MELLON FINANCIAL CORP - 10-Q Quarterly Report

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2004

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

OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File No. 1-7410

MELLON FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

Pennsylvania

25-1233834

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

One Mellon Center

Pittsburgh, Pennsylvania 15258-0001

(Address of principal executive offices)(Zip Code)

Registrant’s telephone number, including area code—(412) 234-5000

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

Yes ü No

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

Yes ü No

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


Class		Outstanding as of Sept. 30, 2004

Common Stock, $.50 par value		423,548,521

MELLON FINANCIAL CORPORATION

THIRD QUARTER 2004 FORM 10-Q

TABLE OF CONTENTS AND 10-Q CROSS-REFERENCE INDEX



		Page No.
Part I - Financial Information

Item 1. Financial Statements:
Consolidated Income Statement		2
Consolidated Balance Sheet		4
Consolidated Statement of Cash Flows		5
Consolidated Statement of Changes in Shareholders’ Equity		6

Notes to Financial Statements		8

Items 2. and 3. Management’s Discussion and Analysis of Financial Condition and Results of Operations; Quantitative and Qualitative Disclosures About Market Risk		16

Item 4. Controls and Procedures		54

Cautionary Statement		55

Part II - Other Information

Item 1. Legal Proceedings.		56

Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities.		56

Item 6. Exhibits.		56

Signature		57

Corporate Information		58

Index to Exhibits		59

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

CONSOLIDATED INCOME STATEMENT

Mellon Financial Corporation (and its subsidiaries)


		Quarter ended						Nine months ended
(in millions)		Sept. 30, 2004		June 30, 2004		Sept. 30, 2003		Sept. 30, 2004			Sept. 30, 2003
Noninterest	Trust and investment fee revenue:
revenue	Investment management	$	376	$	385	$	348	$	1,166		$	1,000
	Human resources & investor solutions		221		233		229		687			714
	Institutional trust and custody		127		133		114		393			339
	Securities lending revenue		16		24		16		58			53

	Total trust and investment fee revenue		740		775		707		2,304			2,106
	Cash management revenue		77		79		83		234			226
	Foreign exchange trading revenue		37		50		42		144			108
	Financing-related revenue		32		30		30		97			100
	Equity investment revenue		23		9		3		130			(12	)
	Other revenue		21		19		38		54			62

	Total fee and other revenue		930		962		903		2,963			2,590
	Gains on sales of securities		—		8		18		8			50

	Total noninterest revenue		930		970		921		2,971			2,640

Net interest	Interest revenue		202		199		214		595			717
revenue	Interest expense		92		80		82		252			268

	Net interest revenue		110		119		132		343			449
	Provision for credit losses		—		—		—		(7	)		7

	Net interest revenue after provision for credit losses		110		119		132		350			442

Operating	Staff expense		481		481		494		1,457			1,400
expense	Professional, legal and other purchased services		102		110		108		316			308
	Net occupancy expense		66		93		68		227			197
	Equipment expense		54		53		70		161			174
	Business development		25		26		28		76			78
	Communications expense		23		27		24		78			80
	Amortization of intangible assets		5		4		5		14			14
	Other expense		33		34		35		119			113

	Total operating expense		789		828		832		2,448			2,364

Income	Income from continuing operations before income taxes and cumulative effect of accounting change		251		261		221		873			718
	Provision for income taxes		70		85		68		272			226

	Income from continuing operations before cumulative effect of accounting change		181		176		153		601			492
	Cumulative effect of accounting change, net of tax		—		—		—		—			(7	)

	Income from continuing operations		181		176		153		601			485
	Discontinued operations:
	Income from operations (net of tax of $-, $-, $-, $-, and $-)		—		—		—		—			1
	Net gain on disposals (net of tax expense (credit) of $-, $-, $(16), $1 and $(14))		2		—		28		3			31

	Income from discontinued operations (net of tax of $-, $-, $(16), $1 and $(14))		2		—		28		3			32

	Net income	$	183	$	176	$	181	$	604		$	517

(continued)

CONSOLIDATED INCOME STATEMENT (continued)

Mellon Financial Corporation (and its subsidiaries)


		Quarter ended						Nine months ended
(share amounts in thousands)		Sept. 30, 2004		June 30, 2004		Sept. 30, 2003		Sept. 30, 2004		Sept. 30, 2003
Earnings per	Basic:
share (a)	Income from continuing operations before cumulative effect of accounting change	$	.43	$	.42	$	.37	$	1.43	$	1.16
	Cumulative effect of accounting change		—		—		—		—		(.02	)

	Continuing operations		.43		.42		.37		1.43		1.14
	Discontinued operations		.01		—		.06		.01		.07

	Net income	$	.44	$	.42	$	.43	$	1.44	$	1.21

	Diluted:
	Income from continuing operations before cumulative effect of accounting change	$	.43	$	.42	$	.36	$	1.42	$	1.14
	Cumulative effect of accounting change		—		—		—		—		(.01	)

	Continuing operations		.43		.42		.36		1.42		1.13
	Discontinued operations		—		—		.06		—		.07

	Net income	$	.43	$	.42	$	.42	$	1.42	$	1.20

Shares	Basic average shares outstanding		419,136		419,015		426,183		419,937		426,856
outstanding	Common stock equivalents		3,978		4,780		5,152		4,796		4,460

	Diluted average shares outstanding		423,114		423,795		431,335		424,733		431,316

(a)

Calculated based on unrounded numbers.

See accompanying Notes to Financial Statements.

CONSOLIDATED BALANCE SHEET

Mellon Financial Corporation (and its subsidiaries)


(dollar amounts in millions)		Sept. 30, 2004		Dec. 31, 2003		Sept. 30, 2003
Assets	Cash and due from banks	$	3,278	$	2,602	$	2,619
	Interest-bearing deposits with banks		2,858		2,775		2,319
	Federal funds sold and securities under resale agreements		347		703		869
	Other money market investments		107		216		155
	Trading account securities		201		266		569
	Securities available for sale		12,445		10,690		10,225
	Investment securities (approximate fair value of $233, $308 and $374)		226

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