BANK OF NEW YORK CO INC - 10-Q Quarterly Report

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THE BANK OF NEW YORK COMPANY, INC.

Quarterly Report on Form 10-Q
For the quarterly period ended March 31, 2005

The Quarterly Report on Form 10-Q and cross reference index is on page 60.

THE BANK OF NEW YORK COMPANY, INC.
FINANCIAL REVIEW
TABLE OF CONTENTS

Consolidated Financial Highlights 1

Management's Discussion and Analysis of Financial
Condition and Results of Operations

- Introduction 2
- Overview 2
- First Quarter 2005 Highlights 3
- Consolidated Income Statement Review 4
- Business Segments Review 8
- Critical Accounting Policies 20
- Consolidated Balance Sheet Review 24
- Liquidity 30
- Capital Resources 32
- Trading Activities 34
- Asset/Liability Management 36
- Statistical Information 37
- Other Developments 38
- Forward Looking Statements and
Factors That Could Affect Future Results 43
- Website Information 46

Consolidated Financial Statements
- Consolidated Balance Sheets
March 31, 2005 and December 31, 2004 47
- Consolidated Statements of Income
For the Three Months Ended March 31, 2005 and 2004 48
- Consolidated Statement of Changes In
Shareholders' Equity For the Three
Months Ended March 31, 2005 49
- Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 2005 and 2004 50
- Notes to Consolidated Financial Statements 51 - 59

Form 10-Q
- Cover 60
- Controls and Procedures 61
- Legal Proceedings 61
- Changes in Securities, Use of Proceeds, and
Issuer Purchases of Equity Securities 62
- Exhibits 63
- Signature 64

1

THE BANK OF NEW YORK COMPANY, INC.
Financial Highlights
(Dollars in millions, except per share amounts)
(Unaudited)

March 31, December 31, March 31,
2005 2004 2004
------------ ------------ ------------

Quarter
-------
Revenue (tax equivalent basis) $ 1,917 $ 1,967 $ 1,667
Net Income 379 351 364
Basic EPS 0.49 0.45 0.47
Diluted EPS 0.49 0.45 0.47
Cash Dividends Per Share 0.20 0.20 0.19
Return on Average Common
Shareholders' Equity 16.52% 15.34% 17.17%
Return on Average Assets 1.55 1.40 1.47
Efficiency Ratio 66.2 64.8 69.3

Assets $ 96,537 $ 94,529 $ 92,652
Loans 38,764 35,781 36,070
Securities 23,907 23,802 24,083
Deposits - Domestic 33,634 35,558 33,639
- Foreign 25,328 23,163 22,443
Long-Term Debt 7,389 6,121 6,276
Common Shareholders' Equity 9,335 9,290 8,760

Common Shareholders'
Equity Per Share $ 12.02 $ 11.94 $ 11.27
Market Value Per Share
of Common Stock 29.05 33.42 31.50

Allowance for Loan Losses as
a Percent of Total Loans 1.50% 1.65% 1.75%
Allowance for Loan Losses as
a Percent of Non-Margin Loans 1.78 1.99 2.11
Total Allowance for Credit Losses
as a Percent of Total Loans 1.85 2.06 2.19
Total Allowance for Credit Losses
as a Percent of Non-Margin Loans 2.19 2.48 2.64

Tier 1 Capital Ratio 8.13 8.31 7.60
Total Capital Ratio 12.54 12.21 11.70
Leverage Ratio 6.56 6.41 5.83
Tangible Common Equity Ratio 5.48 5.56 5.22

Employees 23,160 23,363 22,820

Assets Under Custody (In trillions)
Total Assets Under Custody $ 9.9 $ 9.7 $ 8.6
Equity Securities 34% 35% 33%
Fixed Income Securities 66 65 67
Cross-Border Assets Under Custody $ 2.8 $ 2.7 $ 2.4

Assets Under Administration
(In billions) $ 33 $ 33 $ 33

Assets Under Management (In billions)
Total Assets Under Management 104 102 92
Equity Securities 34% 36% 36%
Fixed Income Securities 21 21 22
Alternative Investments 15 15 13
Liquid Assets 30 28 29

2

Management's Discussion and Analysis of Financial Condition and
- ---------------------------------------------------------------
Results of Operations
---------------------

INTRODUCTION

The Bank of New York Company, Inc.'s (the "Company") actual results of
future operations may differ from those estimated or anticipated in certain
forward-looking statements contained herein for reasons which are discussed
below and under the heading "Forward Looking Statements and Factors That Could
Affect Future Results". When used in this report, the words "estimate,"
"forecast," "project," "anticipate," "expect," "intend," "believe," "plan,"
"goal," "should," "may," "strategy," "target, " and words of similar meaning
are intended to identify forward looking statements in addition to statements
specifically identified as forward looking statements.

OVERVIEW

The Bank of New York Company, Inc. (NYSE: BK) is a global leader in
providing a comprehensive array of services that enable institutions and
individuals to move and manage their financial assets in more than 100 markets
worldwide. The Company has a long tradition of collaborating with clients to
deliver innovative solutions through its core competencies: securities
servicing, treasury management, investment management, and individual &
regional banking services. The Company's extensive global client base
includes a broad range of leading financial institutions, corporations,
government entities, endowments and foundations. Its principal subsidiary,
The Bank of New York, founded in 1784, is the oldest bank in the United States
and has consistently played a prominent role in the evolution of financial
markets worldwide.

The Company has executed a consistent strategy over the past decade by
focusing on highly scalable, fee-based securities servicing and fiduciary
businesses, with top three market share in most of its major product lines.
The Company distinguishes itself competitively by offering the broadest array
of products and services around the investment lifecycle. These include:
advisory and asset management services to support the investment decision;
extensive trade execution, clearance and settlement capabilities; custody,
securities lending, accounting and administrative services for investment
portfolios; and sophisticated risk and performance measurement tools for
analyzing portfolios. The Company also provides services for issuers of both
equity and debt securities. By providing integrated solutions for clients'
needs, the Company strives to be the preferred partner in helping its clients
succeed in the world's rapidly evolving financial markets.

The Company has grown both through internal reinvestment as well as
execution of strategic acquisitions to expand product offerings and increase
market share in its scale businesses. Internal reinvestment occurs through
increased technology spending, staffing levels, marketing/branding
initiatives, quality programs, and product development. The Company
consistently invests in technology to improve the breadth and quality of its
product offerings, and to increase economies of scale. With respect to
acquisitions, the Company has acquired 93 businesses since 1995, almost
exclusively in its securities servicing and fiduciary segment. The
acquisition of Pershing in 2003 for $2 billion was the largest of these
acquisitions.

As part of the transformation to a leading securities servicing provider,
the Company has also de-emphasized or exited its slower growth traditional
banking businesses over the past decade. The Company's more significant
actions include selling its credit card business in 1997 and its factoring
business in 1999, and most recently, significantly reducing non-financial
corporate credit exposures by 47% from December 31, 2000 to December 31, 2004.
Capital generated by these actions has been reallocated to the Company's
higher growth businesses.

3

The Company's business model is well positioned to benefit from a number
of long-term secular trends. These include the growth of worldwide financial
assets, globalization of investment activity, structural market changes, and
increased outsourcing. These trends benefit the Company by driving higher
levels of financial asset trading volume and other transactional activity, as
well as higher asset price levels and growth in client assets, all factors by
which the Company prices its services. In addition, international markets
offer excellent growth opportunities.

FIRST QUARTER 2005 HIGHLIGHTS

The Company reported first quarter net income of $379 million and diluted
earnings per share of 49 cents, compared with net income of $351 million and
diluted earnings per share of 45 cents in the fourth quarter of 2004, and net
income of $364 million and diluted earnings per share of 47 cents in the first
quarter of 2004. In the fourth quarter of 2004, the Company recorded several
gains and charges that in aggregate reduced reported earnings by 3 cents per
share. See "Other Developments".

First quarter 2005 highlights include solid performance in securities
servicing, asset management, and foreign exchange and other trading, continued
excellent credit performance, and good expense control. Securities servicing
fees increased 1% sequentially from the seasonally robust fourth quarter to
$751 million, reflecting strong growth in investor services and broker-dealer
services. Private client services and asset management increased 5%
sequentially, reflecting continued growth in Ivy Asset Management's ("Ivy")
international business. Foreign exchange and other trading revenues increased
7% sequentially, reflecting continued strong customer flows in foreign exchange
and improved results in interest rate derivatives. Partially offsetting this
revenue growth were lower capital markets related income, fewer securities
gains, and lower other income.

On a year-over-year basis, securities servicing and asset management
increased by 5% and 12%, respectively. The increase in securities servicing
fees primarily reflects strong performance in investor services and broker-
dealer services. The increase in asset management was driven by the continued
growth in Ivy as well as higher fees from BNY Hamilton Funds. Offsetting this
revenue growth were lower capital markets related income, lower foreign
exchange and other trading, fewer securities gains and a decline in other
income.

Additional highlights for the quarter include continued growth in net
interest income of 2% sequentially and 10% year-over-year, reflecting widening
spreads as interest rates continue to rise. Asset quality remains strong, as
the provision improved to a credit of $10 million and NPA's declined by 10%
from December 31, 2004. Total expenses declined by 2% from the fourth quarter.
After adjusting for legal reserves taken in the fourth quarter, expense growth
was 1%, reflecting the Company's expense control efforts.

The Company's securities servicing businesses maintained good revenue
momentum following the very strong results in the fourth quarter of 2004. The
balance sheet remained well positioned for growth in net interest income, and
the Company's credit risk improvement efforts continue to deliver results. The
Company's intensified focus on expense management was also effective, as total
expenses were essentially unchanged sequentially.

During the first quarter of 2005, the Company continued to invest in
enhancing its service offerings, critical to sustaining revenue growth through
all types of markets, while maintaining its commitment to expense discipline
to ensure a competitive cost base. Service offerings enhancements were the
result of both internal development and acquisitions. New business momentum
remains strong as the Company is gaining traction with growth initiatives such
as hedge fund servicing, Pershing's registered investment advisor ("RIA")
offering and independent research. The outlook for Ivy continues to be very
positive, given increased allocations by institutions to alternative
investments, including hedge funds, as an asset class.

4

The key factors impacting growth going forward remain the sustainability
of a favorable investment environment and consistent focus on expense control.

CONSOLIDATED INCOME STATEMENT REVIEW

Noninterest Income
- ------------------

1st 4th 1st
Quarter Quarter Quarter
------- ------- -------
(In millions) 2005 2004 2004
------- ------- -------
Servicing Fees
Securities $ 751 $ 742 $ 716
Global Payment Services 75 71 79
------- ------- -------
826 813 795
Private Client Services
and Asset Management Fees 121 115 108
Service Charges and Fees 92 98 96
Foreign Exchange and
Other Trading Activities 96 90 106
Securities Gains 12 18 33
Other* 31 42 82
------- ------- -------
Total Noninterest Income $ 1,178 $ 1,176 $ 1,220
======= ======= =======
* See "Other Developments."

Total noninterest income for the first quarter of 2005 was $1,178
million, essentially flat on a sequential quarter basis and a decrease of 3%
from the first quarter of 2004. The first quarter of 2005 reflects stronger
performance in securities servicing and asset management versus both prior
periods offset by decreases in service charges and fees, securities gains and
other noninterest income. The first quarter of 2004 included a $48 million
gain on the sale of a portion of the Company's investment in Wing Hang Bank
Limited, recorded in other noninterest income, as well as securities gains of
$19 million related to four sponsor fund investments.

Securities servicing fees were up $9 million, or 1%, sequentially and $35
million, or 5%, from a year ago. For a discussion of securities servicing
fees see "Securities Servicing Fees" in the segment results section under
"Servicing and Fiduciary Businesses."

Global payment services fees increased $4 million, or 6%, compared with
the fourth quarter of 2004 and decreased $4 million, or 5%, from the first
quarter of 2004. The sequential increase reflects strength in cash management
due to new business wins which offset lower revenue from trade finance. The
decline versus the first quarter of 2004 reflects lower fees due to customers
choosing to pay with higher compensating balances partially offset by new
business.

Private client services and asset management fees for the first quarter
were up 5% from the prior quarter and 12% from the first quarter of 2004. The
sequential quarter increase reflects continued growth at Ivy and higher fees
in institutional equity and retail investment products. The increase from the
first quarter of 2004 is primarily due to growth at Ivy as well as higher fees
from BNY Hamilton Funds. Total assets under management were $104 billion at
March 31, 2005, up from $102 billion at December 31, 2004 and $92 billion a
year ago.

Service charges and fees were down 6% from the fourth quarter of 2004 and
4% from the first quarter of 2004. The sequential and year-over-year
decreases reflect lower capital markets fees due to reduced activity in loan
syndications and bond underwriting. As a result of its credit risk reduction
efforts, the Company has narrowed its capital markets focus to selective

5

industry segments, such as utilities and media, which were less active this
quarter.

Foreign exchange and other trading revenues were $96 million, up $6
million, or 7%, sequentially and down $10 million, or 9%, from the first
quarter of 2004. The strong sequential quarter performance reflects improved
results in interest rate derivatives, while the decrease from the record first
quarter of 2004 performance resulted from lower foreign exchange revenues.

Securities gains in the first quarter were $12 million, compared with $18
million in the fourth quarter of 2004 and $33 million in the first quarter of
2004. Securities gains in the first quarter of 2005 primarily derived from
the Company's leveraged buy-out sponsor portfolio. In the first quarter of
2004, securities gains included $19 million of realized gains on four sponsor
fund investments.

Other noninterest income was $31 million, compared with $42 million in
the prior quarter and $82 million in the first quarter of 2004. The
sequential quarter decline reflects lower event-driven revenue such as gains
on asset dispositions. Other noninterest income in the first quarter of 2004
included a pre-tax gain of $48 million on the sale of a portion of the
Company's investment in Wing Hang Bank Limited ("Wing Hang").

Net Interest Income
- -------------------

1st 4th 4th 1st 1st
Quarter Quarter Quarter Quarter Quarter
(Dollars in millions) -------- -------- -------- -------- --------
Reported Reported Core** Reported Core**
-------- -------- -------- -------- --------
2005 2004 2004 2004 2004
-------- -------- -------- -------- --------

Net Interest Income $ 455 $ 527 $ 448 $ 268 $ 413
Tax Equivalent
Adjustment* 7 9 9 6 6
-------- -------- -------- -------- --------
Net Interest Income on a
Tax Equivalent Basis $ 462 $ 536 $ 457 $ 274 $ 419
======== ======== ======== ======== ========
Net Interest Rate
Spread 1.93% 2.26% 1.87% 1.13% 1.85%
Net Yield on Interest
Earning Assets 2.36 2.64 2.25 1.36 2.08

* A number of amounts related to net interest income are presented on a
"taxable equivalent basis." The Company believes that this presentation
provides comparability of net interest income arising from both taxable and
tax-exempt sources and is consistent with industry standards.

** Excludes SFAS 13 adjustments. See "Other Developments."

Net interest income on a taxable equivalent basis was $462 million in the
first quarter of 2005, compared with $536 million in the fourth quarter of
2004, and $274 million in the first quarter of 2004. The net interest rate
spread was 1.93% in the first quarter of 2005, compared with 2.26% in the
fourth quarter of 2004, and 1.13% in the first quarter of 2004. The net yield
on interest earning assets was 2.36% in the first quarter of 2005, compared
with 2.64% in the fourth quarter of 2004, and 1.36% in the first quarter of
2004.

Excluding the impact of the SFAS 13 leasing adjustments on the leveraged
lease portfolio in 2004, net interest income on a taxable equivalent basis was
up on a sequential quarter basis to $462 million, compared with $457 million
in the fourth quarter of 2004 and $419 million in the first quarter of 2004.

6

On the same basis, the net interest rate spread was 1.93% in the first quarter
of 2005, compared with 1.87% in the fourth quarter of 2004, and 1.85% in the
first quarter of 2004 while the net yield on interest earning assets was 2.36%
in the first quarter of 2005, compared with 2.25% in the fourth quarter of
2004 and 2.08% in the first quarter of 2004.

The increase in net interest income from the fourth and first quarters of
2004 core results is primarily due to the repricing of the Company's assets at
a faster rate than its liabilities and higher volume and values of interest
free deposits given the rise in short term rates. These improvements were
partially offset by a slight decline in average assets and fewer days in the
quarter. The Company's asset sensitivity is becoming more neutral relative to
year-end as the higher rate environment is beginning to limit its ability to
lag deposit repricing as rates increase further. In comparison to the first
quarter of 2004, net interest income was also impacted by customers making
greater use of compensating balances to pay for services.

Noninterest Expense and Income Taxes
- ------------------------------------

1st 4th 1st
Quarter Quarter Quarter
------- ------- -------
(In millions) 2005 2004 2004
------- ------- -------
Salaries and Employee Benefits $ 618 $ 617 $ 574
Net Occupancy 78 75 81
Furniture and Equipment 52 51 51
Clearing 46 45 48
Sub-custodian Expenses 23 22 22
Software 53 43 49
Communications 23 23 24
Amortization of Intangibles 8 9 8
Other 176 212 156
------- ------- -------
Total Noninterest Expense $ 1,077 $ 1,097 $ 1,013
======= ======= =======

Noninterest expense for the first quarter of 2005 was $1,077 million,
compared with $1,097 million in the prior quarter and $1,013 million in the
first quarter of 2004. The fourth quarter of 2004 included $30 million legal
reserves in other noninterest expense while the first quarter of 2004 results
included $18 million related to cost reduction initiatives, including lease
terminations, severance and relocation expenses.

Salaries and employee benefits expense for the first quarter was
essentially unchanged on a sequential quarter basis, reflecting higher pension
and seasonal social security expenses tied to bonuses, offset by lower new
business conversion costs and lower restricted stock expense. In addition,
incentive compensation and outside help were down compared with a seasonally
high fourth quarter. On a sequential quarter basis, pension expense increased
by $11 million. In the first quarter of 2005, the number of employees
declined by approximately 200 reflecting strict cost control. Relative to the
first quarter of 2004, salaries and employee benefits expense increased by $44
million, or 8%, reflecting higher pension and stock option expense as well as
higher staffing levels associated with growth in investor services and
expansion of certain staff functions.

7

Occupancy expenses were up $3 million sequentially, reflecting higher
energy costs and higher depreciation associated with a back up data center.
First quarter 2004 occupancy expense included lease termination expenses of $8
million.

Clearing and sub-custodian expenses, which are tied to transaction
volumes, were up slightly sequentially on a combined basis to $69 million. The
increase reflects a higher level of business activity.

Other expenses in the fourth quarter of 2004 included $30 million of
expenses associated with legal reserves. Excluding the legal reserves, other
expenses declined by $6 million sequentially, reflecting lower travel expenses
and professional fees.

The effective tax rate for the first quarter of 2005 was 33.1%, compared
to 42.8% in the fourth quarter of 2004 and 21.5% in the first quarter of 2004.
The effective tax rate in the fourth quarter of 2004 reflects the net of the
increase in the tax reserve related to LILO exposures and the impact of the
SFAS 13 leasing adjustments related to cross-border rail equipment leases and
aircraft leases. The effective tax rate in the first quarter of 2004 reflects
the SFAS 13 leasing adjustment related to the Company's leasing portfolio.
The effective tax rates in all periods reflect a reclassification related to
Section 42 tax credits. See "Other Developments".

Credit Loss Provision and Net Charge-Offs
- -----------------------------------------

1st 4th 1st
Quarter Quarter Quarter
------- ------- -------
(In millions) 2005 2004 2004
------- ------- -------
Provision $ (10) $ (7) $ 12
======= ======= =======
Net Charge-offs:
Commercial $ (3) $ (1) $ (5)
Foreign - 2 (10)
Regional Commercial (2) (8) -
Consumer (5) (5) (11)
------- ------- -------
Total $ (10) $ (12) $ (26)
======= ======= =======

The Company recorded a $10 million credit to the provision in the first
quarter of 2005, compared to $7 million credit to the provision in the fourth
quarter of 2004 and $12 million provision in the first quarter of 2004. The
lower provision in 2005 reflects the Company's improved asset quality and a
continued strong credit environment. The Company expects the provision to be
less favorable in the second quarter of 2005. The first quarter results
reflected unanticipated favorable outcomes on a couple of specific credits.

The total allowance for credit losses was $716 million at March 31, 2005,
$736 million at December 31, 2004, and $790 million at March 31, 2004. The
total allowance for credit losses as a percent of non-margin loans was 2.19%
at March 31, 2005, compared with 2.48% at December 31, 2004, and 2.64% at
March 31, 2004.

Net charge-offs were $10 million in the first quarter of 2005 versus $12
million in the fourth quarter of 2004 and $26 million in the first quarter of
2004. These represent 0.10% of total loans in the most recent quarter, down
from 0.13% and 0.29% in the respective prior periods.

8

BUSINESS SEGMENTS REVIEW

The Company has an internal information system that produces performance
data for its four business segments along product and service lines.

Business Segments Accounting Principles
- ---------------------------------------

The Company's segment data has been determined on an internal management
basis of accounting, rather than the generally accepted accounting principles
used for consolidated financial reporting. These measurement principles are
designed so that reported results of the segments will track their economic
performance. Segment results are subject to restatement whenever improvements
are made in the measurement principles or organizational changes are made. In
2004, the Company made several methodology changes. These include a
modification to the method for allocating its pension expense to the segments;
changes to the method used to allocate earnings on capital, which caused a
slight reallocation from reconciling items to the individual segments; and
greater allocations of corporate expenses previously included in reconciling
items to the individual segments. See "Reconciling Items." Prior periods
have been restated.

The measure of revenues and profit or loss by operating segment has been
adjusted to present segment data on a taxable equivalent basis. The provision
for credit losses allocated to each reportable segment is based on
management's judgment as to average credit losses that will be incurred in the
operations of the segment over a credit cycle of a period of years.
Management's judgment includes the following two factors among others:
historical charge-off experience and the volume, composition, and size of the
credit portfolio. This method is different from that required under generally
accepted accounting principles as it anticipates future losses which are not
yet probable and therefore not recognizable under generally accepted
accounting principles. Balance sheet assets and liabilities and their related
income or expense are specifically assigned to each segment. Funds transfer-
pricing methods are used to allocate a cost of funds used or credit for funds
provided to all segment assets or liabilities using a matched funding concept.
Support and other indirect expenses are allocated to segments based on general
internal guidelines.

Description of Business Segments
- --------------------------------

The results of individual business segments exclude unusual items such as
the SFAS 13 lease adjustments and the RW Matter in 2004, which are included
within reconciling amounts.

The Company reports data for the four business segments: Servicing and
Fiduciary, Corporate Banking, Retail Banking, and Financial Markets.

The Servicing and Fiduciary businesses segment comprises the Company's
core services, including securities servicing, global payment services, and
private client services and asset management. These businesses all share
certain favorable attributes: they are well diversified and fee-based; the
Company serves the role of an intermediary rather than principal, thereby
limiting risk and generating more stable earnings streams; and the businesses
are scalable, which result in higher margins as revenues grow. Long-term
trends that should favor these businesses include the growth of financial
assets worldwide, the globalization of investment activity, heightened demand
for financial servicing outsourcing, and continuing structural changes in
financial markets.

Securities servicing provides financial institutions, corporations and
financial intermediaries with a broad array of products and customized
services for every step of the investment lifecycle. The Company facilitates
the movement, settlement, recordkeeping and accounting of financial assets
around the world by delivering timely and accurate information to issuers,
investors and broker-dealers. The Company groups its securities servicing
businesses into four categories, each comprised of separate but related
businesses. Issuer services include corporate trust, depositary receipts and

9

stock transfer. Investor services include global fund services, global
custody, securities lending, global liquidity services and outsourcing.
Broker-dealer services include government securities clearance and collateral
management. Execution and clearing services include in the execution area
institutional agency brokerage, electronic trading, transition management
services, and independent research. Through Pershing, the clearing part of
the business provides clearing, execution, financing, and custody for
introducing brokers-dealers. The Servicing and Fiduciary Businesses segment
also includes customer-related foreign exchange.

In issuer services, the Company's American and global depositary receipt
business has over 1,190 programs representing over 60 countries. As a
trustee, the Company provides diverse services for corporate, municipal,
mortgage-backed, asset-backed, derivative and international debt securities.
Over 90,000 appointments for more than 30,000 worldwide clients have resulted
in the Company being trustee for more than $2.75 trillion in outstanding debt
securities. The Company is the third largest stock transfer agent
representing over 550 publicly traded companies with over 19 million
shareholder accounts maintained on its recordkeeping system.

In investor services, the Company is the largest custodian with $9.9
trillion of assets under custody and administration at March 31, 2005. The
Company is the second largest mutual fund custodian for U.S. funds and one of
the largest providers of fund services in the world with over $1.6 trillion in
total assets. The Company is the largest U.K. custodian. In securities
lending, the Company is the largest lender of U.S. Treasury securities and
depositary receipts.

The Company's broker-dealer services business clears approximately 50%
of U.S. Government securities. With over $1 trillion in tri-party balances
worldwide, the Company is the world's largest collateral management agent.

The Company's execution and clearing services business is the largest
global institutional agency brokerage organization. In addition, it is the
world's largest institutional electronic broker for non-U.S. dollar equity
execution. The Company provides execution, clearing and financial services
outsourcing solutions in over 80 global markets, executing trades for 650
million shares and clearing more than 600,000 trades daily. The Company has
21 seats on the New York Stock Exchange. Pershing services more than 1,100
institutional and retail financial organizations and independent investment
advisors who collectively represent nearly 6 million individual investors.

Global payment services facilitates the flow of funds between the
Company's customers and their clients through such business lines as funds
transfer, cash management and trade services. Private client services and
asset management includes traditional banking and trust services to affluent
clients and investment management services for institutional and high net
worth clients.

The Company's strategy is to be a market leader in these businesses and
continue to build on its product and service capabilities and add new clients.
The Company has completed 93 acquisitions since 1995 primarily in this
segment, has made significant investments in technology to maintain its
industry-leading position, and has continued the development of new products
and services to meet its clients' needs.

The Corporate Banking segment provides lending and credit-related
services to large public and private financial institutions and corporations
nationwide, as well as to public and private mid-size businesses in the New
York metropolitan area. Special industry groups focus on industry segments
such as banks, broker-dealers, insurance, media and telecommunications,
energy, real estate, retailing, and government banking institutions. Through
BNY Capital Markets, Inc., the Company provides syndicated loans, bond
underwriting, private placements of corporate debt and equity securities, and
merger, acquisition and advisory services.

Corporate Banking coordinates delivery of all of the Company's services
to customers through its global relationship managers. The two main client
bases served are financial institution clients and corporate clients. The
Company's strategy is to focus on those clients and industries that are major
users of securities servicing and global payment services.

10

The Company believes that credit is an important product for many of its
customers to execute their business strategies. However, the Company has
continued to reduce its credit exposures in recent years by culling its loan
portfolio of non-strategic exposures, focusing on increasing total
relationship returns through cross-selling and limiting the size of its
individual credit exposures and industry concentrations to reduce earnings
volatility.

The Retail Banking segment includes, branch banking, and consumer and
residential mortgage lending. The Company's retail franchise includes more
than 610,800 customer relationships and 77,400 business relationships. The
Company operates 341 branches in 23 counties in the Tri-State region. The
Company has 241 branches in New York, 92 in New Jersey and 8 in Connecticut.
The New York branches are primarily suburban based with 118 in upstate New
York, 85 on Long Island and 38 in New York City. The retail network is a
growing source of low cost funding and provides a platform to cross-sell core
services from the Servicing and Fiduciary businesses to both individuals and
small businesses in the New York metropolitan area. The branches are a
meaningful source of private client referrals. Small business and investment
centers are set up in the largest 100 branches.

The Financial Markets segment includes non-client related trading of
foreign exchange, trading of interest rate risk management products, investing
and leasing activities, and treasury services to other business segments. The
segment offers a comprehensive array of multi-currency hedging and yield
enhancement strategies, and complements the other business segments. The
Financial Markets segment centralizes interest rate risk management for the
Company.

There were no major customers from whom revenues were individually
material to the Company's performance.

Servicing and Fiduciary Businesses
- ----------------------------------

1st 4th 1st
Quarter Quarter Quarter
------- ------- -------
(In millions) 2005 2004 2004
------- ------- -------
Net Interest Income $ 168 $ 167 $ 132
Provision for
Credit Losses 1 1 -
Noninterest Income 1,025 1,010 990
Noninterest Expense 847 848 779
Income Before Taxes 345 328 343

Average Assets $22,987 $23,209 $22,771
Average Deposits 36,072 36,299 35,138
Nonperforming Assets 1 1 3

(Dollars in billions)
Assets Under Custody $ 9,859 $ 9,657 $ 8,577
Equity Securities 34% 35% 33%
Fixed Income Securities 66 65 67
Cross-Border Assets Under Custody $ 2,761 $ 2,704 $ 2,401

Assets Under Administration $ 33 $ 33 $ 33
Assets Under Management 104 102 92
Equity Securities 34% 36% 36%
Fixed Income Securities 21 21 22
Alternative Investments 15 15 13
Liquid Assets 30 28 29

S&P(Registered Mark) 500 Index (Period End) 1,181 1,212 1,126
NASDAQ(Registered Mark) Index (Period End) 1,999 2,175 1,994
Lehman Brothers Aggregate Bond(Service Mark) Index 214.0 220.6 199.3
MSCI(Registered Mark) EAFE Index 1,503.9 1,515.5 1,337.1
NYSE(Registered Mark) Volume (In billions) 99.4 96.0 95.4
NASDAQ(Registered Mark) Volume (In billions) 121.2 119.7 128.2

11

The S&P 500 Index was down 3% for the first quarter of 2005, with
average daily price levels up 2.5% from the fourth quarter of 2004. The
NASDAQ Index also decreased by 8% for the first quarter of 2005, with
average daily prices remained flat compared with the fourth quarter of 2004.
Globally, the MSCI EAFE index was down 1%. Combined NYSE and NASDAQ
non-program trading volumes were up only 1% during the first quarter of 2005.
As the Company's business model is more volume than price sensitive, this
created a drag on the Company's equity-linked businesses. The Lehman Brothers
Aggregate Bond index was down 3% for the first quarter of 2005. Average
fixed income trading volume was up 13% offsetting some of the weakness in
equities.

First quarter results showed continued strength in several of the
Company's primary businesses, including investor services, broker-dealer
services, asset management, and foreign exchange and other trading.
Offsetting this strength were volume related declines in the Company's
execution and clearing services businesses. In the first quarter of 2005,
pre-tax income was $345 million, compared with $328 million in the fourth
quarter of 2004 and $343 million a year ago.

Noninterest income for the first quarter of 2005 increased $15 million to
$1,025 million on a sequential quarter basis and $35 million from a year ago.

Securities Servicing Fees
- -------------------------

1st 4th 1st
Quarter Quarter Quarter
------- ------- -------
(In millions) 2005 2004 2004
------- ------- -------

Execution and Clearing Services $ 293 $ 302 $ 303
Investor Services 263 239 226
Issuer Services 139 149 137
Broker-Dealer Services 56 52 50
------- ------- -------
Securities Servicing Fees $ 751 $ 742 $ 716
======= ======= =======

Securities servicing fees were $751 million in the first quarter, an
increase of $9 million, or 1%, from the fourth quarter of 2004 and $35
million, or 5%, from the first quarter of 2004.

Execution and clearing services fees decreased $9 million, or 3%, from
the fourth quarter of 2004 and $10 million, or 3%, from the first quarter of
2004. In the first quarter of 2005 in execution services, transition business
was relatively soft following particularly robust fourth quarter levels.
Transition activity can vary significantly from quarter to quarter and has no
correlation to market volumes. Execution services was also impacted by a
decrease in portfolio rebalancing activity from the seasonally high fourth
quarter levels as well as three fewer trading days in the first quarter
compared with the fourth quarter of 2004. While average daily non-program
volumes for the market increased by 6%, after adjusting for fewer trading
days, total non-program market volumes increased by only 1%. The sequential
decline in execution and clearing services is slightly below the total non-
program market volumes.

Pershing's fees were essentially flat compared with the fourth quarter of
2004 and down from a year ago. The year-over-year decrease reflects growth in
non-transactional fees offset by lower transaction-based revenue. Total
retail market volumes decreased approximately 3% sequentially. Although
average billable trades for Pershing increased by 7%, total trades increased
by only 2% due to a lower day count. The majority of Pershing's revenues is
generated from non-transactional activities, such as asset gathering and
technology services to broker-dealers, with revenues tied to both assets under
administration and services provided. Despite a 3% sequential decline in the
S&P 500 Index, Pershing's assets under administration were $708 billion at
quarter-end, compared with $706 billion at December 31, 2004. As of March 31,
2005, margin loans remained flat compared with the fourth quarter of 2004,
reflecting the current lack of direction in the equity markets.

12

Investor services fees were up $24 million, or 10%, over the fourth
quarter of 2004, and $37 million, or 16%, from the first quarter of 2004.
Sequential and year-over-year results reflect strong performance across all
business lines. New business wins drove performance in global fund services
and securities lending in the first quarter of 2005. Global fund services was
also favorably impacted by stronger levels of client activity, new business
conversions in the U.S. and continued expansion of the Company's hedge fund
servicing client base. At quarter-end, hedge fund assets under administration
totaled $56 billion up 17% from $48 billion at year-end 2004. The Company
expects the pipeline for new business from domestic and offshore funds to
continue to be strong. Global custody also experienced higher activity levels
and asset inflows from new and existing clients. Securities lending fees
increased sequentially reflecting strong demand for U.S. treasuries as well as
the beginning of the European dividend season in March. The year-over-year
results reflect the same factors influencing the sequential quarter increase
as well as new business wins. Outsourcing benefited relative to both the
fourth and first quarters of 2004 from the conversion of new business wins.

At March 31, 2005, assets under custody rose to $9.9 trillion, from $9.7
trillion at December 31, 2004 and $8.6 trillion at March 31, 2004. Cross-
border custody assets were $2.8 trillion at March 31, 2005 up from $2.7
trillion at December 31, 2004 and $2.4 trillion at March 31, 2004. A
substantial portion of the increase in assets under custody since year-end
2004 was due to new business and business line growth.

Issuer services fees were $139 million in the first quarter, down $10
million, or 7%, sequentially but up $2 million, or 1%, from the first quarter
of 2004. The sequential decrease in the first quarter of 2005 reflects reduced
depositary receipts ("DR") fees and a decline in corporate trust fees due to
lower municipal issuance volumes. DR revenues decreased sequentially due to
seasonally lower dividend-related activity, and were essentially flat compared
with the first quarter of 2004. While capital raising activity increased
sequentially and year-over-year, mergers and acquisitions activity remained
soft in the first quarter of 2005. The increase in issuer services fees versus
the first quarter of 2004 primarily reflects higher corporate trust fees due to
continued strength in international issuance and corporate specialty products.

Broker-dealer services fees increased to $56 million from $52 million in
the fourth quarter of 2004 and $50 million in the first quarter of 2004. The
sequential and year-over-year results reflect increased collateral management
activity and higher volumes in securities clearance. Both the U.S. and
European markets contributed to the strong growth in collateral management.
The Company continues to attract new business to its collateral management
services. In addition, the Company has grown by helping accelerate the trend
toward utilizing non-traditional securities such as equities, corporate bonds
and municipal securities. In the first quarter of 2005, the Company's average
tri-party balances exceeded $1 trillion, which represents an increase of over
33% for the last 15 months. The Company expects sustained future growth since
the use of tri-party structure in the German and Japanese markets is still at
a very early stage.

Global payment services fees increased $4 million, or 6%, from the fourth
quarter of 2004, and decreased $4 million, or 5%, from the first quarter of
2004. The sequential increase reflects strength in cash management due to new
business wins, which offset lower revenue from trade finance. The decline
versus the first quarter of 2004 reflects customers choosing to pay with
higher compensating balances rather than fees, partially offset by new
business.

Private client services and asset management revenues continue to
demonstrate solid performance with fees up 5% sequentially and 12% compared
with the first quarter of 2004. The sequential quarter increase reflects
continued growth at Ivy and higher fees in institutional equity and retail
investment products. The increase from the first quarter of 2004 primarily
reflects growth at Ivy as well as higher fees from BNY Hamilton Funds.

13

Assets under management ("AUM") were $104 billion at March 31, 2005, up
from $102 billion at December 31, 2004 and $92 billion at March 31, 2004. The
sequential increase in AUM was driven by growth in money market and
alternative classes, offsetting the impact of lower equity prices. Ivy
continued its solid growth with AUM increasing by 5% to $15.6 billion,
compared with $14.8 billion at year-end and $11.7 billion at March 31, 2004.
The increase in Ivy's AUM reflects strong growth in the Europe and Asia
markets. To better leverage the growth opportunities in Europe and Asia, Ivy
opened a new office in Tokyo in January and is expanding its presence in
London. In addition, the growth in AUM reflects an inflow of funds into
personal trust assets and short-term money market product for
institutional/corporate investors. Institutional clients represent 69% of AUM
while individual clients equal 31%. AUM at March 31, 2005, are 34% invested
in equities, 21% in fixed income, 15% in alternative investments and the
remainder in liquid assets.

In the first quarter of 2005, noninterest income attributable to foreign
exchange and other trading activities was $47 million, down from $52 million
in the fourth quarter of 2004 and $59 million in the first quarter of 2004.
The sequential and year-over-year declines reflect lower levels of client
activity, continued low volatility, and lower fixed income trading.

Net interest income in the Servicing and Fiduciary businesses segment was
$168 million for the first quarter of 2005, compared with $167 million for the
fourth quarter of 2004 and $132 million in the first quarter of 2004. The
increase in net interest income from the first quarter of 2004 is primarily
due to the rise in interest rates and customers' increased use of compensating
balances to pay for services. Average assets for the quarter ended March 31,
2005 were $23.0 billion, compared with $23.2 billion in the fourth quarter of
2004 and $22.8 billion in the first quarter of 2004. The first quarter of
2005 average deposits were $36.1 billion, compared with $36.3 billion in the
fourth quarter of 2004 and $35.1 billion in the first quarter of 2004. The
sequential quarter decline in deposits reflects a decline in activity from
customers in issuer services.

Net charge-offs in the Servicing and Fiduciary Businesses segment were
zero in the first quarter of 2005, compared with $5 million in the fourth
quarter of 2004 and $5 million in the first quarter of 2004. Nonperforming
assets were $1 million at March 31, 2005, compared with $1 million at December
31, 2004 and $3 million at March 31, 2004.

Noninterest expense for the first quarter of 2005 was $847 million,
compared with $848 million in the fourth quarter of 2004 and $779 million in
the first quarter of 2004. The increase in noninterest expense from first
quarter of 2004 reflects the impact of several 2004 acquisitions as well as
the Company's continued investment in technology and business continuity, and
increased pension and stock option expense.

Corporate Banking
- -----------------

1st 4th 1st
Quarter Quarter Quarter
------- ------- -------
(In millions) 2005 2004 2004
------- ------- -------
Net Interest Income $ 87 $ 88 $ 88
Provision for Credit Losses 18 20 20
Noninterest Income 76 66 71
Noninterest Expense 57 58 57
Income Before Taxes 88 76 82

Average Assets $17,534 $17,774 $17,666
Average Deposits 5,528 5,323 6,800
Nonperforming Assets 177 198 325
Net Charge-offs 5 8 11

14

The Corporate Banking segment coordinates all banking and credit-related
services to customers through its global relationship managers. The two main
client bases served are financial institution clients and corporate clients.
The Company's strategy is to focus on those clients and industries that are
major users of securities servicing and global payment services.

Over the past several years, the Company has been seeking to improve its
overall risk profile by reducing its credit exposures through elimination of
non-strategic exposures, cutting back large individual exposures and avoiding
outsized industry concentrations. In 2002, the Company set a goal of reducing
corporate credit exposure to $24 billion by December 31, 2004. This goal was
accomplished in early 2004 and exposures have since declined to $22.7 billion.

In the first quarter of 2005, pre-tax income was $87 million, compared
with $76 million in the fourth quarter of 2004 and $82 million in the first
quarter of 2004. The improvement in results versus both periods primarily
reflects lower credit costs and higher noninterest income.

The Corporate Banking segment's net interest income was $87 million in
the first quarter of 2005, compared with $88 million in the fourth and first
quarters of 2004. Average assets for the quarter were $17.5 billion, compared
with $17.8 billion in the fourth quarter of 2004 and $17.7 billion in the
first quarter of last year. Average deposits in the Corporate Banking segment
were $5.5 billion versus $5.3 billion in the fourth quarter of 2004 and $6.8
billion in first quarter of 2004.

The first quarter of 2005 provision for credit losses was $18 million
compared with $20 million in the fourth quarter of 2004 and $20 million in the
first quarter of last year. The decline in the provision from the fourth and
first quarters of 2004 reflects reduced credit exposures and an improvement in
overall asset quality. Net charge-offs in the Corporate Banking segment were
$5 million in the first quarter of 2005, $8 million in the fourth quarter of
2004, and $11 million in the first quarter of 2004. Nonperforming assets were
$177 million at March 31, 2005, down from $198 million at December 31, 2004
and $325 million at March 31, 2004. The decrease in nonperforming assets from
the first quarter of 2004 primarily reflects paydowns and charge-offs of
commercial loans.

Noninterest income was $76 million in the current quarter, compared with
$66 million in the fourth quarter of 2004 and $71 million in the first quarter
of 2004. On a sequential quarter basis, the increase reflects higher foreign
exchange and other trading revenues and gains on asset dispositions partially
offset by lower capital markets fees. The increase year-over-year reflects
the same factors influencing the quarterly increase.

Noninterest expense in the first quarter was $57 million, compared with
$58 million in the fourth quarter of 2004 and $57 million in the first quarter
of 2004.

15

Retail Banking
- --------------

1st 4th 1st
Quarter Quarter Quarter
------- ------- -------
(Dollars in millions) 2005 2004 2004
------- ------- -------
Net Interest Income $ 128 $ 125 $ 117
Provision for Credit Losses 5 4 5
Noninterest Income 26 29 29
Noninterest Expense 98 98 93
Income Before Taxes 51 52 48

Average Assets $ 6,105 $ 6,241 $ 5,377
Average Noninterest
Bearing Deposits 5,499 5,585 5,028
Average Deposits 15,015 15,301 14,807
Nonperforming Assets 14 15 15
Net Charge-offs 5 5 6

Number of Branches 341 341 341
Number of ATMs 375 378 378

The Retail Banking segment provides the Company with a stable source of
core deposits. The segment represents an attractive distribution channel, and
the Company has continued to expand the products offered through the retail
branch system. The branch system is focused on the suburban Tri-State New
York metropolitan area.

The Retail Banking segment continues to demonstrate stable results in
spite of increased competition in the New York metropolitan area. In the
first quarter of 2005, pre-tax income was $51 million, compared with $52
million in the fourth quarter of 2004 and $48 million a year ago.

The Company continues to enhance the services offered through the branch
system. This includes leveraging its retail client base to distribute BNY
Asset Management and third party investment products. Currently, investment
products are cross sold to over 10% of the client base. The Company is also
seeking selective expansion opportunities within its current branch footprint.

Net interest income in the first quarter of 2005 was $128 million,
compared with $125 million in the fourth quarter of 2004 and $117 million in
the first quarter of 2004. Net interest income has increased on a sequential
quarter basis and over the first quarter of last year as rates have risen,
benefiting spreads. The increase in average assets and deposits since the
first quarter of 2004 has also contributed to the increase in net interest
income.

Noninterest income was $26 million for the quarter compared with $29
million in the fourth quarter and $29 million in the first quarter of last
year. The decreases in noninterest income compared to the fourth quarter of
2004 reflect lower monthly service fees and lower debit card fees. This is
partially attributable to the lower day count in the first quarter.

Noninterest expense in the first quarter of 2005 was $98 million,
compared with $98 million in the fourth quarter of 2004 and $93 million last
year. The increase from the first quarter of 2004 reflects higher
compensation and marketing costs.

Net charge-offs were $5 million in the first quarter of 2005, compared
with $5 million in the fourth quarter of 2004 and $6 million in the first
quarter of 2004. Nonperforming assets were $14 million at March 31, 2005,
compared with $15 million at December 31, 2004, and $15 million at March 31,
2004.

Average deposits generated by the Retail Banking segment were $15.0
billion in the first quarter of 2005, compared with $15.3 billion in the
fourth quarter of 2004 and $14.8 billion in the first quarter of 2004.
Average assets in the Retail Banking sector were $6.1 billion, compared with

16

$6.2 billion in the fourth quarter of 2004 and $5.4 billion in the first
quarter of 2004.

Financial Markets
- -----------------

1st 4th 1st
Quarter Quarter Quarter
------- ------- -------
(In millions) 2005 2004 2004
------- ------- -------
Net Interest Income $ 68 $ 71 $ 81
Provision for Credit Losses 5 5 5
Noninterest Income 46 65 49
Noninterest Expense 33 33 27
Income Before Taxes 76 98 98

Average Assets $48,370 $48,547 $49,743
Average Deposits 3,964 3,795 3,864
Average Investment
Securities 23,540 23,358 22,901
Net Charge-offs - - 4

In the first quarter of 2005, pre-tax income was $76 million, compared
with $98 million in the fourth quarter of 2004 and $98 million a year ago.
The sequential quarter decrease is due to a decline in trading revenue. The
decrease over the first quarter of 2004 is primarily due to a decline in net
interest income and in trading income.

Net interest income for the first quarter was $68 million compared with
$71 million for the fourth quarter of 2004 and $81 million a year ago. The
decrease from the fourth quarter of 2004 primarily reflects fewer days in the
quarter. The decrease from the first quarter of 2004 reflects the rising rate
environment which increased funding costs. Average first quarter 2005 assets
in the Financial Markets segment, composed primarily of short-term liquid
assets and investment securities, were $48.4 billion, down from $48.5 billion
on a sequential quarter basis and $49.7 billion in the first quarter last
year. The decrease in assets from first quarter of 2004 reflects a decline in
liquidity from securities servicing customers which reduced the overall size
of the Company's balance sheet resulting in a decline in liquid assets.
Average investment securities increased as the Company continues to invest in
adjustable or short life classes of structured mortgage-backed securities,
both of which have short durations.

Noninterest income was $46 million in the first quarter of 2005, compared
with $65 million in the fourth quarter of 2004 and $49 million in the first
quarter of 2004. The negative variance compared with the fourth quarter of
2004 reflects weaker trading results, lower securities gains, and lower gains
on disposals of lease assets.

Net charge-offs were zero in the first quarter of 2005, compared with
zero in the fourth quarter of 2004 and $4 million a year ago. Noninterest
expense was $33 million in the first quarter of 2005, compared with $33
million in the fourth quarter of 2004 and $27 million in last year's first
quarter. The increase from last year's first quarter is attributable to
higher employee incentive compensation and technology expenses.

17

The consolidating schedule below shows the contribution of the Company's
segments to its overall profitability.

(Dollars in millions) Servicing
and
For the Quarter Ended Fiduciary Corporate Retail Financial Reconciling Consolidated
March 31, 2005 Businesses Banking Banking Markets Items Total
- -------------------------- ---------- --------- --------- --------- ----------- ------------

Net Interest Income $ 168 $ 87 $ 128 $ 68 $ 4 $ 455
Provision for Credit Losses 1 18 5 5 (39) (10)
Noninterest Income 1,025 76 26 46 5 1,178
Noninterest Expense 847 57 98 33 42 1,077
---------- --------- --------- --------- ----------- ------------
Income Before Taxes $ 345 $ 88 $ 51 $ 76 $ 6 $ 566
========== ========= ========= ========= =========== ============

Contribution Percentage 62% 15% 9% 14%
Average Assets $ 22,987 $ 17,534 $ 6,105 $ 48,370 $ 4,246 $ 99,242

Servicing
and
For the Quarter Ended Fiduciary Corporate Retail Financial Reconciling Consolidated
December 31, 2004 Businesses Banking Banking Markets Items Total
- -------------------------- ---------- --------- --------- --------- ----------- ------------

Net Interest Income $ 167 $ 88 $ 125 $ 71 $ 76 $ 527
Provision for Credit Losses 1 20 4 5 (37) (7)
Noninterest Income 1,010 66 29 65 6 1,176
Noninterest Expense 848 58 98 33 60 1,097
---------- --------- --------- --------- ----------- ------------
Income Before Taxes $ 328 $ 76 $ 52 $ 98 $ 59 $ 613
========== ========= ========= ========= =========== ============

Contribution Percentage 59% 14% 9% 18%
Average Assets $ 23,209 $ 17,774 $ 6,241 $ 48,547 $ 4,196 $ 99,967

Servicing
and
For the Quarter Ended Fiduciary Corporate Retail Financial Reconciling Consolidated
March 31, 2004 Businesses Banking Banking Markets Items Total
- -------------------------- ---------- --------- --------- --------- ----------- ------------

Net Interest Income $ 132 $ 88 $ 117 $ 81 $ (150) $ 268
Provision for Credit Losses - 20 5 5 (18) 12
Noninterest Income 990 71 29 49 81 1,220
Noninterest Expense 779 57 93 27 57 1,013
---------- --------- --------- --------- ----------- ------------
Income Before Taxes $ 343 $ 82 $ 48 $ 98 $ (108) $ 463
========== ========= ========= ========= =========== ============

Contribution Percentage 60% 14% 9% 17%
Average Assets $ 22,771 $ 17,666 $ 5,377 $ 49,743 $ 4,121 $ 99,678

18

Reconciling Items
- -----------------

Description-Reconciling items for net interest income primarily relate to
the recording of interest income on a taxable equivalent basis, reallocation
of capital, and the funding of goodwill and intangibles. The adjustment to
the provision for credit losses reflects the difference between the aggregate
of the credit provision over a credit cycle for the reportable segments and
the Company's recorded provision. The Company's approach to acquisitions is
highly centralized and controlled by senior management. Accordingly, the
resulting goodwill and other intangible assets are reconciling items for
average assets. The related amortization is a reconciling item for
noninterest expense. Other reconciling items for noninterest expense
primarily reflect corporate overhead and severance.

To assess as accurately as possible the performance of its segments in
2004, the Company analyzed reconciling items related to corporate overhead.
As a result of this analysis, the Company reclassified from reconciling items
to the individual segments certain items related to insurance, compliance, and
incentive compensation expenses. In addition, a minor modification was made
to the method used to allocate earnings on capital. The impact of these
changes was a decline in pre-tax income of the segments and a reduction in the
amount of reconciling items as shown below:

1st 4th
Segment Quarter Quarter
--------- ---------
(In millions) 2004 2004
- ----------------------- --------- ---------
Servicing and Fiduciary $ (30)$ (25)
Corporate Banking (5) (4)
Retail Banking (6) (3)
Financial Markets 1 (3)
--------- ---------
Subtotal (40) (35)
Reconciling 40 35
--------- ---------
Total $ - $ -
========= =========

19

The detail of reconciling items for the first quarter of 2005 and fourth
and first quarters of 2004 is presented in the following table.

1st 4th 1st
Quarter Quarter Quarter
--------- --------- ---------
(In millions) 2005 2004 2004
--------- --------- ---------
Segments' Revenue $ 1,624 $ 1,621 $ 1,557

Adjustments:
Earnings Associated with
Assignment of Capital (9) (13) (20)
Securities Gains - - 19
SFAS 13 Cumulative
Lease Adjustment - 79 (145)
Taxable Equivalent Basis and
Other Tax-Related Items 13 10 15
Other 5 6 62
--------- --------- ---------
Subtotal-Revenue Adjustments 9 82 (69)
--------- --------- ---------
Consolidated Revenue $ 1,633 $ 1,703 $ 1,488
========= ========= =========

Segments' Income Before Tax $ 560 $ 554 $ 571
Adjustments:
Revenue Adjustments (Above) 9 82 (69)
Provision for Credit Losses
Different than GAAP 39 37 18
Severance (1) (4) (11)
Goodwill and
Intangible Amortization (8) (9) (8)
Lease Termination - - (8)
RW Matter - (30) -
Corporate Overhead (33) (17) (30)
--------- --------- ---------
Consolidated Income
Before Tax $ 566 $ 613 $ 463
========= ========= =========
Segments' Total
Average Assets $ 94,996 $ 95,771 $ 95,557

Adjustments:
Goodwill and Intangibles 4,246 4,196 4,121
--------- --------- ---------
Consolidated Average Assets $ 99,242 $ 99,967 $ 99,678
========= ========= =========

In addition to the recurring items discussed above, other significant
items may be included as reconciling items. In the fourth quarter of 2004,
SFAS 13 cumulative adjustments to the leasing portfolio and RW Matter were
reconciling items. In the first quarter of 2004, SFAS 13 cumulative
adjustments to the leasing portfolio, securities gains on four large sponsor
funds, gains on sale on Wing Hang Bank, and severance and lease termination
expenses were reconciling items.

Allocation to Segments - Earnings associated with the assignment of capital
relate to preferred trust securities which are assigned as capital to
segments. Since the Company considers these issues to be capital, it does not
allocate the interest expense associated with these securities to individual
segments. If this interest expense were allocated to segments, it could be
assigned based on segment capital, assets, risks, or some other basis.

The reconciling item for securities gains relates to the Financial
Markets business. The taxable equivalent adjustment is not allocated to
segments because all segments contribute to the Company's taxable income and
the Company believes it is arbitrary to assign the tax savings to any
particular segment. Most of the assets that are attributable to the tax
equivalent adjustment are recorded in the Financial Markets segment. In the
first quarter of 2004, the $145 million reconciling item related to SFAS 13
cumulative lease adjustment and the $19 million gain on sponsor fund
investments would be attributable to the Financial Markets segment. In

20

addition, the $48 million gain on the sale of Wing Hang recorded in Other
would be attributable to the Corporate Banking segment. The charge for the RW
Matter in the fourth quarter of 2004 would be attributable to the Retail
Banking segment.

The reconciling item for the provision for loan losses primarily relates
to Corporate Banking. Severance and lease termination costs primarily relate
to the Servicing and Fiduciary segment, the Corporate Banking segment, and to
staff areas that cut across all business lines. Goodwill and intangible
amortization primarily relates to the Securities Servicing and Fiduciary
segment. Corporate overhead is difficult to specifically identify with any
particular segment. Approaches to allocating corporate overhead to segments
could be based on revenues, expenses, number of employees, or a variety of
other measures.

CRITICAL ACCOUNTING POLICIES

The Company's significant accounting policies are described in the "Notes
to Consolidated Financial Statements" under "Summary of Significant Accounting
and Reporting Policies" in the Company's 2004 Annual Report on Form 10-K.
Four of the Company's more critical accounting policies are those related to
the allowance for credit losses, the valuation of derivatives and securities
where quoted market prices are not available, goodwill and other intangibles,
and pension accounting.

Allowance for Credit Losses
- ---------------------------

The allowance for credit losses represents management's estimate of
probable losses inherent in the Company's loan portfolio. This evaluation
process is subject to numerous estimates and judgments. Probabilities of
default ratings are assigned after analyzing the credit quality of each
borrower/counterparty and the Company's internal ratings are generally
consistent with external rating agencies' default databases. Loss given
default ratings are driven by the collateral, structure, and seniority of each
individual asset and are consistent with external loss given default/recovery
databases. The portion of the allowance related to impaired credits is based
on the present value of future cash flows. Changes in the estimates of
probability of default, risk ratings, loss given default/recovery rates, and
cash flows could have a direct impact on the allocated allowance for loan
losses.

To the extent actual results differ from forecasts or management's
judgment, the allowance for credit losses may be greater or less than future
charge-offs.

The Company considers it difficult to quantify the impact of changes in
forecast on its allowance for credit losses. Nevertheless, the Company
believes the following discussion may enable investors to better understand
the variables that drive the allowance for credit losses.

Another key variable in determining the allowance is management's
judgment in determining the size of the unallocated allowance. At March 31,
2005, the unallocated allowance was 16% of the total allowance. If the
unallocated allowance were five percent higher or lower, the allowance would
have increased or decreased by $36 million, respectively.

The credit rating assigned to each pass credit is another significant
variable in determining the allowance. If each pass credit were rated one
grade better, the allowance would have decreased by $52 million, while if each
pass credit were rated one grade worse, the allowance would have increased by
$82 million.

For higher risk rated credits, if the loss given default were 10% worse,
the allowance would have increased by $20 million, while if the loss given
default were 10% better, the allowance would have decreased by $14 million.

For impaired credits, if the fair value of the loans were 10% higher or
lower, the allowance would have increased or decreased by $14 million,
respectively.

21

Valuation of Derivatives and Securities Where Quoted Market Prices Are Not
- --------------------------------------------------------------------------
Available
---------

When quoted market prices are not available for derivatives and
securities values, such values are determined at fair value, which is defined
as the value at which positions could be closed out or sold in a transaction
with a willing counterparty over a period of time consistent with the
Company's trading or investment strategy. Fair value for these instruments is
determined based on discounted cash flow analysis, comparison to similar
instruments, and the use of financial models. Financial models use as their
basis independently sourced market parameters including, for example, interest
rate yield curves, option volatilities, and currency rates. Discounted cash
flow analysis is dependent upon estimated future cash flows and the level of
interest rates. Model-based pricing uses inputs of observable prices for
interest rates, foreign exchange rates, option volatilities and other factors.
Models are benchmarked and validated by independent parties. The Company's
valuation process takes into consideration factors such as counterparty credit
quality, liquidity and concentration concerns. The Company applies judgment
in the application of these factors. In addition, the Company must apply
judgment when no external parameters exist. Finally, other factors can affect
the Company's estimate of fair value including market dislocations, incorrect
model assumptions, and unexpected correlations.

These valuation methods could expose the Company to materially different
results should the models used or underlying assumptions be inaccurate. See
"Use of Estimates" in footnote 1 "Summary of Significant Accounting and
Reporting Policies" in the Company's 2004 Annual Report on Form 10-K.

To assist in assessing the impact of a change in valuation, at March 31,
2005, approximately $2.5 billion of the Company's portfolio of securities and
derivatives is not priced based on quoted market prices because no such quoted
market prices are available. A change of 2.5% in the valuation of these
securities and derivatives would result in a change in pre-tax income of $62
million.

Goodwill and Other Intangibles
- ------------------------------

The Company records all assets and liabilities acquired in purchase
acquisitions, including goodwill, indefinite-lived intangibles, and other
intangibles, at fair value as required by SFAS 141. Goodwill ($3,487 million
at March 31, 2005) and indefinite-lived intangible assets ($370 million at
March 31, 2005) are not amortized but are subject to annual tests for
impairment or more often if events or circumstances indicate they may be
impaired. Other intangible assets are amortized over their estimated useful
lives and are subject to impairment if events or circumstances indicate a
possible inability to realize the carrying amount. The initial recording of
goodwill and other intangibles requires subjective judgments concerning
estimates of the fair value of acquired assets. The goodwill impairment test
is performed in two phases. The first step of the goodwill impairment test
compares the fair value of the reporting unit with its carrying amount,
including goodwill. If the fair value of the reporting unit exceeds its
carrying amount, goodwill of the reporting unit is considered not impaired;
however, if the carrying amount of the reporting unit exceeds its fair value,
an additional procedure must be performed. That additional procedure compares
the implied fair value of the reporting unit's goodwill with the carrying
amount of that goodwill. An impairment loss is recorded to the extent that
the carrying amount of goodwill exceeds their implied fair value. Indefinite-
lived intangible assets are evaluated for impairment at least annually by
comparing their fair value to their carrying value.

Other identifiable intangible assets ($423 million at March 31, 2005) are
evaluated for impairment if events and circumstances indicate a possible
impairment. Such evaluation of other intangible assets is based on
undiscounted cash flow projections. Fair value may be determined using:
market prices, comparison to similar assets, market multiples, discounted cash
flow analysis and other determinates. Estimated cash flows may extend far
into the future and, by their nature, are difficult to determine over an

22

extended timeframe. Factors that may significantly affect the estimates
include, among others, competitive forces, customer behaviors and attrition,
changes in revenue growth trends, cost structures and technology, and changes
in discount rates and specific industry or market sector conditions. Other
key judgments in accounting for intangibles include useful life and
classification between goodwill and indefinite lived intangibles or other
intangibles which require amortization. See Note 4 of the Notes to
Consolidated Financial Statements for additional information regarding
intangible assets.

The following discussion may assist investors in assessing the impact of
a goodwill or intangible asset impairment charge. The Company has $4.3
billion of goodwill and intangible assets at March 31, 2005. The impact of a
5% impairment charge would result in a change of pre-tax income of
approximately $214 million.

Pension Accounting
- ------------------

The Company has defined benefit plans covering approximately 14,700 U.S.
employees and approximately 2,400 non-U.S. employees at September 30, 2004.

The Company has three defined benefit pension plans in the U.S. and six
overseas. At December 31, 2004, the U.S. plans account for 86% of the
projected benefit obligation. Pension credits were $24 million, $39 million,
and $95 million in 2004, 2003 and 2002. In addition to its pension plans, the
Company also has an Employee Stock Ownership Plan ("ESOP") which may provide
additional benefits to certain employees. Upon retirement, covered employees
are entitled to the higher of their benefit under the ESOP or the defined
benefit plan. If the benefit is higher under the defined benefit plan, the
employees' ESOP account is contributed to the pension plan.

A number of key assumption and measurement date values determine pension
expense. The key elements include the long-term rate of return on plan
assets, the discount rate, the market-related value of plan assets, and for
the primary U.S. plan the price used to value stock in the ESOP. Since 2002,
these key elements have varied as follows:

2005 2004 2003 2002
Domestic Plans: -------- -------- -------- --------
Long-Term Rate of Return
on Plan Assets 8.25% 8.75% 9.00% 10.50%
Discount Rate 6.00 6.25 6.50 7.25
Market-Related Value of
Plan Assets(1) (in millions) $ 1,502 $ 1,523 $ 1,483 $ 1,449
ESOP Stock Price(1) 30.67 27.88 33.30 42.58

Net U.S Pension Credit/(Expense) $ 31 $ 46 $ 100
All other Pension Credit/(Expense) (7) (7) (5)
-------- -------- --------
Total Pension Credit $ 24 $ 39 $ 95
======== ======== ========
- ------------

(1) Actuarially smoothed data. See "Critical Accounting Policies" in the MD&A
section of the Company's 2004 Annual Report on Form 10-K.

The discount rate for U.S. pension and postretirement plans is based on,
among other factors, a spread over the Lehman AA Long-Term Corporate Bond
Index Yield. At September 30, 2004 and 2003, the Lehman AA Long-Term
Corporate Bond Index Yields were 5.36% and 5.35%, and the discount rates were
6.00% and 6.25%, respectively. The discount rates for foreign pension plans
are based on high quality corporate bonds rates in countries that have an
active corporate bond market. In those countries with no active corporate
bond market, discount rates are based on local government bond rates plus a
credit spread.

23

The Company's expected long-term rate of return on plan assets is based
on anticipated returns for each asset class. For 2005 and 2004, the
assumptions for the long-term rates of return on plan assets were 8.25% and
8.75%, respectively. Anticipated returns are weighted for the target
allocation for each asset class. Anticipated returns are based on forecasts
for prospective returns in the equity and fixed income markets, which should
track the long-term historical returns for these markets. The Company also
considers the growth outlook for U.S. and global economies, as well as current
and prospective interest rates.

The market-related value of plan assets also influences the level of
pension expense. Differences between expected and actual returns are
recognized over five years to compute an actuarially derived market-related
value of plan assets. In 2005, the Company expects the market-related value
of plan assets to decline as the extraordinary actual return in 2000 is
replaced with a more modest return.

Unrecognized actuarial gains and losses are amortized over the future
service period (11 years) of active employees if they exceed a threshold
amount. The Company currently has unrecognized losses which are being
amortized.

In 2005, based on the Company's review of changes in prospective
assumptions, the amortization of unrecognized pension losses and the
anticipated decline in the market-related value of plan assets, the pre-tax
U.S. pension credit is expected to decline by approximately $48 million.

The annual impact on the primary U.S. plan of hypothetical changes in the
key elements on the pension credit are shown in the table below.

(Dollars in millions) Increase in Decrease in
Pension Expense 2005 Base Pension Expense
--------------- ------------- ---------------
Long-Term Rate of Return
on Plan Assets 7.25% 7.75% 8.25% 8.75% 9.25%
Change in Pension Expense $ 14.6 $ 7.3 $ - $ 7.3 $ 14.6

Discount Rate 5.50% 5.75% 6.00% 6.25% 6.50%
Change in Pension Expense $ 7.4 $ 3.7 $ - $ 3.6 $ 7.2

Market-Related Value of
Plan Assets -20.00% -10.00% $1,502 +10.00% +20.00%
Change in Pension Expense $ 58.2 $ 29.1 - $ 27.2 $ 39.6

ESOP Stock Price $20.67 $25.67 $30.67 $35.67 $40.67
Change in Pension Expense $ 14.6 $ 7.0 $ - $ 6.5 $ 12.6

24

CONSOLIDATED BALANCE SHEET REVIEW

Total assets were $96.5 billion at March 31, 2005, compared with $94.5
billion at December 31, 2004, and $92.7 billion at March 31, 2004. The
increase in assets from December 31, 2004 reflects increased loans to
securities industry customers. Total shareholders' equity was $9.3 billion at
March 31, 2005, compared with $9.3 billion at December 31, 2004, and $8.8
billion at March 31, 2004. In comparison to the fourth quarter of 2004,
shareholders' equity reflects the retention of earnings offset by a decline in
the securities valuation allowance and the repurchase of common stock. The
major reason for the increase in shareholders' equity from a year ago is the
retention of earnings.

Return on average common equity for the first quarter of 2005 was 16.52%,
compared with 15.34% in the fourth quarter of 2004, and 17.17% in the first
quarter of 2004. Return on average assets for the first quarter of 2005 was
1.55%, compared with 1.40% in the fourth quarter of 2004, and 1.47% in the
first quarter of 2004.

Investment Securities
- ---------------------

The table below shows the distribution of the Company's securities
portfolio:

Investment Securities (at Fair Value)

(In millions) 03/31/05 12/31/04
---------- ----------
Fixed Income:
Mortgage-Backed Securities $ 19,799 $ 19,393
Asset-Backed Securities 25 -
Corporate Debt 1,243 1,259
Short-Term Money Market Instruments 809 982
U.S. Treasury Securities 445 403
U.S. Government Agencies 484 505
State and Political Subdivisions 203 197
Emerging Market Debt (Collateralized
By U.S. Treasury Zero Coupon Obligations) 112 107
Other Foreign Debt 525 545
---------- ----------
Subtotal Fixed Income 23,645 23,391

Equity Securities:
Money Market Funds 224 388
Other 11 10
---------- ----------
Subtotal Equity Securities 235 398
---------- ----------
Total Securities $ 23,880 $ 23,789
========== ==========

Total investment securities were $23.9 billion at March 31, 2005,
compared with $23.8 billion at December 31, 2004. Average investment
securities were $23.5 billion in the first quarter of 2005, compared with
$23.4 billion in the fourth quarter of 2004 and $22.9 billion in the first
quarter of last year. The increases were primarily due to growth in the
Company's portfolio of highly rated mortgage-backed securities which are 89%
rated AAA, 7% AA, and 4% A. The Company has been adding either adjustable or
short life classes of structured mortgage-backed securities, both of which
have short durations. The effective duration of the Company's mortgage
portfolio at March 31, 2005 was approximately 1.8 years.

Net unrealized losses for securities available-for-sale were $51 million
at March 31, 2005 compared with net unrealized gains of $75 million at
December 31, 2004. Net unrealized losses at March 31, 2005 reflects the rise
in long-term interest rates over the quarter. The asymmetrical accounting
treatment of the impact of a change in interest rates on the Company's balance
sheet may create a situation in which an increase in interest rates can
adversely affect reported equity and regulatory capital, even though
economically there may be no impact on the economic capital position of the

25

Company. For example, an increase in rates will result in a decline in the
value of the fixed rate portion of the Company's fixed income investment
portfolio, which will be reflected through a reduction in other comprehensive
income in the Company's shareholders' equity, thereby affecting the tangible
common equity ("TCE") ratio. Under current accounting rules, there is no
corresponding change in value of the Company's fixed rate liabilities, even
though economically these liabilities are more valuable as rates rise.

Loans
- -----

(In billions) Period End Quarterly Average
------------------------- -------------------------
Total Non-Margin Margin Total Non-Margin Margin
----- ---------- ------ ----- ---------- ------
March 31, 2005 $38.8 $ 32.8 $ 6.0 $38.8 $ 32.4 $ 6.4
December 31, 2004 35.8 29.7 6.1 39.4 33.0 6.4
March 31, 2004 36.1 30.0 6.1 36.5 30.3 6.2

Total loans were $38.8 billion at March 31, 2005 compared with $35.8
billion at December 31, 2004. The increase in total loans from December 31,
2004 primarily reflects an increase in overdrafts and securities industry
loans. The Company continues to focus on its strategy of reducing non-
strategic and outsized corporate loan exposures to improve its credit risk
profile. Average total loans were $38.8 billion in the first quarter of 2005,
compared with $36.5 billion in the first quarter of 2004. The increase in
average loans from March 31, 2004 results from increased lending to financial
institutions.

The following tables provide additional details on the Company's credit
exposures and outstandings at March 31, 2005 in comparison to December 31,
2004.

Overall Loan Portfolio
- ----------------------

Unfunded Total Unfunded Total
(In billions) Loans Commitments Exposure Loans Commitments Exposure
---------------------------- ----------------------------
03/31/05 03/31/05 03/31/05 12/31/04 12/31/04 12/31/04
-------- -------- -------- -------- -------- --------

Financial Institutions $ 12.4 $ 21.9 $ 34.3 $ 9.5 $ 21.6 $ 31.1
Corporate 3.5 19.2 22.7 3.6 19.4 23.0
-------- -------- -------- -------- -------- --------
15.9 41.1 57.0 13.1 41.0 54.1
-------- -------- -------- -------- -------- --------
Consumer & Middle Market 9.1 4.4 13.5 8.9 4.5 13.4
Leasing Financings 5.6 - 5.6 5.6 - 5.6
Commercial Real Estate 2.2 1.2 3.4 2.1 1.2 3.3
Margin loans 6.0 - 6.0 6.1 - 6.1
-------- -------- -------- -------- -------- --------
Total $ 38.8 $ 46.7 $ 85.5 $ 35.8 $ 46.7 $ 82.5
======== ======== ======== ======== ======== ========

26

Financial Institutions
- ----------------------

The financial institutions portfolio exposure was $34.3 billion at March
31, 2005 compared to $31.1 billion at December 31, 2004. These exposures are
of high quality, with 85% meeting the investment grade criteria of the
Company's rating system. These exposures are generally short-term, with 78%
expiring within one year and are frequently secured. For example, mortgage
banking, securities industry, and investment managers often borrow against
marketable securities held in custody at the Company. The diversity of the
portfolio is shown in the accompanying table.

(In billions)
March 31, 2005 December 31, 2004
--------------------------- ----- ----- ---------------------------
Unfunded Total %Inv %due Unfunded Total
Lending Division Loans Commitments Exposures Grade <1 Yr Loans Commitments Exposures
- ------------------- ----- ----------- --------- ----- ----- ----- ----------- ---------

Banks $ 4.5 $ 4.0 $ 8.5 71% 90% $ 4.2 $ 3.5 $ 7.7
Securities Industry 3.3 2.7 6.0 85 96 1.5 3.0 4.5
Insurance 0.4 4.8 5.2 94 47 0.5 4.8 5.3
Government 0.1 4.9 5.0 100 73 - 5.0 5.0
Asset Managers 3.8 3.7 7.5 85 80 3.0 3.8 6.8
Mortgage Banks 0.2 0.7 0.9 86 69 0.2 0.7 0.9
Endowments 0.1 1.1 1.2 99 47 0.1 0.8 0.9
----- ----------- --------- ----- ----- ----- ----------- ---------
Total $12.4 $ 21.9 $ 34.3 85% 78% $ 9.5 $ 21.6 $ 31.1
===== =========== ========= ===== ===== ===== =========== =========

Corporate
- ---------

The corporate portfolio exposure declined to $22.7 billion at March 31,
2005 from $23.0 billion at year-end 2004. Approximately 76% of the portfolio
is investment grade while 23% of the portfolio matures within one year.

(In billions)
March 31, 2005 December 31, 2004
--------------------------- ----- ----- ---------------------------
Unfunded Total %Inv %due Unfunded Total
Lending Division Loans Commitments Exposures Grade <1 Yr Loans Commitments Exposures
- ------------------- ----- ----------- --------- ----- ----- ----- ----------- ---------

Media $ 1.0 $ 2.1 $ 3.1 64% 14% $ 0.9 $ 2.2 $ 3.1
Cable 0.5 0.5 1.0 34 - 0.6 0.4 1.0
Telecom 0.1 0.5 0.6 77 27 0.1 0.5 0.6
----- ----------- --------- ----- ----- ----- ----------- ---------
Subtotal 1.6 3.1 4.7 59% 13% 1.6 3.1 4.7

Energy 0.3 4.6 4.9 86 19 0.4 4.4 4.8
Retailing 0.2 2.0 2.2 80 32 0.1 2.1 2.2
Automotive 0.1 1.7 1.8 66 51 0.1 1.7 1.8
Healthcare 0.2 1.5 1.7 88 19 0.3 1.5 1.8
Other* 1.1 6.3 7.4 80 23 1.1 6.6 7.7
----- ----------- --------- ----- ----- ----- ----------- ---------
Total $ 3.5 $ 19.2 $ 22.7 76% 23% $ 3.6 $ 19.4 $ 23.0
===== =========== ========= ===== ===== ===== =========== =========

* Diversified portfolio of industries and geographies

The Company had previously targeted the telecom exposure for reduction to
a total of $750 million by December 31, 2004. This goal was accomplished in
the first quarter of 2004 and exposures have since declined to $582 million.
The percentage of investment grade borrowers in the telecom portfolio remained
steady at 77% the same as at year-end 2004.

The Company's exposure to the airline industry consists of a $471 million
leasing portfolio (including a $15 million real estate lease exposure). The
airline leasing portfolio consists of $249 million to major U.S. carriers,
$133 million to foreign airlines and $89 million to U.S. regionals. The
Company's exposure to foreign airlines declined by $47 million during the
quarter.

During the first quarter of 2005, the airline industry continued to face
liquidity issues driven by persistently high fuel prices and the inability to
implement meaningful fare increases. The industry's considerable excess
capacity and higher oil prices continue to negatively impact the valuations of

27

aircraft, especially the less fuel efficient models, in the secondary market.
Because of these factors, the Company continues to maintain a sizable
allowance for loan losses against these exposures and to closely monitor the
portfolio.

Counterparty Risk Ratings Profile
- ---------------------------------

The table below summarizes the risk ratings of the Company's foreign
exchange and interest rate derivative counterparty credit exposure for the
past year.
For the Quarter Ended
--------------------------------------------------
Rating(1) 3/31/05 12/31/04 9/30/04 6/30/04 3/31/04
- --------------------- --------------------------------------------------
AAA to AA- 74% 68% 68% 70% 61%
A+ to A- 13 19 21 16 24
BBB+ to BBB- 10 10 8 11 12
Noninvestment Grade 3 3 3 3 3
-------- --------- ---------- --------- ----------
Total 100% 100% 100% 100% 100%
======== ========= ========== ========= ==========

(1) Represents credit rating agency equivalent of internal credit ratings.

Nonperforming Assets
- --------------------

Change
03/31/05 vs.
(Dollars in millions) 03/31/05 12/31/04 12/31/04
-------- -------- ----------

Category of Loans:
Commercial $ 124 $ 132 $ (8)
Foreign 19 28 (9)
Regional Commercial 49 53 (4)
-------- -------- ----------
Total Nonperforming Loans 192 213 (21)
Other Real Estate - 1 (1)
-------- -------- ----------
Total Nonperforming Assets $ 192 $ 214 $ (22)
======== ======== ==========

Nonperforming Assets Ratio 0.6% 0.7%
Allowance for Loan
Losses/Nonperforming Loans 304.0 277.5
Allowance for Loan
Losses/Nonperforming Assets 304.0 276.5
Total Allowance for Credit
Losses/Nonperforming Loans 373.4 345.6
Total Allowance for Credit
Losses/Nonperforming Assets 373.4 344.3

Nonperforming assets declined by $22 million, or 10%, during the first
quarter of 2005 to $192 million and are down 44% from a year ago. The
sequential quarter decrease primarily reflects paydowns and sales of $19
million and charge-offs of $6 million. The ratio of the total allowance for
credit losses to nonperforming assets increased to 373.4% at March 31, 2005,
compared with 344.3% at December 31, 2004, and 230.5% at March 31, 2004.

Activity in Nonperforming Assets

(In millions) Quarter End Quarter End
March 31, 2005 December 31, 2004
------------------ ------------------
Balance at Beginning of Period $ 214 $ 287
Additions 3 13
Charge-offs (6) (11)
Paydowns/Sales (19) (65)
Other - (10)
------------------ ------------------
Balance at End of Period $ 192 $ 214
================== ==================

28

Interest income would have been increased by $1 million and $4 million
for the first quarters of 2005 and 2004 if loans on nonaccrual status at March
31, 2005 and 2004 had been performing for the entire period.

Impaired Loans
- --------------

The table below sets forth information about the Company's impaired
loans. The Company uses the discounted cash flow, collateral value, or market
price methods for valuing its impaired loans:

March 31, December 31, March 31,
(In millions) 2005 2004 2004
------------ ----------- ----------
Impaired Loans with an Allowance $ 68 $ 128 $ 197
Impaired Loans without an Allowance(1) 103 65 124
------------ ----------- ----------
Total Impaired Loans $ 171 $ 193 $ 321
============ =========== ==========
Allowance for Impaired Loans(2) $ 34 $ 52 $ 88
Average Balance of Impaired Loans
during the Quarter $ 182 $ 268 $ 306
Interest Income Recognized on
Impaired Loans during the Quarter $ 2.2 $ 2.3 $ 0.9

(1) When the discounted cash flows, collateral value or market price equals
or exceeds the carrying value of the loan, then the loan does not require
an allowance under the accounting standard related to impaired loans.

(2) The allowance for impaired loans is included in the Company's allowance
for credit losses.

Allowance
- ---------

March 31, December 31, March 31,
(Dollars in millions) 2005 2004 2004
------------ ----------- ----------
Margin Loans $ 6,038 $ 6,059 $ 6,130
Non-Margin Loans 32,726 29,722 29,940
------------ ----------- ----------
Total Loans $ 38,764 $ 35,781 $ 36,070
============ =========== ==========

Allowance for Loan Losses $ 583 $ 591 $ 632
Allowance for Lending-Related
Commitments 133 145 158
------------ ----------- ----------
Total Allowance for Credit Losses $ 716 $ 736 $ 790
============ =========== ==========
Allowance for Loan Losses As a
Percent of Total Loans 1.50% 1.65% 1.75%
Allowance for Loan Losses As a
Percent of Non-Margin Loans 1.78 1.99 2.11
Total Allowance for Credit Losses
As a Percent of Total Loans 1.85 2.06 2.19
Total Allowance for Credit Losses
As a Percent of Non-Margin Loans 2.19 2.48 2.64

The total allowance for credit losses was $716 million, or 1.85% of total
loans at March 31, 2005, compared with $736 million, or 2.06% of total loans
at December 31, 2004, and $790 million, or 2.19% of total loans at March 31,
2004.

The Company has $6.0 billion of secured margin loans on its balance sheet
at March 31, 2005. The Company has rarely suffered a loss on these types of
loans and doesn't allocate any of its allowance for credit losses to these
loans. As a result, the Company believes the ratio of total allowance for
credit losses to non-margin loans is a more appropriate metric to measure the
adequacy of the reserve.

The ratio of the total allowance for credit losses to non-margin loans
decreased to 2.19% at March 31, 2005, compared with 2.48% at December 31, 2004

29

and 2.64% at March 31, 2004, reflecting continued improvement in the credit
quality in the first quarter of 2005.

Nonperforming assets declined another 10% this quarter, and have declined
by 44% from a year ago. The Company's criticized and classified exposures
continued to show improvement on a risk weighted basis versus the fourth
quarter of 2004 and a year ago.

The ratio of the allowance for loan losses to nonperforming assets was
304.0% at March 31, 2005, up from 276.5% at December 31, 2004, and 184.4% at
March 31, 2004.

The allowance for loan losses and the allowance for lending related
commitments consists of four elements: (1) an allowance for impaired credits
(nonaccrual commercial credits over $1 million), (2) an allowance for higher
risk rated credits, (3) an allowance for pass rated credits, and (4) an
unallocated allowance based on general economic conditions and risk factors in
the Company's individual markets.

The first element: impaired credits, is based on individual analysis of all
nonperforming commercial credits over $1 million. The allowance is measured by
the difference between the recorded value of impaired loans and their fair
value. Fair value is either the present value of the expected future cash flows
from borrower, the market value of the loan, or the fair value of the
collateral.

The second element: higher risk rated credits, is based on the assignment
of loss factors for each specific risk category of higher risk credits. The
Company rates each credit in its portfolio that exceeds $1 million and assigns
the credits to specific risk pools. A potential loss factor is assigned to each
pool, and an amount is included in the allowance equal to the product of the
amount of the loan in the pool and the risk factor. Reviews of higher risk
rated loans are conducted quarterly and the loan's rating is updated as
necessary. The Company prepares a loss migration analysis and compares its
actual loss experience to the loss factors on an annual basis to attempt to
ensure the accuracy of the loss factors assigned to each pool. Pools of past
due consumer loans are included in specific risk categories based on their
length of time past due.

The third element: pass rated credits, is based on the Company's expected
loss model. Borrowers are assigned to pools based on their credit ratings. The
expected loss for each loan in a pool incorporates the borrower's credit rating,
loss given default rating and maturity. The credit rating is dependent upon the
borrower's probability of default. The loss given default incorporates a
recovery expectation. Borrower and loss given default ratings are reviewed
semi-annually at a minimum and are periodically mapped to third party, including
rating agency, default and recovery data bases to ensure ongoing consistency and
validity. Commercial loans over $1 million are individually analyzed before
being assigned a credit rating. The Company also applies this technique to its
leasing and consumer portfolios. All current consumer loans are included in the
pass rated consumer pools.

The fourth element: the unallocated allowance, is based on management's
judgment regarding the following factors:

* Economic conditions including duration of the current cycle;

* Past experience including recent loss experience;

* Credit quality trends;

* Collateral values;

* Volume, composition, and growth of the loan portfolio;

* Specific credits and industry conditions;

30

* Results of bank regulatory and internal credit exams;

* Actions by the Federal Reserve Board;

* Delay in receipt of information to evaluate loans or confirm existing
credit deterioration; and

* Geopolitical issues and their impact on the economy.

Based on an evaluation of these four elements, including individual
credits, historical credit losses, and global economic factors, the Company
has allocated its allowance for credit losses as follows:

March 31, December 31,
2005 2004
------------ -----------
Domestic
Real Estate 2% 2%
Commercial 72 75
Consumer 8 3
Foreign 2 4
Unallocated 16 16
------------ -----------
100% 100%
============ ===========

Such an allocation is inherently judgmental, and the entire allowance for
credit losses is available to absorb credit losses regardless of the nature of
the loss.

Deposits
- --------

Total deposits were $59.0 billion at March 31, 2005, compared with $58.7
billion at December 31, 2004 and $56.1 billion at March 31, 2004. The
increase on a sequential quarter basis was primarily due to higher market
activity levels, which resulted in a higher level of customer deposits at
quarter end. Noninterest-bearing deposits were $15.6 billion at March 31,
2005, compared with $17.4 billion at December 31, 2004. Interest-bearing
deposits were $43.4 billion at March 31, 2005, compared with $41.3 billion at
December 31, 2004.

LIQUIDITY

The Company maintains its liquidity through the management of its assets
and liabilities, utilizing worldwide financial markets. The diversification
of liabilities reflects the Company's efforts to maintain flexibility of
funding sources under changing market conditions. Stable core deposits,
including demand, retail time, and trust deposits from processing businesses,
are generated through the Company's diversified network and managed with the
use of trend studies and deposit pricing. The use of derivative products such
as interest rate swaps and financial futures enhances liquidity by enabling
the Company to issue long-term liabilities with limited exposure to interest
rate risk. Liquidity also results from the maintenance of a portfolio of
assets which can be easily sold and the monitoring of unfunded loan
commitments, thereby reducing unanticipated funding requirements. Liquidity
is managed on both a consolidated basis and also at The Bank of New York
Company, Inc. parent company ("Parent").

On a consolidated basis, non-core sources of funds such as money market
rate accounts, certificates of deposits greater than $100,000, federal funds
purchased, and other borrowings were $13.0 billion and $14.6 billion on an
average basis for the first three months of 2005 and 2004. Average foreign
deposits, primarily from the Company's European based securities servicing
business, were $25.5 billion and $25.8 billion at March 31, 2005 and 2004.
Domestic savings and other time deposits were $9.8 billion on an average basis
at March 31, 2005 compared to $10.2 billion at March 31, 2004. Average
payables to customers and broker-dealers decreased to $6.4 billion from $7.0
billion. Long-term debt averaged $6.6 billion and $6.2 billion at March 31,
2005 and 2004. A significant reduction in the Company's securities servicing
businesses would reduce its access to foreign deposits.

31

The Parent has four major sources of liquidity: dividends from its
subsidiaries, the commercial paper market, a revolving credit agreement with
third party financial institutions, and access to the capital markets.

At March 31, 2005, the Bank can pay dividends of approximately $451
million to the Parent without the need for regulatory waiver. This dividend
capacity would increase in the remainder of 2005 to the extent of the Bank's
net income less dividends. Nonbank subsidiaries of the Parent have liquid
assets of approximately $277 million. These assets could be liquidated and
the proceeds delivered by dividend or loan to the Parent.

For the quarter ended March 31, 2005, the Parent's quarterly average
commercial paper borrowings were $234 million compared with $77 million in
2004. At March 31, 2005, the Parent had cash of $739 million compared with
cash of $1,195 million at December 31, 2004 and $585 million at March 31,
2004. Net of commercial paper outstanding, the Parent's cash position at
March 31, 2005 was up $62 million compared with March 31, 2004.

The Parent has a back-up line of credit of $275 million with 15 financial
institutions. This line of credit matures in October 2006. There were no
borrowings under the line of credit at March 31, 2005 and March 31, 2004.

The Parent also has the ability to access the capital markets. At March
31, 2005, the Parent had a shelf registration statement with a capacity of
$1.8 billion of debt, preferred stock, preferred trust securities, or common
stock. Access to the capital markets is partially dependent on the Company's
credit ratings, which as of March 31, 2005 were as follows:

The Bank of
Parent Parent Parent Senior New York
Commercial Subordinated Long-Term Long-Term
Paper Long-Term Debt Debt Deposits Outlook
---------- -------------- ------------- ----------- -------
Standard &
Poor's A-1 A A+ AA- Stable

Moody's P-1 A1 Aa3 Aa2 Stable

Fitch F1+ A+ AA- AA Stable

The Parent's major uses of funds are payment of principal and interest on
its borrowings, acquisitions, and additional investment in its subsidiaries.

The Parent has $100 million of long-term debt that becomes due in 2005
subsequent to March 31, 2005 and $225 million of long-term debt that is due in
2006. In addition, at March 31, 2005, the Parent has the option to call $232
million of subordinated debt in 2006, which it will call and refinance if
market conditions are favorable. The Parent expects to refinance any debt it
repays by issuing a combination of senior and subordinated debt.

The Company has $200 million of preferred trust securities that are
callable in 2005. These securities qualify as Tier 1 Capital. The Company
has not yet decided if it will call these securities. The decision to call
will be based on interest rates, the availability of cash and capital, and
regulatory conditions. If the Company calls the preferred trust securities,
it expects to replace them with new preferred trust securities or senior or
subordinated debt.

Double leverage is the ratio of investment in subsidiaries divided by the
Company's consolidated equity plus trust preferred securities. The Company's
double leverage ratio at March 31, 2005 and 2004 was 101.15% and 99.28%. The
Company's target double leverage ratio is a maximum of 120%. The double
leverage ratio is monitored by regulators and rating agencies and is an
important constraint on the Company's ability to invest in its subsidiaries to
expand its businesses.

The following comments relate to the information disclosed in the
Consolidated Statements of Cash Flows.

32

Cash used for other operating activities was $0.4 billion in the first
quarter of 2005, compared with $1.8 billion provided by operating activities
through March 31, 2004. The use of funds from operations in 2005 were
principally the result of changes in accruals and other. The sources of cash
flows from operations in 2004 were principally the result of changes in
trading and net income.

In the first quarter of 2005, cash used for investing activities was $2.5
billion as compared to cash used for investing activities in the first three
months of 2004 of $2.2 billion. In the first quarter of 2005, purchases of
securities available-for-sale and principal disbursed on loans to customers
were a significant use of funds. In the first quarter of 2004, purchases of
securities available-for-sale were a significant use of funds.

In the first quarter of 2005, cash provided by financing activities was
$1.7 billion as compared to cash used for financing activities in the first
quarter of 2004 of $0.9 billion. Sources of funds in 2005 include deposits,
other borrowed funds, and the issuance of long-term debt. Deposits and
payables to customers and broker-dealers were the primary use of funds in
2004.

CAPITAL RESOURCES

Regulators establish certain levels of capital for bank holding companies
and banks, including the Company and the Bank, in accordance with established
quantitative measurements. In order for the Parent to maintain its status as
a financial holding company, the Bank must qualify as well capitalized. In
addition, major bank holding companies such as the Parent are expected by the
regulators to be well capitalized. As of March 31, 2005 and 2004, the Company
and the Bank were considered well capitalized on the basis of the ratios
(defined by regulation) of Total and Tier 1 capital to risk-weighted assets
and leverage (Tier 1 capital to average assets), which are shown as follows:

March 31, 2005 March 31, 2004 Well Adequately
------------------ ------------------ Company Capitalized Capitalized
Company Bank Company Bank Targets Guidelines Guidelines
--------- ------- --------- ------- ---------- ----------- -----------

Tier 1* 8.13% 8.46% 7.60% 7.41% 7.75% 6% 4%
Total Capital** 12.54 11.76 11.70 11.62 11.75 10 8
Leverage 6.56 6.98 5.83 5.66 5 3-5
Tangible Common
Equity ("TCE") 5.48 6.47 5.22 5.76 5.25+ N.A. N.A.

* Tier 1 capital consists, generally, of common equity, preferred trust securities, and
certain qualifying preferred stock, less goodwill and most other intangibles.

**Total Capital consists of Tier 1 capital plus Tier 2 capital. Tier 2 capital consists,
generally, of certain qualifying preferred stock and subordinated debt and a portion of the
loan loss allowance.

During the first quarter of 2005 the Company retained $212 million of
earnings. The Company paid $39 million to redeem rights outstanding under its
preferred stock purchase rights plan. Also in the quarter the Company issued
$1.2 billion of debt of which $603 million was subordinated debt qualifying as
Tier II capital. In April 2005, the Company declared a quarterly common stock
dividend of 20 cents per share.

The Company's regulatory Tier 1 capital and Total capital ratios were
8.13% and 12.54% at March 31, 2005, compared with 8.31% and 12.21% at December
31, 2004, and 7.60% and 11.70% at March 31, 2004. The regulatory leverage
ratio was 6.56% at March 31, 2005, compared with 6.41% at December 31, 2004,
and 5.83% at March 31, 2004. The Company's tangible common equity as a
percentage of total assets was 5.48% at March 31, 2005, compared with 5.56% at
December 31, 2004, and 5.22% at March 31, 2004. This ratio varies depending
on the size of the balance sheet at quarter-end and the impact of interest
rates on unrealized gains and losses among other things. The balance sheet
size fluctuates from quarter to quarter based on levels of market activity.
In general, when servicing clients are more actively trading securities,
deposit balances are higher to finance these activities.

33

A billion dollar change in assets changes the TCE ratio by 6 basis points
while a $100 million change in common equity changes the TCE ratio by 11 basis
points.

On March 1, 2005, the Board of Governors of the Federal Reserve System
(the "FRB") adopted a final rule that allows the continued limited inclusion
of trust preferred securities in the Tier 1 capital of bank holding companies
(BHCs). See "Accounting Changes and New Accounting Pronouncements" in the
Footnotes to the Consolidated Financial Statements.

The following table presents the components of the Company's risk-based
capital at March 31, 2005 and 2004:

(In millions) 2005 2004
------- -------
Common Stock $ 9,335 $ 8,760
Preferred Stock - -
Preferred Trust Securities 1,150 1,150
Adjustments: Intangibles (4,275) (4,136)
Securities Valuation Allowance 21 (212)
Merchant Banking Investments (5) (6)
------- -------
Tier 1 Capital 6,226 5,556
------- -------
Qualifying Unrealized Equity Security Gains - -
Qualifying Subordinated Debt 2,659 2,227
Qualifying Allowance for Loan Losses 716 770
------- -------
Tier 2 Capital 3,375 2,997
------- -------
Total Risk-based Capital $ 9,601 $ 8,553
======= =======

Risk-Adjusted Assets $76,567 $73,904
======= =======

34

TRADING ACTIVITIES

The fair value and notional amounts of the Company's financial instruments
held for trading purposes at March 31, 2005 and March 31, 2004 are as follows:

1st Quarter 2005
March 31, 2005 Average
--------------------------- ------------------
(In millions) Notional Fair Value Fair Value
------------------ ------------------
Trading Account Amount Assets Liabilities Assets Liabilities
- --------------- -------- ------ ----------- ------ -----------
Interest Rate Contracts:
Futures and Forward
Contracts $ 27,907 $ - $ - $ - $ -
Swaps 241,377 1,768 978 1,680 782
Written Options 181,754 - 1,260 - 1,266
Purchased Options 135,809 188 - 147 -
Foreign Exchange Contracts:
Swaps 3,650 - - - -
Written Options 5,485 - 13 - 16
Purchased Options 7,472 58 - 85 -
Commitments to Purchase
and Sell Foreign Exchange 72,715 323 378 279 277
Debt Securities - 2,687 183 2,405 152
Credit Derivatives 1,634 2 5 2 9
Equities 2,409 97 85 161 95
------ ----------- ------ -----------
Total Trading Account $5,123 $ 2,902 $4,759 $ 2,597
====== =========== ====== ===========

1st Quarter 2004
March 31, 2004 Average
--------------------------- ------------------
Notional Fair Value Fair Value
------------------ ------------------
Trading Account Amount Assets Liabilities Assets Liabilities
- --------------- -------- ------ ----------- ------ -----------
Interest Rate Contracts:
Futures and Forward
Contracts $ 63,241 $ 93 $ - $ 101 $ -
Swaps 194,504 1,286 80 1,451 171
Written Options 149,946 - 1,442 - 1,400
Purchased Options 94,357 215 - 214 -
Foreign Exchange Contracts:
Swaps 3,080 - - - -
Written Options 10,623 - 84 - 69
Purchased Options 12,767 86 - 79 -
Commitments to Purchase
and Sell Foreign Exchange 71,165 862 934 916 978
Debt Securities - 1,598 42 2,168 39
Credit Derivatives 1,325 3 4 3 8
Equities 401 166 127 90 73
------ ----------- ------ -----------
Total Trading Account $4,309 $ 2,713 $5,022 $ 2,738
====== =========== ====== ===========

The Company's trading activities are focused on acting as a market maker
for the Company's customers. The risk from these market making activities and
from the Company's own positions is managed by the Company's traders and
limited in total exposure as described below.

The Company manages trading risk through a system of position limits, a
value at risk (VAR) methodology-based on a Monte Carlo simulation, stop loss
advisory triggers, and other market sensitivity measures. Risk is monitored
and reported to senior management by an independent unit on a daily basis.
Based on certain assumptions, the VAR methodology is designed to capture the
potential overnight pre-tax dollar loss from adverse changes in fair values of
all trading positions. The calculation assumes a one-day holding period for
most instruments, utilizes a 99% confidence level, and incorporates the non-
linear characteristics of options. The VAR model is used to calculate
economic capital which is allocated to the business units for computing risk-
adjusted performance.

35

As VAR methodology does not evaluate risk attributable to extraordinary
financial, economic or other occurrences, the risk assessment process includes
a number of stress scenarios based upon the risk factors in the portfolio and
management's assessment of market conditions. Additional stress scenarios
based upon historic market events are also tested. Stress tests by their
design incorporate the impact of reduced liquidity and the breakdown of
observed correlations. The results of these stress tests are reviewed weekly
with senior management.

The following table indicates the calculated VAR amounts for the trading
portfolio for the periods indicated.

(In millions) 1st Quarter 2005
-------------------------------
Average Minimum Maximum 3/31/05
------- ------- ------- -------
Interest Rate $ 2.8 $ 2.0 $ 4.3 $ 4.3
Foreign Exchange 1.0 0.4 3.3 2.2
Equity 0.8 0.5 1.1 0.9
Credit Derivatives 1.7 1.5 2.1 2.1
Diversification (1.4) NM NM (3.0)
Overall Portfolio 4.9 3.7 7.5 6.5

1st Quarter 2004
-------------------------------
Average Minimum Maximum 3/31/04
------- ------- ------- -------
Interest Rate $ 4.4 $ 2.2 $ 6.2 $ 4.9
Foreign Exchange 1.0 0.5 1.5 1.2
Equity 1.2 0.6 1.9 1.9
Credit Derivatives 2.0 1.9 2.1 2.1
Diversification (0.7) NM NM (1.0)
Overall Portfolio 7.9 4.9 10.5 9.1

NM - Because the minimum and maximum may occur on different days for different
risk components, it is not meaningful to compute a portfolio
diversification effect.

During the first quarter of 2005, interest rate risk generated
approximately 45% of average VAR, credit derivatives generated 27% of average
VAR, foreign exchange accounted for 16% of average VAR, and equity generated
12% of average VAR. During the first quarter of 2005, the Company's daily
trading loss did not exceed the Company's calculated VAR amounts on any given
day.

The following table of total daily revenue or loss captures trading
volatility and shows the number of days in which the Company's trading
revenues fell within particular ranges during the past year.

Distribution of Revenues
- ------------------------
For the Quarter Ended
--------------------------------------------------
Revenue Range 3/31/05 12/31/04 9/30/04 6/30/04 3/31/04
--------------------------------------------------
(Dollars in millions) Number of Occurrences
- ---------------------- --------- --------- --------- ---------- ---------
Less than $(2.5) 0 0 0 1 0
$(2.5)~ $ 0 1 6 11 11 2
$ 0 ~ $ 2.5 50 49 48 32 48
$ 2.5 ~ $ 5.0 11 8 5 17 10
More than $5.0 0 0 0 3 2

36

ASSET/LIABILITY MANAGEMENT

The Company's asset/liability management activities include lending,
investing in securities, accepting deposits, raising money as needed to fund
assets, and processing securities and other transactions. The market risks
that arise from these activities are interest rate risk, and to a lesser
degree, foreign exchange risk. The Company's primary market risk is exposure
to movements in U.S. dollar interest rates. Exposure to movements in foreign
currency interest rates also exists, but to a significantly lower degree. The
Company actively manages interest rate sensitivity. In addition to gap
analysis, the Company uses earnings simulation and discounted cash flow models
to identify interest rate exposures.

An earnings simulation model is the primary tool used to assess changes
in pre-tax net interest income. The model incorporates management's
assumptions regarding interest rates, balance changes on core deposits, and
changes in the prepayment behavior of loans and securities and the impact of
derivative financial instruments used for interest rate risk management.
These assumptions have been developed through a combination of historical
analysis and future expected pricing behavior. These assumptions are
inherently uncertain, and, as a result, the earnings simulation model cannot
precisely estimate net interest income or the impact of higher or lower
interest rates on net interest income. Actual results may differ from
projected results due to timing, magnitude and frequency of interest rate
changes and changes in market conditions and management's strategies, among
other factors.

The Company evaluates the effect on earnings by running various interest
rate ramp scenarios up and down from a baseline scenario, which assumes no
changes in interest rates. These scenarios are reviewed to examine the impact
of large interest rate movements. Interest rate sensitivity is quantified by
calculating the change in pre-tax net interest income between the scenarios
over a 12-month measurement period. The measurement of interest rate
sensitivity is the percentage change in net interest income as shown in the
following table:

(Dollars in millions) March 31, 2005
$ %
--------- --------
+200 bp Ramp vs. Stable Rate $ 5 0.26%
+100 bp Ramp vs. Stable Rate 10 0.50
-100 bp Ramp vs. Stable Rate (25) (1.30)

The 100+ basis point ramp scenario assumes short-term rates rise 25 basis
points in each of the next four quarters, while the 200+ ramp scenario assumes
a 50 basis point per quarter increase. The scenarios assume a flattening of
the yield curve with 10 year rates rising only 76 basis points in the 100+
basis point scenario and 117 basis points in the 200+ basis point scenario.
These scenarios do not reflect strategies that management could employ to
limit the impact as interest rate expectations change.

The above table relies on certain critical assumptions including
depositors' behavior related to interest rate fluctuations and the prepayment
and extension risk in certain of the Company's assets. To the extent that
actual behavior is different from that assumed in the models, there could be a
change in interest rate sensitivity.

37
STATISTICAL INFORMATION

THE BANK OF NEW YORK COMPANY, INC.
Average Balances and Rates on a Taxable Equivalent Basis
(Dollars in millions)

For the three months ended For the three months ended
March 31, 2005 March 31, 2004
-------------------------- --------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
------- -------- ------- ------- -------- -------

ASSETS
- ------
Interest-Bearing
Deposits in Banks (primarily foreign) $ 9,824 $ 71 2.95% $11,692 $ 68 2.35%
Federal Funds Sold and Securities
Purchased Under Resale Agreements 4,816 27 2.31 7,115 16 0.93
Margin Loans 6,407 55 3.46 6,179 34 2.18
Loans:
Domestic Offices 22,135 245 4.49 21,074 55 1.05
Foreign Offices 10,302 96 3.76 9,201 63 2.74
------- -------- ------- --------
Non-Margin Loans 32,437 341 4.26 30,275 118 1.56
------- -------- ------- --------
Securities
U.S. Government Obligations 358 3 3.04 440 3 2.31
U.S. Government Agency Obligations 3,302 31 3.74 4,300 35 3.23
Obligations of States and
Political Subdivisions 199 4 7.34 247 3 5.56
Other Securities 19,681 185 3.77 17,914 155 3.46
Trading Securities 2,464 22 3.60 2,753 15 2.15
------- -------- ------- --------
Total Securities 26,004 245 3.77 25,654 211 3.28
------- -------- ------- --------
Total Interest-Earning Assets 79,488 739 3.77% 80,915 447 2.22%
------- -------- ------- --------
Allowance for Credit Losses (589) (679)
Cash and Due from Banks 4,166 2,971
Other Assets 16,177 16,471
------- -------
TOTAL ASSETS $99,242 $99,678
======= =======

LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Interest-Bearing Deposits
Money Market Rate Accounts $ 6,915 $ 21 1.25% $ 6,607 $ 11 0.68%
Savings 8,901 21 0.94 9,149 15 0.67
Certificates of Deposit
$100,000 & Over 2,880 18 2.57 3,987 12 1.24
Other Time Deposits 899 4 1.76 1,016 4 1.46
Foreign Offices 25,464 120 1.92 25,834 76 1.18
------- -------- ------- --------
Total Interest-Bearing Deposits 45,059 184 1.66 46,593 118 1.02
Federal Funds Purchased and
Securities Sold Under Repurchase
Agreements 1,390 6 1.84 1,612 3 0.66
Other Borrowed Funds 1,825 13 2.87 2,398 9 1.49
Payables to Customers and Broker-Dealers 6,385 25 1.57 6,973 13 0.73
Long-Term Debt 6,605 49 2.98 6,209 30 1.95
------- -------- ------- --------
Total Interest-Bearing Liabilities 61,264 277 1.84% 63,785 173 1.09%
------- -------- ------- --------
Noninterest-Bearing Deposits 15,520 14,016
Other Liabilities 13,158 13,355
Common Shareholders' Equity 9,300 8,522
------- -------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $99,242 $99,678
======= =======
Net Interest Earnings
and Interest Rate Spread $ 462 1.93% $ 274 1.13%
======= ======= ======== =======
Net Yield on Interest-Earning Assets 2.36% 1.36%
======= =======

In 2004, excluding SFAS 13 Leveraged Lease adjustment, the rates on Domestic Office Loan and Non-
Margin Loans would have been 3.82% and 3.49%, respectively. The Net Interest Rate Spread and Net
Yield on Interest-Earning Assets would have been 1.85% and 2.08%, respectively.

38

OTHER DEVELOPMENTS

Other First Quarter 2005 Developments

In January 2005, the Company acquired certain of the assets and
liabilities of Standard & Poor's Securities, Inc. (SPSI), the institutional
brokerage subsidiary of Standard & Poor's. The Company will assume SPSI's
client relationships and Standard & Poor's research clients will have access
to BNY Securities Group's diverse set of execution management platforms and
commission management services. The acquisition demonstrates the Company's
strategy to align with leading independent providers of research and other
financial services.

In March 2005, the Company agreed to acquire the execution and commission
management services of Boston Institutional Services ("BIS"). Under the term
of the agreement, the Company will assume BIS's client relationships for its
execution and commission management business.

In April 2005, the Company agreed to acquire Lynch, Jones & Ryan, Inc.
("LJR"), a subsidiary of Instinet Group. LJR is the pioneer and premier
provider of commission recapture programs, with over 30 years experience in
providing value-added trading services to institutional investors who comprise
1,400 plan sponsor funds, with more than $2.2 trillion in assets. The
Company's headquarters are in New York, with regional offices in Chicago,
Dallas, San Francisco and a presence in London, Tokyo and Sydney. The
acquisition of LJR bolsters the Company's position as the leading provider of
agency brokerage and commission management services, and reinforces its long-
standing commitment to the plan sponsor and institutional fund community
around the world.

On March 1, 2005, the Board of Governors of the Federal Reserve System
(the "FRB") adopted a final rule that allows the continued limited inclusion
of trust preferred securities in the Tier 1 capital of bank holding companies
(BHCs). Under the final rule, the Company will be subject to a 15 percent
limit in the amount of trust preferred securities that can be included in Tier
1 capital, net of goodwill, less any related deferred tax liability. Amounts
in excess of these limits will continue to be included in Tier 2 capital. The
final rule provides a five-year transition period, ending March 31, 2009, for
application of quantitative limits. Under the transition rules, the Company
expects all its trust preferred securities to continue to qualify as Tier 1
capital. Both the Company and the Bank are expected to remain "well
capitalized" under the final rule. At the end of the transition period, the
Company expects all its current trust preferred securities will continue to
qualify as Tier 1 capital.

In the first quarter of 2005, ownership of Pershing was transferred from
The Bank of New York to the parent company, The Bank of New York Company, Inc.
In connection with the transfer, the Company issued $1.1 billion of debt of
which $500 million qualified as Tier 2 capital.

The Company participates in unconsolidated investments that own real
estate qualifying for low income housing tax credits based on Section 42 of
the Internal Revenue Code. The Company's share of operating losses generated
by these investments is recorded as other income. The Company has
historically netted the tax credits generated by these investments against the
related operating losses. The Company has reviewed this accounting method and
has decided to record these tax credits as a reduction of income tax expense.
To provide comparable historical information, the tables below show the
restated prior period results. The resulting adjustments did not have an
impact on net income.

39

THE BANK OF NEW YORK COMPANY, INC.
Consolidated Statements of Income
(Dollars in millions, except per share amounts)
(Unaudited)
For the three months ended
--------------------------------------------
March 31, June 30, September 30, December 31, Year
2004 2004 2004 2004 2004
--------- -------- ------------- ----------- ------

Interest Income
- ---------------
Loans $ 118 $ 272 $ 290 $ 401 $1,080
Margin loans 34 35 40 48 156
Securities
Taxable 181 180 181 197 741
Exempt from Federal Income Taxes 10 10 10 11 40
--------- -------- ------------- ----------- ------
191 190 191 208 781
Deposits in Banks 68 78 77 81 305
Federal Funds Sold and Securities Purchased
Under Resale Agreements 16 17 20 27 80
Trading Assets 14 9 11 17 51
--------- -------- ------------- ----------- ------
Total Interest Income 441 601 629 782 2,453
--------- -------- ------------- ----------- ------
Interest Expense
- ----------------
Deposits 118 126 139 164 548
Federal Funds Purchased and Securities Sold
Under Repurchase Agreements 3 3 4 6 15
Other Borrowed Funds 9 9 9 25 52
Customer Payables 13 12 14 19 57
Long-Term Debt 30 30 35 41 136
--------- -------- ------------- ----------- ------
Total Interest Expense 173 180 201 255 808
--------- -------- ------------- ----------- ------
Net Interest Income 268 421 428 527 1,645
- -------------------
Provision for Credit Losses 12 10 - (7) 15
--------- -------- ------------- ----------- ------
Net Interest Income After Provision
for Credit Losses 256 411 428 534 1,630
--------- -------- ------------- ----------- ------
Noninterest Income
- ------------------
Servicing Fees
Securities 716 717 685 742 2,858
Global Payment Services 79 81 84 71 317
--------- -------- ------------- ----------- ------
795 798 769 813 3,175
Private Client Services and
Asset Management Fees 108 113 113 115 448
Service Charges and Fees 96 94 98 98 385
Foreign Exchange and Other Trading Activities 106 100 67 90 364
Securities Gains 33 12 14 18 78
Other 82 39 38 42 200
--------- -------- ------------- ----------- ------
Total Noninterest Income 1,220 1,156 1,099 1,176 4,650
--------- -------- ------------- ----------- ------
Noninterest Expense
- -------------------
Salaries and Employee Benefits 574 570 564 617 2,324
Net Occupancy 81 72 77 75 305
Furniture and Equipment 51 51 51 51 204
Clearing 48 44 39 45 176
Sub-custodian Expenses 22 22 21 22 87
Software 49 50 52 43 193
Communications 24 23 22 23 93
Amortization of Intangibles 8 8 9 9 34
Other 156 172 164 212 706
--------- -------- ------------- ----------- ------
Total Noninterest Expense 1,013 1,012 999 1,097 4,122
--------- -------- ------------- ----------- ------
Income Before Income Taxes 463 555 528 613 2,158
Income Taxes 99 184 174 262 718
--------- -------- ------------- ----------- ------
Net Income $ 364 $ 371 $ 354 $ 351 $1,440
- ---------- ========= ======== ============= =========== ======
Per Common Share Data:
- ----------------------
Basic Earnings $ 0.47 $ 0.48 $ 0.46 $ 0.45 $ 1.87
Diluted Earnings 0.47 0.48 0.46 0.45 1.85
Cash Dividends Paid 0.19 0.20 0.20 0.20 0.79
Diluted Shares Outstanding 778 779 778 780 778
- ------------------------------------------------------------------------------------------------

40

THE BANK OF NEW YORK COMPANY, INC.
Consolidated Statements of Income
(Dollars in millions, except per share amounts)
(Unaudited)
For the year Ended December 31,
-------------------------------------------------
2004 2003 2002 2001 2000
--------- --------- --------- --------- ---------

Interest Income
- ---------------
Loans $ 1,080 $ 1,187 $ 1,452 $ 2,239 $ 2,889
Margin loans 156 86 12 32 21
Securities
Taxable 741 651 639 463 323
Exempt from Federal Income Taxes 40 48 61 74 63
--------- --------- --------- --------- ---------
781 699 700 537 386
Deposits in Banks 305 150 133 252 273
Federal Funds Sold and Securities Purchased
Under Resale Agreements 80 79 51 159 277
Trading Assets 51 129 259 401 531
--------- --------- --------- --------- ---------
Total Interest Income 2,453 2,330 2,607 3,620 4,377
--------- --------- --------- --------- ---------
Interest Expense
- ----------------
Deposits 548 507 644 1,392 2,011
Federal Funds Purchased and Securities Sold
Under Repurchase Agreements 15 13 29 103 153
Other Borrowed Funds 52 21 65 163 139
Customer Payables 57 30 2 4 -
Long-Term Debt 136 150 202 277 317
--------- --------- --------- --------- ---------
Total Interest Expense 808 721 942 1,939 2,620
--------- --------- --------- --------- ---------
Net Interest Income 1,645 1,609 1,665 1,681 1,757
- -------------------
Provision for Credit Losses 15 155 685 375 105
--------- --------- --------- --------- ---------
Net Interest Income After Provision
for Credit Losses 1,630 1,454 980 1,306 1,652
--------- --------- --------- --------- ---------
Noninterest Income
- ------------------
Servicing Fees
Securities 2,858 2,412 1,896 1,775 1,650
Global Payment Services 317 314 296 291 265
--------- --------- --------- --------- ---------
3,175 2,726 2,192 2,066 1,915
Private Client Services and
Asset Management Fees 448 384 344 314 296
Service Charges and Fees 385 375 357 352 360
Foreign Exchange and Other Trading Activities 364 327 234 338 261
Securities Gains 78 35 (118) 154 150
Other 200 149 124 337 120
--------- --------- --------- --------- ---------
Total Noninterest Income 4,650 3,996 3,133 3,561 3,102
--------- --------- --------- --------- ---------
Noninterest Expense
- -------------------
Salaries and Employee Benefits 2,324 2,002 1,581 1,593 1,493
Net Occupancy 305 261 230 233 184
Furniture and Equipment 204 185 138 178 108
Clearing 176 154 124 61 36
Sub-custodian Expenses 87 74 70 62 68
Software 193 170 115 90 66
Communications 93 92 65 86 56
Amortization of Goodwill and Intangibles 34 25 8 112 115
Merger and Integration Costs - 96 - - -
Other 706 639 420 404 384
--------- --------- --------- --------- ---------
Total Noninterest Expense 4,122 3,698 2,751 2,819 2,510
--------- --------- --------- --------- ---------
Income Before Income Taxes 2,158 1,752 1,362 2,048 2,244
Income Taxes 718 595 460 705 815
--------- --------- --------- --------- ---------
Net Income $ 1,440 $ 1,157 $ 902 $ 1,343 $ 1,429
- ---------- ========= ========= ========= ========= =========
Per Common Share Data:
- ----------------------
Basic Earnings $ 1.87 $ 1.54 $ 1.25 $ 1.84 $ 1.95
Diluted Earnings 1.85 1.52 1.24 1.81 1.92
Cash Dividends Paid 0.79 0.76 0.76 0.72 0.66
Diluted Shares Outstanding 778 759 728 741 745
- ------------------------------------------------------------------------------------------------

41
Other 2004 Developments

Other First & Fourth Quarter Developments in 2004 are summarized in the
following tables:

(In millions)
Applicable Income Statement Pre-Tax After-Tax
Item Quarter Caption Income Tax Income
- -------------------- ---------- ---------------- ------- ----- ---------
Net Interest Income
- ---------------------
SFAS 13 cumulative
lease adjustment- First Net Interest
(leasing portfolio) Income $ (145) $ 113 $ (32)

Noninterest Income
- --------------------
Gain on sale of
Wing Hang First Other Income 48 (21) 27

Gain on sponsor First Securities
fund investments Gains 19 (7) 12

Subtotal-Noninterest ------- ----- --------
Income 67 (28) 39

Noninterest Expense
- ---------------------
Severance tied to First Salaries and
relocations Employee Benefits (10) 4 (6)

Lease terminations First Net Occupancy (8) 3 (5)

Subtotal-Noninterest ------- ----- --------
Expense (18) 7 (11)
------- ----- --------
Total $ (96) $ 92 $ (4)
======= ===== ========

Net interest income in the first quarter of 2004 included an after-tax
charge of $32 million resulting from a cumulative adjustment to the leasing
portfolio, which was triggered under Statement of Financial Accounting
Standards No. 13 "Accounting for Leases" ("SFAS 13") by the combination of a
reduction in state and local taxes and a restructuring of the lease portfolio
completed in the first quarter. The SFAS 13 adjustment impacts the timing of
lease income reported by the Company, and resulted in a reduction in net
interest income of $145 million, offset by tax benefits of $113 million.

Noninterest income in the first quarter of 2004 included a $27 million
after-tax gain on the sale of a portion of the Company's interest in Wing Hang
Bank Limited ("Wing Hang"), a Hong Kong based bank, which was recorded in
other income, and $19 million ($12 million after-tax) of higher than
anticipated securities gains in the first quarter resulting from realized
gains on sponsor fund investments in Kinkos, Inc., Bristol West Holdings,
Inc., Willis Group Holdings, Ltd., and True Temper Sports, Inc.

The Company took several actions in the first quarter of 2004 associated
with its long-term cost reduction initiatives impacting noninterest expense.
These actions included an after-tax severance charge of $6 million related to
staff reductions tied to job relocations and a $5 million after-tax charge for
terminating high cost leases associated with the staff redeployments.

42

(In millions)
Applicable Income Statement Pre-Tax After-Tax
Item Quarter Caption Income Tax Income
- -------------------- ---------- ---------------- ------- ----- ---------
Net Interest Income
- ---------------------
SFAS 13 cumulative
lease adjustment -
(cross-border Fourth Net Interest
rail equipment leases) Income $ 89 $ (37) $ 52

lease adjustment - Fourth Net Interest
(aircraft leases) Income (10) 4 (6)
------- ----- --------
Subtotal-Net Interest
Income 79 (33) 46

Aircraft leases/other Fourth Provision for
Credit Losses 7 (3) 4
Subtotal-Net Interest
Income After Provision ------- ----- --------
for Credit Losses 86 (36) 50

Noninterest Income
- --------------------
Aircraft leases Fourth Other Income 3 (1) 2

Subtotal-Noninterest ------- ----- --------
Income 3 (1) 2

Noninterest Expense
- ---------------------
Charge for the
RW Matter Fourth Other Expense (30) 8 (22)

Subtotal-Noninterest ------- ----- --------
Expense (30) 8 (22)

Federal tax reserve
adjustment related to
LILO exposure Fourth Income Tax - (50) (50)
------- ----- --------
Total $ 59 $ (79) $ (20)
======= ===== ========

Net interest income in the fourth quarter of 2004 included an after-tax
benefit of $52 million resulting from a SFAS 13 cumulative adjustment to the
leasing portfolio for customers exercising their early buy-out ("EBO")
options. The Company's leasing portfolio contains a number of large cross-
border leveraged leases where the lessee has an EBO option to purchase the
leased assets, generally railcars and related assets. Given a confluence of
economic factors, the value of the leased equipment currently exceeds the
exercise price of the EBO option. The Company offered financial incentives to
these lessees to accelerate the exercise of their EBO options. As a result,
several lessees agreed to this proposal, triggering the after-tax $52 million
gain. The gain results from the recognition of lease income over a shorter
time frame, since the term of the lease has been shortened to the EBO date.

In addition, the Company's net investment in aircraft leases was impacted
by a $6 million after-tax adjustment related to aircraft leased to two
airlines. The Company recorded a $7 million reduction in the provision for
credit losses which largely reflects release of reserves on the aircraft
leases.

Noninterest income in the fourth quarter of 2004 included an after-tax
gain of $2 million on the sale of a leased aircraft.

Noninterest expense in the fourth quarter of 2004 included an after-tax
expense of $22 million in connection with the anticipated settlement of the RW
Professional Leasing Services Corp. matter ("RW Matter").

43

In December of 2004 and January 2005, the Company had several appellate
conferences with the IRS related to the Company's cross-border leveraged lease
transactions. Based on these conferences, the Company believes it may be
possible to settle the proposed IRS tax adjustments related to the portfolio.
However, negotiations are continuing and the matter may still be litigated.
Based on a revision to the probabilities and costs assigned to litigation and
settlement outcomes, the Company recorded a $50 million expense associated
with increasing the tax reserve on these transactions.

FORWARD LOOKING STATEMENTS AND FACTORS THAT COULD AFFECT FUTURE RESULTS

The information presented with respect to, among other things, earnings
and revenue outlook, projected business growth, the outcome of legal,
regulatory and investigatory proceedings, future loan losses, the Company's
plans, objectives and strategies is forward looking information. Forward
looking statements are the Company's current estimates or expectations of
future events or future results.

The Company or its executive officers and directors on behalf of the
Company, may from time to time make forward looking statements. When used in
this report, any press release or oral statements, the words "estimate, "
"forecast," "project," "anticipate," "target," "expect," "intend," "think,"
"continue," "seek," "believe," "plan," "goal," "could," "should," "may,"
"will," "strategy," and words of similar meaning are intended to identify
forward looking statements in addition to statements specifically identified
as forward looking statements.

Forward looking statements, including the Company's discussions and
projections of future results of operations and discussions of future plans
contained in Management's Discussion and Analysis and elsewhere in this Form
10-Q, are based on management's current expectations and assumptions and are
subject to risks and uncertainties, some of which are discussed herein, that
could cause actual results to differ materially from projected results.
Forward looking statements could be affected by a number of factors, some of
which by their nature are dynamic and subject to rapid and possibly abrupt
changes which the Company is necessarily unable to predict with accuracy,
including:

General Business and Economic Conditions and Internal Operations - Disruptions
in general economic activity in the United States or abroad, to the Company's
operational functions or to financial market settlement functions. The
economic and other effects of the continuing threat of terrorist activity
following the WTC disaster and subsequent U.S. military actions. Changes in
customer credit quality, future changes in interest rates, actual and assumed
rates of return on pension assets, inflation, rising employee benefit
expenses, the effectiveness of management's efforts to control expenses,
general credit quality, the levels of economic, capital market, and merger and
acquisition activity, consumer behavior, government monetary policy,
competition, credit, market and operating risk, and loan demand. The
performance of the domestic economy, international economic markets,
technological, regulatory and structural changes in the Company's industry,
market demand for the Company's products and services, continuation of the
trend to investment management outsourcing, the savings rate of individuals,
growth of worldwide financial assets, continued globalization of investment
activity, and future global political, economic, business and market
conditions. Variations in management projections, methodologies used by
management to set adequate reserve levels for expected and contingent
liabilities, evaluate risk or market forecasts and the actions that management
could take in response to these changes.

Continuation of favorable global trends - The Company's businesses benefit
from certain global trends, such as the growth of financial assets, creation
of new securities, financial services industry consolidation, rapid
technological change, globalization of investment activities, structural
changes to financial markets, shortened settlement cycles, straight-through
processing requirements, and increased demand for outsourcing. These long-
term trends all increase the demand for the Company's products and services

44

around the world. However, in the near term, uncertainty surrounding recently
enacted legislation and regulation, the potential legislative and regulatory
changes under consideration in the securities industry, as well as
investigations by various federal and state regulatory agencies, the
Department of Justice and state attorney generals, could have an adverse
effect on investment activity and the Company.

Acquisitions - Lower than expected performance or higher than expected costs
in connection with acquisitions and integration of acquired businesses,
acquisitions of businesses with expensive technology components, changes in
relationships with customers, entering new and unfamiliar markets, incurring
undiscovered liabilities, incorrectly valuing acquisition candidates, the
ability to satisfy customer requirements, retain customers and realize the
growth opportunities of acquired businesses and management's ability to
achieve efficiency goals.

Competition - Increased competition from other domestic and international
banks and financial service companies such as trading firms, broker-dealers
and asset managers as well as from unregulated financial services
organizations. Rapid technological changes requiring significant and ongoing
investments in technology to develop competitive new products and services or
adopt new technologies.

Interest rates - The levels of market interest rates, the shape of the yield
curve and the direction of interest rate changes all affect net interest
income that the Company earns in many different businesses.

Volatility of currency markets - The degree of volatility in foreign exchange
rates can affect the amount of foreign exchange trading revenue. While most
of the Company's foreign exchange revenue is derived from its securities
servicing client base, activity levels are generally higher when there is more
volatility. Therefore, the Company benefits from currency volatility.

Dependence on fee-based business - Revenues reflect changes in the volume of
financial transactions in the United States and abroad, the level of capital
market activity affects processing revenues, changes in asset values affect
fees which are based on the value of assets under custody and management, the
level of cross-border investing, investor sentiment, the pace of worldwide
pension reform and the concomitant creation of new pools of pension assets,
the level of debt issuance and currency exchange rate volatility all impact
the Company's revenues.

Access to liquidity - If the Company should experience limited access to the
funds markets, arising from a loss of confidence of debt purchasers or
counterparties in the funds markets in general or the Company in particular,
this would adversely affect the Company.

Operational risk and business continuity - The Company continually assesses
and monitors operational risk in its businesses. Operational risk is
mitigated by formal risk management oversight within the Company as well as by
automation, standardized operating procedures, segregation of duties and
controls, timely confirmation and reconciliation procedures and insurance. In
addition, the Company provides for disaster and business recovery planning for
events that could damage the Company's physical facilities, cause delay or
disruptions to operational functions, including telecommunications networks,
or impair the Company's clients, vendors and counterparties. Events beyond
those contemplated in the plans could negatively affect the Company's results
of operations.

Reputational and legal risk - Adverse publicity and damage to the Company's
reputation arising from the failure or perceived failure to comply with legal
and regulatory requirements, financial reporting irregularities involving
other large and well known companies and regulatory investigations of the
mutual fund industry could affect the Company's ability to attract and retain
customers, maintain access to the capital markets or result in suits,
enforcement actions, fines and penalties.

45

Legislative and regulatory environment - Heightened regulatory scrutiny and
increased sanctions, changes or potential changes in domestic and
international legislation and regulation as well as domestic or international
regulatory investigations impose compliance, legal, review and response costs
and may allow additional competition, facilitate consolidation of competitors,
or attract new competitors into the Company's businesses. The cost of
geographically diversifying the Company's facilities to comply with regulatory
mandates. The nature of any new capital accords to be adopted by the Basel
Committee on Banking Supervision and implemented by the Federal Reserve.

Taxes - The U.S. Treasury and Internal Revenue Service have taken increasingly
aggressive positions against certain corporate investment programs that either
reduce or defer taxes. The Company believes that its historic investments
have been carefully structured to comply with then current tax law, and
received external legal and tax advice confirming the Company's treatment of
the investments. Going forward, there may be fewer opportunities to
participate in lease investing, tax credit programs and similar transactions
that have benefited the Company in the past. This may adversely impact the
Company's net interest income and effective tax rate.

The Company has entered into investments that produce synthetic fuel from
coal byproducts. Section 29 of the Internal Revenue code provides a tax
credit for these types of transactions. The amount of the credit is dependent
on the amount of coal produced by these investments. Coal production can be
impacted by mine, workforce, transportation, and weather conditions among
other factors. Section 29 credits are phased out when calendar year average
oil prices reach certain levels. The Company estimates that the 2005 phase-
out would begin if the entire calendar year 2005 wellhead prices averages
above $52 (which corresponds to popularly published spot prices of $56) and
the credit would be fully phased out at $65 (which corresponds to popularly
published spot prices of $69).

Acts of terrorism - Acts of terrorism could have a significant impact on the
Company's business and operations. While the Company has in place business
continuity and disaster recovery plans, acts of terrorism could still damage
the Company's facilities and disrupt or delay normal operations, and have a
similar impact on the Company's clients, suppliers, and counterparties. Acts
of terrorism could also negatively impact the purchase of the Company's
products and services to the extent they resulted in reduced capital markets
activity or lower asset price levels.

Accounting Principles - Changes in generally accepted accounting principles in
the United States which are applicable to the Company could have an impact on
the Company's reported results of operations even though they do not have an
economic impact on the Company's business.

This is not an exhaustive list and as a result of variations in any of
these factors, actual results may differ materially from any forward looking
statements.

Forward looking statements speak only as of the date they are made. The
Company will not update forward looking statements to reflect facts,
assumptions, circumstances or events which have changed after a forward
looking statement was made.

Government Monetary Policies
- ----------------------------

The Federal Reserve Board has the primary responsibility for United
States monetary policy. Its actions have an important influence on the demand
for credit and investments and the level of interest rates, and thus on the
earnings of the Company.

46

Competition
- -----------

The businesses in which the Company operates are very competitive.
Competition is provided by both unregulated and regulated financial services
organizations, whose products and services span the local, national, and
global markets in which the Company conducts operations.

A wide variety of domestic and foreign companies compete for processing
services. For securities servicing and global payment services,
international, national, and regional commercial banks, trust banks,
investment banks, specialized processing companies, outsourcing companies,
data processing companies, stock exchanges, and other business firms
offer active competition. In the private client services and asset management
markets, international, national, and regional commercial banks, stand alone
asset management companies, mutual funds, securities brokerage firms,
insurance companies, investment counseling firms, and other business firms and
individuals actively compete for business. Commercial banks, savings banks,
savings and loan associations, and credit unions actively compete for
deposits, and money market funds and brokerage houses offer deposit-like
services. These institutions, as well as consumer and commercial finance
companies, national retail chains, factors, insurance companies and pension
trusts, are important competitors for various types of loans. Issuers of
commercial paper compete actively for funds and reduce demand for bank loans.

WEBSITE INFORMATION

The Company makes available on its website, www.bankofny.com:

* Its annual report on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K and all amendments to these reports
as soon as reasonably practicable after such material is
electronically filed with or furnished to the SEC,

* Its earnings releases and management conference calls and
presentations, and

* Its corporate governance guidelines and the charters of the audit
and examining, compensation and organization, and nominating and
governance committees of its Board of Directors.

The corporate governance guidelines and committee charters are available
in print to any shareholder who requests it. Requests should be sent to The
Bank of New York Company, Inc., Corporate Communications, One Wall Street, NY,
NY 10286.

47

THE BANK OF NEW YORK COMPANY, INC.
Consolidated Balance Sheets
(Dollars in millions, except per share amounts)
(Unaudited)

March 31, 2005 December 31, 2004
------------------ -----------------

Assets
- ------
Cash and Due from Banks $ 2,597 $ 3,886
Interest-Bearing Deposits in Banks 8,802 8,192
Securities
Held-to-Maturity (fair value of $1,804 in 2005
and $1,873 in 2004) 1,831 1,886
Available-for-Sale 22,076 21,916
------------------ -----------------
Total Securities 23,907 23,802
Trading Assets at Fair Value 5,123 4,627
Federal Funds Sold and Securities Purchased
Under Resale Agreements 4,085 5,708
Loans (less allowance for loan losses of $583 in 2005
and $591 in 2004) 38,181 35,190
Premises and Equipment 1,070 1,097
Due from Customers on Acceptances 138 137
Accrued Interest Receivable 313 285
Goodwill 3,487 3,477
Intangible Assets 793 793
Other Assets 8,041 7,335
------------------ -----------------
Total Assets $ 96,537 $ 94,529
================== =================

Liabilities and Shareholders' Equity
- ------------------------------------
Deposits
Noninterest-Bearing (principally domestic offices) $ 15,574 $ 17,442
Interest-Bearing
Domestic Offices 18,608 18,692
Foreign Offices 24,781 22,587
------------------ -----------------
Total Deposits 58,963 58,721
Federal Funds Purchased and Securities
Sold Under Repurchase Agreements 879 1,205
Trading Liabilities 2,902 2,873
Payables to Customers and Broker-Dealers 8,684 8,664
Other Borrowed Funds 906 533
Acceptances Outstanding 140 139
Accrued Taxes and Other Expenses 4,192 4,452
Accrued Interest Payable 114 113
Other Liabilities (including allowance for
lending-related commitments of
$133 in 2005 and $145 in 2004) 3,033 2,418
Long-Term Debt 7,389 6,121
------------------ -----------------
Total Liabilities 87,202 85,239
------------------ -----------------

Shareholders' Equity
Common Stock-par value $7.50 per share,
authorized 2,400,000,000 shares, issued
1,046,300,569 shares in 2005 and
1,044,841,603 shares in 2004 7,847 7,836
Additional Capital 1,790 1,790
Retained Earnings 6,374 6,162
Accumulated Other Comprehensive Income (87) (6)
------------------ -----------------
15,924 15,782
Less: Treasury Stock (269,413,566 shares in 2005
and 266,720,629 shares in 2004), at cost 6,579 6,492
Loan to ESOP (305,261 shares in 2005
and 126,960 shares in 2004), at cost 10 -
------------------ -----------------
Total Shareholders' Equity 9,335 9,290
------------------ -----------------
Total Liabilities and Shareholders' Equity $ 96,537 $ 94,529
================== =================
- ------------------------------------------------------------------------------------------------

Note: The balance sheet at December 31, 2004 has been derived from the audited financial
statements at that date.

See accompanying Notes to Consolidated Financial Statements.

48

THE BANK OF NEW YORK COMPANY, INC.
Consolidated Statements of Income
(Dollars in millions, except per share amounts)
(Unaudited)
For the three months
ended March 31,
--------------------
2005 2004
--------- --------

Interest Income
- ---------------
Loans $ 341 $ 118
Margin loans 55 34
Securities
Taxable 207 181
Exempt from Federal Income Taxes 9 10
--------- --------
216 191
Deposits in Banks 71 68
Federal Funds Sold and Securities Purchased
Under Resale Agreements 27 16
Trading Assets 22 14
--------- --------
Total Interest Income 732 441
--------- --------
Interest Expense
- ----------------
Deposits 184 118
Federal Funds Purchased and Securities Sold
Under Repurchase Agreements 6 3
Other Borrowed Funds 13 9
Customer Payables 25 13
Long-Term Debt 49 30
--------- --------
Total Interest Expense 277 173
--------- --------
Net Interest Income 455 268
- -------------------
Provision for Credit Losses (10) 12
--------- --------
Net Interest Income After Provision for Credit Losses 465 256
--------- --------
Noninterest Income
- ------------------
Servicing Fees
Securities 751 716
Global Payment Services 75 79
--------- --------
826 795
Private Client Services and Asset Management Fees 121 108
Service Charges and Fees 92 96
Foreign Exchange and Other Trading Activities 96 106
Securities Gains 12 33
Other 31 82
--------- --------
Total Noninterest Income 1,178 1,220
--------- --------
Noninterest Expense
- -------------------
Salaries and Employee Benefits 618 574
Net Occupancy 78 81
Furniture and Equipment 52 51
Clearing 46 48
Sub-custodian Expenses 23 22
Software 53 49
Communications 23 24
Amortization of Intangibles 8 8
Other 176 156
--------- --------
Total Noninterest Expense 1,077 1,013
--------- --------
Income Before Income Taxes 566 463
Income Taxes 187 99
--------- --------
Net Income $ 379 $ 364
- ---------- ========= ========
Per Common Share Data:
- ----------------------
Basic Earnings $ 0.49 $ 0.47
Diluted Earnings 0.49 0.47
Cash Dividends Paid 0.20 0.19
Diluted Shares Outstanding 779 778

See accompanying Notes to Consolidated Financial Statements.

49

THE BANK OF NEW YORK COMPANY, INC.
Consolidated Statement of Changes in Shareholders' Equity
For the three months ended March 31, 2005
(Dollars in millions)
(Unaudited)

Common Stock
Balance, January 1 $ 7,836
Issuances in Connection with Employee Benefit Plans 11
-------------
Balance, March 31 7,847
-------------
Additional Capital
Balance, January 1 1,790
Issuances in Connection with Employee Benefit Plans 39
Stock Rights Redemption (39)
-------------
Balance, March 31 1,790
-------------
Retained Earnings
Balance, January 1 6,162
Net Income $ 379 379
Cash Dividends on Common Stock (167)
-------------
Balance, March 31 6,374
-------------
Accumulated Other Comprehensive Income

Balance, January 1 (6)
Change in Fair Value of Securities Available-for-Sale,
Net of Taxes of $(43) million (68) (68)
Reclassification Adjustment, Net of Taxes of $(2) million (2) (2)
Foreign Currency Translation Adjustment,
Net of Taxes of $(3) million (9) (9)
Net Unrealized Derivative Gains on Cash Flow Hedges,
Net of Taxes of $(1) million (2) (2)
----------- -------------
Balance, March 31 (87)

Total Comprehensive Income $ 298
===========
Less Treasury Stock
Balance, January 1 6,492
Issued (20)
Acquired 107
-------------
Balance, March 31 6,579
-------------
Less Loan to ESOP
Balance, January 1 -
Loan to ESOP 10
-------------
Balance, March 31 10
-------------
Total Shareholders' Equity, March 31 2005 $ 9,335
=============

- -------------------------------------------------------------------------------------------

Comprehensive Income for the three months ended March 31, 2005 and 2004 was $298 million and
$450 million.

See accompanying Notes to Consolidated Financial Statements.

50

THE BANK OF NEW YORK COMPANY, INC.
Consolidated Statements of Cash Flows
(Dollars in millions)
(Unaudited)

For the three months
ended March 31,
2005 2004
-------- --------

Operating Activities
Net Income $ 379 $ 364
Adjustments to Determine Net Cash Attributable to
Operating Activities:
Provision for Credit Losses
and Losses on Other Real Estate (10) 12
Depreciation and Amortization 178 119
Deferred Income Taxes 89 (73)
Securities Gains (12) (33)
Change in Trading Activities (358) 1,313
Change in Accruals and Other, Net (696) 138
-------- --------
Net Cash (Used for) Provided by Operating Activities (430) 1,840
-------- --------
Investing Activities
Change in Interest-Bearing Deposits in Banks (793) (1,568)
Change in Margin Loans 21 (418)
Purchases of Securities Held-to-Maturity (26) (809)
Paydowns of Securities Held-to-Maturity 73 24
Maturities of Securities Held-to-Maturity 6 -
Purchases of Securities Available-for-Sale (3,835) (3,879)
Sales of Securities Available-for-Sale 1,352 1,341
Paydowns of Securities Available-for-Sale 1,468 1,688
Maturities of Securities Available-for-Sale 680 641
Net Principal Received (Disbursed) on Loans to Customers (3,135) (578)
Sales of Loans and Other Real Estate 105 1
Change in Federal Funds Sold and Securities
Purchased Under Resale Agreements 1,623 1,054
Purchases of Premises and Equipment (16) (46)
Acquisitions, Net of Cash Acquired (31) (46)
Proceeds from the Sale of Premises and Equipment - 4
Other, Net 23 395
-------- --------
Net Cash Used for Investing Activities (2,485) (2,196)
-------- --------
Financing Activities
Change in Deposits 560 (399)
Change in Federal Funds Purchased and Securities
Sold Under Repurchase Agreements (326) (170)
Change in Payables to Customers and Broker-Dealers 20 (446)
Change in Other Borrowed Funds 353 205
Proceeds from the Issuance of Long-Term Debt 1,453 63
Repayments of Long-Term Debt (99) -
Issuance of Common Stock 31 49
Treasury Stock Acquired (117) (21)
Cash Dividends Paid (167) (146)
-------- --------
Net Cash Provided by (Used for) Financing Activities 1,708 (865)
-------- --------
Effect of Exchange Rate Changes on Cash (82) (7)
-------- --------
Change in Cash and Due From Banks (1,289) (1,228)
Cash and Due from Banks at Beginning of Period 3,886 3,843
-------- --------
Cash and Due from Banks at End of Period $ 2,597 $ 2,615
======== ========
- -------------------------------------------------------------------------------
Supplemental Disclosure of Cash Flow Information

Cash Paid During the Period for:
Interest $ 277 $ 97
Income Taxes
81 59
Noncash Investing Activity
(Primarily Foreclosure of Real Estate) - -
- -------------------------------------------------------------------------------

See accompanying Notes to Consolidated Financial Statements.

51

THE BANK OF NEW YORK COMPANY, INC.
Notes to Consolidated Financial Statements

1. General
-------

The accounting and reporting policies of The Bank of New York Company,
Inc., a financial holding company, and its consolidated subsidiaries (the
"Company") conform with generally accepted accounting principles and general
practice within the banking industry. Such policies are consistent with those
applied in the preparation of the Company's annual financial statements.

The accompanying consolidated financial statements are unaudited. In the
opinion of management, all adjustments necessary for a fair presentation of
financial position, results of operations and cash flows for the interim
periods have been made.

2. Accounting Changes and New Accounting Pronouncements
----------------------------------------------------

The Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation," in 1995. At that time, as permitted by the standard, the
Company elected to continue to apply the provisions of Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees," and
accounted for the options granted to employees using the intrinsic value
method, under which no expense is recognized for stock options because they
were granted at the stock price on the grant date and therefore have no
intrinsic value.

On January 1, 2003, the Company adopted the fair value method of
accounting for its options under SFAS 123 as amended by SFAS 148 "Accounting
for Stock-Based Compensation-Transition and Disclosure". SFAS 148 permits
three different methods of adopting fair value: (1) the prospective method,
(2) the modified prospective method, and (3) the retroactive restatement
method. Under the prospective method, options issued after January 1, 2003
are expensed while all options granted prior to January 1, 2003 are accounted
for under APB 25 using the intrinsic value method. Consistent with industry
practice, the Company elected the prospective method of adopting fair value
accounting.

During the first quarter of 2005, approximately 7 million options were
granted. In the first three months of 2005, the Company recorded $10 million
of stock option expense.

The retroactive restatement method requires the Company's financial
statements to be restated as if fair value accounting had been adopted in
1995. The following table discloses the pro forma effects on the Company's
net income and earnings per share as if the retroactive restatement method had
been adopted.

(Dollars in millions, 1st Quarter
except per share amounts) 2005 2004
- ---------------------------------------- ------ ------
Reported net income $ 379 $ 364
Stock based employee compensation costs,
using prospective method, net of tax 6 5
Stock based employee compensation costs,
using retroactive restatement method,
net of tax (13) (17)
------ ------
Pro forma net income $ 372 $ 352
------ ------

Reported diluted earnings per share $ 0.49 $ 0.47
Impact on diluted earnings per share (0.01) (0.01)
------ ------
Pro forma diluted earnings per share $ 0.48 $ 0.46
====== ======
52

The fair value of options granted in 2005 and 2004 were estimated at the
grant date using the following weighted average assumptions:

1st Quarter
2005 2004
------ ------
Dividend yield 2.77% 2.50%
Expected volatility 25.05 25.00
Risk free interest rates 4.15 2.60
Expected options lives 5 5

On February 1, 2003, the Company adopted FASB Interpretation No. 46 ("FIN
46"), "Consolidation of Variable Interest Entities". This interpretation
requires a company that holds a variable interest in an entity to consolidate
the entity if the company's interest in the variable interest entity ("VIE")
is such that the company will absorb a majority of the VIE's expected losses
and/or receives a majority of the entity's expected residual returns. FIN 46
also requires additional disclosures by primary beneficiaries and other
significant variable interest holders. The consolidation requirements of FIN
46 applied immediately to VIEs created after January 31, 2003. Various
amendments to FIN 46, including FIN 46(R), delayed the effective date for
certain previously established entities until the first quarter of 2004. The
adoption of FIN 46 and FIN 46(R) did not have a significant impact on the
Company's results of operations or financial condition.

As of December 31, 2004, the Company had variable interests in 5
securitization trusts. These trusts are qualifying special-purpose entities,
which are exempt from the consolidation requirements of FIN 46. See Footnote
"Securitizations" in the 2004 Annual Report.

The most significant impact of FIN 46 and FIN 46(R) was to require that
the trusts used to issue trust preferred securities be deconsolidated. As a
result, the trust preferred securities no longer represent a minority
interest. Under regulatory capital rules, minority interests count as Tier 1
Capital. The Company has $1,150 million of trust preferred securities
outstanding. On July 2, 2003, the Board of Governors of the Federal Reserve
issued a letter, SR 03-13, stating that notwithstanding FIN 46, trust
preferred securities will continue to be included in Tier 1 capital until
notice is given to the contrary. On May 6, 2004, the Board of Governors of
the Federal Reserve issued a Notice of Proposed Rulemaking, which would be
more restrictive as to the amount of trust preferred securities that could be
included in Tier 1.

On March 1, 2005, the Board of Governors of the Federal Reserve System
(the "FRB") adopted a final rule that allows the continued limited inclusion
of trust preferred securities in the Tier 1 capital of bank holding companies
(BHCs). Under the final rule, the Company will be subject to a 15 percent
limit in the amount of trust preferred securities that can be included in Tier
1 capital, net of goodwill, less any related deferred tax liability. Amounts
in excess of these limits will continue to be included in Tier 2 capital. The
final rule provides a five-year transition period, ending March 31, 2009, for
application of quantitative limits. Under the transition rules, the Company
expects all its trust preferred securities to continue to qualify as Tier 1
capital. Both the Company and the Bank are expected to remain "well
capitalized" under the final rule. At the end of the transition period, the
Company expects all its current trust preferred securities will continue to
qualify as Tier 1 capital.

In May 2004, FASB issued FASB Staff Position No. 106-2, "Accounting and
Disclosure Requirements Related to the Medicare Prescription Drug, Improvement
and Modernization Act of 2003" ("FSP FAS 106-2"), which supersedes FSP FAS
106-1, in response to the December 2003 enactment of the Medicare Prescription
Drug, Improvement and Modernization Act of 2003 ("the Act"). FSP FAS 106-2
provides guidance on the accounting for the effects of the Act for employers
that sponsor postretirement health care plans that provide prescription drug
benefits. The Company believes that its plans are eligible for the subsidy
provided by the Act and adopted FSP FAS 106-2 in the third quarter of 2004
retroactive to January 1, 2004. The adoption of FSP FAS 106-2 did not have a

53

significant impact on the Company's results of operations or financial
position.

In September 2004, the FASB issued FASB Staff Position (FSP) EITF 03-1-1,
which delays the recognition and measurement provisions of EITF 03-1 pending
the issuance of further implementation guidance. The delay applies to both
debt and equity securities and specifically applies to impairments caused by
interest rate and sector spreads. In addition, the provisions of EITF 03-1
that have been delayed relate to the requirements that a company declare its
intent to hold the security to recovery and designate a recovery period in
order to avoid recognizing an other-than-temporary impairment charge through
earnings. The FASB will be issuing implementation guidance related to this
topic. Once issued, the Company will evaluate the impact of adopting EITF
03-1.

The FASB is currently reviewing the accounting guidance under SFAS 13
surrounding leveraged leases. If FASB modifies existing interpretations of
SFAS 13 and associated industry practice, a settlement of the tax matters
associated with the Company's structured leasing investments (see "Commitments
and Contingencies" footnote) could result in a material one-time charge to
earnings related to a change in the timing of the lease cash flows. However,
an amount approximating this one-time charge would be recognized into income
over the remaining term of the affected leases. It is anticipated that FASB
will issue an exposure draft on this topic in the second quarter of 2005, with
an appropriate time period available to receive industry comments, before any
final pronouncement would become effective.

In December 2004, the FASB issued FASB Statement No. 123 (revised 2004)
("SFAS 123(R)"), "Share-Based Payment", which is a revision of FASB Statement
No. 123, "Accounting for Stock-Based Compensation." FASB 123(R) eliminates
the ability to account for share-based compensation transactions using
Accounting Principles Board Opinion No. 25 and requires that such transactions
be accounted for using a fair value-based method. Statement 123(R) covers a
wide range of share-based compensation arrangements including share options,
restricted share plans, performance-based awards, share appreciation rights,
and employee share purchase plans. In April 2005, the Securities and Exchange
Commission ("SEC") issued a release that amends the compliance dates for SFAS
123(R). Under the SEC's new rule, the Company will be required to apply SFAS
123(R) as of January 1, 2006.

Statement 123(R) may be adopted using one of two methods: (1) A "modified
prospective" method in which compensation cost is recognized beginning with
the effective date (a) based on the requirements of Statement 123(R) for all
share-based payments granted after the effective date and (b) based on the
requirements of Statement 123 for all awards granted to employees prior to the
effective date of Statement 123(R) that remain unvested on the effective date.
(2) A "modified retrospective" method which includes the requirements of the
modified prospective method described above, but also permits entities to
restate based on the amounts previously recognized under Statement 123 for
purposes of pro forma disclosures either (a) all prior periods presented or
(b) prior interim periods of the year of adoption.

The Company adopted the fair value method of accounting for stock-based
compensation prospectively as of January 1, 2003. By January 1, 2006, the
Company will be amortizing all of its unvested stock option grants. The
Company is currently evaluating the impact of adopting FASB 123(R).

The Company participates in unconsolidated investments that own real
estate qualifying for low income housing tax credits based on Section 42 of
the Internal Revenue Code. The Company's share of operating losses generated
by these investments is recorded as other income. The Company has
historically netted the tax credits generated by these investments against the
related operating losses. In the first quarter of 2005, the Company reviewed
this accounting method and determined it was more appropriate to record these
tax credits as a reduction of income tax expense. Prior period results for
other income and income tax expense have been reclassified and did not have an
impact on net income. See "Other Developments."

Certain other prior year information has been reclassified to conform its
presentation with the 2005 financial statements.

54

3. Acquisitions and Dispositions
-----------------------------

The Company continues to be an active acquirer of securities servicing
and asset management businesses.

The Company has announced three acquisitions in 2005. The total
acquisition cost in the first quarter was $7.5 million, paid in cash. The
Company frequently structures its acquisitions with both an initial payment
and a later contingent payment tied to post-closing revenue or income growth.
The Company records the fair value of contingent payments as an additional
cost of the entity acquired in the period that the payment becomes probable.

Goodwill and the tax deductible portion of goodwill related to
acquisitions in the first quarter was zero. At March 31, 2005, the Company
was liable for potential contingent payments related to acquisitions in the
amount of $217 million. During the first quarter of 2005, the Company paid $9
million for contingent payments related to acquisitions made in prior years.

2005
- ----

In January 2005, the Company acquired certain of the assets and
liabilities of Standard & Poor's Securities, Inc. (SPSI), the institutional
brokerage subsidiary of Standard & Poor's. The Company will assume SPSI's
client relationships and Standard & Poor's research clients will have access
to BNY Securities Group's diverse set of execution management platforms and
commission management services. The acquisition demonstrates the Company's
strategy to work with leading independent providers of research and other
financial services.

In March 2005, the Company agreed to acquire the execution and commission
management services of Boston Institutional Services ("BIS"). Under the term
of the agreement, the Company will assume BIS's client relationships for its
execution and commission management business.

In April 2005, the Company agreed to acquire Lynch, Jones & Ryan, Inc
("LJR"), a subsidiary of Instinet Group. LJR is the pioneer and premier
provider of commission recapture programs, with over 30 years experience in
providing value-added trading services to institutional investors who comprise
1,400 plan sponsor funds, with more than $2.2 trillion in assets. The
Company's headquarters are in New York, with regional offices in Chicago,
Dallas, San Francisco and a presence in London, Tokyo and Sydney. The
acquisition of LJR bolsters the Company's position as the leading provider of
agency brokerage and commission management services, and reinforces its long-
standing commitment to the plan sponsor and institutional fund community
around the world.

4. Goodwill and Intangibles
------------------------

Goodwill by business segment is as follows:

(In millions)
March 31, 2005 December 31, 2004
------------------ -----------------
Servicing and
Fiduciary Businesses $ 3,347 $ 3,337
Corporate Banking 31 31
Retail Banking 109 109
Financial Markets - -
------------------ -----------------
Consolidated Total $ 3,487 $ 3,477
================== =================

The Company's business segments are tested annually for goodwill
impairment.

55

Intangible Assets
- -----------------

March 31, 2005 December 31, 2004
---------------------------------------------- ------------------------------
Weighted
Gross Net Average Gross Net
Carrying Accumulated Carrying Amortization Carrying Accumulated Carrying
(Dollars in millions) Amount Amortization Amount Period in Years Amount Amortization Amount
-------- ------------ -------- --------------- -------- ------------ --------

Trade Names $ 370 $ - $ 370 Indefinite Life $ 370 $ - $ 370
Customer Relationships 483 (72) 411 17 474 (65) 409
Other Intangible
Assets 41 (29) 12 7 41 (27) 14

The aggregate amortization expense of intangibles was $8 million and $8
million for the quarters ended March 31, 2005 and 2004, respectively.
Estimated amortization expense for the next five years is as follows:

For the Year Ended Amortization
(In millions) December 31, Expense
------------------ ------------
2005 $38
2006 38
2007 35
2008 35
2009 31

5. Allowance for Credit Losses
---------------------------

The allowance for credit losses is maintained at a level that, in
management's judgment, is adequate to absorb probable losses associated with
specifically identified loans, as well as estimated probable credit losses
inherent in the remainder of the loan portfolio at the balance sheet date.
Management's judgment includes the following factors, among others: risks of
individual credits; past experience; the volume, composition, and growth of
the loan portfolio; and economic conditions.

The Company conducts a quarterly portfolio review to determine the
adequacy of its allowance for credit losses. All commercial loans over $1
million are assigned to specific risk categories. Smaller commercial and
consumer loans are evaluated on a pooled basis and assigned to specific risk
categories. Following this review, senior management of the Company analyzes
the results and determines the allowance for credit losses. The Risk
Committee of the Company's Board of Directors reviews the allowance at the end
of each quarter.

The portion of the allowance for credit losses allocated to impaired
loans (nonaccrual commercial loans over $1 million) is measured by the
difference between their recorded value and fair value. Fair value is the
present value of the expected future cash flows from borrowers, the market
value of the loan, or the fair value of the collateral.

Commercial loans are placed on nonaccrual status when collateral is
insufficient and principal or interest is past due 90 days or more, or when
there is reasonable doubt that interest or principal will be collected.
Accrued interest is usually reversed when a loan is placed on nonaccrual
status. Interest payments received on nonaccrual loans may be recognized as
income or applied to principal depending upon management's judgment.
Nonaccrual loans are restored to accrual status when principal and interest
are current or they become fully collateralized. Consumer loans are not
classified as nonperforming assets, but are charged off and interest accrued
is suspended based upon an established delinquency schedule determined by
product. Real estate acquired in satisfaction of loans is carried in other
assets at the lower of the recorded investment in the property or fair value
minus estimated costs to sell.

56

Transactions in the allowance for credit losses are summarized as
follows:

(In millions) Three Months Ended March 31, 2005
----------------------------------------------
Allowance for
Allowance for Lending-Related Allowance for
Loan Losses Commitments Credit Losses
-------------- --------------- -------------
Balance, Beginning of Period $ 591 $ 145 $ 736
Charge-Offs (11) - (11)
Recoveries 1 - 1
-------------- --------------- -------------
Net Charge-Offs (10) - (10)
Provision 2 (12) (10)
-------------- --------------- -------------
Balance, End of Period $ 583 $ 133 $ 716
============== =============== =============

Three Months Ended March 31, 2004
----------------------------------------------
Allowance for
Allowance for Lending-Related Allowance for
Loan Losses Commitments Credit Losses
-------------- --------------- -------------
Balance, Beginning of Period $ 668 $ 136 $ 804
Charge-Offs (29) - (29)
Recoveries 3 - 3
-------------- --------------- -------------
Net Charge-Offs (26) - (26)
Provision (10) 22 12
-------------- --------------- -------------
Balance, End of Period $ 632 $ 158 $ 790
============== =============== =============

6. Capital Transactions
--------------------

The Company has 5 million authorized shares of Class A preferred stock
having a par value of $2.00 per share. At March 31, 2005 and December 31,
2004, 3,000 shares were outstanding.

In February 2005, the Company's board of directors voted unanimously to
terminate the Company's Preferred Stock Purchase Rights Plan ("Rights Plan")
and to institute parameters regarding adoption of a shareholder rights plan in
the future.

Each share of the Company's common stock also represented one right under
the Rights Plan. On March 25, 2005, the Company paid $39 million, or 5 cents
per right, to redeem the rights from shareholders of record as of March 11,
2005.

During the quarter ended March 31, 2005 the Company issued $1.2 billion
of debt of which $603 million was subordinated debt qualifying as Tier II
capital.

At March 31, 2005, the Company had registration statements with a
remaining capacity of approximately $1.8 billion of debt, preferred stock,
preferred trust securities, or common stock.

57

7. Earnings Per Share
------------------

The following table illustrates the computations of basic and diluted
earnings per share:

Three Months Ended
March 31,
(In millions, ------------------
except per share amounts) 2005 2004
- ---------------------------------- -------- --------
Net Income(1) $ 379 $ 364
======== ========
Basic Weighted Average
Shares Outstanding 771 771
Shares Issuable on Exercise of
Employee Stock Options 8 7
-------- --------
Diluted Weighted Average
Shares Outstanding 779 778
======== ========
Basic Earnings Per Share: $ 0.49 $ 0.47
Diluted Earnings Per Share: 0.49 0.47

(1) Net Income, net income available to common shareholders and diluted net
income are the same for all periods presented.

8. Employee Benefit Plans
----------------------

The components of net periodic benefit cost are as follows:

Pension Benefits Healthcare Benefits
------------------- -------------------
Three Months Ended Three Months Ended
March 31, March 31,
------------------- -------------------
Domestic Foreign
--------- ---------
(In millions) 2005 2004 2005 2004 2005 2004
- --------------------- ---- ---- ---- ---- -------- ----------
Net Periodic Cost (Income)
Service Cost $ 16 $ 12 $ 2 $ 2 $ - $ -
Interest Cost 14 13 2 2 2 3
Expected Return on Assets (30) (33) (3) (2) (2) (2)
Other 4 1 1 1 2 2
---- ---- ---- ---- -------- ----------
Net Periodic Cost (Income) $ 4 $ (7)$ 2 $ 3 $ 2 $ 3
==== ==== ==== ==== ======== ==========

9. Commitments and Contingent Liabilities
--------------------------------------

In the normal course of business, various commitments and contingent
liabilities are outstanding which are not reflected in the accompanying
consolidated balance sheets. Management does not expect any material losses
to result from these matters.

A summary of the notional amount of the Company's off-balance-sheet
credit transactions, net of participations, at March 31, 2005 and December 31,
2004 follows:

Off-Balance-Sheet Credit Risks
- ------------------------------

March 31, December 31,
(In millions) 2005 2004
- ----------------------------------- ------------ -----------
Lending Commitments $ 35,741 $ 34,834
Standby Letters of Credit, net 9,502 9,507
Commercial Letters of Credit 1,206 1,264
Securities Lending Indemnifications 252,863 232,025

The total potential loss on undrawn commitments, standby and commercial
letters of credit, and securities lending indemnifications is equal to the
total notional amount if drawn upon, which does not consider the value of any
collateral. Since many of the commitments are expected to expire without

58

being drawn upon, the total amount does not necessarily represent future cash
requirements.

In securities lending transactions, the Company generally requires the
borrower to provide 102% cash collateral which is monitored on a daily basis,
thus reducing credit risk. Security lending transactions are generally
entered into only with highly-rated counterparties. At March 31, 2005 and
December 31, 2004, securities lending indemnifications were secured by
collateral of $256.2 billion and $233.0 billion.

The notional amounts for other off-balance-sheet risks express the dollar
volume of the transactions; however, credit risk is much smaller. The Company
performs credit reviews and enters into netting agreements to minimize the
credit risk of foreign currency and interest rate risk management products.
The Company enters into offsetting positions to reduce exposure to foreign
exchange and interest rate risk.

Standby letters of credit principally support corporate obligations and
include $0.7 billion and $0.5 billion that were collateralized with cash and
securities on March 31, 2005 and December 31, 2004. At March 31, 2005,
approximately $6.7 billion of the standbys will expire within one year, and
the balance between one to five years.

Other
- -----

In the ordinary course of business, the Company makes certain investments
that have tax consequences. From time to time, the IRS may question or
challenge the tax position taken by the Company. The Company engaged in
certain types of structured leasing investments, referred to as "LILOs", prior
to mid-1999 that the IRS has challenged. In 2004, the IRS proposed
adjustments to the Company's tax treatment of these transactions. The Company
believes that its tax position related to these transactions was proper based
upon applicable statutes, regulations and case law in effect at the time the
transactions were entered into. However, a court or other judicial or
administrative authority, if presented with the transactions, could disagree.

Beginning in the fourth quarter of 2004, the Company had several
appellate conferences with the IRS related to the Company's cross-border
leveraged lease transactions. Based on these conferences, the Company
believes it is likely it will settle the proposed IRS tax adjustments relating
to transactions closed in 1996 and 1997. However, negotiations are not final
and it remains possible that the matter will be litigated. The Company's 1998
leveraged lease transactions are in a later audit cycle and thus are unlikely
to be part of any settlement of the 1996 and 1997 leases. However, the
Company believes that a comparable settlement for 1998 will ultimately be
possible given the similarity between these leases and the earlier leases.

On February 11, 2005, the IRS released Notice 2005-13 which identified
certain lease investments known as "SILOs" as potentially subject to IRS
challenge. The Company believes that certain of its lease investments entered
into between 1999 and 2003 may be consistent with transactions described in
the notice. In response the Company is reviewing its lease portfolio and
evaluating the technical merits of the IRS' position. At this time, it is
unknown whether the IRS will ultimately challenge these investments, but the
Company remains confident that its leases complied with statutory,
administration and judicial authority existing at that time.

The Company currently believes it has adequate tax reserves to cover its
LILO exposure for all years and any other potential tax exposures the IRS
could raise, based on a probability assessment of various potential outcomes.
Probabilities and outcomes are reviewed as events unfold, and adjustments to
the reserves are made when necessary.

See discussion of contingent legal matters in the "Legal Proceedings"
section.

In the ordinary course of business, the Company and its subsidiaries are
routinely defendants in or parties to a number of pending and potential legal

59

actions, including actions brought on behalf of various classes of claimants,
and regulatory matters. Claims for significant monetary damages are asserted
in certain of these actions and proceedings. Due to the inherent difficulty
of predicting the outcome of such matters, the Company cannot ascertain what
the eventual outcome of these matters will be; however, based on current
knowledge and after consultation with legal counsel, the Company does not
believe that judgments or settlements, if any, arising from pending or
potential legal actions or regulatory matters, either individually or in the
aggregate, will have a material adverse effect on the consolidated financial
position or liquidity of the Company although they could have a material
effect on net income for a given period. The Company intends to defend itself
vigorously against all of the claims asserted in these matters.

60

QUARTERLY REPORT ON FORM 10-Q
THE BANK OF NEW YORK COMPANY, INC.

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended March 31, 2005

Commission file number 001-06152

THE BANK OF NEW YORK COMPANY, INC.
Incorporated in the State of New York
I.R.S. Employer Identification No. 13-2614959
Address: One Wall Street
New York, New York 10286
Telephone: (212) 495-1784

As of March 31, 2005, The Bank of New York Company, Inc. had
776,581,742 shares of common stock ($7.50 par value) outstanding.

The Bank of New York Company, Inc. (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 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.

The registrant is an accelerated filer (as defined in Rule 12b-2 of the
Exchange Act).

The following sections of the Financial Review set forth in the cross-
reference index are incorporated in the Quarterly Report on Form 10-Q.

Cross-reference Page(s)
- ------------------------------------------------------------------------------

PART I FINANCIAL INFORMATION

Item 1 Financial Statements

Consolidated Balance Sheets as of
March 31, 2005 and December 31, 2004 47

Consolidated Statements of Income for
the three months ended March 31, 2005 and 2004 48

Consolidated Statement of Changes in
Shareholders' Equity for the three months
ended March 31, 2005 49

Consolidated Statement of Cash Flows
for the three months ended March 31, 2005 and 2004 50

Notes to Consolidated Financial Statements 51 - 59

Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 2 - 46

Item 3 Quantitative and Qualitative Disclosures
About Market Risk 34 - 36

61

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

The Company's Disclosure Committee has responsibility for ensuring that
there is an adequate and effective process for establishing, maintaining, and
evaluating disclosure controls and procedures for the Company in connection
with its external disclosures. In addition, the Company has established a
Code of Conduct designed to provide a statement of the values and ethical
standards to which the Company requires its employees and directors to adhere.
The Code of Conduct provides the framework for maintaining the highest
possible standards of professional conduct. The Company has an ethics hotline
for employees.

An evaluation was carried out under the supervision and with the
participation of the Company's management, including the Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the Company's
disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e).
Based on that evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that the Company's disclosure controls and procedures were
effective as of the end of the period covered by this report.

PART II. OTHER INFORMATION

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

In the ordinary course of business, the Company and its subsidiaries are
routinely defendants in or parties to a number of pending and potential legal
actions, including actions brought on behalf of various classes of claimants,
and regulatory matters. Claims for significant monetary damages are asserted
in certain of these actions and proceedings. In regulatory enforcement
matters, claims for disgorgement and the imposition of penalties and/or other
remedial sanctions are possible. Due to the inherent difficulty of predicting
the outcome of such matters, the Company cannot ascertain what the eventual
outcome of these matters will be; however, based on current knowledge and
after consultation with legal counsel, the Company does not believe that
judgments or settlements, if any, arising from pending or potential legal
actions or regulatory matters, either individually or in the aggregate, will
have a material adverse effect on the consolidated financial position or
liquidity of the Company although they could have a material effect on net
income for a given period. The Company intends to defend itself vigorously
against all of the claims asserted in these matters.

The Company continues to cooperate with the previously discussed
investigations by law enforcement authorities into funds transfer activities
in certain accounts at the Bank, principally involving wire transfers from
Russian and other sources in Eastern Europe, as well as certain other matters
involving the Bank and its affiliates. The funds transfer investigations
center around accounts controlled by Peter Berlin, his wife, Lucy Edwards
(until discharged in September 1999, an officer of the Bank), and companies
and persons associated with them. Berlin and Edwards pled guilty to various
federal criminal charges. The Company cannot predict when or on what basis
the investigations will conclude or their effect, if any, on the Company.

As previously disclosed, the U.S. Attorney's office for the Eastern
District of New York (the "Office") is conducting an investigation of an
alleged fraudulent scheme by RW Professional Leasing Services Corp. ("RW"), a
former customer of a Long Island branch of the Bank. The Bank has been
notified that it and certain of its employees are subjects of the ongoing
investigation. Criminal charges have been filed against RW, certain of its
principals and other individuals including a former employee who had served as
a branch manager of the Bank. The Bank is cooperating fully in the
investigation. The Office has proposed to resolve its investigation through
an agreement between the Bank and the Office. The Bank is reviewing the
Office's proposal. Since the potential settlement of this matter is probable
and can be reasonably estimated, the Company recorded a $30 million pre-tax
($22 million after-tax) liability for fines, restitution and legal costs

62

associated with this matter in the fourth quarter of 2004. There can be no
assurance that an agreement will be reached.

The Company is broadly involved in the mutual fund industry, and various
governmental and self-regulatory agencies have sought documents and other
information from it in connection with investigations relating to that
industry. The Company is cooperating with these investigations. One of these
investigations, by the U.S. Securities and Exchange Commission ("SEC")
concerns the relationship among: (1) the BNY Hamilton Funds, Inc., a family of
mutual funds; (2) the Company, which acts as the investment adviser to the
Hamilton Funds and provides certain other services; and (3) a third-party
service provider that acts as administrator and principal underwriter of the
Hamilton Funds. This investigation principally concerns the appropriateness
of certain expenditures made in connection with marketing and distribution of
the Hamilton Funds. Another SEC investigation has focused on possible market-
timing transactions cleared by Pershing LLC ("Pershing"), a wholly owned
subsidiary of the Company, for Mutuals.com and other introducing brokers.

Pershing, which was acquired from Credit Suisse First Boston (USA), Inc.
("CSFB") in May 2003, is defending three putative class action lawsuits filed
against CSFB seeking unspecified damages relating to mutual fund market-timing
transactions that were cleared through Pershing's facilities. Because the
conduct at issue is alleged to have occurred largely during the period that
Pershing was owned by CSFB, the Company had made a claim for indemnification
against CSFB relating to these lawsuits under the agreement relating to the
acquisition of Pershing. CSFB is disputing this claim for indemnification.

The Company provides an array of issuer services, and the SEC has sought
documents and other information from it in connection with investigations
relating to that business. The Company is cooperating with these
investigations. Those investigations have focused primarily on (i) the
Company's role as transfer agent on behalf of equity issuers in the United
States and the process used by the Company's stock transfer division to search
for lost security holders of its issuer clients; and (ii) the Company's role
as auction agent in connection with auction rate securities issued by various
issuers.

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

Under its stock repurchase program, the Company buys back shares from
time to time. The following table discloses the Company's repurchases of the
Company's common stock made during the first quarter of 2005.

Issuer Purchases of Equity Securities
- -------------------------------------
Total Number Maximum
Total Average of Shares Number of Shares
Number Price Purchased as That May be
Period of Shares Paid Part of Repurchased
Purchased Per Share Publicly Under the Plans
Announced Plans or Programs
or Programs
- -------------- ---------- ---------- --------------- ------------------
January 1-31 7,303 $ 33.02 7,303 12,623,001
February 1-28 241,937 30.09 241,937 12,381,064
March 1-31 3,249,289 30.56 3,249,289 9,131,775
---------- ---------------
Total 3,498,529 3,498,529

All shares were repurchased through the Company's stock repurchase
program, which was announced on November 12, 2002 and permits the repurchase
of 16 million shares. The shares repurchased in the first quarter primarily
resulted from open market purchases.

63

Item 6. Exhibits
- -----------------

Exhibit 3(ii) - Amendment to the By-laws of The Bank of
New York Company. Inc.;

Exhibit 12 - Ratio of Earnings to Fixed Charges
for the Three Months Ended March 31, 2005 and 2004;

Exhibit 31 - Certification of Chairman and Chief Executive Officer
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002;

Exhibit 31.1 - Certification of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002;

Exhibit 32 - Certification of Chairman and Chief Executive Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002; and

Exhibit 32.1 - Certification of Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.

64

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 hereunto duly authorized.

THE BANK OF NEW YORK COMPANY, INC.
----------------------------------
(Registrant)

Date: May 4, 2005 By: /s/ Thomas J. Mastro
---------------------------------
Name: Thomas J. Mastro
Title: Comptroller

EXHIBIT INDEX
-------------

Exhibit Description
- ------- -----------

3(ii) Amendment to the By-laws of The Bank of New York Company, Inc.

12 Ratio of Earnings to Fixed Charges for the Three Months Ended
March 31, 2005 and 2004.

31 Certification of Chairman and Chief Executive Officer pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.

31.1 Certification of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.

32 Certification of Chairman and Chief Executive Officer pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.

32.1 Certification of Chief Financial Officer pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.