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THE BANK OF NEW YORK COMPANY, INC.

FINANCIAL REVIEW

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SELECTED FINANCIAL DATA

(Dollars in millions, except per share amounts)

All amounts in the above notes are pre-tax.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF THE COMPANY’S FINANCIAL CONDITION AND RESULTS OF OPERATIONS (“MD&A”)

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,” 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 securities servicing for investors, financial intermediaries and issuers. The Company plays an integral role in the infrastructure of the capital markets, servicing securities in more than 100 markets worldwide. The Company provides services based on leading technology for global corporations, financial institutions, asset managers, governments, non-profit organizations, and individuals. Its principal subsidiary, The Bank of New York, founded in 1784, is the oldest bank in the United States and has a distinguished history of serving clients around the world through its five primary businesses: Securities Servicing and Global Payment Services, Private Client Services and Asset Management, Corporate Banking, Global Market Services, and Retail Banking.

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 3 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 consistently invests in technology to improve the breadth and quality of its product offerings, and to increase economies of scale. The Company believes the extent to which it is able to invest in technology is a key long-term competitive advantage.

The Company also actively pursues strategic acquisitions to expand product offerings and increase market share in its scale businesses. The Company has made over 80 acquisitions since 1995, almost exclusively in its securities servicing and fiduciary businesses. 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 44% from December 31, 2000 to December 31, 2003. Capital generated by these actions has been reallocated to the Company’s higher growth businesses.

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.

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In 2003, the market environment was mixed, with the equities markets weaker than expected but with the fixed income markets remaining strong. After reaching a low point in the first quarter of 2003, equity price levels and trading volumes began to rebound in the second quarter. However while equity prices continued to grow throughout the year, as evidenced by a 26% increase in the S&P 500 for 2003, trading levels declined slightly, and resulting full year combined share volumes for NYSE and NASDAQ were down 2.5%. Fixed income debt issuance in the private and public sectors, as well as trading volumes, were strong throughout 2003.

Given this environment, the Company’s equity-linked businesses did not meet expectations, while the fixed-income linked businesses met or exceeded expectations. For the investor services businesses, which service both fixed income and equity assets, the impact of the environment was relatively neutral. Broker-dealer services, which primarily services government securities, benefited from strong trading levels. Execution and clearing services was negatively impacted by the equity trading environment. In issuer services, corporate trust benefited from strong debt issuance, while depositary receipts continued to be negatively impacted by low levels of both foreign equity issuance and cross-border merger and acquisition activity. The Company’s asset management business was positively impacted by higher equity prices.

The Company’s business model was also unfavorably impacted by the low interest rate environment in 2003, which contributed to compression in the net yield on interest earning assets. The Company’s business lines generate a significant level of low or no cost deposits, which are invested at lower spreads when rates are low. In addition, the Company has been reducing its corporate loans as part of its strategy to improve its earning risk profile, which further reduces net interest income. The Company continued to take action to offset these factors, by growing its portfolio of very high quality investment securities and by aggressively repricing its funded debt.

The difficult equity market and low rate environment have made it challenging for the Company to achieve positive operating leverage (a rate of revenue growth in excess of the rate of expense growth), an integral component of its business model. Other factors adversely impacting operating leverage include increased expense for heightened business continuity requirements following the World Trade Center disaster (“WTC disaster”), rising insurance and medical costs, a lower level of credits from the Company’s over-funded pension plan and the implementation of stock option expensing. With the improving environment over the course of 2003, absorption of the aforementioned factors into the expense base and continued focus on expense control, the Company was able to achieve positive operating leverage on a sequential quarter basis for each of the last two quarters of 2003.

For 2004, the Company based its budget planning process on expectations for continued gradual improvement in the equity market environment, with asset price levels and trading volumes both growing, albeit at rates below the average expected growth rates for a full business cycle. The Company also expects continued strength in fixed income markets, driven by U.S. government, asset-backed, and municipal financing needs.

Summary of Results

The Company’s main strategic accomplishments in 2003 include the successful integration of the May 1, 2003 acquisition of Credit Suisse First Boston’s Pershing unit (“Pershing”), as well as a significant improvement in its credit risk profile. Other achievements include: continued strong results in winning new business and introducing new products; protecting long-term investment spending for technology, business continuity, quality and branding programs; and achieving positive operating leverage in the second half of 2003.

For the year 2003, the Company reported net income of $1,157 million or $1.52 per diluted share, compared with $902 million or $1.24 per diluted share in 2002 and $1,343 million or $1.81 per diluted share in 2001. On May 1, 2003, the Company acquired Pershing, a leading global provider of clearing services and outsourcing solutions for broker-dealers, asset managers and financial intermediaries. Results for 2003 include pre-tax merger and integration costs of $96 million, or 8 cents per share, related to the acquisition and integration of Pershing, and a 7 cents per share loss related to the settlement of claims related to the Company’s 1999 sale of BNY

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Financial Corporation to the General Motors Acceptance Corporation (“GMAC”). Excluding these items, operating earnings were $1,266 million, or $1.67 per share, which includes a Pershing-related operating dilution of 2 cents per share.

In 2003, reported return on average common equity was 15.12% compared with 13.96% in 2002 and 21.58% in 2001, while reported return on average assets was 1.27% in 2003 compared with 1.13% in 2002 and 1.64% in 2001. On an operating basis, return on average common equity in 2003 was 16.55% while return on average assets was 1.39%.

Securities servicing fees in 2003 were $2,412 million, an increase of $516 million from $1,896 million in 2002, principally due to the Pershing acquisition and growth in investor and broker-dealer services. Global payment services fees increased 6% for the full year, which is attributable to improved multi-currency funds transfer product capabilities and new business wins. For the year 2003, private client services and asset management fees were up 12% reflecting higher equity price levels as well as strong growth at Ivy Asset Management, Inc. (“Ivy”). In addition, the year-over-year comparison also benefited from the full year impact of several 2002 acquisitions. Foreign exchange and other trading revenues were up 40% over 2002 resulting from increased client-driven foreign exchange, interest rate hedging activity, and the Pershing acquisition. Year-end assets under custody were $8.3 trillion, including $2.3 trillion of cross-border custody assets. Gains and losses on securities investments were a gain of $35 million in 2003, compared with a loss of $118 million in 2002 primarily reflecting a $210 million equity write-down in 2002. The provision for credit losses was $155 million down from $685 million in 2002, when the Company provided for problem exposures in the airline and telecom industries. Although expenses increased significantly due to the Pershing acquisition, stock option expensing, a lower pension credit, technology investment, and business continuity, the Company was able to attain positive leverage in the second half of the year.

In 2002, securities servicing fees were $1,896 million, a 7% increase compared with $1,775 million in 2001 reflecting acquisitions and the benefit of well-diversified businesses. Global payment services fees increased 2% for the full year, because of higher funds transfer volumes and increased multi-currency activity from existing clients, as well as the addition of new clients, which offset continued weakness in global trade services. For the year 2002, private client services and asset management fees were up 9% from the previous year, reflecting several acquisitions and core growth in alternative investments and retail investment products. Ivy’s assets under management increased 30% on a year-over-year basis. Foreign exchange and other trading revenues decreased 31% in 2002 due to a significant decrease in volatility in the currency markets and reduced client activity in the second half of 2002. Other trading was negatively impacted by a fall off in client interest rate hedging activities. Year-end assets under custody were $6.8 trillion, including $1.9 trillion of cross-border custody assets. Gains and losses on securities were a loss of $118 million in 2002, compared with a gain of $154 million in 2001 primarily reflecting impairment of equity securities.

In 2001, securities servicing fees were $1,775 million, compared with $1,681 in 2000. Areas leading the increase for the year included execution services, corporate trust, broker-dealer services, and global liquidity services. New business growth in cash management drove global payment services fees to $291 million reflecting continued success of CA$H-Register Plus^R, the Company’s internet-based electronic banking service. Foreign exchange and other trading revenues were $338 million, reflecting a strong demand for interest rate risk management products driven by declining interest rates and higher volatility in 2001. Private client services and asset management fees were $314 million because strength in alternate investments and short-term money market product lines offset lower asset price levels.

In 2001, the WTC disaster resulted in a disruption of the markets, including payment and securities processing, which affected both the Company and other market participants. The Company estimates the WTC disaster reduced net interest income by $45 million and noninterest revenue by $29 million in 2001. Noninterest income also included an insurance recovery of $175 million in 2001. In addition, the Company recorded WTC disaster-related noninterest expenses of $168 million in 2001. These expenses primarily related to the repair of damaged facilities, overtime and other staff costs, replacement equipment, replacement furniture and fixtures, and costs associated with interim space.

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Pershing

Supplemental Financial Information

For the year ended December 31, 2003, the Company has prepared information in four categories:

The Company believes that providing supplemental non-GAAP financial information is useful to investors in understanding the underlying operational performance of the Company and its businesses and performance trends and, therefore, facilitates comparisons with the performance of other financial service companies. Specifically, the Company believes that the exclusion of the merger and integration costs, and the settlement with GMAC, permits evaluation and a comparison of results for ongoing business operations, and it is on this basis that the Company’s management internally assesses performance. Although the Company believes that the non-GAAP financial measures presented in this report enhance investors’ understanding of the Company’s business and performance, these non-GAAP measures should not be considered an alternative to GAAP. The following is a reconciliation of the Company’s financial results for the year ended December 31, 2003:

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THE BANK OF NEW YORK COMPANY, INC.

Supplemental Information

(In millions, except per share amounts)

(Unaudited)

Notes:

Reported results agree with the Company’s Consolidated Statement of Income

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The following are supplemental balance sheets showing the impact of the Pershing acquisition.

THE BANK OF NEW YORK COMPANY, INC.

Supplemental Information

(In millions)

(Unaudited)

Note: The reported balance sheets at December 31, 2003 and 2002 have been derived from the audited financial statements at those dates.

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Although the Company believes that the non-GAAP financial measures presented in this report enhance investors’ understanding of the Company’s business and performance, these non-GAAP measures should not be considered an alternative to GAAP.

Pershing Results and Integration Update

Pershing produced $222 million of revenues in the fourth quarter of 2003, after adjusting for $8 million of financing costs. This revenue run rate met the targeted levels projected when the transaction was first announced in January of 2003. Pershing’s operating margin, excluding financing costs and the amortization of intangibles, was 20% in the fourth quarter of 2003, up from 19% in the third quarter, as retail investor activity rose modestly in the fourth quarter.

For the year 2003, which represents eight months of Company ownership since May 1st, Pershing recorded $546 million of total revenues and $468 million of noninterest expenses. Pershing’s key metrics such as daily average billable trades, margin debit balances, customer accounts and money fund and mutual fund balances all trended higher during the last six months of the year.

The Company recorded $48 million in merger and integration costs associated with the acquisition in the fourth quarter, slightly higher than projected due to additional lease restructuring opportunities in London. For the year 2003, the Company recorded a total of $96 million of merger and integration costs, equal to approximately 8 cents of EPS. The Company does not expect to take any additional merger and integration charges in 2004.

The Company’s integration plan for Pershing initially focused principally on the successful conversion of the clients of BNY Clearing and BNY Global Clearing onto Pershing’s systems and technology platform. All of these conversions have been completed and the Company’s targets were met.

With the client conversions completed, the Company is now focused on realizing the cost and revenue synergies from the integration. In 2003, synergies of $24 million were achieved in the latter part of the year, primarily related to closure of the Company’s existing clearing operations. For 2004, the anticipated cost synergies of $90 million are on track and the Company expects to attain additional synergies from cross-selling of between $15-25 million. Pershing offers the Company a highly complementary client base that provides natural two-way cross-selling opportunities. Longer-term, as the market share leader, Pershing expects to continue to benefit from industry consolidation and its asset gathering initiatives. In addition, market expansion opportunities include leveraging the Company’s relationships in the registered investment advisor market, with institutional brokerage firms and with international clients.

Recent Developments

In January of 2004, the Company sold 20% of its investment in Wing Hang Bank Limited (“Wing Hang”), a Hong Kong based bank. The sale was part of the Company’s continuing plan to focus on the securities servicing business and reduce capital invested in non-strategic areas. The Company continues to own approximately 20% of Wing Hang’s outstanding shares which are accounted for on the equity method.

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Consolidated Income Statement Review

Noninterest Income

Noninterest income is provided by a wide range of securities servicing, global payment services, private client services and asset management, trading activities and other fee-based services. Revenues from these activities were $4,006 million in 2003, compared with $3,143 million in 2002, and $3,571 million in 2001. As a percentage of revenues, total noninterest income was 71% in 2003, compared with 65% in 2002 and 68% in 2001. The increase in 2003 primarily reflects $493 million related to the Pershing acquisition, improved performance in the core businesses, and the absence of the negative valuation adjustment in 2003. In 2001, a WTC disaster-related insurance recovery of $175 million was included in other income, while the Company estimates the WTC disaster reduced noninterest income by $29 million⁽¹⁾.

Securities servicing fees were $2,412 million, $1,896 million, and $1,775 million, in 2003, 2002, and 2001. The 27% increase in securities servicing fees from 2002 reflects the Pershing acquisition, and improved performance in the core businesses. Excluding Pershing, core growth was 4% mainly due to improved performance in investor services as well as continued strength in broker-dealer services. In 2002, the 7% increase in securities servicing fees reflects acquisitions and the benefit of well-diversified businesses across markets, products, client segments, and geography.

Global payment services fees, principally funds transfer, cash management, and trade services, were $314 million in 2003, $296 million in 2002, and $291 million in 2001. The 2003 increase from 2002 is attributable to improved multi-currency funds transfer product capabilities and new business wins. The 2002 increase in global payment services fees from 2001 reflects higher funds transfer volumes and increased multi-currency activity from existing clients, as well as the addition of new clients. This offset continued weakness in global trade services.

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Private client services and asset management fees were $384 million in 2003, $344 million in 2002, and $314 million in 2001. The 12% increase from 2002 reflects higher equity price levels, strong growth at Ivy, and the full year impact of several 2002 acquisitions. Ivy, a fund of funds hedge fund manager, continues to attract new assets at a rapid pace. Ivy ended 2003 with $9.1 billion of assets under management, up 42% for the year. The 9% increase in fees in 2002 from 2001 reflects several acquisitions and core growth in alternative investments and retail investment products.

Service charges and fees were $375 million in 2003, compared with $357 million in 2002, and $352 million in 2001. The increase in 2003 from 2002 was driven by higher loan syndication fees and bond underwriting fees reflecting active fixed income markets. The increase in 2002 from 2001 relates to increased fees charged to customers in lieu of customer deposits.

Foreign exchange and other trading revenues were $327 million in 2003, $234 million in 2002, and $338 million in 2001. The 40% increase in 2003 from the prior year resulted from increased client-driven foreign exchange, interest rate hedging activity, and the Pershing acquisition. Pershing contributed $35 million to other trading revenue for the year ended December 31, 2003. In 2003, on a core basis foreign exchange and other trading was up 25%, reflecting more volatile currency markets and more active cross-border investors. Interest rate hedging was driven by record levels of fixed income issuance as well as higher mortgage originations. The 31% decrease in 2002 from 2001 reflects a significant decrease in volatility in the currency markets and reduced client activity in the second half of 2002. Other trading was negatively impacted by a fall off in client interest rate hedging activities and a reduction in seasonal arbitrage opportunities arising from the securities lending area.

Securities gains were $35 million in 2003, compared with a $118 million loss in 2002, and a $154 million gain in 2001. In 2002, the loss included a $210 million equity writedown that precipitated the liquidation of the Company’s bank stock portfolio. 2003 results reflect the Company’s reduction in its equity investing activities, as more than half of these gains arose from repositioning actions in its fixed income securities portfolio.

Other noninterest income was $159 million in 2003, $134 million in 2002, and $347 million in 2001. In addition, net gains on loan sales, sale of lease residuals, and adjustments to the value of lease residuals in 2003 were $13 million. In 2002, other income includes a $32 million Empire State Development Corporation (“ESDC”) grant. The ESDC grant covered relocation and other costs associated with the Company’s previously announced decision to return to downtown Manhattan and to move 1,500 employees to a new facility in Brooklyn. In 2001, other income includes a $175 million insurance recovery related to the WTC disaster and a $43 million gain on the sale of the Company’s interest in New York Cash Exchange (“NYCE”).

Net Interest Income

For 2003, net interest income on a taxable equivalent basis amounted to $1,644 million compared with $1,714 million in 2002. On a core basis, net interest income declined 7%. The decline in net interest income on a

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core basis in 2003 reflects planned decreases in loan balances, particularly focused on higher yielding loans, lower reinvestment yields on the investment securities portfolio, and the impact of Federal Reserve interest rate reductions in 2003 partially offset by higher average balances of investment securities. Average earning assets were $74.2 billion compared with $65.4 billion in 2002. Average earning assets excluding Pershing were $65.4 billion in 2003. Average loans were $35.6 billion in 2003 compared with $34.3 billion in 2002. Average securities were $24.5 billion in 2003, up from $23.0 billion in 2002. The Company added approximately $5.6 billion of highly-rated mortgage-backed securities to its portfolio in 2003. The net interest rate spread was 1.97% in 2003 compared with 2.30% in 2002, while the net yield on interest earning assets was 2.22% in 2003 and 2.62% in 2002.

In 2002, net interest income on a taxable equivalent basis amounted to $1,714 million compared with $1,741 million in 2001. Average earning assets were $65.4 billion compared with $67.7 billion in 2001. Average loans were $34.3 billion in 2002 compared with $38.8 billion in 2001. The impact of the WTC disaster in 2001 increased average earning assets and loans by $3.9 billion. Average securities were $23.0 billion in 2002, up from $18.6 billion in 2001. The Company added approximately $6.2 billion of highly-rated mortgage-backed securities to its portfolio in 2002. The decline in net interest income reflects the decline in average earning assets. The net interest rate spread was 2.30% in 2002 compared with 1.89% in 2001, while the net yield on interest earning assets was 2.62% in 2002 and 2.57% in 2001. The increase in the spread is attributable to increased holdings of investment securities. The increase in the yield is attributable to increased holdings of investment securities partially offset by the decreased value of demand deposits in a lower interest rate environment.

For 2001, net interest income on a taxable equivalent basis declined to $1,741 million reflecting several factors. The WTC disaster resulted in a disruption of markets, including payment and securities processing, which affected both the Company and other market participants. In addition, significant levels of liquidity were injected into the markets immediately following the disaster. These factors resulted in excess liquidity which could not be invested and unsettled trades at the Company, causing an estimated $45 million drop in net interest income and a temporary expansion of the Company’s balance sheet. The decline also reflected the Company’s strategy to shift the mix of its assets away from loans to highly-rated investment securities and short-term liquid assets and the lower value of free funds in a declining interest rate environment.

In this report 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 practice.

Provision for Credit Losses

The provision for credit losses was $155 million in 2003 compared with $685 million in 2002 and $375 million in 2001. The decline in the provision in 2003 compared with 2002 was due to an improvement in asset quality as nonperforming loans declined to $349 million from $440 million in 2002. The reduction in the provision is also attributable to the decline in corporate credit exposure. The Company expects the provision in 2004 to be less than charge-offs given the improving economic conditions evident in the first quarter of 2004. The larger provision in 2002 compared with 2001 was attributable to the deterioration in the loan portfolio particularly in aircraft leasing and in a limited number of borrowers in the telecommunications portfolio.

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Noninterest Expense