      |   | 44  |      |  |   | 119  |   |  |      | 34  |   |      |   | 1,103 |   |  |   | 1,201 |   |  |   | 1,049 |  
|Credit quality expense                                                                                      |      |                    |      |      |                |   |      |                      |  |      |      |   |      |   |    |      |  |   | (7   | ) |  |      | 3   |   |      |   |      |   |  |   | (7    | ) |  |   | 3     |  
|Operating expense                                                                                           |      |                    | 766   |      |                |   | 777   |                      |  |      | 753   |   |      |   | 62  |      |  |   | 54   |   |  |      | 25  |   |      |   | 828   |   |  |   | 831   |   |  |   | 778   |  
|                                                                                                            |      |                    |       |      |                |   |       |                      |  |      |       |   |      |   |     |      |  |   |      |   |  |      |     |   |      |   |       |   |  |   |       |   |  |   |       |  
|Income (loss) from continuing operations before taxes (benefits) and cumulative effect of accounting change |      |                    | 293   |      |                |   | 305   |                      |  |      | 262   |   |      |   | (18 | )    |  |   | 72   |   |  |      | 6   |   |      |   | 275   |   |  |   | 377   |   |  |   | 268   |  
|Income taxes (benefits) (c)                                                                                 |      |                    | 105   |      |                |   | 108   |                      |  |      | 92    |   |      |   | (6  | )    |  |   | 25   |   |  |      | 3   |   |      |   | 99    |   |  |   | 133   |   |  |   | 95    |  
|                                                                                                            |      |                    |       |      |                |   |       |                      |  |      |       |   |      |   |     |      |  |   |      |   |  |      |     |   |      |   |       |   |  |   |       |   |  |   |       |  
|Income (loss) from continuing operations before cumulative effect of accounting change                      |      |                    | 188   |      |                |   | 197   |                      |  |      | 170   |   |      |   | (12 | )    |  |   | 47   |   |  |      | 3   |   |      |   | 176   |   |  |   | 244   |   |  |   | 173   |  
|Cumulative effect of accounting change (d)                                                                  |      |                    |      |      |                |   |      |                      |  |      |      |   |      |   |    |      |  |   |     |   |  |      |    |   |      |   |      |   |  |   |      |   |  |   |      |  
|                                                                                                            |      |                    |       |      |                |   |       |                      |  |      |       |   |      |   |     |      |  |   |      |   |  |      |     |   |      |   |       |   |  |   |       |   |  |   |       |  
|Income (loss) from continuing operations                                                                    |      |                    | 188   |      |                |   | 197   |                      |  |      | 170   |   |      |   | (12 | )    |  |   | 47   |   |  |      | 3   |   |      |   | 176   |   |  |   | 244   |   |  |   | 173   |  
|Income from discontinued operations after-tax (d)                                                           |      |                    |      |      |                |   |      |                      |  |      |      |   |      |   |    |      |  |   |     |   |  |      |    |   |      |   |      |   |  |   | 1     |   |  |   | 2     |  
|                                                                                                            |      |                    |       |      |                |   |       |                      |  |      |       |   |      |   |     |      |  |   |      |   |  |      |     |   |      |   |       |   |  |   |       |   |  |   |       |  
|Net income (loss)                                                                                           |      | $                  | 188   |      |                | $ | 197   |                      |  | $    | 170   |   |      | $ | (12 | )    |  | $ | 47   |   |  | $    | 3   |   |      | $ | 176   |   |  | $ | 245   |   |  | $ | 175   |  
|                                                                                                            |      |                    |       |      |                |   |       |                      |  |      |       |   |      |   |     |      |  |   |      |   |  |      |     |   |      |   |       |   |  |   |       |   |  |   |       |  
|Average loans                                                                                               |      | $                  | 6.6   |      |                | $ | 6.5   |                      |  | $    | 6.6   |   |      | $ | 0.9 |      |  | $ | 1.0  |   |  | $    | 1.3 |   |      | $ | 7.5   |   |  | $ | 7.5   |   |  | $ | 7.9   |  
|Average assets (e)                                                                                          |      | $                  | 25.8  |      |                | $ | 25.5  |                      |  | $    | 25.1  |   |      | $ | 7.6 |      |  | $ | 7.7  |   |  | $    | 8.8 |   |      | $ | 33.4  |   |  | $ | 33.2  |   |  | $ | 34.3  |  
|Average deposits                                                                                            |      | $                  | 19.2  |      |                | $ | 18.6  |                      |  | $    | 17.6  |   |      | $ | 0.6 |      |  | $ | 0.6  |   |  | $    | 1.5 |   |      | $ | 19.8  |   |  | $ | 19.2  |   |  | $ | 19.1  |  
|Average common equity                                                                                       |      | $                  | 3.2   |      |                | $ | 3.3   |                      |  | $    | 3.2   |   |      | $ | 0.5 |      |  | $ | 0.5  |   |  | $    | 0.4 |   |      | $ | 3.7   |   |  | $ | 3.8   |   |  | $ | 3.6   |  
|Average Tier I preferred equity                                                                             |      | $                  | 1.0   |      |                | $ | 1.0   |                      |  | $    | 1.0   |   |      | $ |    |      |  | $ |     |   |  | $    |    |   |      | $ | 1.0   |   |  | $ | 1.0   |   |  | $ | 1.0   |  
|                                                                                                            |      |                    |       |      |                |   |       |                      |  |      |       |   |      |   |     |      |  |   |      |   |  |      |     |   |      |   |       |   |  |   |       |   |  |   |       |  
|Return on common equity (f) (g)                                                                             |      |                    | 23    | %    |                |   | 24    | %                    |  |      | 21    | % |      |   | N/M |      |  |   | N/M  |   |  |      | N/M |   |      |   | 19    | % |  |   | 26    | % |  |   | 20    | %
|Pre-tax operating margin (f)                                                                                |      |                    | 28    | %    |                |   | 28    | %                    |  |      | 26    | % |      |   | N/M |      |  |   | N/M  |   |  |      | N/M |   |      |   | 25    | % |  |   | 31    | % |  |   | 25    | %



|                                                                                                               |      |                    |       |      |                |   |       |                     |  |      |     |   |      |   |     |      |  |   |       |   |  |   |       |      
|-------------------------------------------------------------------------------------------------------------- | ---- | ------------------ | ----- | ---- | -------------- | - | ----- | ------------------- |  | ---- | --- | - | ---- | - | --- | ---- |  | - | ----- | - |  | - | ----- | -----
|For the six months ended June 30, (dollar amounts in millions, averages inbillions; presented on an FTE basis) |      | Total Core Sectors |       |      | Other Activity |   |       | ConsolidatedResults | 
|                                                                                                               | 2004 |                    |       | 2003 |                |   | 2004  |                     |  | 2003 |     |   | 2004 |   |     | 2003 | 
|Revenue:                                                                                                       |      |                    |       |      |                |   |       |                     |  |      |     |   |      |   |     |      |  |   |       |   |  |   |       |      
|Trust and investment fee revenue                                                                               |      | $                  | 1,560 |      |                | $ | 1,399 |                     |  | $    | 4   |   |      | $ |    |      |  | $ | 1,564 |   |  | $ | 1,399 |      
|Other fee revenue (a)                                                                                          |      |                    | 284   |      |                |   | 240   |                     |  |      | 215 |   |      |   | 101 |      |  |   | 499   |   |  |   | 341   |      
|Net interest revenue (expense) (b)                                                                             |      |                    | 297   |      |                |   | 362   |                     |  |      | (56 | ) |      |   | (37 | )    |  |   | 241   |   |  |   | 325   |      
|                                                                                                               |      |                    |       |      |                |   |       |                     |  |      |     |   |      |   |     |      |  |   |       |   |  |   |       |      
|Total revenue                                                                                                  |      |                    | 2,141 |      |                |   | 2,001 |                     |  |      | 163 |   |      |   | 64  |      |  |   | 2,304 |   |  |   | 2,065 |      
|Credit quality expense                                                                                         |      |                    |      |      |                |   | 4     |                     |  |      | (7  | ) |      |   | 3   |      |  |   | (7    | ) |  |   | 7     |      
|Operating expense                                                                                              |      |                    | 1,543 |      |                |   | 1,489 |                     |  |      | 116 |   |      |   | 43  |      |  |   | 1,659 |   |  |   | 1,532 |      
|                                                                                                               |      |                    |       |      |                |   |       |                     |  |      |     |   |      |   |     |      |  |   |       |   |  |   |       |      
|Income from continuing operations before taxes (benefits) and cumulative effect of accounting change           |      |                    | 598   |      |                |   | 508   |                     |  |      | 54  |   |      |   | 18  |      |  |   | 652   |   |  |   | 526   |      
|Income taxes (benefits) (c)                                                                                    |      |                    | 213   |      |                |   | 179   |                     |  |      | 19  |   |      |   | 8   |      |  |   | 232   |   |  |   | 187   |      
|                                                                                                               |      |                    |       |      |                |   |       |                     |  |      |     |   |      |   |     |      |  |   |       |   |  |   |       |      
|Income (loss) from continuing operations before cumulative effect of accounting change                         |      |                    | 385   |      |                |   | 329   |                     |  |      | 35  |   |      |   | 10  |      |  |   | 420   |   |  |   | 339   |      
|Cumulative effect of accounting change (d)                                                                     |      |                    |      |      |                |   |      |                     |  |      |    |   |      |   | (7  | )    |  |   |      |   |  |   | (7    | )    
|                                                                                                               |      |                    |       |      |                |   |       |                     |  |      |     |   |      |   |     |      |  |   |       |   |  |   |       |      
|Income (loss) from continuing operations                                                                       |      |                    | 385   |      |                |   | 329   |                     |  |      | 35  |   |      |   | 3   |      |  |   | 420   |   |  |   | 332   |      
|Income from discontinued operations after-tax (d)                                                              |      |                    |      |      |                |   |      |                     |  |      |    |   |      |   |    |      |  |   | 1     |   |  |   | 4     |      
|                                                                                                               |      |                    |       |      |                |   |       |                     |  |      |     |   |      |   |     |      |  |   |       |   |  |   |       |      
|Net income (loss)                                                                                              |      | $                  | 385   |      |                | $ | 329   |                     |  | $    | 35  |   |      | $ | 3   |      |  | $ | 421   |   |  | $ | 336   |      
|                                                                                                               |      |                    |       |      |                |   |       |                     |  |      |     |   |      |   |     |      |  |   |       |   |  |   |       |      
|Average loans                                                                                                  |      | $                  | 6.5   |      |                | $ | 6.7   |                     |  | $    | 1.0 |   |      | $ | 1.4 |      |  | $ | 7.5   |   |  | $ | 8.1   |      
|Average assets (e)                                                                                             |      | $                  | 25.6  |      |                | $ | 26.8  |                     |  | $    | 7.7 |   |      | $ | 7.5 |      |  | $ | 33.3  |   |  | $ | 34.8  |      
|Average deposits                                                                                               |      | $                  | 18.9  |      |                | $ | 19.0  |                     |  | $    | 0.6 |   |      | $ | 1.2 |      |  | $ | 19.5  |   |  | $ | 20.2  |      
|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   |      
|                                                                                                               |      |                    |       |      |                |   |       |                     |  |      |     |   |      |   |     |      |  |   |       |   |  |   |       |      
|Return on common equity (f) (g)                                                                                |      |                    | 24    | %    |                |   | 20    | %                   |  |      | N/M |   |      |   | N/M |      |  |   | 22    | % |  |   | 20    | % (h)
|Pre-tax operating margin (f)                                                                                   |      |                    | 28    | %    |                |   | 25    | %                   |  |      | N/M |   |      |   | N/M |      |  |   | 28    | % |  |   | 25    | %    



|(a) | Consolidated results include FTE impact of $10 million, $12 million and $12 million for the second quarter of 2004, first
quarter of 2004 and second quarter of 2003, respectively, and $22 million and $21 million for the first six months of 2004 and the first six months of 2003, respectively.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(b) | Consolidated results include FTE impact of $4 million, $4 million and $4 million for the second quarter of 2004, first
quarter of 2004 and second quarter of 2003, respectively, and $8 million and $8 million for the first six months of 2004 and the first six months of 2003, respectively.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(c) | Consolidated results include FTE impact of $14 million, $16 million and $16 million for the second quarter of 2004, first
quarter of 2004 and second quarter of 2003, respectively, and $30 million and $29 million for the first six months of 2004 and the first six months of 2003, respectively.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(d) | Income from discontinued operations for the second quarter of 2004, first quarter of 2004 and second quarter of 2003,
respectively, and the cumulative effect of accounting change recorded in the first quarter of 2003 have not been allocated to any of the Corporations reportable sectors.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(e) | Where average deposits are in excess of average loans, average assets include an allocation of investment securities equal
to such excess. Consolidated average assets includes average assets of discontinued operations of $- million, $- million and $.4 million for the second quarter of 2004, first quarter of 2004 and second quarter of 2003, respectively, and $- million
and $.5 million for the first six months of 2004 and the first six months of 2003, respectively.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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



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



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



N/M
 Not meaningful



34



---

##### Table of Contents

Business sectors (continued)



The Corporations business sectors reflect its management structure, the characteristics of its products and
services, and the classes of customers to which those products and services are delivered. The Corporations lines of business serve two 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 42, consists of all activities not aggregated in the Corporations core business sectors.



The results of the Corporations core business sectors are presented and analyzed on an internal management reporting basis. 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, net interest revenue and income taxes
differ from the amounts shown in the Consolidated Income Statement because amounts presented in Business Sectors are on a fully taxable equivalent basis (FTE); and credit quality expense (revenue) for the core business sectors is presented on a net
charge-off basis. Capital is allocated to the business sectors to reflect managements assessment of credit risk, market risk and operating risk using internal risk 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 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.



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. 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 how these businesses are managed. The impact on any single sector was not material and in the aggregate was unchanged.



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.



35



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##### Table of Contents

Business sectors (continued)



Institutional Asset Management



|                                                                                |  |               |     |   |                  |   |     |              |  |   |              |   |  |              |     |   |  |   |     |  
|------------------------------------------------------------------------------- |  | ------------- | --- | - | ---------------- | - | --- | ------------ |  | - | ------------ | - |  | ------------ | --- | - |  | - | --- | -
|                                                                                |  | Quarter ended |     |   | Six months ended |  
|(income statement dollar amounts in millions, asset dollar amounts in billions) |  | June 30,2004  |     |   | March 31,2004    |   |     | June 30,2003 |  |   | June 30,2004 |   |  | June 30,2003 |    
|Institutional and private clients revenue                                       |  | $             | 122 |   |                  | $ | 144 |              |  | $ | 91           |   |  | $            | 266 |   |  | $ | 170 |  
|Mutual fund revenue                                                             |  |               | 42  |   |                  |   | 39  |              |  |   | 31           |   |  |              | 81  |   |  |   | 59  |  
|                                                                                |  |               |     |   |                  |   |     |              |  |   |              |   |  |              |     |   |  |   |     |  
|Total investment management revenue                                             |  | $             | 164 |   |                  | $ | 183 |              |  | $ | 122          |   |  | $            | 347 |   |  | $ | 229 |  
|Institutional trust and custody revenue                                         |  |               | 10  |   |                  |   | 10  |              |  |   | 11           |   |  |              | 20  |   |  |   | 19  |  
|Transfer revenue (a)                                                            |  |               | 15  |   |                  |   | 12  |              |  |   | 10           |   |  |              | 27  |   |  |   | 17  |  
|                                                                                |  |               |     |   |                  |   |     |              |  |   |              |   |  |              |     |   |  |   |     |  
|Total trust and investment fee revenue                                          |  | $             | 189 |   |                  | $ | 205 |              |  | $ | 143          |   |  | $            | 394 |   |  | $ | 265 |  
|Other fee revenue                                                               |  |               |    |   |                  |   | 10  |              |  |   | 3            |   |  |              | 10  |   |  |   | 7   |  
|Net interest revenue (expense)                                                  |  |               | (4  | ) |                  |   | (4  | )            |  |   | (4           | ) |  |              | (8  | ) |  |   | (8  | )
|                                                                                |  |               |     |   |                  |   |     |              |  |   |              |   |  |              |     |   |  |   |     |  
|Total revenue                                                                   |  | $             | 185 |   |                  | $ | 211 |              |  | $ | 142          |   |  | $            | 396 |   |  | $ | 264 |  
|Total operating expense                                                         |  | $             | 135 |   |                  | $ | 144 |              |  | $ | 115          |   |  | $            | 279 |   |  | $ | 229 |  
|Income before taxes                                                             |  | $             | 50  |   |                  | $ | 67  |              |  | $ | 27           |   |  | $            | 117 |   |  | $ | 35  |  
|Return on common equity (annualized)                                            |  |               | 22  | % |                  |   | 30  | %            |  |   | 15           | % |  |              | 26  | % |  |   | 10  | %
|Pre-tax operating margin                                                        |  |               | 27  | % |                  |   | 31  | %            |  |   | 19           | % |  |              | 29  | % |  |   | 13  | %
|Assets under management (b)                                                     |  | $             | 469 |   |                  | $ | 469 |              |  | $ | 392          |   |  |              |     |   |  |   |     |  
|Plus: subadvised for other Mellon sectors                                       |  |               | 22  |   |                  |   | 22  |              |  |   | 17           |   |  |              |     |   |  |   |     |  
|                                                                                |  |               |     |   |                  |   |     |              |  |   |              |   |  |              |     |   |  |   |     |  
|                                                                                |  | $             | 491 |   |                  | $ | 491 |              |  | $ | 409          |   |  |              |     |   |  |   |     |  
|Assets under administration or custody                                          |  | $             | 15  |   |                  | $ | 16  |              |  | $ | 14           |   |  |              |     |   |  |   |     |  



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



|(b) | Includes $68 billion, $64 billion and $51 billion of
securities lending assets advised by Institutional Asset Management at June 30, 2004, March 31, 2004 and June 30, 2003, respectively. 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 $43 million, or 30%, increase in revenue in the second quarter of 2004 compared with the second quarter of 2003 primarily resulted from an increase in investment
management fees, which are based on the value of assets under management, as well as a $9 million increase in performance fees and the effect of foreign exchange rates. As shown in the table on page 20, assets under management for this sector,
before amounts subadvised for other sectors, increased $77 billion from June 30, 2003, resulting from $44 billion of net inflows and $39 billion of equity market appreciation. Operating expense increased $20 million, or 17%, compared with the second
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 $23 million, or 83%, compared with the second
quarter of 2003.



The $26 million, or 12%, decrease in revenue in the second
quarter of 2004 compared with the first quarter of 2004 was due primarily to a $22 million seasonal decrease in performance fees and lower gains on seed money investments, partially offset by an increase in investment management fees and transfer
revenue. As shown in the table on page 20, assets under management for this sector, before amounts subadvised for other sectors, were unchanged from March 31, 2004. Operating expense decreased $9 million, or 7%, in the second quarter of 2004



36



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##### Table of Contents

Business sectors (continued)



compared with the first quarter of 2004, due primarily to lower incentive expense, as well as the positive impact of ongoing expense management initiatives.
Income before taxes decreased $17 million compared with the prior quarter.



On
a year-to-date basis, income before taxes increased $82 million compared to the first six months of 2003. Revenue increased 50% from the prior year, primarily resulting from a $49 million increase in performance fees as well as an increase in
investment management fees driven by new business generation and market appreciation and the effect of foreign exchange rates. Operating expense increased 22% from the first six months of 2003, largely due to increased incentives as a result of
revenue growth.



Mutual Funds



|                                                                                |  |               |     |   |                  |   |     |              |  |   |              |      |  |              |     |   |  |   |     |     
|------------------------------------------------------------------------------- |  | ------------- | --- | - | ---------------- | - | --- | ------------ |  | - | ------------ | ---- |  | ------------ | --- | - |  | - | --- | ----
|                                                                                |  | Quarter ended |     |   | Six months ended |  
|(income statement dollar amounts in millions, asset dollar amounts in billions) |  | June 30,2004  |     |   | March 31,2004    |   |     | June 30,2003 |  |   | June 30,2004 |      |  | June 30,2003 |    
|Mutual fund revenue                                                             |  | $             | 129 |   |                  | $ | 129 |              |  | $ | 130          |      |  | $            | 258 |   |  | $ | 262 |     
|Institutional and private clients                                               |  |               | 8   |   |                  |   | 9   |              |  |   | 8            |      |  |              | 17  |   |  |   | 14  |     
|                                                                                |  |               |     |   |                  |   |     |              |  |   |              |      |  |              |     |   |  |   |     |     
|Total investment management revenue                                             |  | $             | 137 |   |                  | $ | 138 |              |  | $ | 138          |      |  | $            | 275 |   |  | $ | 276 |     
|Institutional trust and custody revenue                                         |  |               | 1   |   |                  |   | (1  | )(a)         |  |   | (1           | )(a) |  |              |    |   |  |   | (2  | )(a)
|Transfer revenue (b)                                                            |  |               | (14 | ) |                  |   | (15 | )            |  |   | (15          | )    |  |              | (29 | ) |  |   | (28 | )   
|                                                                                |  |               |     |   |                  |   |     |              |  |   |              |      |  |              |     |   |  |   |     |     
|Total trust and investment fee revenue                                          |  | $             | 124 |   |                  | $ | 122 |              |  | $ | 122          |      |  | $            | 246 |   |  | $ | 246 |     
|Other fee revenue                                                               |  |               | (1  | ) |                  |   | (1  | )            |  |   |             |      |  |              | (2  | ) |  |   |    |     
|Net interest revenue (expense)                                                  |  |               | (2  | ) |                  |   | (1  | )            |  |   | (1           | )    |  |              | (3  | ) |  |   | (3  | )   
|                                                                                |  |               |     |   |                  |   |     |              |  |   |              |      |  |              |     |   |  |   |     |     
|Total revenue                                                                   |  | $             | 121 |   |                  | $ | 120 |              |  | $ | 121          |      |  | $            | 241 |   |  | $ | 243 |     
|Total operating expense                                                         |  | $             | 77  |   |                  | $ | 77  |              |  | $ | 79           |      |  | $            | 154 |   |  | $ | 156 |     
|Income before taxes                                                             |  | $             | 44  |   |                  | $ | 43  |              |  | $ | 42           |      |  | $            | 87  |   |  | $ | 87  |     
|Return on common equity (annualized)                                            |  |               | 54  | % |                  |   | 51  | %            |  |   | 47           | %    |  |              | 52  | % |  |   | 49  | %   
|Pre-tax operating margin                                                        |  |               | 36  | % |                  |   | 36  | %            |  |   | 35           | %    |  |              | 36  | % |  |   | 36  | %   
|Assets under management                                                         |  | $             | 164 |   |                  | $ | 163 |              |  | $ | 176          |      |  |              |     |   |  |   |     |     
|Less: subadvised by other Mellon sectors                                        |  |               | (22 | ) |                  |   | (22 | )            |  |   | (19          | )    |  |              |     |   |  |   |     |     
|                                                                                |  |               |     |   |                  |   |     |              |  |   |              |      |  |              |     |   |  |   |     |     
|                                                                                |  | $             | 142 |   |                  | $ | 141 |              |  | $ | 157          |      |  |              |     |   |  |   |     |     



|(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 was unchanged compared with the second quarter of 2003 principally due to lower management fee revenue from a lower average level of institutional money market funds due to net outflows, offset by higher
revenue from higher average equity fund levels and higher revenue from separately managed accounts. Operating expense decreased $2 million, or 2%, compared with the second quarter of 2003, resulting in a $2 million, or 5%, increase in income before
taxes. Assets under management for this sector, before amounts subadvised for other sectors, of $164 billion were down 7% from $176 billion at June 30, 2003, and up 1% from $163 billion at March 31, 2004. The decrease compared with June 30, 2003
primarily resulted from cash management outflows partially offset by equity market appreciation and the impact of acquisitions.



Revenue increased $1 million, or 1%, in the second quarter of 2004 compared with the first quarter of 2004, while operating expense remained unchanged primarily due to
higher staff and professional and purchased services expense, offset by lower incentive expense, resulting in a $1 million, or 3%, increase in income before taxes.



37



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##### Table of Contents

Business sectors (continued)



On a year-to-date basis, revenue decreased 1% 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. Operating expense decreased 1% principally due to lower staff and purchased services expense, resulting
in income before taxes that was unchanged from the first six months of 2003.



Private Wealth Management



|                                                                                |  |               |     |   |                  |   |     |              |  |   |              |   |  |              |     |   |  |   |     |  
|------------------------------------------------------------------------------- |  | ------------- | --- | - | ---------------- | - | --- | ------------ |  | - | ------------ | - |  | ------------ | --- | - |  | - | --- | -
|                                                                                |  | Quarter ended |     |   | Six months ended |  
|(income statement dollar amounts in millions, asset dollar amounts in billions) |  | June 30,2004  |     |   | March 31,2004    |   |     | June 30,2003 |  |   | June 30,2004 |   |  | June 30,2003 |    
|Private clients                                                                 |  | $             | 75  |   |                  | $ | 74  |              |  | $ | 65           |   |  | $            | 149 |   |  | $ | 130 |  
|Mutual fund revenue                                                             |  |               |    |   |                  |   |    |              |  |   |             |   |  |              |    |   |  |   |    |  
|                                                                                |  |               |     |   |                  |   |     |              |  |   |              |   |  |              |     |   |  |   |     |  
|Total investment management revenue                                             |  | $             | 75  |   |                  | $ | 74  |              |  | $ | 65           |   |  | $            | 149 |   |  | $ | 130 |  
|Institutional trust and custody revenue                                         |  |               | 2   |   |                  |   | 2   |              |  |   | 2            |   |  |              | 4   |   |  |   | 4   |  
|Transfer revenue                                                                |  |               | 1   |   |                  |   | 2   |              |  |   | 2            |   |  |              | 3   |   |  |   | 5   |  
|                                                                                |  |               |     |   |                  |   |     |              |  |   |              |   |  |              |     |   |  |   |     |  
|Total trust and investment fee revenue                                          |  | $             | 78  |   |                  | $ | 78  |              |  | $ | 69           |   |  | $            | 156 |   |  | $ | 139 |  
|Other fee revenue                                                               |  |               | 2   |   |                  |   | 4   |              |  |   | 4            |   |  |              | 6   |   |  |   | 7   |  
|Net interest revenue                                                            |  |               | 55  |   |                  |   | 52  |              |  |   | 59           |   |  |              | 107 |   |  |   | 117 |  
|                                                                                |  |               |     |   |                  |   |     |              |  |   |              |   |  |              |     |   |  |   |     |  
|Total revenue                                                                   |  | $             | 135 |   |                  | $ | 134 |              |  | $ | 132          |   |  | $            | 269 |   |  | $ | 263 |  
|Credit quality expense                                                          |  | $             | 1   |   |                  | $ |    |              |  | $ |             |   |  | $            | 1   |   |  | $ |    |  
|Total operating expense                                                         |  | $             | 78  |   |                  | $ | 77  |              |  | $ | 73           |   |  | $            | 155 |   |  | $ | 141 |  
|Income before taxes                                                             |  | $             | 56  |   |                  | $ | 57  |              |  | $ | 59           |   |  | $            | 113 |   |  | $ | 122 |  
|Return on common equity (annualized)                                            |  |               | 30  | % |                  |   | 31  | %            |  |   | 36           | % |  |              | 31  | % |  |   | 37  | %
|Pre-tax operating margin                                                        |  |               | 41  | % |                  |   | 43  | %            |  |   | 45           | % |  |              | 42  | % |  |   | 46  | %
|Total client assets at beginning of quarter                                     |  | $             | 76  |   |                  | $ | 75  |              |  | $ | 64           |   |  |              |     |   |  |   |     |  
|Assets under management net (outflows)                                          |  |               | (1  | ) |                  |   |    |              |  |   |             |   |  |              |     |   |  |   |     |  
|Assets under administration or custody net inflows                              |  |               |    |   |                  |   |    |              |  |   | 1            |   |  |              |     |   |  |   |     |  
|Transfer from Institutional Asset Management                                    |  |               |    |   |                  |   |    |              |  |   | 1            |   |  |              |     |   |  |   |     |  
|Market appreciation (depreciation)                                              |  |               | 1   |   |                  |   | 1   |              |  |   | 3            |   |  |              |     |   |  |   |     |  
|                                                                                |  |               |     |   |                  |   |     |              |  |   |              |   |  |              |     |   |  |   |     |  
|Total client assets at end of quarter (a)                                       |  | $             | 76  |   |                  | $ | 76  |              |  | $ | 69           |   |  |              |     |   |  |   |     |  
|                                                                                |  |               |     |   |                  |   |     |              |  |   |              |   |  |              |     |   |  |   |     |  



|(a) | Includes assets under management, before amounts
subadvised for other sectors, of $46 billion, $47 billion and $44 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 14 states.



Revenue increased $3 million, or 3%, compared with the second quarter of 2003 due primarily to a $9 million, or 11%, increase in trust and
investment fee revenue due to market appreciation and the impact of acquisitions, partially offset by an 8% decrease in net interest revenue due to narrowing spreads. Operating expense increased $5 million, or 7%, primarily reflecting higher
incentive expense due to increased sales and higher staff expense due to acquisitions. Income before taxes decreased $3 million, or 4%, compared with the second quarter of 2003. Client assets were $76 billion at June 30, 2004, unchanged from March
31, 2004, and an increase of 10% from June 30, 2003, primarily reflecting the impact of equity market appreciation.



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



38



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Business sectors (continued)



On a year-to-date basis, revenue increased $6 million, or 2% from the prior year, primarily due to a $17 million, or
11% increase in trust and investment fee revenue, partially offset by lower net interest revenue. Operating expense increased 9% principally due to higher incentive expense, resulting in a 7% decrease in income before taxes compared with the first
six months of 2003.



Asset Servicing



|                                                                                |  |               |       |   |                  |   |       |              |  |   |              |   |  |              |     |   |  |   |     |  
|------------------------------------------------------------------------------- |  | ------------- | ----- | - | ---------------- | - | ----- | ------------ |  | - | ------------ | - |  | ------------ | --- | - |  | - | --- | -
|                                                                                |  | Quarter ended |       |   | Six months ended |  
|(income statement dollar amounts in millions, asset dollar amounts in billions) |  | June 30,2004  |       |   | March 31,2004    |   |       | June 30,2003 |  |   | June 30,2004 |   |  | June 30,2003 |    
|Institutional trust and custody revenue                                         |  | $             | 118   |   |                  | $ | 120   |              |  | $ | 105          |   |  | $            | 238 |   |  | $ | 205 |  
|Securities lending revenue                                                      |  |               | 24    |   |                  |   | 18    |              |  |   | 22           |   |  |              | 42  |   |  |   | 37  |  
|Transfer revenue                                                                |  |               | (2    | ) |                  |   |      |              |  |   |             |   |  |              | (2  | ) |  |   | 1   |  
|                                                                                |  |               |       |   |                  |   |       |              |  |   |              |   |  |              |     |   |  |   |     |  
|Total trust and investment fee revenue                                          |  | $             | 140   |   |                  | $ | 138   |              |  | $ | 127          |   |  | $            | 278 |   |  | $ | 243 |  
|Other fee revenue (a)                                                           |  |               | 42    |   |                  |   | 44    |              |  |   | 21           |   |  |              | 86  |   |  |   | 54  |  
|Net interest revenue                                                            |  |               | 18    |   |                  |   | 14    |              |  |   | 23           |   |  |              | 32  |   |  |   | 43  |  
|                                                                                |  |               |       |   |                  |   |       |              |  |   |              |   |  |              |     |   |  |   |     |  
|Total revenue                                                                   |  | $             | 200   |   |                  | $ | 196   |              |  | $ | 171          |   |  | $            | 396 |   |  | $ | 340 |  
|Total operating expense                                                         |  | $             | 143   |   |                  | $ | 145   |              |  | $ | 128          |   |  | $            | 288 |   |  | $ | 256 |  
|Income before taxes                                                             |  | $             | 57    |   |                  | $ | 51    |              |  | $ | 43           |   |  | $            | 108 |   |  | $ | 84  |  
|Return on common equity (annualized)                                            |  |               | 25    | % |                  |   | 22    | %            |  |   | 19           | % |  |              | 23  | % |  |   | 20  | %
|Pre-tax operating margin                                                        |  |               | 29    | % |                  |   | 26    | %            |  |   | 25           | % |  |              | 27  | % |  |   | 25  | %
|Securities lending assets (b)                                                   |  | $             | 68    |   |                  | $ | 64    |              |  | $ | 51           |   |  |              |     |   |  |   |     |  
|Assets under administration or custody                                          |  | $             | 2,826 |   |                  | $ | 2,793 |              |  | $ | 2,369        |   |  |              |     |   |  |   |     |  



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



|(b) | Included as assets under management in Institutional
Asset Management. Fees are recorded above as securities lending 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 second quarter of 2004 compared to the second quarter of 2003 increased $29 million, or 16%, primarily due to higher foreign
exchange revenue and higher institutional trust and custody revenue from net new business and improved market conditions. Operating expense increased $15 million, or 11%, primarily in support of new business growth and development around
enhancements to existing products. Income before taxes increased $14 million, or 33%, compared with the second quarter of 2003. Assets under administration or custody for this sector were $2.826 trillion at June 30, 2004, an increase of $457
billion, or 19%, compared with June 30, 2003, and an increase of $33 billion, or 1%, compared with March 31, 2004. The increase compared with March 31, 2004, resulted from net new business and market appreciation.



The $4 million, or 1%, increase in revenue compared with the first quarter of 2004 was
primarily due to seasonally higher securities lending revenue and higher net interest revenue. Operating expense was down slightly as lower purchased services, staff and incentive expense were nearly offset by increased expenses in support of new
business growth. Income before taxes increased $6 million, or 12%, compared with the first quarter of 2004.



On a year-to-date basis, revenue increased 16% from the prior year, primarily due to higher foreign exchange revenue and higher institutional trust and custody revenue from net new business and improved market



39



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##### Table of Contents

Business sectors (continued)



conditions, partially offset by lower net interest revenue. Operating expense increased 12% in support of new business growth and development around
enhancements to existing products. Income before taxes increased 28% compared with the first six months of 2003.



Human Resources & Investor Solutions



|                                                                                |  |               |     |   |                  |   |     |              |  |   |              |    |  |              |     |   |  |   |     |  
|------------------------------------------------------------------------------- |  | ------------- | --- | - | ---------------- | - | --- | ------------ |  | - | ------------ | -- |  | ------------ | --- | - |  | - | --- | -
|                                                                                |  | Quarter ended |     |   | Six months ended |  
|(income statement dollar amounts in millions, asset dollar amounts in billions) |  | June 30,2004  |     |   | March 31,2004    |   |     | June 30,2003 |  |   | June 30,2004 |    |  | June 30,2003 |    
|Human resources & investor solutions revenue                                    |  | $             | 232 |   |                  | $ | 233 |              |  | $ | 245          |    |  | $            | 465 |   |  | $ | 485 |  
|Investment management - mutual fund revenue (a)                                 |  |               | 9   |   |                  |   | 10  |              |  |   | 9            |    |  |              | 19  |   |  |   | 17  |  
|Transfer revenue                                                                |  |               | (1  | ) |                  |   | (1  | )            |  |   | (1           | )  |  |              | (2  | ) |  |   | (1  | )
|                                                                                |  |               |     |   |                  |   |     |              |  |   |              |    |  |              |     |   |  |   |     |  
|Total trust and investment fee revenue                                          |  | $             | 240 |   |                  | $ | 242 |              |  | $ | 253          |    |  | $            | 482 |   |  | $ | 501 |  
|Other fee revenue                                                               |  |               | 1   |   |                  |   |    |              |  |   | (2           | )  |  |              | 1   |   |  |   | (2  | )
|Net interest revenue (expense)                                                  |  |               | 4   |   |                  |   | 4   |              |  |   |             |    |  |              | 8   |   |  |   | (4  | )
|                                                                                |  |               |     |   |                  |   |     |              |  |   |              |    |  |              |     |   |  |   |     |  
|Total revenue                                                                   |  | $             | 245 |   |                  | $ | 246 |              |  | $ | 251          |    |  | $            | 491 |   |  | $ | 495 |  
|Total operating expense                                                         |  | $             | 230 |   |                  | $ | 230 |              |  | $ | 254          |    |  | $            | 460 |   |  | $ | 497 |  
|Income before taxes                                                             |  | $             | 15  |   |                  | $ | 16  |              |  | $ | (3           | )  |  | $            | 31  |   |  | $ | (2  | )
|Return on common equity (annualized)                                            |  |               | 10  | % |                  |   | 11  | %            |  |   |             | %  |  |              | 11  | % |  |   |    | %
|Pre-tax operating margin                                                        |  |               | 6   | % |                  |   | 7   | %            |  |   | (1           | )% |  |              | 6   | % |  |   |    | %
|Assets under administration or custody                                          |  | $             | 103 |   |                  | $ | 110 |              |  | $ | 107          |    |  |              |     |   |  |   |     |  



|(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 $487 million at June 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.



Revenue decreased $6 million, or 2%, compared with the second quarter of 2003, primarily due to lower out-of-pocket expense reimbursements, lower consulting revenue
primarily in the retirement business and lower client volumes, partially offset by higher investor services revenue. Operating expense decreased $24 million, or 9%, compared with the second quarter of 2003, primarily due to the favorable impact of
expense initiatives started in the third quarter of 2003. Income before taxes increased $18 million compared with the second quarter of 2003.



Compared with the first quarter of 2004, revenue decreased $1 million, or less than 1%, as higher out-of-pocket expense reimbursements were offset by lower consulting
revenue primarily in the retirement business and lower client volumes. Operating expense remained unchanged. Income before taxes decreased $1 million compared with the first quarter of 2004.



On a year-to-date basis, revenue decreased 1% from the prior year, primarily due to lower
out-of pocket expense reimbursements and other consulting revenue. Operating expenses decreased 7%, principally due to the favorable impact of expense initiatives started in the third quarter of 2003, resulting in an increase in income before
taxes of $33 million compared with the first six months of 2003.



40



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##### Table of Contents

Business sectors (continued)



Treasury Services



|                                              |  |               |     |   |                  |   |     |              |  |   |              |   |  |              |     |   |  |   |     |  
|--------------------------------------------- |  | ------------- | --- | - | ---------------- | - | --- | ------------ |  | - | ------------ | - |  | ------------ | --- | - |  | - | --- | -
|                                              |  | Quarter ended |     |   | Six months ended |  
|(income statement dollar amounts in millions) |  | June 30,2004  |     |   | March 31,2004    |   |     | June 30,2003 |  |   | June 30,2004 |   |  | June 30,2003 |    
|Fee revenue:                                  |  |               |     |   |                  |   |     |              |  |   |              |   |  |              |     |   |  |   |     |  
|Cash management revenue                       |  | $             | 77  |   |                  | $ | 77  |              |  | $ | 70           |   |  | $            | 154 |   |  | $ | 140 |  
|Other fee revenue                             |  |               | 14  |   |                  |   | 15  |              |  |   | 17           |   |  |              | 29  |   |  |   | 34  |  
|Institutional trust and custody revenue(a)    |  |               | 1   |   |                  |   |    |              |  |   |             |   |  |              | 1   |   |  |   |    |  
|Transfer revenue (a)                          |  |               | 1   |   |                  |   | 2   |              |  |   | 3            |   |  |              | 3   |   |  |   | 5   |  
|                                              |  |               |     |   |                  |   |     |              |  |   |              |   |  |              |     |   |  |   |     |  
|Total fee revenue                             |  | $             | 93  |   |                  | $ | 94  |              |  | $ | 90           |   |  | $            | 187 |   |  | $ | 179 |  
|Net interest revenue                          |  |               | 80  |   |                  |   | 81  |              |  |   | 108          |   |  |              | 161 |   |  |   | 217 |  
|                                              |  |               |     |   |                  |   |     |              |  |   |              |   |  |              |     |   |  |   |     |  
|Total revenue                                 |  | $             | 173 |   |                  | $ | 175 |              |  | $ | 198          |   |  | $            | 348 |   |  | $ | 396 |  
|Credit quality expense                        |  | $             | (1  | ) |                  | $ |    |              |  | $ |             |   |  | $            | (1  | ) |  | $ | 4   |  
|Total operating expense                       |  | $             | 103 |   |                  | $ | 104 |              |  | $ | 104          |   |  | $            | 207 |   |  | $ | 210 |  
|Income before taxes                           |  | $             | 71  |   |                  | $ | 71  |              |  | $ | 94           |   |  | $            | 142 |   |  | $ | 182 |  
|Return on common equity (annualized)          |  |               | 18  | % |                  |   | 18  | %            |  |   | 22           | % |  |              | 18  | % |  |   | 21  | %
|Pre-tax operating margin                      |  |               | 41  | % |                  |   | 41  | %            |  |   | 47           | % |  |              | 41  | % |  |   | 46  | %



|(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 $25 million, or by 12%, in the second quarter of 2004 compared to the second quarter of 2003. Net interest revenue decreased $28 million resulting from a lower average level of loans and a lower spread as well as the change
in payment methodology by the Department of the Treasury, as further discussed on pages 24 and 25. The increase in cash management revenue resulted from this change in payment methodology, partially offset by lower processing revenue. Credit quality
expense decreased $1 million. Operating expenses decreased $1 million, or 2%, primarily due to lower general expenses, resulting in a $23 million, or 23%, reduction in income before taxes.



Revenue decreased $2 million in the second quarter of 2004 compared to the first quarter of
2004, while operating and credit quality expenses decreased $2 million, or 1%, resulting in income before taxes of $71 million, unchanged from the prior quarter.



On a year-to-date basis, revenue decreased 12% from the prior year. The decrease in net interest revenue resulted from a lower average level
of loans, as well as from the change in payment methodology by the Department of Treasury, which also accounts for the increase in cash management revenue. Operating expense decreased 2% principally due to lower equipment and occupancy expense.
Income before taxes decreased 22% compared with the first six months of 2003.



41



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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.



|                                                                                                |  |               |     |   |                  |   |    |              |  |   |              |   |  |              |     |   |  |   |     |  
|----------------------------------------------------------------------------------------------- |  | ------------- | --- | - | ---------------- | - | -- | ------------ |  | - | ------------ | - |  | ------------ | --- | - |  | - | --- | -
|                                                                                                |  | Quarter ended |     |   | Six months ended |  
|Other Activity - income (loss) from continuing operations before taxes (benefits) (in millions) |  | June 30,2004  |     |   | March 31,2004    |   |    | June 30,2003 |  |   | June 30,2004 |   |  | June 30,2003 |    
|Business exits activity                                                                         |  | $             | 9   |   |                  | $ | (9 | )            |  | $ | 15           |   |  | $            |    |   |  | $ | 23  |  
|Venture capital activity                                                                        |  |               | (2  | ) |                  |   | (9 | )            |  |   | (24          | ) |  |              | (11 | ) |  |   | (33 | )
|Corporate activity/other                                                                        |  |               | (25 | ) |                  |   | 90 |              |  |   | 15           |   |  |              | 65  |   |  |   | 28  |  
|                                                                                                |  |               |     |   |                  |   |    |              |  |   |              |   |  |              |     |   |  |   |     |  
|Total - Other Activity                                                                          |  | $             | (18 | ) |                  | $ | 72 |              |  | $ | 6            |   |  | $            | 54  |   |  | $ | 18  |  
|                                                                                                |  |               |     |   |                  |   |    |              |  |   |              |   |  |              |     |   |  |   |     |  



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 less than $1 million in the second 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 second quarter of 2004 is the $24 million London space consolidation charge, as well as the $8 million gain from the sale of securities. In the first quarter of 2004, Other Activity included the $93 million gain from the sale of
approximately 35% of the Corporations indirect investment in Shinsei Bank, the $19 million charge associated with the writedown of small non-strategic businesses that the Corporation intends to exit and a $7 million negative provision for
credit losses. Included in Other Activity in the second quarter of 2003 is $21 million of gains from the sale of mortgage-backed securities.



42



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##### Table of Contents

Business sectors (continued)



Venture capital investments



The following table reports the second quarter 2004 and life-to-date activity of the Corporations venture capital investment
portfolio.



|                                                            |  |                             |     |       |                      |   |      |  
|----------------------------------------------------------- |  | --------------------------- | --- | ----- | -------------------- | - | ---- | -
|Venture capital investment portfolio activity (in millions) |  | Second Quarter2004 Activity |     |       | Life toDate Activity |  
|Direct investments:                                         |  |                             |     |       |                      |   |      |  
|Beginning carrying value                                    |  | $                           | 396 |       |                      | $ |     |  
|Investments - new investments                               |  |                             | 8   |       |                      |   | 630  |  
|Investments - additional funding for existing investments   |  |                             | 6   |       |                      |   | 317  |  
|Realized - cost basis of exits (a)and write-offs            |  |                             | (42 | ) (b) |                      |   | (477 | )
|Change in net unrealized gains (losses)                     |  |                             | 20  | (b)   |                      |   | (82  | )
|                                                            |  |                             |     |       |                      |   |      |  
|Ending carrying value (c)                                   |  | $                           | 388 |       |                      | $ | 388  |  
|                                                            |  |                             |     |       |                      |   |      |  
|Fund investments (indirect):                                |  |                             |     |       |                      |   |      |  
|Beginning carrying value                                    |  | $                           | 208 |       |                      | $ |     |  
|Draws against fund capital commitments                      |  |                             | 17  |       |                      |   | 463  |  
|Realized - cost basis of exits (d)and write-offs            |  |                             | (14 | )     |                      |   | (229 | )
|Change in net unrealized gains (losses)                     |  |                             | 1   |       |                      |   | (22  | )
|                                                            |  |                             |     |       |                      |   |      |  
|Ending carrying value (e)                                   |  | $                           | 212 |       |                      | $ | 212  |  
|                                                            |  |                             |     |       |                      |   |      |  
|Total investments(f):                                       |  |                             |     |       |                      |   |      |  
|Active investments cost basis                               |  |                             |     |       |                      | $ | 704  |  
|Unrealized gains (losses)                                   |  |                             |     |       |                      |   | (104 | )
|                                                            |  |                             |     |       |                      |   |      |  
|Ending carrying value                                       |  |                             |     |       |                      | $ | 600  |  



|(a) | Cash receipts on exits totaled $20 million in the
second quarter of 2004 and $273 million life to date.
|--- | -------------------------------------------------------------------------------------------------------



|(b) | The realization of losses on investments, whose carrying values had been previously reduced, results in an increase in
realized losses with an offset in the change in net unrealized gains (losses). Events which trigger realizing a loss on an investment include bankruptcy, sale of company, outside evidence to deem ownership position in shares
as worthless stock and/or surrender of worthless share certificates. During the second quarter of 2004, approximately $25 million of previously reduced carrying values were realized in realized losses with an offset in change in
net unrealized gains (losses).
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(c) | At June 30, 2004, there were 75 actively managed investments with an average cost basis of $6 million. In the second quarter
of 2004, the Corporation invested $14 million and was committed to provide less than $1 million of additional funding for direct investments at June 30, 2004.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(d) | Cash receipts on exits totaled $22 million in the
second quarter of 2004 and $208 million life to date.
|--- | -------------------------------------------------------------------------------------------------------



|(e) | In the second quarter of 2004, the Corporation
invested $17 million related to prior commitments and was committed to provide additional funding of $140 million for indirect fund investments at June 30, 2004. 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 83% of direct investments cost basis and 91% of indirect investments cost basis, for a combined 85% of all active investments cost basis.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



43



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##### Table of Contents

Capital



|                                                                                           |  |              |         |   |               |   |         |              |  |   |              |   |  |   |         |  
|------------------------------------------------------------------------------------------ |  | ------------ | ------- | - | ------------- | - | ------- | ------------ |  | - | ------------ | - |  | - | ------- | -
|Capital (dollar amounts in millions, except
per share amounts; common shares in thousands) |  | June 30,2004 |         |   | March 31,2004 |   |         | Dec. 31,2003 |  |   | June 30,2003 |  
|Total shareholders equity                                                                 |  | $            | 3,749   |   |               | $ | 3,866   |              |  | $ | 3,702        |   |  | $ | 3,624   |  
|Total shareholders equity to assets ratio                                                 |  |              | 10.68   | % |               |   | 11.41   | %            |  |   | 10.89        | % |  |   | 9.31    | %
|Tangible shareholders equity                                                              |  | $            | 1,949   |   |               | $ | 2,073   |              |  | $ | 1,913        |   |  | $ | 1,908   |  
|Tangible shareholders equity to assets ratio (a)                                          |  |              | 5.86    | % |               |   | 6.46    | %            |  |   | 5.94         | % |  |   | 5.13    | %
|Tier I capital ratio (b)                                                                   |  |              | 9.33    | % |               |   | 8.69    | %            |  |   | 8.55         | % |  |   | 7.87    | %
|Total (Tier I plus Tier II) capital ratio (b)                                              |  |              | 14.61   | % |               |   | 13.65   | %            |  |   | 13.46        | % |  |   | 12.42   | %
|Leverage capital ratio (b)                                                                 |  |              | 8.19    | % |               |   | 8.06    | %            |  |   | 7.92         | % |  |   | 7.24    | %
|Total Tier I capital                                                                       |  | $            | 2,525   |   |               | $ | 2,466   |              |  | $ | 2,370        |   |  | $ | 2,304   |  
|Total (Tier I plus Tier II) capital                                                        |  | $            | 3,957   |   |               | $ | 3,870   |              |  | $ | 3,732        |   |  | $ | 3,635   |  
|Total risk-adjusted assets                                                                 |  | $            | 27,076  |   |               | $ | 28,363  |              |  | $ | 27,725       |   |  | $ | 29,270  |  
|Average assets - leverage capital basis                                                    |  | $            | 30,824  |   |               | $ | 30,598  |              |  | $ | 29,911       |   |  | $ | 31,823  |  
|Book value per common share                                                                |  | $            | 8.84    |   |               | $ | 9.11    |              |  | $ | 8.67         |   |  | $ | 8.42    |  
|Tangible book value per common share                                                       |  | $            | 4.60    |   |               | $ | 4.88    |              |  | $ | 4.48         |   |  | $ | 4.43    |  
|Closing common stock price per share                                                       |  | $            | 29.33   |   |               | $ | 31.29   |              |  | $ | 32.11        |   |  | $ | 27.75   |  
|Market capitalization                                                                      |  | $            | 12,436  |   |               | $ | 13,282  |              |  | $ | 13,712       |   |  | $ | 11,950  |  
|Common shares outstanding                                                                  |  |              | 424,003 |   |               |   | 424,491 |              |  |   | 427,032      |   |  |   | 430,616 |  



|(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, $12 million, $13 million and $13 million, respectively. The amount of goodwill and intangible assets subtracted
from shareholders equity and total assets is net of the tax benefit. Tax benefits related to tax deductible goodwill and intangible assets totaled $494 million, $493 million, $492 million and $451 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. Includes discontinued operations.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The
Corporations lower shareholders and tangible shareholders equity to assets capital ratios at June 30, 2004 compared with March 31, 2004 reflect accumulated unrealized losses, primarily in the securities available for sale
portfolio, and the impact of a higher period-end balance sheet, partially offset by earnings retention. The accumulated unrealized loss, net of tax, in the securities available for sale portfolio totaled $108 million at June 30, 2004 compared with
an unrealized net gain of $73 million at March 31, 2004, which reduced the tangible shareholders equity to assets ratio by approximately 50 basis points. The Corporations period-end balance sheet was $1.7 billion higher than the average
balance sheet during the second quarter of 2004, due to a quarter-end surge in client deposits. The tangible shareholders equity to assets ratio, computed by using average tangible assets for the quarter, was 6.22% at June 30, 2004.



The risk-based capital ratios, which exclude the accumulated unrealized losses
on securities available for sale, improved due to a lower level of risk-adjusted assets, and earnings retention. The Tier I and Total capital ratios reflect the impact of the guarantee provided to the ABN AMRO Mellon custody joint venture for
securities lending activity, which at June 30, 2004 resulted in lower Tier I and Total capital ratios of approximately 110 basis points and 170 basis points, respectively.



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 second quarter of 2004, 1.500 million common shares were repurchased by the Corporation under this publicly announced program, bringing year-to-date purchases to 6.050 million common shares. At June 30, 2004, an additional 11.758 million
common shares were available for repurchase



44



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##### Table of Contents

Capital (continued)



under this program. This program does not have an expiration date. Share reissuances, primarily for employee benefit plan purposes, totaled 1.1 million and
3.2 million common shares, for the second quarter and first six months of 2004, respectively. Information regarding the Corporations common share repurchases are shown in the following table.



|                                                                                                                        |  |                    |     |  |                            |       |                        |   |   
|----------------------------------------------------------------------------------------------------------------------- |  | ------------------ | --- |  | -------------------------- | ----- | ---------------------- | - | --
|Share repurchases second quarter 2004 (common shares in thousands; dollar amountsin millions, except per share amounts) |  | Shares repurchased |     |  | Average price per share(a) |       | Totalpurchase price(a)
|                                                                                                                        |  |                   
|Share repurchases during April 2004                                                                                     |  | 1                  |     |  | $                          | 32.24 |                        | $ |  
|Share repurchases during May 2004                                                                                       |  | 1,575              |     |  |                            | 29.47 |                        |   | 46
|Share repurchases during June 2004                                                                                      |  | 2                  |     |  |                            | 28.56 |                        |   |  
|                                                                                                                        |  |                    |     |  |                            |       |                        |   |   
|Total share repurchases in the second quarter of 2004                                                                   |  | 1,578              | (b) |  | $                          | 29.48 |                        | $ | 46
|                                                                                                                        |  |                    |     |  |                            |       |                        |   |   



|(a) | Amounts include commissions paid, which were not
significant. Total purchase price for April and June 2004 was less than $1 million.
|--- | ------------------------------------------------------------------------------------------------------------------------------------



|(b) | Includes 78 thousand shares at a purchase price of
$2 million, purchased from employees in connection with the employees payment of taxes upon the vesting of restricted stock.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In September 2003, the regulatory agencies proposed new capital guidelines concerning the risk-based capital treatment of asset-backed commercial paper programs. The
agencies proposal would require banks to hold risk-based capital against short-term liquidity facilities provided to asset-backed commercial paper programs. At June 30, 2004, this proposal would have decreased the Corporations Tier I and
Total risk-based capital ratios by approximately 10 basis points and 15 basis points, respectively.



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 June 30, 2004 decreased $435 million compared with March 31, 2004, $504 million compared with Dec. 31, 2003 and $729 million compared with June 30,
2003, primarily reflecting lower levels of commercial and financial loans, partially offset by a higher level of personal loans. The decrease in commercial and financial loans compared with March 31, 2004 resulted from the securitization of
approximately $550 million of insurance premium finance loans in the second quarter of 2004.



45



---

##### Table of Contents

Composition of loan portfolio (continued)



|                                                 |  |               |       |     |                |   |               |  |               |       |  |   |      
|------------------------------------------------ |  | ------------- | ----- | --- | -------------- | - | ------------- |  | ------------- | ----- |  | - | -----
|Composition of loan portfolio (in millions)      |  | June 30, 2004 |       |     | March 31, 2004 |   | Dec. 31, 2003 |  | June 30, 2003
|                                                 |  |               |      
|Domestic loans and leases:                       |  |               |       |     |                |   |               |  |               |       |  |   |      
|Commercial and financial                         |  | $             | 2,294 |     |                | $ | 2,650         |  | $             | 2,757 |  | $ | 3,117
|Commercial real estate                           |  |               | 2,003 |     |                |   | 2,101         |  |               | 2,131 |  |   | 2,194
|Personal (a)                                     |  |               | 1,900 |     |                |   | 1,797         |  |               | 1,714 |  |   | 1,443
|Lease finance assets (b)                         |  |               | 494   |     |                |   | 495           |  |               | 505   |  |   | 529  
|                                                 |  |               |       |     |                |   |               |  |               |       |  |   |      
|Total domestic loans and leases                  |  |               | 6,691 |     |                |   | 7,043         |  |               | 7,107 |  |   | 7,283
|International loans and leases                   |  |               | 272   |     |                |   | 355           |  |               | 360   |  |   | 409  
|                                                 |  |               |       |     |                |   |               |  |               |       |  |   |      
|Total loans and leases, net of unearned discount |  | $             | 6,963 | (c) |                | $ | 7,398         |  | $             | 7,467 |  | $ | 7,692
|                                                 |  |               |       |     |                |   |               |  |               |       |  |   |      



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



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



|(c) | Includes $3.433 billion of loans to Private Wealth
customers and $904 million of loans to Mellon 1st Business Bank, National Association, customers.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------



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



|                                                                                                         |  |               |        |                |   |               |  |               |        |  |   |       
|-------------------------------------------------------------------------------------------------------- |  | ------------- | ------ | -------------- | - | ------------- |  | ------------- | ------ |  | - | ------
|Off-balance-sheet financial instruments with contractamounts that represent credit
risk(a) (in millions) |  | June 30, 2004 |        | March 31, 2004 |   | Dec. 31, 2003 |  | June 30, 2003
|                                                                                                         |  |               |       
|Unfunded commitments to extend credit (b):                                                               |  |               |        |                |   |               |  |               |        |  |   |       
|Expire within one year                                                                                   |  | $             | 6,613  |                | $ | 7,950         |  | $             | 8,305  |  | $ | 9,898 
|Expire within one to five years                                                                          |  |               | 7,189  |                |   | 6,953         |  |               | 7,211  |  |   | 7,184 
|Expire over five years                                                                                   |  |               | 168    |                |   | 163           |  |               | 164    |  |   | 60    
|                                                                                                         |  |               |        |                |   |               |  |               |        |  |   |       
|Total unfunded commitments to extend credit                                                              |  |               | 13,970 |                |   | 15,066        |  |               | 15,680 |  |   | 17,142
|Commercial letters of credit (c)                                                                         |  |               | 8      |                |   | 9             |  |               | 8      |  |   | 19    
|Other guarantees and indemnities:                                                                        |  |               |        |                |   |               |  |               |        |  |   |       
|Standby letters of credit and foreign and other guarantees (d)                                           |  |               | 1,494  |                |   | 1,507         |  |               | 1,351  |  |   | 1,725 
|Custodian securities lent with indemnification against broker default of return of securities            |  |               | 78,140 |                |   | 83,461        |  |               | 67,299 |  |   | 59,441
|Liquidity support provided to TRFC                                                                       |  |               | 560    |                |   | 742           |  |               | 822    |  |   | 1,163 



|(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 $141 million, $157
million, $175 million and $203 million, respectively.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(b) | Net of participations totaling $438 million, $449
million, $439 million and $485 million, respectively.
|--- | -------------------------------------------------------------------------------------------------------



|(c) | Net of participations and collateral totaling $47
million, $6 million, $31 million and $27 million, respectively.
|--- | -----------------------------------------------------------------------------------------------------------------



|(d) | Net of participations and cash collateral totaling
$166 million, $195 million, $208 million and $229 million, respectively. At June 30, 2004, standby letters of credit and foreign and other guarantees had a weighted average maturity of approximately 1 year.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Commitments to extend credit



Total unfunded commitments to extend credit decreased $1.096 billion, or 7%, compared with
March 31, 2004, $1.710 billion, or 11%, compared with Dec. 31, 2003 and $3.172 billion, or 19%, compared with June 30, 2003.



46



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##### Table of Contents

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



Unfunded commitments to extend credit expiring over one year at June 30, 2004, increased $241 million, or 3%,
compared with March 31, 2004, resulting from a shift towards longer maturities of loan commitments and lower borrowings.



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 June 30, 2004, the Corporation had a liability of $10 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 where the joint
venture has defaulted, and totaled approximately $18.3 billion at June 30, 2004 primarily relating to securities lending activity. This amount assumes that there is no capital or assets of the joint venture to satisfy such claims and that there is
no level of contribution by ABN AMRO Bank N.V.



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 and is not a subsidiary of either the Bank or the Corporation. Its financial results are not included in the
financial statements of the Bank or the Corporation. TRFC was formed in 1990 and can issue up to $5 billion of commercial paper to make loans secured by, and to purchase, pools of receivables. Fee revenue of less than $1 million was received from
this entity in both the second quarter of 2004 and first quarter of 2004, compared with $2 million in the second quarter of 2003, for the services and the liquidity and credit support facilities. See Note 2 of Notes to Financial Statements for a
further discussion of the Corporations relationship with TRFC.



47



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##### Table of Contents

Nonperforming assets



Nonperforming assets totaled $15 million, a $36 million decrease from March 31, 2004, due to a California-based electric and natural gas utility company that emerged from
Chapter 11 bankruptcy protection in April 2004 and fully repaid all borrowings. The $14 million balance of total nonperforming loans at June 30, 2004 was comprised of $7 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)                                       |  | June 30, 2004 |     |   | March 31, 2004 |   |      | Dec. 31, 2003 |  |   | June 30, 2003 |  
|                                                                                        |  |               |    
|Nonperforming loans:                                                                    |  |               |     |   |                |   |      |               |  |   |               |   |  |   |      |  
|Commercial and financial                                                                |  | $             | 11  |   |                | $ | 48   |               |  | $ | 49            |   |  | $ | 57   |  
|Personal                                                                                |  |               | 3   |   |                |   | 2    |               |  |   | 2             |   |  |   | 3    |  
|Commercial real estate                                                                  |  |               |    |   |                |   | 1    |               |  |   |              |   |  |   |     |  
|                                                                                        |  |               |     |   |                |   |      |               |  |   |               |   |  |   |      |  
|Total nonperforming loans (a)                                                           |  |               | 14  |   |                |   | 51   |               |  |   | 51            |   |  |   | 60   |  
|Total acquired property                                                                 |  |               | 1   |   |                |   |     |               |  |   | 1             |   |  |   | 1    |  
|                                                                                        |  |               |     |   |                |   |      |               |  |   |               |   |  |   |      |  
|Total nonperforming assets                                                              |  | $             | 15  |   |                | $ | 51   |               |  | $ | 52            |   |  | $ | 61   |  
|                                                                                        |  |               |     |   |                |   |      |               |  |   |               |   |  |   |      |  
|Nonperforming loans as a percentage of total loans                                      |  |               | .20 | % |                |   | .68  | %             |  |   | .69           | % |  |   | .77  | %
|Nonperforming assets as a percentage of Tier I capital plus the reserve for loan losses |  |               | .56 | % |                |   | 1.99 | %             |  |   | 2.09          | % |  |   | 2.51 | %



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



At June 30, 2004 loans that were 30-59 days, 60-89 days and 90 days or more past due as to principal or interest totaled $13 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.



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.



48



---

##### Table of Contents

Provision and reserve for credit exposure (continued)



|                                                  |  |              |     |               |   |              |  |              |     |  |   |    
|------------------------------------------------- |  | ------------ | --- | ------------- | - | ------------ |  | ------------ | --- |  | - | ---
|Reserve for credit exposure (amounts in
millions) |  | June 30,2004 |     | March 31,2004 |   | Dec. 31,2003 |  | June 30,2003
|Reserve for loan losses:                          |  |              |     |               |   |              |  |              |     |  |   |    
|Base reserves:                                    |  |              |     |               |   |              |  |              |     |  |   |    
|Commercial and financial                          |  | $            | 40  |               | $ | 43           |  | $            | 48  |  | $ | 61 
|Commercial real estate                            |  |              | 12  |               |   | 13           |  |              | 13  |  |   | 8  
|Personal                                          |  |              | 5   |               |   | 6            |  |              | 6   |  |   | 5  
|Lease assets                                      |  |              | 13  |               |   | 13           |  |              | 12  |  |   | 6  
|                                                  |  |              |     |               |   |              |  |              |     |  |   |    
|Total domestic base reserve                       |  |              | 70  |               |   | 75           |  |              | 79  |  |   | 80 
|International                                     |  |              | 3   |               |   | 2            |  |              | 9   |  |   | 10 
|                                                  |  |              |     |               |   |              |  |              |     |  |   |    
|Total base reserve                                |  |              | 73  |               |   | 77           |  |              | 88  |  |   | 90 
|Impairment                                        |  |              | 2   |               |   | 2            |  |              | 2   |  |   |   
|Unallocated                                       |  |              | 21  |               |   | 15           |  |              | 13  |  |   | 23 
|                                                  |  |              |     |               |   |              |  |              |     |  |   |    
|Total loan loss reserve                           |  | $            | 96  |               | $ | 94           |  | $            | 103 |  | $ | 113
|                                                  |  |              |     |               |   |              |  |              |     |  |   |    
|Reserve for unfunded commitments:                 |  |              |     |               |   |              |  |              |     |  |   |    
|Commitments                                       |  | $            | 59  |               | $ | 63           |  | $            | 61  |  | $ | 57 
|Letters of credit and bankers acceptances         |  |              | 14  |               |   | 14           |  |              | 14  |  |   | 9  
|                                                  |  |              |     |               |   |              |  |              |     |  |   |    
|Total unfunded commitments reserve                |  | $            | 73  |               | $ | 77           |  | $            | 75  |  | $ | 66 
|                                                  |  |              |     |               |   |              |  |              |     |  |   |    
|Total reserve for credit exposure                 |  | $            | 169 |               | $ | 171          |  | $            | 178 |  | $ | 179
|                                                  |  |              |     |               |   |              |  |              |     |  |   |    



The decrease in the total base reserve
at June 30, 2004 compared with March 31, 2004 is related to reserves released due to the securitization of insurance premium finance loans as well as a continuing decline in loan volume in the large corporate and real estate portfolios. The increase
in the unallocated reserve at June 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, pharmaceutical and paper manufacturing customers. The
decrease in the reserves for unfunded commitments at June 30, 2004 from March 31, 2004 is primarily related to the lower level of unfunded loan commitments. The Corporations management concluded that, at June 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 second quarter of 2004, compared with a provision of $3 million in the second quarter of 2003 and a provision credit
of $7 million in the first quarter of 2004. There were no net credit-related losses in both the second quarter and first quarter of 2004 compared with $2 million in the second quarter of 2003, as detailed in the table on the following page.



49



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##### Table of Contents

Provision and reserve for credit exposure (continued)



|                                                                            |            |               |      |                     |                |   |            |               |  |                     |      |   |            |   |     |                     |  |   |      |   |  |   |     |  
|--------------------------------------------------------------------------- | ---------- | ------------- | ---- | ------------------- | -------------- | - | ---------- | ------------- |  | ------------------- | ---- | - | ---------- | - | --- | ------------------- |  | - | ---- | - |  | - | --- | -
|Reserve activity Quarter ended (dollar amounts in millions)                 |            | June 30, 2004 |      |                     | March 31, 2004 |   |            | June 30, 2003 | 
|                                                                            | Loanlosses |               |      | Unfundedcommitments |                |   | Loanlosses |               |  | Unfundedcommitments |      |   | Loanlosses |   |     | Unfundedcommitments | 
|                                                                            |            |               |      |                     |               
|Reserve at beginning of period                                              |            | $             | 94   |                     |                | $ | 77         |               |  | $                   | 103  |   |            | $ | 75  |                     |  | $ | 114  |   |  | $ | 64  |  
|Total credit losses                                                         |            |               | (2   | )                   |                |   |           |               |  |                     |     |   |            |   |    |                     |  |   | (1   | ) |  |   |    |  
|Total recoveries                                                            |            |               | 2    |                     |                |   |           |               |  |                     |     |   |            |   |    |                     |  |   | 1    |   |  |   |    |  
|                                                                            |            |               |      |                     |                |   |            |               |  |                     |      |   |            |   |     |                     |  |   |      |   |  |   |     |  
|Sub-total - net credit recoveries (losses)                                  |            |               |     |                     |                |   |           |               |  |                     |     |   |            |   |    |                     |  |   |     |   |  |   |    |  
|Credit losses on loans transferred to held for sale                         |            |               |     |                     |                |   |           |               |  |                     |     |   |            |   |    |                     |  |   | (2   | ) |  |   |    |  
|                                                                            |            |               |      |                     |                |   |            |               |  |                     |      |   |            |   |     |                     |  |   |      |   |  |   |     |  
|Total net credit recoveries (losses)                                        |            |               |     |                     |                |   |           |               |  |                     |     |   |            |   |    |                     |  |   | (2   | ) |  |   |    |  
|Securitizations                                                             |            |               | (2   | )                   |                |   |           |               |  |                     |     |   |            |   |    |                     |  |   |     |   |  |   |    |  
|Provision for credit losses                                                 |            |               | 4    |                     |                |   | (4         | )             |  |                     | (9   | ) |            |   | 2   |                     |  |   | 1    |   |  |   | 2   |  
|                                                                            |            |               |      |                     |                |   |            |               |  |                     |      |   |            |   |     |                     |  |   |      |   |  |   |     |  
|Reserve at end of period                                                    |            | $             | 96   |                     |                | $ | 73         |               |  | $                   | 94   |   |            | $ | 77  |                     |  | $ | 113  |   |  | $ | 66  |  
|                                                                            |            |               |      |                     |                |   |            |               |  |                     |      |   |            |   |     |                     |  |   |      |   |  |   |     |  
|Reserve for loan losses as a percentage of total loans(a)                   |            |               | 1.39 | %                   |                |   | N/M        |               |  |                     | 1.27 | % |            |   | N/M |                     |  |   | 1.46 | % |  |   | N/M |  
|Reserve for unfunded commitments as a percentage of unfunded commitments(a) |            |               | N/M  |                     |                |   | .47        | %             |  |                     | N/M  |   |            |   | .46 | %                   |  |   | N/M  |   |  |   | .35 | %
|Annualized net credit losses to average loans                               |            |               |     | %                   |                |   | N/M        |               |  |                     |     | % |            |   | N/M |                     |  |   | .11  | % |  |   | N/M |  



|                                                               |            |               |     |                     |               |   |            |   |  |                     |     |   |  |   |     |  
|-------------------------------------------------------------- | ---------- | ------------- | --- | ------------------- | ------------- | - | ---------- | - |  | ------------------- | --- | - |  | - | --- | -
|Reserve activity Six months ended (dollar amounts in millions) |            | June 30, 2004 |     |                     | June 30, 2003 |  
|                                                               | Loanlosses |               |     | Unfundedcommitments |               |   | Loanlosses |   |  | Unfundedcommitments |    
|Reserve at beginning of period                                 |            | $             | 103 |                     |               | $ | 75         |   |  | $                   | 127 |   |  | $ | 52  |  
|Total credit losses                                            |            |               | (2  | )                   |               |   |           |   |  |                     | (2  | ) |  |   |    |  
|Total recoveries                                               |            |               | 2   |                     |               |   |           |   |  |                     | 11  |   |  |   |    |  
|                                                               |            |               |     |                     |               |   |            |   |  |                     |     |   |  |   |     |  
|Sub-total - net credit recoveries (losses)                     |            |               |    |                     |               |   |           |   |  |                     | 9   |   |  |   |    |  
|Credit losses on loans transferred to held for sale            |            |               |    |                     |               |   |           |   |  |                     | (13 | ) |  |   |    |  
|                                                               |            |               |     |                     |               |   |            |   |  |                     |     |   |  |   |     |  
|Total net credit recoveries (losses)                           |            |               |    |                     |               |   |           |   |  |                     | (4  | ) |  |   |    |  
|Securitizations                                                |            |               | (2  | )                   |               |   |           |   |  |                     |    |   |  |   |    |  
|Loss on sale of commitments                                    |            |               |    |                     |               |   |           |   |  |                     |    |   |  |   | (3  | )
|Provision for credit losses                                    |            |               | (5  | )                   |               |   | (2         | ) |  |                     | (10 | ) |  |   | 17  |  
|                                                               |            |               |     |                     |               |   |            |   |  |                     |     |   |  |   |     |  
|Reserve at end of period                                       |            | $             | 96  |                     |               | $ | 73         |   |  | $                   | 113 |   |  | $ | 66  |  
|                                                               |            |               |     |                     |               |   |            |   |  |                     |     |   |  |   |     |  
|Annualized net credit losses to average loans                  |            |               |    | %                   |               |   | N/M        |   |  |                     | .10 | % |  |   | N/M |  



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

N/M  Not meaningful.



50



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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 (in
millions) |               | Quarter ended |        |                | Six months ended |  
|                                        | June 30, 2004 |               |        | March 31, 2004 |                  |   | June 30,2003 |   |  | June 30,2004 |        |   | June 30,2003 |  
|Assets:                                 |               |               |        |                |                  |   |              |   |  |              |        |   |              |   |        |   |  |   |        |  
|Money market investments                |               | $             | 2,703  |                |                  | $ | 2,986        |   |  | $            | 2,765  |   |              | $ | 2,844  |   |  | $ | 2,943  |  
|Trading account securities              |               |               | 268    |                |                  |   | 356          |   |  |              | 761    |   |              |   | 312    |   |  |   | 787    |  
|Securities                              |               |               | 11,647 |                |                  |   | 11,013       |   |  |              | 11,655 |   |              |   | 11,330 |   |  |   | 11,697 |  
|Loans                                   |               |               | 7,491  |                |                  |   | 7,489        |   |  |              | 7,915  |   |              |   | 7,490  |   |  |   | 8,063  |  
|                                        |               |               |        |                |                  |   |              |   |  |              |        |   |              |   |        |   |  |   |        |  
|Total interest-earning assets           |               |               | 22,109 |                |                  |   | 21,844       |   |  |              | 23,096 |   |              |   | 21,976 |   |  |   | 23,490 |  
|Noninterest-earning assets              |               |               | 11,362 |                |                  |   | 11,481       |   |  |              | 11,360 |   |              |   | 11,422 |   |  |   | 11,426 |  
|Reserve for loan losses                 |               |               | (94    | )              |                  |   | (103         | ) |  |              | (117   | ) |              |   | (98    | ) |  |   | (124   | )
|                                        |               |               |        |                |                  |   |              |   |  |              |        |   |              |   |        |   |  |   |        |  
|Total assets                            |               | $             | 33,377 |                |                  | $ | 33,222       |   |  | $            | 34,339 |   |              | $ | 33,300 |   |  | $ | 34,792 |  
|                                        |               |               |        |                |                  |   |              |   |  |              |        |   |              |   |        |   |  |   |        |  
|Funds supporting total assets:          |               |               |        |                |                  |   |              |   |  |              |        |   |              |   |        |   |  |   |        |  
|Core funds                              |               | $             | 30,606 |                |                  | $ | 30,147       |   |  | $            | 29,026 |   |              | $ | 30,420 |   |  | $ | 30,714 |  
|Purchased funds                         |               |               | 2,771  |                |                  |   | 3,075        |   |  |              | 5,313  |   |              |   | 2,880  |   |  |   | 4,078  |  
|                                        |               |               |        |                |                  |   |              |   |  |              |        |   |              |   |        |   |  |   |        |  
|Funds supporting total assets           |               | $             | 33,377 |                |                  | $ | 33,222       |   |  | $            | 34,339 |   |              | $ | 33,300 |   |  | $ | 34,792 |  
|                                        |               |               |        |                |                  |   |              |   |  |              |        |   |              |   |        |   |  |   |        |  



The decrease in interest-earning
assets in the second quarter of 2004 compared with the second quarter of 2003 primarily resulted from lower levels of trading account securities and loans. 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 the average interest-earning assets compared with the first quarter of 2004 resulted from higher levels of securities
partially offset by lower levels of money market investments and trading account securities. The increase in average securities primarily reflects delays in the first quarter of 2004 in the reinvestment of prepayments in new securities due to low
interest rates. By March 31, 2004, securities available for sale totaled $11.6 billion. The decrease in average money market investments was due primarily to lower levels of interest-bearing deposits with banks. See pages 48 and 49 of the
Corporations 2003 Financial Annual Report for a definition of core and purchased funds.



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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 June 30, 2004 of up to approximately
$255 million, less any dividends declared and plus or minus net profits or losses, as defined, earned between July 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 June 30, 2004, the Parent Corporation held cash and marketable securities of $851 million. For the second quarter of 2004, the Parent Corporations average
commercial paper borrowings were $10 million, compared with $25 million in the first quarter of 2004 and $16 million in the second quarter of 2003. Commercial paper outstanding at June 30, 2004 totaled $6 million.



The Parent Corporation had a $250 million revolving credit agreement with third party
financial institutions that expired in June 2004. A new $200 million revolving credit agreement was established with Mellon Bank, N.A. the Corporations primary bank subsidiary, in June 2004, with a June 2005 expiration date. The new 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 June 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 June 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+   



Contractual maturities of the
Corporations long-term debt totaled $5 million in the second quarter of 2004. There are no contractual maturities scheduled for the remainder of 2004.



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##### Table of Contents

Liquidity and dividends (continued)



The Corporation paid $76 million in common stock dividends in the second quarter of 2004 compared with $59 million in
the second quarter of 2003. The common dividend payout ratio, on a net income basis, was 43% in the second quarter of 2004 on a dividend of $.18 per share compared with 35% in the second quarter of 2003 on a dividend of $.14 per share. Based upon
shares outstanding at June 30, 2004 and the current quarterly common stock dividend rate of $.18 per share, the annual common stock dividend requirement is expected to be approximately $305 million.



As shown in the consolidated statement of cash flows, cash and due from banks increased by
$570 million during the first six months of 2004 to $3.172 billion. The increase resulted from $1.433 billion of net cash provided by financing activities and $509 million of net cash provided by operating activities, partially offset by $1.369
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 and an increase in the level of federal funds sold and securities under resale agreements, 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 second 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 June 30, 2004, and excluding the impact of interest receipts on nonperforming loans. The impact of the rate movements was developed by
simulating the effect of rates changing in a gradual fashion over a six-month period from the June 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.



|                                                                    |  |                                                      |      |     |          |   |      |         |  |   |        |     |  |         |     |   |  |   |      |    
|------------------------------------------------------------------- |  | ---------------------------------------------------- | ---- | --- | -------- | - | ---- | ------- |  | - | ------ | --- |  | ------- | --- | - |  | - | ---- | ---
|                                                                    |  | Movements in interest rates from June 30, 2004 rates |     
|                                                                    |  | Increase                                             |      |     | Decrease |  
|Interest rate simulation sensitivity analysis                       |  | +50 bp                                               |      |     | +100 bp  |   |      | +200 bp |  |   | -50 bp |     |  | -100 bp |    
|Simulated impact in the next 12 months compared with June 30, 2004: |  |                                                      |      |     |          |   |      |         |  |   |        |     |  |         |     |   |  |   |      |    
|Net interest revenue increase (decrease)                            |  |                                                      | (1.3 | )%  |          |   | (2.4 | )%      |  |   | (4.9   | )%  |  |         | 0.4 | % |  |   | (1.8 | )% 
|Earnings per share increase (decrease)                              |  | $                                                    | (.01 | )   |          | $ | (.02 | )       |  | $ | (.04   | )   |  | $       |    |   |  | $ | (.01 | )  
|Return on equity increase (decrease)                                |  |                                                      | (11  | )bp |          |   | (21  | )bp     |  |   | (42    | )bp |  |         | 3bp |   |  |   | (16  | )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 June 30, 2004 and June 30, 2003. The simulation results reflect the Corporations efforts to manage the repricing
characteristics of its interest-earning assets and supporting funds.



53



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##### Table of Contents

Interest rate sensitivity analysis (continued)



Securities available for sale



The amortized cost basis of securities available for sale totaled $11.5 billion at June 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.



|                                            |  |                |      |                  |      |   |                                    |     
|------------------------------------------- |  | -------------- | ---- | ---------------- | ---- | - | ---------------------------------- | ----
|                                            |  | June 30, 2004 
|Securities available for sale (in
billions) |  | Amortized cost |      | Average yield(a) |      |   | Estimated averagerepricing life(b)
|Fixed rate:                                 |  |                |      |                  |      |   |                                    |     
|Mortgage-backed                             |  | $              | 5.0  |                  | 4.63 | % |                                    | 5.1 
|U.S. Treasury and agency                    |  |                | 2.1  |                  | 3.06 | % |                                    | 2.1 
|State and political subdivisions            |  |                | .6   |                  | 7.04 | % |                                    | 15.7
|Adjustable/floating rate mortgage-backed:   |  |                |      |                  |      |   |                                    |     
|Floating rate                               |  |                | 2.6  |                  | 1.75 | % |                                    | 0.1 
|Adjustable rate                             |  |                | 1.2  |                  | 3.17 | % |                                    | 1.7 
|                                            |  |                |      |                  |      |   |                                    |     
|Total                                       |  | $              | 11.5 |                  | 3.68 | % |                                    | 3.6 



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



|(b) | Estimated average repricing lives are in years. Estimated lives for mortgage-backed securities include the effect of
estimated prepayments, while the estimated lives for U.S. Treasury and agencies and states 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 $2.779 billion at June 30, 2004, compared with $2.720 billion at Dec. 31, 2003 and $2.763 billion at
June 30, 2003. The notional value at June 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 1.48%, respectively. The net interest differential between interest revenue and interest expense resulted in interest revenue of $37 million and $74 million in the second quarter and first six months of
2004, compared with interest revenue of $36 million and $67 million in the second quarter and first six 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 six months ended June 30, 2004 and June 30, 2003. At June 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.



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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) |  | June 30,2004 |        | March 31,2004 |   | Dec. 31,2003 |  | June 30,2003
|Commitments to purchase and sell foreign currency contracts                       |  | $            | 77,583 |               | $ | 72,190       |  | $            | 54,319 |  | $ | 49,512
|Foreign currency option contracts purchased                                       |  |              | 5,046  |               |   | 7,532        |  |              | 5,602  |  |   | 42,098
|Foreign currency option contracts written                                         |  |              | 8,549  |               |   | 10,446       |  |              | 4,928  |  |   | 43,675
|Interest rate agreements:                                                         |  |              |        |               |   |              |  |              |        |  |   |       
|Interest rate swaps                                                               |  |              | 10,197 |               |   | 9,813        |  |              | 9,886  |  |   | 10,263
|Options, caps and floors purchased                                                |  |              | 667    |               |   | 405          |  |              | 542    |  |   | 557   
|Options, caps and floors written                                                  |  |              | 820    |               |   | 541          |  |              | 513    |  |   | 924   
|Futures and forward contracts                                                     |  |              | 16,727 |               |   | 14,158       |  |              | 13,220 |  |   | 13,363
|Equity options                                                                    |  |              | 2,804  |               |   | 1,353        |  |              | 508    |  |   | 376   
|Credit default swaps                                                              |  |              | 671    |               |   | 609          |  |              | 612    |  |   | 206   
|Other products                                                                    |  |              | 36     |               |   | 47           |  |              | 48     |  |   | 50    



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 June 30, 2004 compared with approximately $4 million at Dec. 31, 2003 and approximately $7 million at June 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 June 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 June 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



55



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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 June 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. The Corporation currently believes that when
required by rules of the SEC it will be able to 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 income; the Corporations intention not to renew certain
credit relationships; planned reduction of positions and utilization of the severance accrual; 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; 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; corporate and personal customers bankruptcies; operational risk; inflation; technological change; success in the timely development of new products and services; competitive
product and pricing pressures within the Corporations markets; customer spending and savings habits; interest rate fluctuations; monetary fluctuations; currency rate fluctuations; acquisitions and integrations of acquired businesses; changes
in law; changes in fiscal, monetary, regulatory, trade and tax policies and laws; success in gaining regulatory approvals when required; the uncertainties inherent in the litigation process; the effects of recent and any further terrorist acts and
the results of the war on terrorism; and uncertainties associated with the evolving requirements of Section 404 of the Sarbanes-Oxley Act of 2002 and the Public Company Accounting Oversight Board; 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



56



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Cautionary Statement (continued)



Exchange Commission pursuant to the Securities Exchange Act of 1934. All statements speak only as of the date on which such statements are made, and the
Corporation undertakes no obligation to update any statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events.



PART II - OTHER INFORMATION



|Item 1. | Legal Proceedings.
|------- | ------------------



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



|Item 2. | Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities.
|------- | ---------------------------------------------------------------------------------



|(e) | Information regarding repurchases by the Corporation of its equity securities appears under Capital on pages 44 and 45 of this Report and is incorporated into this Item
by reference.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Item 4. | Submission of Matters to a Vote of Security Holders.
|------- | ----------------------------------------------------



At the Corporations annual meeting of shareholders held on April 20, 2004, for which proxies were solicited pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended, the following matters were voted upon by shareholders.



| | 1. | The election of five directors for a term expiring in 2007:
| | -- | -----------------------------------------------------------



|                  |  |             |  |               
|----------------- |  | ----------- |  | --------------
|Name of Director  |  | Votes For   |  | Votes Withheld
|Jared L. Cohon    |  | 357,947,927 |  | 11,330,899    
|Ira J. Gumberg    |  | 351,560,201 |  | 17,718,625    
|Martin G. McGuinn |  | 358,063,954 |  | 11,214,872    
|David S. Shapira  |  | 356,734,096 |  | 12,544,730    
|John P. Surma     |  | 360,062,101 |  | 9,216,725     



The election of one
director for a term expiring in 2005:



|                  |  |             |  |               
|----------------- |  | ----------- |  | --------------
|Name of Director  |  | Votes For   |  | Votes Withheld
|Edward J. McAniff |  | 352,541,284 |  | 16,737,542    



| | 2. | Proposal to amend the Corporations Long-Term Profit Incentive Plan:
| | -- | --------------------------------------------------------------------



| |  |          |  |             |  | 
| |  | -------- |  | ----------- |  | 
| |  | For:     |  | 240,443,486 |  | 
| |  | Against: |  | 68,370,087  |  | 
| |  | Abstain: |  | 5,038,997   |  | 



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##### Table of Contents

PART II - OTHER INFORMATION (continued)



|Item 4. | Submission of Matters to a Vote of Security Holders. (continued)
|------- | ----------------------------------------------------------------



| | 3. | Ratification of KPMG LLP as independent public accountants of the Corporation for the year ending Dec. 31, 2004:
| | -- | ----------------------------------------------------------------------------------------------------------------



| |  |          |  |             |  | 
| |  | -------- |  | ----------- |  | 
| |  | For:     |  | 359,794,575 |  | 
| |  | Against: |  | 6,811,019   |  | 
| |  | Abstain: |  | 2,673,330   |  | 



Abstentions are not counted for voting
purposes under Pennsylvania law, the jurisdiction of the Corporations incorporation.



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



(a) 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 |  | Mellon Financial Corporation Long-Term Profit Incentive Plan (2004), effective as of April 20, 2004.                                                                                         
|     | 
|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.                                                                                           



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##### Table of Contents

PART II - OTHER INFORMATION (continued)



|Item 6. | Exhibits and Reports on Form 8-K. (continued)
|------- | ---------------------------------------------



(b) Reports on Form 8-K



During the second quarter of 2004, the Corporation filed or furnished the following Current Reports on Form 8-K:



| | (1) | A report dated March 5, 2004, which included, under Item 5, (i) a statement announcing that effective April 1, 2004 Union Bank of California, National Association was appointed as
successor Trustee to J.P. Morgan Trust Company, N.A., formerly known as Bank One Trust Company, N.A. for Securities issued under the Indenture dated as of June 12, 2000, among Mellon Funding Corporation, as Issuer, Mellon Financial Corporation, as
Guarantor, and J.P. Morgan Trust Company, N.A. formerly known as Bank One Trust Company, N.A., as Trustee, as supplemented by the First Supplemental Indenture, dated as of April 30, 2001, (ii) a statement announcing that Mellon Financial Corporation
and Mellon Funding Corporation executed a second supplemental indenture dated as of March 5, 2004 (the Second Supplemental Indenture), to the Indenture dated as of June 12, 2000, among Mellon Funding Corporation, as Issuer, Mellon
Financial Corporation, as Guarantor and J.P. Morgan Trust Company, N.A. formerly known as Bank One Trust Company, N.A., as Trustee, as supplemented by the First Supplemental Indenture, dated as of April 30, 2001. The Second Supplemental Indenture
was filed as an exhibit thereto, and, under Item 7, certain exhibits were filed therewith and incorporated by reference into Registration Statement Nos. 333-107400, 333-107400-01, 333-107400-02, 333-107400-03, and 333-107400-04 pertaining to certain
debt securities of Mellon Funding Corporation and the related guarantees of Mellon Financial Corporation.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | A report dated March 31, 2004, which included, under Items 5 and 7, a statement announcing that Ira J. Gumberg, a Director of Mellon Financial Corporation, executed and delivered a
letter, dated March 31, 2004, to Gumberg Associates - Chapel Square regarding the waiver of any right to any partnership income resulting from lease payments by Mellon Bank, N.A.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | A report dated April 12, 2004, which included, under Items 5 and 7, the Corporations press release, dated April 12, 2004, announcing that it had reached a definitive agreement
to acquire Safeco Trust Company.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (4) | A report dated April 20, 2004, which included, under Items 7 and 12, the Corporations press release, dated April 20, 2004, announcing results of operations for first quarter
2004 and an increase in the quarterly common stock dividend.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (5) | A report dated May 7, 2004, which included, under Item 7, the Corporations Business Sectors Financial Information and Financial Trends through First Quarter 2004.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (6) | A report dated May 18, 2004, which included, under Items 5 and 7, the Corporations press release, dated May 18, 2004, announcing that Paul L. Cejas, a Miami-based business and
civic leader, and Edmund F. Kelly, chairman of Boston-based Liberty Mutual Group, have been elected to its board of directors, effective June 1, 2004.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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SIGNATURE



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



|                     |  |  |  |                                          |  |                       |  |                                                                                                                      
|-------------------- |  |  |  | ---------------------------------------- |  | --------------------- |  | ---------------------------------------------------------------------------------------------------------------------
|                     |  |  |  | MELLON FINANCIAL CORPORATION(Registrant)
|                     |  |  | 
|Date: August 6, 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



|                                                     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|---------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Business of the Corporation                          |  | 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, Founders Asset
Management LLC and Standish Mellon Asset Management Company LLC in the United States and Newton Investment Management in Europe, as well as a number of additional 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).
|                                                     | 
|Corporate Communications/ Media Relations            |  | Members of the media should direct inquiries to media@mellon.com or (412) 234-7157.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|                                                     | 
|Direct Stock Purchase and Dividend Reinvestment Plan |  | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|                                                     | 
|Dividend Payments                                    |  | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|                                                     | 
|Exchange Listing                                     |  | 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-K and Shareholder Publications               |  | 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                                             |  | Mellon: www.mellon.com                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|Access                                               |  | Mellon Investor Services: www.melloninvestor.com See also Internet access for Business Groups/Principal Entities in the 2003 Mellon Summary Annual Report.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|                                                     | 
|Investor Relations                                   |  | Visit www.mellon.com/investorrelations/ or call (412) 234-5601.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                                                     | 
|Securities Transfer Agent                            |  | 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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Index to Exhibits



|            |  |                                                                                                                                                                                               |  |                                                                                                                                                               
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                   |  | Method of Filing                                                                                                                                              
|3.1         |  | Restated Articles of Incorporation of Mellon Financial Corporation, as amended and restated as of Sept. 17, 1998, and as amended Oct. 18, 1999.                                               |  | Previously filed as Exhibit 3.1 to Quarterly Report on Form 10-Q (File No. 1-7410) for the quarter ended Sept. 30, 1999, and incorporated herein by reference.
|            |  |                                                                                                                                                                                              
|3.2         |  | By-Laws of Mellon Financial Corporation, as amended, effective Oct. 19, 1999.                                                                                                                 |  | Previously filed as Exhibit 3.2 to Quarterly Report on Form 10-Q (File No. 1-7410) for the quarter ended Sept. 30, 1999, and incorporated herein by reference.
|            |  |                                                                                                                                                                                              
|4.1         |  | Shareholder Protection Rights Agreement, dated as of Oct. 15, 1996, between Mellon Financial Corporation and Mellon Bank, N.A., as Rights Agent, as amended and restated as of Oct. 19,
1999. |  | Previously filed as Exhibit 1 to Form 8-A/A Registration Statement (File No. 1-7410) dated Oct. 19, 1999, and incorporated herein by reference.               
|            |  |                                                                                                                                                                                              
|10.1        |  | Mellon Financial Corporation Long-Term Profit Incentive Plan (2004), effective as of April 20, 2004.                                                                                          |  | 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.                                                                                                                                           



(continued)



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##### Table of Contents

Index to Exhibits (continued)



|            |  |                                                                                                    |  |                                                                                                                                                                
|----------- |  | -------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                        |  | Method of Filing                                                                                                                                               
|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.



63