-------------------------------------------------------------------------
-------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE YEAR ENDED DECEMBER 31, 1993 COMMISSION FILE NO. 0-5108
STATE STREET BOSTON CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MASSACHUSETTS 04-2456637
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION) IDENTIFICATION NO.)
225 FRANKLIN STREET
BOSTON, MASSACHUSETTS 02110
(ADDRESS OF PRINCIPAL (ZIP CODE)
EXECUTIVE OFFICE)
617-786-3000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
--------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $1 PAR VALUE
(TITLE OF CLASS)
--------------
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL
REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER
PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS) AND (2) HAS
BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90
DAYS. YES [X] NO []
THE AGGREGATE MARKET VALUE OF THE REGISTRANT'S COMMON STOCK HELD BY
NON-AFFILIATES OF THE REGISTRANT ON FEBRUARY 28, 1994 WAS $2,835,150,000.
THE NUMBER OF SHARES OF THE REGISTRANT'S COMMON STOCK OUTSTANDING ON
FEBRUARY 28, 1994 WAS 76,111,410.
PORTIONS OF THE FOLLOWING DOCUMENTS ARE INCORPORATED INTO THE PARTS
OF THIS REPORT ON FORM 10-K INDICATED BELOW:
(1) ANNUAL REPORT TO STOCKHOLDERS FOR THE YEAR ENDED DECEMBER 31,
1993 (PARTS I AND II) AND (2) THE REGISTRANT'S DEFINITIVE PROXY
STATEMENT DATED MARCH 15, 1994 (PART III)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
<PAGE>
PART I
ITEM 1. BUSINESS
THE CORPORATION
State Street Boston Corporation ("State Street") is a bank holding
company organized under the laws of the Commonwealth of Massachusetts.
State Street was organized in 1970 and conducts its business principally
through its subsidiary, State Street Bank and Trust Company ("State Street
Bank"), which traces its beginnings to the founding of the Union Bank in 1792.
The charter under which State Street Bank now operates was authorized by a
special act of the Massachusetts Legislature in 1891, and its present name was
adopted in 1960.
State Street is the fourth largest provider of trust services in the
United States as ranked on the basis of 1992 fiduciary compensation. The major
services contributing to fiduciary compensation are portfolio accounting,
securities custody and other related services for mutual funds/collective
investment funds; portfolio accounting, securities custody and other related
services for retirement and other financial assets of corporations, public
funds, endowments, foundations, and nuclear decommissioning trusts; investment
management for institutions through State Street Global Advisors; personal
trust; services for defined contribution plans; and corporate trust. Ranked on
the basis of assets as of December 1992, State Street Bank is the 28th largest
commercial bank in the United States.
State Street's total assets were $18.7 billion at December 31, 1993, of
which $13.5 billion, or 72%, were investment securities and money market
assets and $2.6 billion, or 14%, were loans. State Street had $1.6 trillion of
assets under custody, $201 billion of bonds under trusteeship, and $142
billion of assets under management at year-end 1993.
Services are provided from offices in the United States, as well as from
offices in Canada, Grand Cayman, Netherland Antilles, the United Kingdom,
France, Belgium, Luxembourg, Germany, United Arab Emirates, Hong Kong, Taiwan,
Japan, Australia, and New Zealand.
State Street's executive offices are located at 225 Franklin Street,
Boston, Massachusetts.
BUSINESS OF THE CORPORATION
State Street has two principal lines of business, financial asset services
and commercial lending.
FINANCIAL ASSET SERVICES
Financial asset services is comprised of the business components that
service and manage financial assets worldwide. These include services for
mutual funds and pension plans, both defined benefit and defined contribution;
corporate trusteeship; and management of institutional financial assets and
personal trust. A broad array of banking services is provided, including
accounting, recordkeeping, custody of securities, information services and
recordkeeping; taking short-term customer funds onto State Street's balance
sheet; investment management; foreign exchange trading; and cash management.
State Street began providing mutual fund services in 1924, and now has
$683 billion of the mutual fund industry's assets under custody. State Street
is the leading mutual fund custodian in the United States, servicing 37% of
the registered funds. Customers who sponsor the 1,948 U.S. mutual funds that
State Street services include investment companies, broker/dealers, insurance
companies and others. In addition, State Street services 192 collective
investment funds registered outside of the United States.
State Street's mutual fund services include domestic and global custody
services, which incorporates safekeeping portfolio assets, settling trades,
collecting and accounting for income, monitoring corporate actions and
reporting investable cash. State Street also offers portfolio accounting,
pricing, general ledger accounting, fund administration and other services.
Shareholder accounting is provided through a 50%-owned affiliate.
State Street began servicing pension assets in 1974. Servicing $574
billion of assets for North American customers, it is currently ranked as the
largest servicer of tax exempt assets for corporations and public funds
<PAGE>
in the United States. Financial asset services are also provided for portfolios
of unions, endowments, foundations, and nuclear decommissioning trusts. In
addition, State Street provides global and domestic services for $66 billion
in assets for customers outside North America.
In the late 1970s, State Street began managing assets for institutions and
was a pioneer in the development of domestic and international index funds.
The products now offered also include enhanced and fully active equity
strategies, short-term investment funds and fixed income. These products are
sold domestically and from nine locations outside the United States. At year-
end 1993, institutional assets managed were $136 billion. State Street is
ranked as the largest manager of internationally-indexed assets and the third
largest manager of tax-exempt money in the United States.
State Street is a leading New England trustee and money manager for
individuals, and provides planned gift management services for non-profit
organizations throughout the United States.
State Street acts as participant recordkeeper, securities custodian and
trustee for defined contribution plans, such as 401(k) plans and ESOPs, and
issues checks for employee benefit distributions. Corporate trust services for
asset-backed securities, corporate securities, leveraged leases, and municipal
securities are provided to investment banks, corporations, municipalities and
government agencies from five offices in the United States. At year ended
1993, bonds under trusteeship totaled $201 billion.
State Street acts as a mortgage subservicer through Wendover Funding Inc.
in Greensboro, North Carolina. State Street also provides card replacement and
other services for a bank card association, processing of unclaimed securities
for state governments, accounting services for retained asset accounts of
insurance companies and clearing services for correspondent banks.
State Street provides foreign exchange trading, global cash management and
trading of securities to financial institutions and corporations. Funds are
gathered in the form of domestic and foreign deposits, federal funds and
securities sold under repurchase agreements from local, national and
international sources. Trading and arbitrage operations are conducted with
government securities, futures and options. Municipal dealer activities
include underwriting, trading and distribution of general obligation tax-
exempt bonds and notes. Treasury centers are located in Boston, London, Hong
Kong, Tokyo and Sydney. State Street also provides corporate finance services,
including private placement of debt and equity, acquisitions and divestitures
and project finance.
COMMERCIAL LENDING
State Street provides corporate banking, specialized lending and
international banking to businesses and financial institutions. The corporate
banking services are offered primarily to New England middle market companies.
Specialized lending is both regional and national, with specialties that
include communications, publishing, law firms, broker/dealers and other
financial institutions. In addition, State Street offers asset-based finance,
leasing, real estate, and trade finance. Trade finance includes letters of
credit, collection, payment and other specialized services for importers and
exporters. Dollar clearing and other correspondent banking services are
provided through an Edge Act subsidiary in New York City.
SELECTED STATISTICAL INFORMATION
The following tables contain State Street's consolidated statistical
information relating to, and should be read in conjunction with, the
consolidated financial statements. Additionally, certain previously reported
amounts have been reclassified to conform to the present method of
presentation.
<PAGE>
DISTRIBUTION OF AVERAGE ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY;
INTEREST RATES AND INTEREST DIFFERENTIAL
The average statements of condition and net interest revenue analysis for
the years indicated are presented below.
<TABLE>
<CAPTION>
1993 1992 1991
--------------------------------- -------------------------------- ------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
------- -------- ---- ------- -------- ---- ------- -------- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-bearing deposits
with
banks(1)<F1> ............ $ 5,021,752 $201,453 4.01% $ 5,101,515 $257,615 5.05% $ 3,646,161 $261,992 7.19%
Securities purchased under
resale agreements ....... 3,255,014 102,338 3.14 2,602,740 97,570 3.75 912,519 51,408 5.63
Federal funds sold ........ 413,601 12,642 3.06 330,019 11,579 3.51 305,391 17,793 5.83
Trading account assets .... 369,050 15,551 4.21 226,290 10,081 4.45 151,840 11,850 7.80
Investment securities:
U.S. Treasury and Federal
agencies .............. 2,076,758 119,495 5.75 1,703,026 115,745 6.80 1,416,754 115,599 8.16
State and political 682,856 37,823 5.54 375,972 28,998 7.72 378,431 34,424 9.09
Other investments ....... 1,826,568 97,383 5.33 1,443,628 87,963 6.09 1,212,333 100,850 8.32
Loans(2)<F2>
Domestic ................ 2,261,915 113,272 5.01 1,952,638 111,329 5.70 2,019,915 156,163 7.73
Foreign ................. 314,122 19,137 6.09 117,707 7,156 6.08 87,473 6,502 7.43
----------- -------- ----------- -------- ----------- --------
Total interest-
earning
assets ............ 16,221,636 719,094 4.43 13,853,535 728,036 5.26 10,130,817 756,581 7.47
-------- -------- --------
Cash and due from banks ... 911,082 818,991 774,715
Allowance for loan losses . (57,522) (66,767) (63,550)
Premises and equipment .... 435,475 358,895 268,902
Customers' acceptance
liability(3)<F3> ........ 33,363 51,745 60,562
Other assets .............. 625,133 485,720 402,961
----------- ----------- -----------
Total Assets ........ $18,169,167 $15,502,119 $11,574,407
----------- ----------- -----------
----------- ----------- -----------
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing deposits:
Savings ................. $ 2,166,996 52,175 2.41 $ 2,153,699 67,967 3.16 $ 1,818,398 94,936 5.22
Time .................... 157,481 4,531 2.88 162,464 6,265 3.86 306,789 18,417 6.00
Foreign ................. 4,953,696 146,051 2.95 3,954,528 174,615 4.42 2,648,345 173,396 6.55
Federal funds purchased ... 741,082 21,023 2.84 919,109 30,818 3.35 837,006 45,878 5.48
Securities sold under
repurchase
agreements .............. 4,133,726 119,300 2.89 3,290,196 112,407 3.42 1,765,768 89,778 5.08
Other short-term borrowings 215,948 8,156 3.78 193,927 8,281 4.27 155,810 8,235 5.29
Notes payable ............. 510,719 19,943 3.90 388,513 18,400 4.74 234,331 20,353 8.69
Long-term debt ............ 122,403 10,023 8.19 146,394 13,327 9.10 146,407 13,238 9.04
----------- -------- ----------- -------- ----------- --------
Total interest-
bearing
liabilities ....... 13,002,051 381,202 2.93 11,208,830 432,080 3.85 7,912,854 464,231 5.87
-------- ---- -------- ---- -------- ----
Noninterest-bearing
deposits .................. 3,622,849 2,952,363 2,460,175
Acceptances outstanding(3)<F3> 33,956 52,423 61,150
Other liabilities ......... 477,640 401,953 367,295
Stockholders' equity ...... 1,032,671 886,550 772,933
----------- ----------- -----------
Total Liabilities and
Stockholders'
Equity ............ $18,169,167 $15,502,119 $11,574,407
----------- ----------- -----------
----------- ----------- -----------
Net interest revenue $337,892 $295,956 $292,350
-------- -------- --------
-------- -------- --------
Excess of rate earned
over rate paid .... 1.50% 1.41% 1.60%
---- ---- ----
---- ---- ----
Net Interest Margin(4)<F4> 2.08% 2.14% 2.89%
---- ---- ----
---- ---- ----
<FN>
- ---------
<F1>(1) Amounts reported were with non-U.S. domiciled offices of other banks.
<F2>(2) Non-accrual loans are included in the average loan amounts outstanding.
<F3>(3) In 1993, 1992 and 1991, 13%, 9% and 5% of acceptances were foreign.
<F4>(4) Net interest margin is taxable equivalent net interest revenue divided by
total average interest-earning assets.
</TABLE>
Interest revenue on non-taxable investment securities and loans includes
the effect of taxable equivalent adjustments, using a Federal income tax rate
of 35% in 1993 and 34% in 1992 and 1991, adjusted for applicable state income
taxes net of the related Federal tax benefit.
<PAGE>
DISTRIBUTION OF AVERAGE ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY;
INTEREST RATES AND INTEREST DIFFERENTIAL (CONTINUED)
The table below summarizes changes in interest revenue and interest
expense due to changes in volume of interest-earning assets and interest-
bearing liabilities, and changes in interest rates. Changes attributed to
both volume and rate have been allocated based on the proportion of change in
each category.
<TABLE>
<CAPTION>
1993 COMPARED TO 1992 1992 COMPARED TO 1991
INCREASE (DECREASE) INCREASE (DECREASE)
DUE TO NET DUE TO NET
-------------------------- INCREASE ------------------------- INCREASE
VOLUME RATE (DECREASE) VOLUME RATE (DECREASE)
------ ---- ---------- ------ ---- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest revenue related
to:
Interest-bearing deposits
with banks .............. $ (3,971) $ (52,191) $ (56,162) $ 86,856 $ (91,234) $ (4,378)
Securities purchased under
resale agreements ....... 22,047 (17,279) 4,768 68,142 (21,979) 46,163
Federal funds sold ........ 2,684 (1,621) 1,063 1,338 (7,552) (6,214)
Trading account assets .... 6,044 (574) 5,470 4,488 (6,258) (1,770)
Investment securities:
U.S. Treasury and
Federal agencies .... 23,101 (19,351) 3,750 21,212 (21,067) 145
State and political
subdivisions ........ 18,732 (9,907) 8,825 (223) (5,203) (5,426)
Other investments ..... 21,349 (11,929) 9,420 17,079 (29,965) (12,886)
Loans:
Domestic .............. 16,410 (14,467) 1,943 (5,051) (39,782) (44,833)
Foreign ............... 11,966 15 11,981 1,980 (1,327) 653
--------- --------- -------- -------- --------- -------
Total interest-
earning assets .... 118,362 (127,304) (8,942) 195,821 (224,367) (28,546)
--------- --------- -------- -------- --------- --------
Interest expense related to:
Deposits:
Savings................ 417 (16,209) (15,792) 15,290 (42,259) (26,969)
Time .................. (187) (1,547) (1,734) (6,898) (5,253) (12,151)
Foreign ............... 37,815 (66,379) (28,564) 68,813 (67,594) 1,219
Federal funds purchased ... (5,455) (4,341) (9,796) 4,150 (19,211) (15,061)
Securities sold under
repurchase agreements ... 26,045 (19,151) 6,894 59,200 (36,572) 22,628
Other short-term borrowings 886 (1,012) (126) 1,798 (1,752) 46
Notes payable ............. 5,138 (3,595) 1,543 9,799 (11,752) (1,953)
Long-term debt ............ (2,048) (1,255) (3,303) (1) 90 89
-------- --------- -------- -------- --------- --------
Total interest-bearing
liabilities ....... 62,611 (113,489) (50,878) 152,151 (184,303) (32,152)
-------- --------- -------- -------- --------- --------
Net Interest Revenue $ 55,751 $ (13,815) $ 41,936 $ 43,670 $ (40,064) $ 3,606
-------- --------- -------- -------- --------- --------
-------- --------- -------- -------- --------- --------
</TABLE>
<PAGE>
RETURN ON EQUITY AND ASSETS AND CAPITAL RATIOS
The return on equity, return on assets, dividend payout ratio, equity to
assets ratio and capital ratios for the years ended December 31, were as
follows:
1993 1992 1991
---- ---- ----
Net income to:
Average stockholders'
equity ................. 17.4% 18.1% 18.0%
Average total assets ..... .99 1.03 1.20
Dividends declared to net
income ................... 21.9 20.8 20.4
Average equity to average
assets ................... 5.7 5.7 6.7
Risk-based ratios:
Tier 1 capital ........... 12.1 13.2 14.1
Total capital ............ 12.7 14.6 16.4
INVESTMENT PORTFOLIO
During the fourth quarter of 1992 State Street classified a portion of its
investment securities portfolio as being available for sale. This reflects the
intent to hold these securities for an indefinite period of time, not
necessarily until final maturity. Securities classified as available for sale
are carried at the lower of amortized cost or market. Investment securities
consisted of the following at December 31:
1993 1992 1991
------ ------- ------
(DOLLARS IN MILLIONS)
HELD FOR INVESTMENT
U.S. Treasury and Federal
agencies ................... $1,272 $ 996 $1,583
State and political
subdivisions ............... 1,084 451 382
Asset-backed securities .... 2,028 1,618 1,150
Other investments .......... 100 87 135
------ ------ ------
Total ................ 4,484 3,152 3,250
AVAILABLE FOR SALE
U.S. Treasuries ............ 1,122 940
Other investments .......... 95
------ ------
Total ................ 1,217 940
------ ------ ------
Total investment
securities ......... $5,701 $4,092 $3,250
------ ------ ------
------ ------ ------
The maturities of investment securities at December 31, 1993 and the
weighted average yields
(fully taxable equivalent basis) were as follows:
<TABLE>
<CAPTION>
MATURING
---------------------------------------------------------------------------------------------
AFTER ONE AFTER FIVE
ONE YEAR BUT WITHIN BUT WITHIN AFTER
OR LESS FIVE YEARS TEN YEARS TEN YEARS
-------------------- ---------------------- ------------------- --------------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN MILLIONS)
HELD FOR INVESTMENT
U.S. Treasury and Federal agencies . $ 636 5.14% $ 603 4.93% $ 11 4.92% $ 22 4.90%
701 4.50 309 6.22 71 6.87 3 9.78
Asset-backed securities ............ 1,141 4.88 766 4.79 112 4.75 9 4.72
Other investments .................. 72 3.89 16 6.73 2 4.91 10 7.53
------ ------ ---- ----
Total ........................ 2,550 1,694 196 44
AVAILABLE FOR SALE
U.S. Treasuries .................... 341 7.61 781 4.62
Other investments .................. 48 6.56 47 6.61
------ ------
Total ........................ 389 828
------ ------ ---- ----
Total investment securities .. $2,939 $2,522 $196 $ 44
------ ------ ---- ----
------ ------ ---- ----
</TABLE>
<PAGE>
LOAN PORTFOLIO
Domestic and foreign loans at December 31 and average loans outstanding
for the years ended December 31, were as follows:
<TABLE>
<CAPTION>
1993 1992 1991 1990 1989
---------- ---------- ---------- ----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Domestic:
Commercial and
financial ......... $1,889,143 $1,519,037 $1,411,994 $1,539,069 $1,417,103
Real estate ......... 94,073 105,156 128,376 173,530 247,072
Consumer ............ 46,315 64,841 75,366 94,680 538,546
Lease financing ..... 254,525 251,761 211,350 199,392 196,293
---------- ---------- ---------- ---------- ----------
Total domestic .. 2,284,056 1,940,795 1,827,086 2,006,671 2,399,014
---------- ---------- ---------- ---------- ----------
Foreign:
Commercial and
industrial ........ 295,716 50,838 67,622 55,500 48,857
Banks and other
financial
institutions ...... 25,940 8,838 7,495 38,141 14,728
Government and
official
institutions ...... 1,000 1,000 1,000 1,000 1,000
Lease financing ..... 70,976
Other ............... 2,486 2,242 2,112 3,762 1,423
---------- ---------- ---------- ---------- ----------
Total foreign ... 396,118 62,918 78,229 98,403 66,008
---------- ---------- ---------- ---------- ----------
Total loans ..... $2,680,174 $2,003,713 $1,905,315 $2,105,074 $2,465,022
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Average loans outstanding $2,576,037 $2,070,345 $2,107,388 $2,621,429 $2,467,473
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
Selected loan maturities at December 31, 1993 were as follows:
<TABLE>
<CAPTION>
AFTER ONE
ONE YEAR BUT WITHIN AFTER
OR LESS FIVE YEARS FIVE YEARS
---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Commercial and financial ............................ $1,535,927 $251,609 $101,607
Real estate ......................................... 40,098 49,960 4,015
Foreign ............................................. 313,464 11,678 70,976
</TABLE>
The following table shows the classification of the above loans due after
one year according to sensitivity to changes in interest rates:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C>
Loans with predetermined interest rates .............................................. $201,013
Loans with floating or adjustable interest rates ..................................... 288,832
--------
Total ............................................................................ $489,845
--------
--------
</TABLE>
Loans are evaluated on an individual basis to determine the
appropriateness of renewing each loan. State Street does not have a general
policy. Unearned revenue included in loans was $4,423,000 and $5,467,000
at December 31, 1993 and 1992, respectively.
NON-ACCRUAL LOANS
It is State Street's policy to place loans on a non-accrual basis when
they become 60 days past due as to either principal or interest, or when
in the opinion of management full collection of principal or interest is
unlikely. When the loan is placed on non-accrual, the accrual of
interest is discontinued and previously recorded but unpaid interest is
reversed and charged against current earnings. Past due loans are loans
on which principal or interest payments are over 90 days delinquent, but
where interest continues to be accrued. The following schedule discloses
information concerning non-accrual and past due loans.
<PAGE>
NON-ACCRUAL LOANS (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------------------------------------------
1993 1992 1991 1990 1989
------ ------ ------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Non-accrual:
Domestic ............................. $26,804 $39,954 $39,620 $54,273 $19,090
Foreign .............................. 323 1,337 2,206 2,673
------- ------- ------- ------- -------
Total non-accrual ................ $26,804 $40,277 $40,957 $56,479 $21,763
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Past due:
Domestic ............................. $ 86 $ 288 $ 44 $ 2,590 $ 1,507
Foreign .............................. 65 507 88 541
------- ------- ------- ------- -------
Total past due ................... $ 86 $ 353 $ 551 $ 2,678 $ 2,048
------- ------- ------- ------- -------
------- ------- ------- ------- -------
</TABLE>
The interest revenue for 1993 which would have been recorded related to
these non-accrual loans is $2,796,000 for domestic loans. The interest revenue
that was recorded on these non-accrual loans was $812,000, all of which
relates to domestic loans.
Loans totaling $12,914,000 were restructured in 1993, are performing in
accordance with their new terms and are accruing at a market rate.
ALLOWANCE FOR LOAN LOSSES
The changes in the allowance for loan losses for the years ended December
31, were as follows:
<TABLE>
<CAPTION>
1993 1992 1991 1990 1989
----- ----- ---- ----- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance at beginning of year:
Domestic ........................ $56,987 $64,323 $49,007 $48,958 $48,906
Foreign ......................... 944 1,565 1,968 1,347 1,100
------- ------- ------- ------- --------
Total allowance for loan
losses .................. 57,931 65,888 50,975 50,305 50,006
------- ------- ------- ------- -------
Provision (credit) for loan losses:
Domestic ........................ 10,247 11,734 59,989 43,746 16,693
Foreign ......................... 1,073 467 23 1,915 2,727
------- ------- ------- ------- -------
Total provision for loan
losses .................. 11,320 12,201 60,012 45,661 19,420
------- ------- ------- ------- -------
Loan charge-offs:
Commercial and financial ........ 15,241 9,794 33,687 12,266 5,708
Real estate construction ........ 20 4,753 6,315 6,680 543
Real estate mortgage ............ 1,607 5,800 4,625 2,599 941
Consumer ........................ 1,416 1,811 2,273 25,197 13,627
Foreign ......................... 261 1,356 870 1,337 2,885
------- ------- ------- ------- -------
Total loan charge-offs ...... 18,545 23,514 47,770 48,079 23,704
------- ------- ------- ------- -------
Recoveries:
Commercial and financial ........ 1,178 1,414 1,494 256 487
Real estate contruction ......... 73 259 4 9
Real estate mortgage ............ 206 488 52
Consumer ........................ 561 927 681 2,785 3,682
Foreign ......................... 187 268 444 43 405
------- ------- ------- ------- -------
Total recoveries ............ 2,205 3,356 2,671 3,088 4,583
------- ------- ------- ------- -------
Net loan charge-offs ........ 16,340 20,158 45,099 44,991 19,121
------- ------- ------- ------- -------
Allowance of foreign subsidiary
purchased ........................... 1,405
Balance at end of year:
Domestic ........................ 50,968 56,987 64,323 49,007 48,958
Foreign ......................... 3,348 944 1,565 1,968 1,347
------- ------- ------- ------- -------
Total allowance for loan
losses .................. $54,316 $57,931 $65,888 $50,975 $50,305
------- ------- ------- -------- -------
------- ------- ------- ------- -------
Ratio of net charge-offs to average
loans outstanding ................. .63% .97% 2.14% 1.72% .77%
--- --- ----- ----- -----
--- --- ----- ----- -----
</TABLE>
<PAGE>
ALLOWANCE FOR LOAN LOSSES (CONTINUED)
State Street establishes an allowance for loan losses to absorb probable
credit losses. Management's review of the adequacy of the allowance for loan
losses is ongoing throughout the year and is based, among other factors, on
the evaluation of the level of risk in the portfolio, the volume of adversely
classified loans, previous loss experience, current trends, and expected
economic conditions and their effect on borrowers.
While the allowance is established to absorb probable losses inherent in
the total loan portfolio, management allocates the allowance for loan losses
to specific loans, selected portfolio segments and certain off-balance sheet
exposures and commitments. Adversely classified loans in excess of $1 million
are individually reviewed to evaluate risk of loss and assigned a specific
allocation of the allowance. The allocations are based on an assessment of
potential risk of loss and include evaluations of the borrowers' financial
strength, cash flows, collateral, appraisals and guarantees. The allocations
to portfolio segments and off-balance sheet exposures are based on
management's evaluation of relevant factors, including the current level of
problem loans and current economic trends. These allocations are also based on
subjective estimates and management judgment, and are subject to change from
quarter-to-quarter. In addition, a portion of the allowance remains
unallocated as a general reserve for the entire loan portfolio.
The provision for loan losses is a charge to earnings for the current
period which is required to maintain the total allowance at a level considered
adequate in relation to the level of risk in the loan portfolio. The provision
for loan losses was $11.3 million for 1993, which compares to $12.2 million in
1992.
At December 31, 1993, the allowance for loan losses was $54.3 million, or
2.03% of loans. This compares to an allowance of $57.9 million or 2.89% of
loans a year ago. This decline reflects improvement in measures of credit
quality and improvement in the outlook for general economic conditions and its
affect on borrowers. The decline in the allowance for loan losses as a
percentage of loan volume is also attributable to the growth in loan exposures
to financial asset services customers and securities brokers in conjunction
with their trading and settlement activity. These are generally short-term,
usually overnight, and are structured to have relatively low credit exposure.
CREDIT QUALITY
At December 31, 1993, loans comprised 14% of State Street's assets,
compared to over 55% for other banking companies of comparable size. State
Street's loan policies limit the size of individual loan exposures to reduce
risk through diversification.
In 1993, net charge-offs declined from $20.1 million to $16.3 million. Net
charge-offs as a percentage of average loans were .63% compared to .97% for
1992.
At December 31, 1993, total non-performing assets were $37.9 million, a
$14.9 million decrease from year-end 1992. Non-performing assets include $26.8
million of non-accrual loans and $11.1 million of other real estate owned. In
1993, loans placed on non-accrual status were more than offset by charge-offs,
payments, and the return to accrual status of several loans. The decline in
other real estate owned resulted from property sales.
In 1993, measures of credit quality improved, as discussed above, as did
the general economic outlook. The economy in the Northeast began to expand
modestly after several years of decline. We expect continued improvement in
credit quality in 1994.
<PAGE>
CROSS-BORDER OUTSTANDINGS
Countries with which State Street has cross-border outstandings (primarily
deposits with banks and letters of credit) of at least 1% of its total assets,
all of which were to banks and other financial institutions, at December 31,
1993, 1992 and 1991, were as follows:
<TABLE>
<CAPTION>
1993 1992 1991
--------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Japan ............................................... $1,688,130 $1,630,148 $1,316,383
United Kingdom ...................................... 613,515 524,352 517,720
France .............................................. 519,565 444,637 371,585
Australia ........................................... 498,671 174,652
Italy ............................................... 367,931 420,535 283,605
Germany ............................................. 339,477 371,657 209,166
Canada .............................................. 289,152 220,217 180,472
Netherlands ......................................... 224,622
Hong Kong ........................................... 206,443
Switzerland ......................................... 175,052 167,360
---------- ---------- ----------
Total outstandings ............................ $4,747,506 $3,961,250 $3,046,291
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
Aggregate of cross-border outstandings in countries having between .75%
and 1% of total assets at December 31, 1993 was $171,688,000 (Belgium);
December 31, 1992 was $139,333,000 (Austria); and at December 31, 1991 was
$136,792,000 (Sweden). At December 31, 1993 there was $499,000 of cross-border
risk with Mexico.
DEPOSITS
The average balance and rates paid on interest-bearing deposits for the
years ended December 31, were as follows:
<TABLE>
<CAPTION>
1993 1992 1991
---------------------- ----------------------- -------------------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE RATE BALANCE RATE BALANCE RATE
----------- ------- ---------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Domestic:
Noninterest-bearing
deposits ................ $3,589,812 $2,920,939 $2,434,756
Savings deposits .......... 2,166,996 2.41% 2,153,699 3.16% 1,818,398 5.22%
Time deposits ............. 157,481 2.88 162,464 3.86 306,789 6.00
---------- ---------- ----------
Total domestic ........ $5,914,289 $5,237,102 $4,559,943
---------- ---------- ----------
---------- ---------- ----------
Foreign:
Noninterest-bearing
deposits ................ $ 33,037 $ 31,424 $ 25,419
Time deposits ............. 4,953,696 2.95 3,954,528 4.42 2,648,345 6.55
---------- ---------- ----------
Total foreign ......... $4,986,733 $3,985,952 $2,673,764
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
Maturities of domestic certificates of deposit of $100,000 or more at
December 31, 1993, were as follows:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C>
3 months or less .......................................................... $62,947
3 to 6 months ............................................................. 8,058
6 to 12 months ............................................................ 3,063
Over 12 months ............................................................ 7,902
-------
Total ............................................................... $81,970
-------
-------
</TABLE>
At December 31, 1993, substantially all foreign time deposit liabilities
were in amounts of $100,000 or more. Included in noninterest-bearing deposits
were foreign deposits of $28,519,000, $41,492,000 and $22,188,000 at December
31, 1993, 1992 and 1991.
<PAGE>
SHORT-TERM BORROWINGS
The following table reflects the amounts outstanding and weighted average
interest rates of the primary components of short-term borrowings as of and
for the years ended:
FEDERAL SECURITIES SOLD
FUNDS UNDER REPURCHASE
PURCHASED AGREEMENTS
--------- ----------
(DOLLARS IN THOUSANDS)
Balance as of December 31:
1993 ................................. $ 269,083 $2,972,928
1992 ................................. 623,670 2,751,416
1991 ................................. 587,985 3,821,035
Maximum outstanding at any month end:
1993 ................................. $1,081,811 $5,297,210
1992 ................................. 1,522,522 4,313,852
1991 ................................. 1,106,712 3,890,188
Average outstanding during the year:
1993 ................................. $ 741,082 $4,133,726
1992 ................................. 919,109 3,290,196
1991 ................................. 837,006 1,765,768
Weighted average interest rate at year end:
1993 ................................. 2.7% 2.7%
1992 ................................. 2.3 2.8
1991 ................................. 3.7 4.1
Weighted average interest rate during the
year:
1993 ................................. 2.8 2.9
1992 ................................. 3.4 3.4
1991 ................................. 5.5 5.1
COMPETITION
State Street is subject to competition in all of its products and
markets worldwide. In addition to competition from other deposit taking
institutions, State Street competes with investment management firms,
private trustees, insurance companies, mutual funds, broker/dealers,
investment banking firms, law firms, benefit consultants, and business service
companies. As State Street expands globally, additional types of competition
are encountered.
EMPLOYEES
At December 31, 1993, State Street had 10,117 employees, of whom 9,684
were full-time.
REGULATION AND SUPERVISION
State Street is registered with the Board of Governors of the Federal
Reserve System (the "Board") as a bank holding company pursuant to the Bank
Holding Company Act of 1956, as amended (the "Act"). The Act, with certain
exceptions, limits the activities that may be engaged in by State Street and
its non-bank subsidiaries to those which are deemed by the Board to be so
closely related to banking or managing or controlling banks as to be a proper
incident thereto. In making such determination, the Board must consider
whether the performance of any such activity by a subsidiary of State Street
can reasonably be expected to produce benefits to the public, such as greater
convenience, increased competition or gains in efficiency, that outweigh
possible adverse effects, such as undue concentration of resources, decreased
or unfair competition, conflicts of interest or unsound banking practices.
The Board is authorized to differentiate between activities commenced de novo
and those commenced by the acquisition in whole or in part of a going
concern. In the opinion of management, all of State Street's present
subsidiaries are within the statutory standard or are otherwise permissible.
The Act also requires a bank holding company to obtain prior approval of the
Board before it may acquire substantially all the assets of any bank or
ownership or control of more than 5% of the voting shares of any bank. The
Act prohibits a bank holding company from acquiring shares of a bank located
outside the state in which the operations of the holding company's banking
subsidiaries are principally conducted unless such an acquisition is
specifically authorized by statute of the other state. State Street and its
non-bank subsidiaries are affiliates of State Street Bank under the federal
banking laws, which impose certain restrictions on transfers of funds in the
form of loans, extensions of credit, investments or asset
<PAGE>
REGULATION AND SUPERVISION (CONTINUED)
purchases by State Street Bank to State Street and its non-bank subsidiaries.
Transfers of this kind to State Street and its non-bank subsidiaries by State
Street Bank are limited to 10% of State Street Bank's capital and surplus with
respect to each affiliate and to 20% in the aggregate, and are also subject to
certain collateral requirements. A bank holding company and its subsidiaries
are prohibited from engaging in certain tie-in arrangements in connection
with any extension of credit or lease or sale of property or furnishing of
services. The Board has jurisdiction to regulate the terms of certain debt
issues of bank holding companies.
The primary banking agency responsible for regulating State Street and its
subsidiaries, including State Street Bank, for both domestic and international
operations is the Federal Reserve Bank of Boston. State Street is also
subject to the Massachusetts bank holding company statute. The Massachusetts
statute requires prior approval by the Massachusetts Board of Bank
Incorporation for the acquisition by State Street of more than 5% of the
voting shares of any additional bank and for other forms of bank
acquisitions. State Street's banking subsidiaries located in France, Japan and
Luxembourg are also subject to regulation by the regulatory authorities of
those countries. The capital of each of these banking subsidiaries is in
excess of the minimum legal capital requirements as set by those authorities.
State Street Bank is a member of the Federal Reserve System and the
Federal Deposit Insurance Corporation (the "FDIC") and is subject to
applicable federal and state banking laws and to supervision and
examination by the Federal Reserve Bank of Boston, as well as by the
Massachusetts Commissioner of Banks, the FDIC, and the regulatory authorities
of those countries in which a branch of State Street Bank is located.
In 1990, Massachusetts adopted a law which permits Massachusetts banking
institutions to acquire banking institutions located in other states based on
a reciprocal basis.
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA") broadened the enforcement powers of the federal banking agencies,
including increased power to impose fines and penalties, over all financial
institutions, including bank holding companies and commercial banks. The Crime
Control Act of 1990 further broadened the enforcement powers of the federal
banking agencies in a significant number of areas.
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") has as its primary objectives to recapitalize the Bank Insurance
Fund ("BIF") and strengthen the regulation and supervision of financial
institutions. During 1993, the federal banking agencies continued the process
of promulgating regulations to implement the statute.
The "Prompt Corrective Action" provisions of the FDICIA are for the stated
purpose: "to resolve the problems of insured depository institutions at the
least possible long-term loss to the deposit insurance fund." Each federal
banking agency has implemented prompt corrective action regulations for the
institutions that it regulates. The statute requires or permits the agencies
to take certain supervisory actions when an insured depository institution
falls within one of five specifically enumerated capital categories. It also
restricts or prohibits certain activities and requires the submission of a
capital restoration plan when an insured institution becomes undercapitalized.
The implementing regulations establish the numerical limits for the capital
categories and establish procedures for issuing and contesting prompt
corrective action directives. To be within the category "well capitalized", an
insured depository institution must have a total risk-based capital ratio of
10.0 percent or greater, a Tier 1 risk-based capital ratio of 6.0 percent or
greater, and a leverage ratio of 5.0 percent or greater, and the institution
must not be subject to an order, written agreement, capital directive, or
prompt corrective action directive to meet specific capital requirements. An
insured institution is "adequately capitalized" if it has a total risk-based
capital ratio of 8.0 percent or greater, a Tier 1 risk-based capital ratio of
4.0 percent or greater, and a leverage ratio of 4.0 percent or greater (or a
leverage ratio of 3.0 percent or greater if the institution is rated composite
1 under the regulatory rating system). The final three capital categories are
levels of undercapitalized, which trigger mandatory statutory provisions.
While other factors in addition to capital ratios determine an institution's
capital category, State Street and State Street Bank each were within the
"well-capitalized" category at December 31, 1993.
The FDICIA requires the FDIC to recapitalize the BIF within a prescribed
time frame of 15 years and to adopt a risk-based deposit insurance assessment
system. The FDIC adopted a BIF recapitalization schedule
<PAGE>
REGULATION AND SUPERVISION (CONTINUED)
and a final rule establishing a permanent risk-based assessment system, which
is based on definitions of capital categories consistent with the "Prompt
Corrective Actions" provisions. The rule is effective with the assessment
period starting on January 1, 1994. Depending on which of the nine capital and
supervisory categories a bank falls in, deposit insurance premiums will
continue to range from 23 cents per $100 of domestic deposits for well-
capitalized, financially sound institutions to a maximum of 31 cents for the
lowest category.
The Federal Reserve Board adopted a final rule, as required by the FDICIA,
prescribing standards that will limit the risks posed by an insured depository
institution's exposure to any other depository institution. Banks are required
to develop written policies and procedures to monitor credit exposure to other
banks, and to limit to 50% and 25% of total capital exposure to
"undercapitalized" banks in 1994 and 1995, respectively.
As required by the FDICIA, the FDIC adopted a regulation that permits only
well capitalized banks, and adequately capitalized banks that have received
waivers from the FDIC, to accept, renew or rollover brokered deposits.
Regulations have also been adopted by the FDIC to limit the activities
conducted as a principal by, and the equity investments of, state-chartered
banks to those permitted for national banks. Banks may apply to the FDIC for
approval to continue to engage in excepted investments and activities.
Other FDICIA regulations adopted require independent audits, an
independent audit committee of the bank's board of directors, stricter truth-
in-savings provisions, and standards for real estate lending. The FDICIA
amended deposit insurance coverage and the FDIC has implemented a rule
specifying the treatment of accounts to be insured up to $100,000.
Under other provisions of FDICIA, the federal banking agencies have
proposed safety and soundness standards for banks in a number of areas
including: internal controls, internal audit systems, information systems,
credit underwriting, interest rate risk, executive compensation and minimum
earnings. The agencies have also proposed rules to revise risk-based capital
standards to take account of interest rate risk, as required by FDICIA.
It is anticipated that the FDICIA and related regulations will result in
higher costs for the banking industry in terms of deposit insurance
assessments and costs of compliance and recordkeeping.
DIVIDENDS
As a bank holding company, State Street is a legal entity separate and
distinct from State Street Bank and its other non-bank subsidiaries. State
Street's principal source of cash revenues is dividends from State Street Bank
and its other non-bank subsidiaries. The right of State Street to participate
as a stockholder in any distribution of assets of a subsidiary upon its
liquidation or reorganization or otherwise is subject to the prior claims by
creditors of the subsidiary, including obligations for federal funds purchased
and securities sold under repurchase agreements, as well as deposit
liabilities. Payment of dividends by State Street Bank is subject to
provisions of the Massachusetts banking law which provide that dividends may
be paid out of net profits provided (i) capital stock and surplus remain
unimpaired, (ii) dividend and retirement fund requirements of any preferred
stock have been met, (iii) surplus equals or exceeds capital stock, and
(iv) there are deducted from net profits any losses and bad debts, as
defined, in excess of reserves specifically established therefor. Under the
Federal Reserve Act, the approval of the Board of Governors of the Federal
Reserve System would be required if dividends declared by the Bank in any year
would exceed the total of its net profits for that year combined with
retained net profits for the preceding two years, less any required transfers
to surplus. Under applicable federal and state law restrictions, at December
31, 1993 State Street Bank could have declared and paid dividends of
$366,454,000 without regulatory approval. Future dividend payments of the Bank
and non-bank subsidiaries cannot be determined at this time.
ECONOMIC CONDITIONS AND GOVERNMENT POLICIES
Economic policies of the government and its agencies influence the
operating environment of State Street. Monetary policy conducted by the
Federal Reserve Board directly affects the level of interest rates and
overall credit conditions of the economy. Policy instruments utilized by the
Federal Reserve Board include open market operations in U.S. Government
securities, changes in reserve requirements for depository institutions, and
changes in the discount rate and availability of borrowing from the Federal
Reserve.
<PAGE>
ITEM 2. PROPERTIES
State Street's headquarters are located in the State Street Bank
Building, a 34-story building at 225 Franklin Street, Boston, Massachusetts,
which was completed in 1965. State Street leases approximately 415,000
square feet (or approximately 45% of the space in this building) for a
30-year initial term with two successive extension options of 20 years each
at rentals to be negotiated. State Street exercised the first of the two (2)
options which will be effective on January 1, 1996 for a term of 20 years.
State Street owns five buildings located in Quincy, Massachusetts, a
suburb of Boston. Four of the buildings, containing a total of approximately
1,365,000 square feet, function as the Bank's operations facilities. The
Bank occupies approximately 1,275,000 square feet and subleases the remaining
space. The fifth building, with 186,000 square feet, is leased to Boston
Financial Data Services, Inc., a 50% owned affiliate. Additionally, State
Street owns a 98,000 square foot building in Westborough, Massachusetts for
use as a second data center.
The remaining offices and facilities of State Street and its subsidiaries
are leased. As of December 31, 1993, the aggregate mortgage and lease
payments, net of sublease revenue, payable within one year amounted to
$23,632,000, plus assessments for real estate tax, cleaning and operating
escalations.
ITEM 3. LEGAL PROCEEDINGS
State Street is subject to pending and threatened legal actions that arise
in the normal course of business. In the opinion of management, after
discussion with counsel, these can be successfully defended or resolved
without a material adverse effect on State Street's financial position or
results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 4.A. EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information with regard to each
executive officer of State Street. As used herein, the term "executive
officer" means an officer who performs policy-making functions for State
Street.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Marshall N. Carter ............................ 54 Chairman and Chief Executive Officer
David A. Spina ................................ 51 Vice Chairman
George J. Fesus ............................... 51 Executive Vice President, Chief Financial
Officer and Treasurer
A. Edward Allinson ............................ 59 Executive Vice President
Dale L. Carleton .............................. 49 Executive Vice President
Susan Comeau .................................. 52 Executive Vice President
Howard H. Fairweather ......................... 55 Executive Vice President
Charles J. Kelly .............................. 49 Executive Vice President
Ronald E. Logue ............................... 48 Executive Vice President
Nicholas A. Lopardo ........................... 47 Executive Vice President
Albert E. Petersen ............................ 48 Executive Vice President
David J. Sexton ............................... 54 Executive Vice President
Norton Q. Sloan ............................... 57 Executive Vice President
</TABLE>
There are no family relationships between any director and executive
officer of State Street. With the exception of Messrs. Carter, Allinson,
Logue and Petersen, all of the executive officers have been officers of State
Street for five years or more. Mr. Carter became President of State Street in
July, 1991, Chief Executive Officer in January, 1992 and Chairman in January,
1993. Prior to joining State Street, he was with Chase Manhattan Bank for 15
years, including the last three as head of global securities services. Mr.
Allinson became an officer of State Street in March, 1990. Prior to joining
State Street, he was President of Mitchell Hutchins Asset Management, a
subsidiary of PaineWebber Incorporated, responsible for six financial service
subsidiaries. Mr. Petersen became an officer of State Street in August, 1991.
Prior to joining State Street, he was an Executive Vice President at First
Empire State Corporation, a bank holding company, responsible for operations
and systems. Mr. Logue became an officer of State Street in 1991. Prior to
joining State Street, he was Executive Vice President at Bank of New England
Corporation where he was head of processing services.
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Information concerning the market prices of and dividends on State
Street's common stock during the past two years appears on page 34 of
State Street's 1993 Annual Report to Stockholders and is incorporated by
reference. There were 5,886 stockholders of record at February 28, 1994. State
Street's common stock is traded over-the-counter on the National Marker
System, ticker symbol: STBK.
ITEM 6. SELECTED FINANCIAL DATA
The information is set forth on page 21 of State Street's 1993 Annual
Report to Stockholders and is incorporated by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
The information required by this item appears in State Street's 1993
Annual Report to Stockholders on pages 2 and 3 and pages 22 through 35 and is
incorporated by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL FINANCIAL DATA
The Consolidated Financial Statements, Report of Independent Auditors and
Supplemental Financial Data appearing on pages 36 through 55 of State Street's
1993 Annual Report to Stockholders and are incorporated by reference.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning State Street's directors appears on pages 1 through
6 of State Street's Proxy Statement for the 1994 Annual Meeting of
Stockholders under the caption "Election of Directors" which Statement is to
be filed with the Securities and Exchange Commission. Such information is
incorporated by reference.
Information concerning State Street's executive officers appears under the
caption "Executive Officers of the Registrant" in Item 4.A. of this Report.
ITEM 11. EXECUTIVE COMPENSATION
Information concerning compensation of the executives of State Street
appears on pages 10 through 17 in State Street's Proxy Statement for the 1994
Annual Meeting of Stockholders under the caption "Executive Compensation".
Such information is incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information concerning security ownership of certain beneficial owners and
management appears on pages 7 and 8 in State Street's Proxy Statement for the
1994 Annual Meeting of Stockholders under the caption "Beneficial Ownership of
Shares". Such information is incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning certain relationships and related transactions
appears on page 9 in State Street's Proxy Statement for the 1994 Annual
Meeting of Stockholders under the caption "Certain Transactions". Such
information is incorporated by reference.
<PAGE>
PART IV
<TABLE>
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
<S> <C>
(a) (1) Financial Statements -- The following consolidated financial statements of State
Street included in its Annual Report to Stockholders for the year ended December 31,
1993, are incorporated by reference in Item 8 hereof:
Consolidated Statement of Income--Years ended December 31, 1993, 1992 and 1991
Consolidated Statement of Condition--December 31, 1993 and 1992
Consolidated Statement of Cash Flows -- Years ended December 31, 1993, 1992 and 1991
Consolidated Statement of Changes in Stockholders' Equity -- Years ended December 31,
1993, 1992 and 1991
Notes to Financial Statements
Report of Independent Auditors
(2) Financial Statement Schedules -- Schedules to the consolidated financial statements
required by Article 9 of Regulation S-X are not required under the related
instructions, are inapplicable, or the information is contained herein and therefore
have been omitted.
(3) Exhibits
A list of the exhibits filed or incorporated by reference appears following page 16 of
this Report, which information is incorporated by reference.
(b) Reports on Form 8-K
A current report on Form 8-K dated October 8, 1993 was filed which reported on the
issuance by State Street of $100 million principal amount of 5.95% notes due September
15, 2003.
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
and Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, on March 17, 1994, thereunto duly
authorized.
STATE STREET BOSTON CORPORATION
By REX S. SCHUETTE
-----------------------------------------
REX S. SCHUETTE
Senior Vice President and Comptroller
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below on March 17, 1994, by the following persons
on behalf of the registrant and in the capacities indicated.
<TABLE>
OFFICERS:
<S> <C>
MARSHALL N. CARTER DAVID A. SPINA
- ---------------------------------------------------- ------------------------------------------------
MARSHALL N. CARTER, Chairman DAVID A. SPINA, Vice Chairman
and Chief Executive Officer
GEORGE J. FESUS REX S. SCHUETTE
- ---------------------------------------------------- ------------------------------------------------
GEORGE J. FESUS, Executive Vice President, REX S. SCHUETTE, Senior Vice President
Chief Financial Officer and Treasurer and Comptroller
DIRECTORS:
TENLEY E. ALBRIGHT JOSEPH A. BAUTE
- ---------------------------------------------------- ------------------------------------------------
TENLEY E. ALBRIGHT JOSEPH A. BAUTE
I. MACALLISTER BOOTH JAMES I. CASH
- ---------------------------------------------------- ------------------------------------------------
I. MACALLISTER BOOTH JAMES I. CASH
TRUMAN S. CASNER NADER F. DAREHSHORI
- ---------------------------------------------------- ------------------------------------------------
TRUMAN S. CASNER NADER F. DAREHSHORI
LOIS D. JULIBER CHARLES F. KAYE
- ---------------------------------------------------- ------------------------------------------------
LOIS D. JULIBER CHARLES F. KAYE
GEORGE H. KIDDER
- ---------------------------------------------------- ------------------------------------------------
GEORGE H. KIDDER JOHN M. KUCHARSKI
CHARLES R. LAMANTIA DAVID B. PERINI
- ---------------------------------------------------- ------------------------------------------------
CHARLES R. LAMANTIA DAVID B. PERINI
DENNIS J. PICARD BERNARD W. REZNICEK
- ---------------------------------------------------- ------------------------------------------------
DENNIS J. PICARD BERNARD W. REZNICEK
ROBERT E. WEISSMAN
- ----------------------------------------------------
ROBERT E. WEISSMAN
</TABLE>
<PAGE>
EXHIBIT INDEX
EXHIBIT 3. ARTICLES OF INCORPORATION AND BY-LAWS
3.1 Restated Articles of Organization as amended (filed with the
Securities and Exchange Commission as Exhibit 3.1 to Registrant's
Annual Report on Form 10-K for the year ended December 31, 1988 and
incorporated by reference)
3.2 By-laws as amended (filed with the Securities and Exchange
Commission as Exhibit 3.2 to Registrant's Annual Report on Form 10-K
for the year ended December 31, 1991 and incorporated by reference)
3.3 Certificate of Designation, Preferences and Rights (filed with the
Securities and Exchange Commission as Exhibit 3.1 to Registrant's
Annual Report on Form 10-K for the year ended December 31, 1991 and
incorporated by reference)
EXHIBIT 4. INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS
4.1 Rights Agreement dated as of September 15, 1988 between State Street
Boston Corporation and The First National Bank of Boston, Rights
Agent (filed with the Securities and Exchange Commission as Exhibit
4 to Registrant's Current Report on Form 8-K dated September 30,
1988 and incorporated by reference)
4.2 Amendment to Rights Agreement dated as of September 20, 1990 between
State Street Boston Corporation and The First National Bank of
Boston, Rights Agent (filed with the Securities and Exchange
Commission as Exhibit 4 to Registrant's Quarterly Report on Form 10-
Q for the quarter ended September 30, 1990 and incorporated by
reference)
4.3 Indenture dated as of August 2, 1993 between State Street Boston
Corporation and The First National Bank of Boston, as trustee (filed
with the Securities and Exchange Commission as Exhibit 4 to the
Registrant's Current Report on Form 8-K dated October 8, 1993 and
incorporated by reference)
EXHIBIT 10. MATERIAL CONTRACTS
Executive Compensation Plans and Agreements:
10.1 State Street Boston Corporation Long-Term Common Stock Incentive
Program, as amended (filed with the Securities and Exchange
Commission as Exhibit 10.1 to Registrant's Annual Report on Form 10-
K for the year ended December 31, 1981 and incorporated by
reference)
10.2 State Street Boston Corporation 1981 Stock Option and Performance
Share Plan, as amended (filed with the Securities and Exchange
Commission as Exhibit 10.2 to Registrant's Annual Report on Form 10-
K for the year ended December 31, 1981 and incorporated by
reference)
10.3 State Street Boston Corporation 1984 Stock Option Plan (filed with
the Securities and Exchange Commission as Exhibit 4(a) to
Registrant's Registration Statement on Form S-8 (File No. 2-93157)
and incorporated by reference)
10.4 State Street Boston Corporation 1985 Stock Option and Performance
Share Plan (filed with the Securities and Exchange Commission as
Exhibit 10.1 to Registrant's Annual Report on Form 10-K for the year
ended December 31, 1985 and incorporated by reference)
10.5 Revised Forms of Termination Agreement with Executive Officers
(filed with the Securities and Exchange Commission as Exhibit 10.1
to Registrant's Annual Report on Form 10-K for the year ended
December 31, 1989 and incorporated by reference)
10.6 State Street Boston Corporation 1989 Stock Option Plan (filed with
the Securities and Exchange Commission as Exhibit 10.1 to
Registrant's Annual Report on Form 10-K for the year ended December
31, 1989 and incorporated by reference)
10.7 State Street Boston Corporation 1990 Stock Option and Performance
Share Plan (filed with the Securities and Exchange Commission as
Exhibit 10.1 to Registrant's Annual Report on Form 10-K for the year
ended December 31, 1990 and incorporated by reference)
10.8 State Street Boston Corporation Supplemental Executive Retirement
Plan, together with individual benefit agreements (filed with the
Securities and Exchange Commission as Exhibit 10.1 to Registrant's
Annual Report on Form 10-K for the year ended December 31, 1991 and
incorporated by reference)
<PAGE>
10.9 Individual Pension Agreement with Marshall N. Carter (filed with the
Securities and Exchange Commission as Exhibit 10.1 to Registrant's
Annual Report on Form 10-K for the year ended December 31, 1991 and
incorporated by reference)
10.10 Individual Pension Agreement with A. Edward Allinson (filed with the
Securities and Exchange Commission as Exhibit 10.1 to Registrant's
Annual Report on Form 10-K for the year ended December 31, 1991 and
incorporated by reference)
10.11 Supplemental Retirement Agreement with Norton Q. Sloan
10.12 Individual Pension Agreement with Albert E. Petersen
10.13 Termination Benefits Arrangement with Marshall N. Carter
10.14 State Street Global Advisor's Incentive Plan for 1993
10.15 State Street Global Advisor's Incentive Plan for 1994
10.16 Senior Executives Annual Incentive Plan
10.17 1994 Stock Option and Performance Unit Plan
EXHIBIT 11. STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
11.1 State Street Boston Corporation Computation of Earnings Per Share
EXHIBIT 12. STATEMENT RE COMPUTATION OF RATIOS
12.1 Statement of ratio of earnings to fixed charges.
EXHIBIT 13. PORTIONS OF ANNUAL REPORT TO STOCKHOLDERS
13.1 Five Year Selected Financial Data.
13.2 Management's Discussion and Analysis of Financial Condition and
Results of Operations for the Three Years Ended December 31, 1993
(not covered by the Report of Independent Public Accountants).
13.3 Letter to Stockholders.
13.4 State Street Boston Corporation Consolidated Financial Statements
and Schedules.
EXHIBIT 21. SUBSIDIARIES
21.1 Subsidiaries of State Street Boston Corporation
EXHIBIT 23. CONSENTS OF EXPERTS AND COUNSEL
23.1 Consent of Independent Auditors
<PAGE>
EXHIBIT 10.11
SUPPLEMENTAL RETIREMENT AGREEMENT
THIS AGREEMENT is made as of March 1, 1987 (the "Effective Date") by and
between STATE STREET BOSTON CORPORATION, a Massachusetts corporation (the
"Company"), and NORTON Q. SLOAN of Ipswich, Massachusetts ("Sloan").
WHEREAS, Sloan has been retained by the Company to serve as its Executive
Vice President, such service beginning on the Effective Date; and
WHEREAS, in order to effect such employment, Sloan has terminated his
employment with Cabot Corporation, by which he had been employed since August
1, 1964, and has given up certain benefits under Cabot Corporation's pension
plan to which he would have been entitled had he remained in the employ of
Cabot Corporation until retirement; and
WHEREAS, the Company wishes to provide Sloan with certain additional
retirement benefits, as set forth herein, as an inducement for Sloan to enter
and remain in employment with the Company, to compensate him in part for the
Cabot Corporation pension benefits lost by reason of his acceptance of
employment with the Company, and to provide certain retirement benefits which
cannot be provided through the Company's normal retirement programs because of
the operation of Section 415 and Section 401(a)(17) of the Internal Revenue
Code of 1986;
NOW, THEREFORE, the Company and Sloan agree as follows:
ARTICLE 1 - DEFINITIONS
Wherever used herein the following terms have the meanings set forth below,
unless a difference meaning is clearly required by the context:
1.1 "Cabot Plan" means the "Retirement Income Plan for Employees of Cabot
Corporation (October 1, 1985 Restatement)," a copy of which is attached hereto
as Appendix A.
1.2 "Cabot Plan Benefit" means the benefit actually payable under the
Cabot Plan based upon Sloan's actual service with and compensation from Cabot
Corporation, which benefit is used as an offset hereunder. For purposes of
Article 2(b) hereof, the Cabot Plan Benefit shall be expressed as the monthly
benefit payable to Sloan if such benefit were payable as a joint and 50%
survivor annuity with his wife commencing on February 1, 2002. For purposes of
Articles 3(b), 3(ii), and 4(b) hereof, the Cabot Plan Benefit shall be computed
as described in the preceding sentence and then reduced, if payments begin
under Article 3 or 4 before February 1, 2002, to the amount of benefit that
would be payable under the Cabot Plan in the same form beginning on the date
such payments begin.
1.3 "Disability" means a medically determinable physical or mental
impairment of Sloan which can be excepted to be of long, continued and
indefinite duration and which prevents him from engaging in any substantial
gainful employment.
1.4 "Plan" means the "Retirement Plan for Employees of State Street Boston
Corporation and Certain Related Companies," as in effect on the Effective Date,
a copy of which is attached hereto as Appendix B.
1.5 "Plan Benefit" means the benefit actually payable under the Plan based
upon Sloan's actual service with and compensation from the Company, which
benefit is used as an offset hereunder. For purposes of Article 2(b) hereof,
the Plan Benefit shall be expressed as the monthly benefit payable to Sloan if
such benefit were payable as a joint and 50% survivor annuity with his wife
commencing on February 1, 2002. For purposes of Articles 3(b), 3(ii), and 4(b)
hereof, the Plan Benefit shall be computed as described in the preceding
sentence and then reduced, if payments begin under Article 3 or 4 before
February 1, 2002, to the amount of benefit that would be payable under the Plan
in the same form beginning on the date such payments begin.
Capitalized terms which are not defined herein shall have the meaning
assigned to them under the Plan. References herein to Sloan's wife shall refer
to his wife as of the Effective Date.
ARTICLE 2 - NORMAL RETIREMENT BENEFIT
If Sloan continues to be employed by the Company until January 18, 2002,
the Company will pay him a monthly retirement benefit equal to:
(a) the amount determined under Section 6.01 of the Plan, determined (1)
as if Sloan had the number of years of Accrual Service actually credited to him
under the Plan plus an additional 22.583 years of Accrual Service, (2) as if
Sloan's Annual Compensation under the Plan as of July 1 in each of the years
1982 through 1986 (the highest 5 years before the Effective Date) were the
amount set forth in Appendix C, (3) without regard to any limitations imposed
by Section 6.05 or 6.06 of the Plan, (4) without regard to any Plan limitation
on Annual compensation to be used in determining benefits or any limitation
imposed by Internal Revenue Code Section 401(a)(17) or any successor thereto,
and (5) without reduction on account of any survivor benefit protection for
Sloan's wife, reduced by
(b) the sum of Sloan's Plan Benefit and his Cabot Plan Benefit.
Such monthly benefit shall become payable on the first day of the first
month following the termination of Sloan's employment with the Company and
shall continue for Sloan's life. Upon Sloan's death, the Company shall
continue monthly payments to Sloan's wife, if she survives him, for her life,
in an amount equal to one-half the amount being paid to Sloan under this
Article 2 prior to his death.
ARTICLE 3 - EARLY RETIREMENT BENEFIT; DISABILITY BENEFIT
If Sloan's employment with the Company should terminate, for any reason
other than death or Disability, on or after January 18, 1992, but prior to
January 18, 2002, the Company shall pay Sloan a monthly retirement benefit
commencing at the same time as Sloan's Plan Benefit (or, if Sloan is not
entitled to a Plan Benefit, commencing at the same time as Sloan's Cabot Plan
Benefit) and continuing for Sloan's life, in an amount equal to:
(a) the amount determined under Section 6.04(a) of the Plan, reduced as
provided in Section 6.04(b) of the Plan in the event payments hereunder begin
before February 1, 2002, determined (1) as if Sloan had the number of years of
Accrual Service and Vesting Service actually credited to him under the Plan
plus an additional 22.583 years of Accrual Service and Vesting Service, (2) as
if Sloan's Annual Compensation under the Plan as of July 1 in each of the years
1982 through 1986 (the highest 5 years before the Effective Date) were the
amount set forth in Appendix C, (3) without regard to any limitations imposed
by Section 6.05 or 6.06 of the Plan, (4) without regard to any Plan limitation
on Annual compensation to be used in determining benefits or any limitation
imposed by Internal Revenue Code Section 401(a)(17) or any successor thereto,
and (5) without reduction on account of any survivor benefit protection for
Sloan's wife, reduced by
(b) the sum of Sloan's Plan Benefit and his Cabot Plan Benefit.
If Sloan's employment with the Company should terminate at any time before
January 18, 2002, by reason of Disability, the Company shall pay Sloan a
monthly retirement benefit commencing on such date subsequent to this
termination of employment and on or before February 1, 2002, as Sloan shall
designate by written notice to the Company, and continuing for Sloan's life, in
an amount equal to:
(i) the amount determinated by Section 6.04(a) of the Plan, reduced as
provided in Section 6.04(b) of the Plan in the event payments hereunder begin
before February 1, 2002, determined (1) as of Sloan had the number of years of
Accrual Service and Vesting Service which he would have had under the Plan had
he continued in employment until the benefit commencement date, plus an
additional 22.583 years of Accrual Service and Vesting Service, (2) as if
Sloan's Annual Compensation under the Plan as of July 1 in each of the years
1982 through 1986 (the highest five years before the Effective Date) were the
amounts set forth in Appendix C, and as if his Annual Compensation under the
Plan for the period from his termination of employment to the benefit
commencement date were at a rate equal to his Average Annual Compensation as of
his actual termination of employment, as determined under the Plan but giving
effect to the preceding assumption, (3) without regard to any limitations
imposed by Section 6.05 or 6.06 of the Plan, (4) without regard to any Plan
limitation on Annual compensation to be used in determining benefits or any
limitation imposed by Internal Revenue Code Section 401(a)(17) or any successor
thereto, and (5) without reduction on account of any survivor benefit
protection for Sloan's wife, reduced by
(ii) the sum of Sloan's Plan Benefit and his Cabot Plan Benefit.
Upon Sloan's death, the Company shall continue monthly payments to Sloan's
wife, if she survives him, for her life, in an amount equal to one-half the
amount being paid to Sloan under any provision of this Article 3 prior to his
death.
ARTICLE 4 - PRE-RETIREMENT TERMINATION
In the event that Sloan's employment with the Company should terminate
prior to January 18, 1992 for any reason other than death or Disability, the
Company shall make monthly payments to Sloan commencing at the same time as
Sloan's Plan Benefit (or, if Sloan is not entitled to a Plan Benefit,
commencing at the same time as Sloan's Cabot Plan Benefit) and continuing for
Sloan's life, in an amount equal to:
(a) the amount determined under Section 7.01(a) of the Plan, reduced as
provided in Section 7.02 of the Plan in the event of commencement before
February 1, 2002, determined (1) as if Sloan had the number of years of Accrual
Service and Vesting Service actually credited to him under the Plan plus an
additional 22.583 years of Accrual Service and Vesting Service, (2) as if
Sloan's Annual Compensation under the Plan as of July 1 in each of the years
1982 through 1986 (the highest 5 years before the Effective Date) were the
amount set forth in Appendix C, (3) without regard to any limitations imposed
by Section 6.05 or 6.06 of the Plan, (4) without regard to any Plan limitation
on Annual compensation to be used in determining benefits or any limitation
imposed by Internal Revenue Code Section 401(a)(17) or any successor thereto,
and (5) without reduction on account of any survivor benefit protection for
Sloan's wife, reduced by
(b) the sum of Sloan's Plan Benefit and his Cabot Plan Benefit.
Upon Sloan's death, the Company shall continue monthly payments to Sloan's
wife, if she survives him, for her life, in an amount equal to one-half the
amount being paid to Sloan under this Article 4 prior to his death.
ARTICLE 5 - DEATH BEFORE BENEFITS BEGIN
If Sloan should die prior to February 1, 2002 while employed by the
Company, the Company shall pay to his wife, if she survives him, for her life,
a monthly benefit commencing on the first day of the first month following the
month of Sloan's death, equal to 62.5% of the amount which would have been
payable to Sloan under the provisions of Article 2 hereof had he continued in
employment with the Company until January 31, 2002. For purposes of this
computation, Average Annual Compensation shall be determined as if Sloan's
compensation had continued until January 31, 2002, at the rate in effect
immediately prior to his death.
In the event Sloan should die after termination of his employment and prior
to commencement of benefit payments under Article 2, 3 or 4 hereof, the Company
shall pay to Sloan's wife, if she survives him, for her life, beginning on the
first day of the month after the later of (a) the month of Sloan's death or (b)
January, 1992, a monthly amount equal to one-half the amount which would have
been payable to Sloan under Article 2, 3 or 4 beginning on the same day if he
had survived to that day and his benefit payments had begun on that day.
ARTICLE 6 - ADJUSTMENTS FOR CHANGES IN PLANS AND BENEFITS
The benefits provided hereunder are intended to be supplemental to benefits
provided under the Plan and the Cabot Plan. Accordingly, no adjustment shall
be made in any benefits payable hereunder to Sloan or his wife because of any
changes in the benefit formula (or the manner of computing benefits) under the
Plan or the Cabot Plan which occur before payments begin under this Agreement.
However, any such change which results in a change in the amount of the Plan
Benefit or the Cabot Plan Benefit shall be taken into account for purposes of
applying any offset to any payment due hereunder.
If at any time after Sloan or his wife has begun to receive payments under
this Agreement there is a general increase in benefits payable under the Plan
to retired employees and their beneficiaries, then the Company shall increase
its payments under this Agreement to the extent necessary so that the combined
increase under the Plan and this Agreement will equal the benefit increase
which would have been received under the Plan if Sloan's benefit under the Plan
had been determined as described in Article 2(a), 3(a), 3(i) or 4(a) above.
Any increase in Sloan's Cabot Plan Benefit which takes effect after the
commencement of payments under this Agreement shall not be taken into account
as an offset for purposes of this Agreement.
ARTICLE 7 - NOTICES
Any notice or other communication pursuant to this Agreement shall be in
writing and shall be sent by certified or registered mail addressed to the
respective parties as follows:
If to the Company, to:
STATE STREET BOSTON CORPORATION
Retirement Committee
c/o Kenneth Stuart
P.O. Box 351
Boston, Massachusetts 02101
If to Sloan to:
NORTON Q. SLOAN
P.O. Box 570
Ipswich, Massachusetts 01938
or to such other address as the party in question shall have designated by
notice to the other party given in accordance with this Article. Any notice or
other communication shall be deemed to have been duly given if personally
delivered or mailed via registered or certified mail, postage prepaid, return
receipt requested.
ARTICLE 8 - ADMINISTRATIVE PROVISIONS
No modification or waiver of this Agreement or any provision hereof shall
be binding upon the party against whom enforcement of such modification or
waiver is sought unless it is made in writing and signed by or on behalf of
both parties hereto.
This Agreement shall be subject to and construed in accordance with the
laws of the Commonwealth of Massachusetts.
The waiver by either party of a breach of any provision of this Agreement
by a party shall not operate and be construed as a waiver or a continuing
waiver by that party of the same or any subsequent breach of any provision of
this Agreement by the other party.
If any provisions of this Agreement or the application thereof to any
person or circumstance shall be determined to be invalid or unenforceable to
any extent, the remainder hereof, or the application of such provision to
persons or circumstances other than those as to which it is so determined to be
invalid or unenforceable, shall not be affected thereby, and each provision
hereof shall be valid and shall be enforced to the fullest extent permitted by
law.
This Agreement shall be binding on and inure to the benefit of the parties
hereto and their respective heirs, executors and administrators, successors and
assigns.
This Agreement shall not be assignable in whole or in part by either party,
except that the Company may assign this Agreement to and it shall be binding
upon any parent, subsidiary or affiliate of the Company or any person, firm or
corporation with which the Company may be merged or consolidated or which may
acquire all or substantially all of the assets of the Company.
Nothing in this Agreement will be construed to create a trust or to
obligate the Company to segregate a fund, purchase an insurance contract, or in
any other way currently to fund the future payment of benefits hereunder, nor
will anything herein be construed to give Sloan or any other person rights to
any specific assets of the Company.
STATE STREET BOSTON CORPORATION
Date 12/7/87 By DAVID SPINA
------------- --------------------
Treasurer
Date 12/3/87 By NORTON Q. SLOAN
------------- --------------------
NORTON Q. SLOAN
EXHIBIT 10.12
INDIVIDUAL PENSION AGREEMENT FOR A. E. PETERSEN
The State Street Boston Corporation (the "Bank") maintains the State Street
Boston Retirement Plan ("Retirement Plan"). The bank also maintains the
Supplemental Executive Retirement Plan ("SERP"), as amended from time to time,
which establishes the retirement benefit you are eligible for as a supplement
to the benefit you are entitled to under the terms of the Retirement Plan.
Nothing herein shall modify or amend any benefit or supplemental benefit
payable under the Retirement Plan or SERP and nothing herein shall act to
modify any term of the Retirement Plan or SERP.
With effect from August 1, 1991, State Street Boston Corporation agrees to
provide you with an additional benefit in accordance with the terms of this
letter:
1. AMOUNT OF ADDITIONAL BENEFIT. The benefit shall be calculated as if a
contribution had been made to the Retirement Plan in the following percentages
of your Base Compensation under the Retirement Plan:
Additional Pension Contribution
Year As a Percent of Base Compensation
1 5.00%
Each Subsequent Year 2.50%
For purposes of this calculation, a year shall have the same meaning as a Year
of Service under the Retirement Plan, provided that 1991 shall be considered a
year notwithstanding any term of the Retirement Plan.
Further for purposes of this calculation, your Base Compensation shall be
calculated in accordance with the terms of the Retirement Plan, but
notwithstanding any limitation on includible compensation or maximum benefit
accruals imposed by the Internal Revenue Code upon qualified plans.
2. FORM AND PAYMENT OF BENEFIT. The benefit provided for in this Agreement
will be payable at the same time and in the same form as benefit payments from
the Retirement Plan. Your election as to the form and commencement of your
Retirement Plan benefit shall automatically apply to the payment of any benefit
hereunder. Any consent or waiver effected by you or your spouse under any
provision of the Retirement Plan will automatically operate as a consent or
waiver to benefits hereunder.
3. NON-ASSIGNMENT. The right to benefits hereunder shall not be assignable
and neither you, your spouse or any designated beneficiary under the Retirement
Plan shall be entitled to have such benefits made or commuted otherwise than in
accordance with Section 2.
4. VESTING. Your benefits hereunder shall vest fully on August 1, 1996 or
such later date upon which you will have completed five Years of Service as
such term is defined in the Retirement Plan. Thereafter, all accruals shall
vest immediately.
5. MISCELLANEOUS. This agreement does not create a trust or require current
funding. This Agreement can be amended at any time by mutual written agreement
between you and the Bank. This agreement shall be governed according to the
laws of the Commonwealth of Massachusetts and you agree to bring any action
related hereto in a court sitting in the Commonwealth.
State Street Boston Corporation
By: K. D. Stuart 4/5/92
------------------------------- ------
K. D. Stuart, S.V.P. Date
Human Resources, its Authorized
Representative
Albert E. Petersen
------------------------------- ------
Albert E. Petersen Date
EXHIBIT 10.13
TO: Marshall N. Carter
In the event that your employment at State Street Boston
Corporation (the Bank) is terminated before July 22, 1996 for
reasons other than 1) your resignation due to your, unilateral,
decision to take other employment or for personal reasons, or 2)
due to your death, or 3) termination for malfeasance, the Bank
will pay you severance pay equal to eighteen months salary. The
salary rate will be the monthly rate in effect on the effective
date of termination.
The potential receipt of any other forms of compensation or
benefits, (e.g. stock options, performance shares) will be
determined by agreements or contracts pertaining to each which
may be in existence at the time of termination.
/S/ W. S. EDGERLY
--------------
W. S. Edgerly
cc: K. D. Stuart
EXHIBIT 10.14
STATE STREET GLOBAL ADVISORS
INCENTIVE COMPENSATION PLAN - 1993
I. Purpose:
The purpose of the plan is to provide all employees significant incentive
to enhance the financial performance of State Street Global Advisors.
II. Participation:
The plan will consist of two separate and distinct parts. One part will
cover all non-officers of State Street Global Advisors who have a minimum of
six months of tenure with SSGA. The second part will cover all officers of
State Street Global Advisors.
III. Bonus Pools:
The pool will be generated by contributions that are based on 1993 Global
Advisors Contribution achievement after the revenue sharing related to the
agreement between the Bank and State Street Global Advisors. For the year 1993
revenue sharing has been agreed at a rate of TBD% of Adjusted Revenues. (The
basis for the Bonus Pool may be modified by the Chief Executive Officer of
State Street Boston Corporation based on final data.) The Bonus Pool will
consist of two parts, non-officer and officer. The split of the Pool into the
two parts will be calculated according to the following formula:
IV. Bonus Awards:
All non-officers who are meeting job standards will be eligible to receive
awards equal to 10% of their January 1, 1993 salary if the Global Advisors
Contribution is $TBD. If the Global Advisors Contribution is greater than
$TBD, non-officers will be eligible for additional awards. The amounts will be
determined based on the non-officer's contribution. All awards will be paid in
February 1994.
All officers who are meeting job standards are eligible for awards based on
their contribution. Officers will receive 70% of their award in February,
1994, the other 30% will be
December 16, 1992
deferred and paid in equal portions in February, 1995 and February, 1996.
Deferred awards will earn interest at a rate equal to the effective yield to
maturity, respectively, on the one and two year U.S. Treasury notes with an
issue date closest to February 18, 1994.
In no case will the sum of the awards exceed the Bonus Pool.
A manager with the approval of the Chief Executive Officer of State Street
Global Advisors may make adjustments to the awards to reflect a participant's
contribution or the business environment. All awards are subject to the
approval of the Chief Executive Officer of State Street Global Advisors, the
Chief Executive Officer and the Executive Compensation Committee of State
Street Boston Corporation. If a participant ceases to be employed by State
Street Global Advisors, or State Street Bank and Trust Company or one of its
subsidiaries, (provided, however, that this provision shall not apply if the
participant's employment is terminated by reason of death or disability) prior
to the date of actual payment of any incentive or deferral, no payment shall be
made.
December 4, 1992
EXHIBIT 10.15
STATE STREET GLOBAL ADVISORS
INCENTIVE COMPENSATION PLAN - 1994
I. Purpose:
The purpose of the plan is to provide all employees significant incentive
to enhance the financial performance of State Street Global Advisors and State
Street Boston Corporation.
II. Participation:
The plan will consist of two separate and distinct parts. One part will
cover all non-officers of State Street Global Advisors who have a minimum of
six months of tenure with SSGA. The second part will cover all officers of
State Street Global Advisors.
III. Bonus Pools:
The pool will be generated by contributions that are based on 1994 Global
Advisors Financial Achievement after the revenue sharing related to the
agreement between State Street Bank and Trust Company and State Street Global
Advisors. For the year 1994 revenue sharing has been agreed at a rate of TBD%
of Adjusted Revenues. The Bonus Pool will consist of two parts, non-officer
and officer. The split of the Pool into the two parts will be calculated
according to a formula determined by the Chief Executive Officer of State
Street Global Advisors.
IV. Bonus Awards:
All non-officers who are meeting job standards will be eligible to receive
awards if the Global Advisors Financial Achievement is $TBD. The amounts will
be determined based on the non-officer's contribution. All awards will be paid
in February 1995.
All officers who are meeting job standards are eligible for awards based on
their contribution. Officers will receive 70% of their award in February,
1995, the other 30% will be deferred and paid in equal portions in February,
1996 and February, 1997. Deferred awards will earn interest at a rate equal to
the effective yield to maturity, respectively, on the one and two year U.S.
Treasury notes with an issue date closest to February 18, 1995.
In no case will the sum of the awards exceed the Bonus Pool.
All awards are subject to the approval of the Chief Executive Officer of
State Street Global Advisors, the Chief Executive Officer and the Executive
Compensation Committee of State Street Boston Corporation. If a participant
ceases to be employed by State Street Global Advisors, or State Street Boston
Corporation or one of its subsidiaries, (provided, however, that this provision
shall not apply if the participant's employment is terminated by reason of
death or disability) prior to the date of actual payment of any incentive or
deferral, no payment shall be made.
EXHIBIT 10.16
2/14/94
STATE STREET BOSTON CORPORATION
1994 SENIOR EXECUTIVES ANNUAL INCENTIVE PLAN
I. Purpose:
The purpose of the Plan is to provide additional incentive and reward to
Senior Executives of State Street Boston Corporation (the "Company") to achieve
targeted levels of earnings per share and return on equity.
II. Eligibility:
The Chief Executive Officer and members of the Chairman's Office are
designated as Participants in the Plan.
III. Performance Goals:
The 1994 performance goals and bonus opportunities are as follows:
1. Earnings per share. The performance goal is $2.78 per fully
diluted share of the Company ("EPS") at which each Participant will receive his
or her maximum bonus. The maximum bonus on account of EPS is 37.5% of salary
for the Chief Executive Officer and 25% of salary for each of the other
Participants. The minimum goal is $1.79 EPS at which no bonus on account of
EPS is payable. On EPS between $2.78 and $1.79 the bonus will be appropriately
pro rated on a straight line basis.
2. Return on equity. The performance goal is an 18% average return
on common stockholders' equity (ROE) at which each Participant will receive his
or her maximum bonus. The maximum bonus on account of ROE is 37.5% of salary
for the Chief Executive Officer and 25% of salary for each of the other
Participants. The minimum goal is 12% ROE at which no bonus on account of ROE
is payable. On ROE between 18% and 12% the bonus will be appropriately pro
rated on a straight line basis. The average common stockholders' equity will
be determined using the methodology regularly employed by the Company in its
published reports.
IV. Terms:
A. This Plan is subject to the approval of the performance goals by
stockholders at the 1994 Annual Meeting of Stockholders.
B. Payment of bonuses will be made in cash after certification by the
Committee that the payments conform to the performance goals. The Committee
may defer the payment of all or a portion of any Participant's bonus.
Determinations by the Committee shall be final and binding on the Company and
the Participants.
C. Extraordinary Items: Extraordinary items are those items treated as
extraordinary in accordance with generally accepted accounting principles and,
to the extent consistent with Section 162(m) of the Internal Revenue Code of
1986, shall be eliminated in determining net income under this Plan.
D. The Committee may reduce or eliminate any bonus otherwise payable
hereunder for any one or more of the Participants.
E. To receive a bonus, a Participant must be an employee of the Company
or one of its subsidiaries, at the time bonuses are approved by the Committee.
EXHIBIT 10.17
STATE STREET BOSTON CORPORATION
1994 STOCK OPTION AND PERFORMANCE UNIT PLAN
1. PURPOSE
The purpose of the 1994 Stock Option and Performance Unit Plan (the "Plan")
is to advance the interests of State Street Boston Corporation and its
Subsidiaries (the "Company") and its stockholders by authorizing the grant of
Stock Options, Stock Appreciation Rights ("SARs") and Performance Units to
certain Officers of the Company, thereby providing them with an incentive to
devote their full abilities and industry to the success of the Company's
business. Both Options intended to qualify as incentive stock options (as
defined in Section 422(b) of the Internal Revenue Code of 1986, as amended (the
"Code")) ("Incentive Stock Options"), and Options not intended to so qualify
("Nonqualified Options") may be granted under the Plan.
2. UNITS SUBJECT TO THE PLAN
The number of shares of the Company's common stock, par value $1.00 per
share (the "Common Stock"), that may be issued under the Plan shall not exceed
three million five hundred thousand (3,500,000) shares, which is the number of
shares to be reserved for issuance under the Plan. The number of Performance
Units that may be issued under the Plan shall not exceed one million
(1,000,000). To the extent consistent with continued qualification of the Plan
under Section 422 of the Code and the performance-based remuneration provisions
of Section 162(m) of the Code and the regulations thereunder, if any Option
granted under the Plan shall terminate for any reason without having been
exercised in full, the balance of the shares theretofore subject thereto shall
again be available for the purposes of the Plan, except that such shares shall
not be so available whenever such Option has been surrendered as a result of
the exercise of a related SAR. To the extent consistent with qualification of
the Plan under the performance based remuneration provisions of Section 162(m)
of the Code and the regulations thereunder, if payment is not made for any
reason with respect to any Performance Units, the shares theretofore subject to
the performance shall again be available for the purposes of the Plan. The
number of shares of Common Stock and Performance Units is subject to adjustment
in accordance with Paragraph 10.
3. ADMINISTRATION
A. The Committee. The Plan shall be administered by the Executive
Compensation Committee of the Board of Directors of the Company (the
"Committee"). The Committee shall be composed solely of three or more members
of the Board of Directors who are "outside directors" under Section
162(m)(4)(C)(i) of the Code, and who are disinterested persons within the
meaning of Rule 16b-3 of the Exchange Act.
B. Committee Authority. Subject to the express provisions of the Plan,
the Committee shall have the authority, in its discretion, to grant Options and
SARs to Officers of the Company, to determine the number of shares covered by
each such Option, to identify whether such Option is intended to qualify as an
Incentive Stock Option, to determine the number of SARs and Performance Units
to be granted, and to determine the terms of each such grant. In making such
determinations, the Committee shall take into account the nature of the
services rendered by the respective Officers, their present and potential
contributions to the Company's success and such other factors as the Committee
in its discretion shall deem relevant. Subject to the express provisions of
the Plan, the Committee shall also have authority to interpret the Plan, to
prescribe, amend and rescind rules and regulations relating to its
administration, to determine the terms and provisions of the respective
granting agreements or other documents (which need not be identical in respect
of each Officer) and to make all other determinations necessary or advisable
for the administration of the Plan. The "non-Officer Directors" of the Board
of Directors shall approve all grants (and the terms thereof) to Officers who
are directors of the Company upon recommendation of the Committee. For
purposes of the Plan, a Director is a non-Officer Director if he or she is both
an "outside director" within the meaning of Code Section 162(m)(4)(C)(i) and a
"disinterested person" within the meaning of Rule 16b-3 of the Exchange Act.
4. ELIGIBILITY AND LIMITATIONS
Individuals eligible to receive awards under this Plan shall be such
salaried officers as the Committee shall determine are in positions to
contribute importantly to the success of the Company ("Officers"). No Officer
shall be entitled to grants of (a) Options (including related SARs), whether or
not exercised, in excess of an aggregate of five hundred thousand (500,000)
shares over the term of the Plan, or (b) Performance Units intended to qualify
for the performance-based exception to Section 162(m) of the Code in excess of
an aggregate of two hundred fifty thousand (250,000) units over the term of the
Plan, subject in each case to the provisions of Paragraph 10.
5. STOCK OPTIONS
A. Option Price. The purchase price of the Common Stock under each Option
shall be determined by the Committee, but shall be not less than the Fair
Market Value as of the date of the grant of the Option.
B. Exercise of Option. Subject to Paragraphs 8 and 14 hereof, an Option
granted under the Plan shall become exercisable in whole or in part not less
than one year after the date of grant and thereafter may be exercised in whole
or in part at any time before it terminates according to the terms of the
Option or under the provisions of the Plan. The Committee may, in its
discretion, provide in the Option agreement for exercise in specific
installments after the end of one year from the date of grant. In no case may
an Option be exercised as to less than 50 shares at any one time, except when
the number of remaining shares it covers is less than 50. The Committee shall
be authorized to establish the manner and the effective date of the exercise of
an Option. During an Optionee's lifetime, an Option may be exercised only by
the Optionee or the Optionee's guardian or legal representative.
C. Forms of Payment. In lieu of a cash payment to exercise an Option in
whole or in part, an Optionee may tender shares of the Common Stock of the
Company held for at least six months (or such other period as the Committee may
approve) with a Fair Market Value equal to the exercise price of the Option
being exercised. Unless the Committee determines otherwise, payment for any
shares subject to an Option may also be made by delivering a properly executed
exercise notice to the Company, together with a copy of irrevocable
instructions to a broker to deliver promptly to the Company the amount of sale
or loan proceeds to pay the purchase price, and, if required, the amount of any
federal, state, local or foreign withholding taxes. To facilitate the
foregoing, the Company may enter into agreements for coordinated procedures
with one or more brokerage firms.
D. Termination of Option. No Option may be exercised to any extent after
the Option terminates in any of the following ways:
1. Each Option shall terminate upon exercise of such Option or
related SAR in the manner provided in the Plan.
2. Each Option shall terminate on the date to be determined by the
Committee, which shall in no event be later than 10 years from the date of the
Option grant.
3. Unless otherwise provided by the Committee, if an Officer's
employment terminates by reason of death, disability (as determined by the
Company), or retirement at or after the normal or early retirement age under
any retirement plan or supplemental retirement agreement maintained by the
Company or any Subsidiary prior to exercise, expiration, surrender or
cancellation of the Option or any related SAR, the Option and the related SAR
shall remain exercisable after the date of such termination of employment in
accordance with the applicable Option agreement whether or not such Option was
exercisable at the time of such termination, and the Option or the related SAR
may be exercised by the Officer or the person or persons to whom the Officer's
rights shall pass by will or by the applicable laws of descent or distribution
at such time and to the same extent that the Option or related SAR would have
been exercisable had the Officer's employment not terminated; provided,
however, that, unless otherwise provided, the Option shall terminate on the
later of (i) one (1) year after the Option first becomes exercisable (if the
Option is exercisable in one installment) and one (1) year after the last
installment first becomes exercisable (if the Option is exercisable in more
than one installment), and (ii) one (1) year after the termination of
employment.
Unless otherwise determined by the Committee, if an Officer's
employment terminates for any reason other than death, disability (as
determined by the Company) or retirement prior to exercise, expiration,
surrender or cancellation of the Option or the related SAR, (i) each such
Option and related SAR not then exercisable shall terminate, (ii) each Option
and the related SAR that is exercisable on the date of termination of
employment shall terminate three (3) months from the date of such termination
of employment, and (iii) if the Officer dies within the three-month period
described in (ii), the Option and the related SAR shall expire one (1) year
after the date of the Officer's termination, during which period the Option or
the SAR may be exercised at any time by the person or persons to whom the
Officer's rights shall pass by will or by the applicable laws of descent or
distribution, but only to the extent it was exercisable on the date of such
termination. In no event, however, may the provisions of this Paragraph 5D(3)
cause an Option or related SAR to be exercised after the expiration date set
out in the applicable Option or SAR agreement.
6. STOCK APPRECIATION RIGHTS
A. Grant of SARs. SARs may be granted under the Plan upon such terms and
conditions as the Committee may prescribe, provided that a SAR may be granted
only in connection with an Option granted under the Plan. The holder of a SAR
shall have a right to receive the Spread on the date on which the SAR is
exercised.
B. Exercise of SARs.
1. SARs shall be exercisable at such time or times as may be
determined by the Committee and, in each case, at such time as the related
Option is exercisable, provided that a SAR shall not be exercisable prior to
the time the related Option could be exercised.
2. During an Officer's lifetime, a SAR may be exercised only by the
Officer or the Officer's guardian or legal representative and only upon
surrender of the related Option. Shares covered by such surrendered Options
shall not be available for granting further Options under the Plan.
3. The Committee may impose other conditions upon the exercise of a
SAR, including but not limited to a condition that the SAR may be exercised
only in accordance with the rules and regulations adopted by the Committee from
time to time. Such rules and regulations may govern the right to exercise SARs
granted prior to the adoption or amendment of such rules and regulations as
well as SARs granted thereafter. Without limiting the foregoing, the Committee
may specify that SARs may be exercised by the holder or may be exercised
automatically by the occurrence of an event, by the passage of time, or in any
other way.
C. Forms of Payment for SARs. Upon the exercise of a SAR and the
surrender of the related Option, the Company shall give to the person
exercising such SAR an amount equivalent to the Spread in cash, in shares of
the Company's Common Stock, or in a combination thereof, as the Committee shall
determine. Determination as to form of payment may be made at the time of
granting the SAR, or any time thereafter, and may be changed from time to time.
D. Limitation on Payments for SARs. Subject to Paragraph 6C above, the
Committee may from time to time recommend, subject to Board approval, the
maximum amount of cash or stock which may be given upon exercise of SARs in any
year. Any such limitation on payments may be changed by the Committee from
time to time with the approval of the non-Officer Directors of the Board
provided that no such change shall require the holder to return to the Company
any amount theretofore received upon the exercise of SARs.
E. Termination of SARs. Unless otherwise terminated by the Committee, a
SAR will terminate upon the termination of the related Option.
F. Amendment, Suspension or Termination of SARs by the Board. Prior to or
other than directly in connection with a Change of Control, the non-Officer
Directors of the Board may at any time amend, suspend or terminate any SARs
theretofore granted under the Plan, provided that the terms of any SAR after
any amendment shall conform to the provisions of the Plan.
7. PERFORMANCE UNITS
A. Grant of Performance Units. Performance Units may be granted by the
Company under the Plan to Officers upon such terms and conditions as the
Committee may determine consistent with this Paragraph 7. With respect to each
grant of Performance Units, the Committee shall establish in accordance with
Code Section 162(m), if applicable, the following:
1. The total number of Performance Units an Officer shall have the
right to earn during the Performance Period. The maximum number of Performance
Units that may be granted to any Officer in any grant intended to qualify for
the performance-based exception to Section 162(m) with respect to any
Performance Period shall, subject to the provisions of Paragraph 10, not exceed
two hundred fifty thousand (250,000), which is the total number of Performance
Units available to him or her over the term of the Plan, and in no event shall
the total number of Performance Units awarded to all Officers exceed the
aggregate number of Performance Units available under Paragraph 2.
2. The commencement date and the duration of a Performance Period.
Except as otherwise provided by the Committee, the Performance Period shall be
two fiscal years, and the last day of the second fiscal year of any Performance
Period shall be the Maturity Date. In no case, however, shall a Performance
Period be shorter than one fiscal year or longer than five fiscal years.
3. Performance Factors and Targets. An Officer will earn Performance
Units based on the Company's performance during the Performance Period.
Performance shall be measured based on one or more of the following Factors:
(a) return on equity, (b) earnings per share, and (c) the Company's total
shareholder return during the Performance Period compared to the total
shareholder return of a market reference (e.g., the Standard & Poors 500, the
Standard & Poors Financial Index). In connection with the grant of Performance
Units, the Committee shall establish in writing specific Performance Targets in
respect of each Factor; the relative weight to be accorded achievement of each
Performance Target, and the market reference that will be used for purposes of
(c) above. To the extent consistent with Section 162(m), the Committee may
provide in the terms of an award that return on equity and earnings per share
be adjusted in order to eliminate the effect of extraordinary items.
Extraordinary items are those items treated as extraordinary in accordance with
generally accepted accounting principles.
B. Value of Performance Units. The value of one Performance Unit at
Maturity Date shall be equal in value to the Fair Market Value of one share of
Common Stock at said time, subject to any maximum value specified at the time
of the grant.
C. Form of Payment for Performance Units. Payment for Performance Units
shall be made in cash equal to the Fair Market Value of a share of Common Stock
after certification by the Committee consistent with Section 162(m) of the Code
that the payment conforms to the Performance Targets and any other material
terms of the grant. At the discretion of the Committee, payment for
Performance Units may be made in a lump sum or in installments. Upon the
election of the Officer, made prior to January 1 of the year in which the
Maturity Date occurs, payment for Performance Units may be deferred upon such
terms and conditions as the Committee may prescribe. Amounts deferred at the
discretion of the Committee or in accordance with an election by an Officer
shall earn interest annually at a rate equal to the effective yield to maturity
on the 360-day Treasury bills with an issue date initially closest to the March
31st following the Maturity Date and with issue dates closest to March 31 of
each succeeding year. In no event, however, shall the interest payable with
respect to deferred Performance Unit payments be greater than the maximum
interest rate, if any, permitted by Section 162(m) of the Code, the regulations
thereunder or interpretations thereof.
D. Termination of Performance Units. Except as provided in Paragraph 7C
or in Paragraph 14, in the event that, prior to the end of the relevant
Performance Period, the employment of an Officer holding Performance Units
terminates for any reason, the Performance Units held by him or her shall be
forfeited in their entirety, except that such Performance Units may be paid in
whole or in part to such former employee or the person or persons to whom his
or her rights under the Performance Units shall pass by will or by the
applicable laws of descent and distribution, but only when, if and to the
extent that the Committee shall so determine, consistent with Section 162(m) of
the Code, if applicable; provided, however, that any payment for such
Performance Units, as so determined, may be adjusted to take into account the
time between the date the Officer's employment so terminated and the end of the
Performance Period.
8. ACCELERATION AND CANCELLATION
With respect to any Option or SAR that has been outstanding for at least
six months, the Committee may, subject to the approval of the non-Officer
Directors of the Board, but not without the consent of the Officer, (a)
authorize the acceleration of any Option or SAR, and (b) authorize the
cancellation of all or any portion of an Officer's Option (whether or not the
Option is then exercisable) and the payment to such Officer of the Spread
determined on the date of cancellation, such payment to be made in shares of
the Company's Common Stock valued at the Fair Market Value.
9. USE OF PROCEEDS
Proceeds from the sale of stock pursuant to Options granted under the Plan
shall constitute general funds of the Company.
10. ADJUSTMENTS UPON CHANGES IN STOCK
In the event the outstanding shares of Common Stock shall be changed into
or exchanged for any other class or series of capital stock or cash, securities
or other property pursuant to a recapitalization, reclassification, merger,
consolidation, combination or similar transaction, then each Option shall
thereafter become exercisable and each Performance Unit adjusted for the number
and/or kind of capital stock and/or the amount of cash, securities or other
property so distributed, into which the shares of Common Stock subject to the
Option would have been changed or exchanged had the Option been exercised, or
the payment for the Performance Unit would have been made, in full prior to
such transaction, provided that, if the kind or amount of capital stock or
cash, securities or other property received in such transaction is not the same
for each outstanding share of Common Stock, then the kind or amount of capital
stock or cash, securities or other property for which the Option shall
thereafter become exercisable shall be the kind and amount so receivable per
share by a plurality of the shares of Common Stock, and provided further that
if necessary, the provisions of the Option or Performance Unit shall be
appropriately adjusted so as to be applicable, as nearly as may be, to any
shares of capital stock, cash, securities or other property thereafter issuable
or deliverable upon exercise of the Option or payment of the Performance Unit.
Appropriate adjustments shall also be made in the terms of SARs to reflect such
changes and to modify any other terms of outstanding Performance Units on an
equitable basis, including modifications of Performance Targets and changes in
the length of Performance Periods.
11. NON-TRANSFERABILITY
Unless otherwise provided by the Committee, Options, SARs or Performance
Units granted under the Plan may not be transferred except by will or the laws
of descent and distribution.
12. CONDITIONS OF GRANTS
In the event that the employment of an employee holding any unexercised
Option or SAR or any unearned Performance Units shall terminate, the rights of
such employee to such Options, SARs or Performance Units shall be subject to
the conditions that until any such Option or SAR is exercised or any such
Performance Unit is earned, he or she shall (a) not engage, either directly or
indirectly, in any manner or capacity as advisor, principal, agent, partner,
officer, director, employee, member of any association, or otherwise, in any
business or activity which is at the time competitive with any business or
activity conducted by the Company or any of its direct or indirect
subsidiaries, and (b) be available, unless the participant shall have died, at
reasonable times for consultations at the request of the Company's management
with respect to phases of the business with which the participant was actively
connected during his or her employment. In the event that either of the above
conditions is not fulfilled, the individual shall forfeit all rights to any
unexercised Option or SAR or any unearned Performance Unit held as of the date
of the breach of condition. Any determination by the Board of Directors that
an individual is, or has, engaged in a competitive business or activity as
aforesaid or has not been available for consultations as aforesaid shall be
conclusive. Notwithstanding anything herein to the contrary, this Paragraph 12
shall be inapplicable following a Change of Control.
<PAGE>
13. NO LOANS TO HOLDERS OF OPTIONS
The Company may not directly or indirectly lend money to any individual for
the purpose of assisting such individual to acquire or carry shares of Common
Stock issued upon the exercise of Options granted under the Plan.
14. CHANGE OF CONTROL PROVISIONS
A. Impact of Event. Notwithstanding any other provision of the Plan to
the contrary, in the event of a Change of Control:
1. Acceleration of Options and SARs. Any Options and SARs
outstanding as of the date such Change of Control is determined to have
occurred, held by Optionees subject to Section 16 of the Exchange Act and
Optionees who are parties to termination agreements with the Company, and which
are not then exercisable shall become exercisable to the full extent of the
original grant. Holders of Performance Units granted hereunder as to which the
relevant Performance Period has not ended as of the date such Change of Control
is determined to have occurred who are subject to Section 16 of the Exchange
Act and holders who are parties to termination agreements with the Company
shall be entitled at the time of such Change of Control to receive a cash
payment per Performance Unit equal to the Fair Market Value of a share of the
Company's Common Stock in the manner provided herein, on a pro rata basis, as
measured by (a) the Company's performance against the Performance Target(s) in
effect with respect to such Performance Unit awards as are outstanding at the
time of the Change of Control and (b) the time elapsed over the Performance
Period.
2. Optional Cash-Out. During the 60-day period from and after a
Change of Control, with respect to an Option that is unaccompanied by a SAR, an
Optionee subject to Section 16 of the Exchange Act shall, unless the Committee
shall determine otherwise at the time of grant, have the right, in lieu of the
payment of the full Option price of the shares of Common Stock being purchased
under the Option and by giving written notice to the Company in form
satisfactory to the Committee, to elect (within such 60-day period) to
surrender all or part of the Option to the Company and to receive in cash an
amount equal to the Spread on the date of exercise multiplied by the number of
shares of Common Stock granted under the Option as to which the right granted
by this Paragraph 14A(2) shall have been exercised; provided, however, that if
the Change of Control is within six months of the date of grant of a particular
Option to an Optionee who is subject to Section 16 of the Exchange Act no such
election shall be made by such Optionee with respect to such Option prior to
six months from the date of grant. However, if the end of such 60-day period
from and after a Change in Control is within six months of the date of grant of
an Option held by an Optionee who is subject to Section 16 of the Exchange Act
and the Optionee so elects, such Option shall be cancelled in exchange for a
cash payment to the Optionee, effected on the day which is six months and one
day after the date of grant of such Option, as the case may be, equal to the
Spread multiplied by the number of shares of Common Stock granted under the
Option.
3. Requirement of Cash Settlement. A SAR related to an Option that
does not qualify as an Incentive Stock Option which is exercised during the
60-day period from and after a Change of Control (i) held by an Optionee
subject to Section 16 of the Exchange Act and which was granted at least six
months prior to the date of exercise pursuant hereto, or (ii) held by an
Optionee who is not subject to Section 16 of the Exchange Act shall be settled
solely for cash at the Spread.
4. Restriction on Application of Plan Provisions Applicable in the
Event of Termination of Employment. After a Change of Control, Options and
SARs shall remain exercisable following a termination of employment other than
by reason of death, disability (as determined by the Company) or retirement for
seven (7) months following such termination or until expiration of the original
terms of the Option or SAR, whichever period is shorter.
5. Restriction on Amendment. In connection with or following a
Change of Control, neither the Committee nor the Board may impose additional
conditions upon exercise or otherwise amend or restrict an Option, SAR or
Performance Unit, or amend the terms of the Plan in any manner adverse to the
holder thereof, without the written consent of such holder.
Notwithstanding the foregoing, if any right granted pursuant to this
Paragraph 14A would make a Change of Control transaction ineligible for pooling
of interests accounting under applicable accounting principles that but for
this Paragraph 14A would otherwise be eligible for such accounting treatment,
the Committee shall have the authority to substitute stock for the cash which
would otherwise be payable pursuant to this Paragraph 14A having a Fair Market
Value equal to such cash.
B. Definition of Change of Control. For purposes of the Plan, a "Change
of Control" shall mean the happening of any of the following events:
1. An acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 20% or more of either (x) the then outstanding shares of
common stock of the Company (the "Outstanding Company Common Stock") or (y) the
combined voting power of the then outstanding voting securities of the Company
entitled to vote generally in the election of directors (the "Outstanding
Company Voting Securities"); excluding, however, the following acquisitions of
Outstanding Company Common Stock and Outstanding Company Voting Securities:
(i) any acquisition directly from the Company, (ii) any acquisition by the
Company, (iii) any acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any corporation controlled by the
Company or (iv) any acquisition by any Person pursuant to a transaction which
complies with clauses (i), (ii) and (iii) of subsection (3) of this Paragraph
14B; or
2. Individuals who, as of the effective date of the Plan, constitute
the Board (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual who becomes a
member of the Board subsequent to such effective date, whose election, or
nomination for election by the Company's stockholders, was approved by a vote
of at least a majority of directors then comprising the Incumbent Board shall
be considered as though such individual were a member of the Incumbent Board;
but, provided further, that any such individual whose initial assumption of
office occurs as a result of either an actual or threatened election contest
(as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act) or other actual or threatened solicitation of proxies or consents
by or on behalf of a Person other than the Board shall not be so considered as
a member of the Incumbent Board; or
3. Consummation by the Company of a reorganization, merger or
consolidation or sale or other disposition of all or substantially all of the
assets of the Company ("Business Combination"); excluding, however, such a
Business Combination pursuant to which (i) all or substantially all of the
individuals and entities who are the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities
immediately prior to such Business Combination own, directly or indirectly,
more than 60% of, respectively, the outstanding shares of common stock, and the
combined voting power of the then outstanding voting securities entitled to
vote generally in the election of directors, as the case may be, of the
corporation resulting from such Business Combination (including, without
limitation, a corporation which as a result of such transaction owns the
Company or all or substantially all of the Company's assets either directly or
through one or more subsidiaries) in substantially the same proportions as
their ownership, immediately prior to such Business Combination, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities, as
the case may be, (ii) no Person (other than any employee benefit plan (or
related trust) sponsored or maintained by the Company or any corporation
controlled by the Company or such corporation resulting from such Business
Combination) will beneficially own, directly or indirectly, 20% or more of,
respectively, the outstanding shares of common stock of the corporation
resulting from such Business Combination or the combined voting power of the
outstanding voting securities of such corporation entitled to vote generally in
the election of directors except to the extent that such ownership existed with
respect to the Company prior to the Business Combination and (iii) at least a
majority of the members of the board of directors of the corporation resulting
from such Business Combination were members of the Incumbent Board at the time
of the execution of the initial agreement, or of the action of the Board,
providing for such Business Combination; or
4. The approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
C. Fair Market Value; Spread. Notwithstanding any provision herein to the
contrary, during the 60-day period from and after a Change of Control, "Fair
Market Value" for purposes of (i) a SAR which is related to an Option that does
not qualify as an Incentive Stock Option, (ii) a Performance Unit, or (iii)
determinations under Paragraph 14A shall mean the higher of (A) the highest
average of the reported daily high and low prices (as quoted in The Wall Street
Journal or if The Wall Street Journal shall no longer publish such quotes, a
newspaper having a national circulation) per share of the Common Stock during
the 60-day period prior to the first date of actual knowledge by the Board of
Directors of the Company of a Change of Control and (B) if the Change of
Control is the result of a transaction or series of transactions described in
Paragraph 14B(1) or (3), the highest price per share of the Common Stock paid
in such transaction or series of transactions (which in the case of Paragraph
14B(1) shall be the highest price per share of the Common Stock as reflected in
a Schedule 13D filed by the person having made the acquisition); provided,
however, that with respect to an Optionee who is subject to Section 16 of the
Exchange Act, if the Change in Control is within 240 days of the date of grant
of an Option or SAR, then the Fair Market Value shall be in all cases the Fair
Market Value of the Common Stock determined on the date such Option or SAR is
exercised without regard to this Paragraph 14C.
For purposes of the Plan during the 60-day period from and after a Change
of Control, "Spread" means, with respect to a share of Common Stock, the excess
of the Fair Market Value as defined in this Paragraph 14C over the Option
exercise price.
15. AMENDMENT, SUSPENSION AND TERMINATION OF PLAN
The Board of Directors may at any time suspend or terminate the Plan and
may amend it from time to time in such respects as the Board may deem advisable
in order that Options, SARs and Performance Units granted thereunder shall
conform to any change in, or interpretation of, applicable laws or regulations,
or in any other respect the Board may deem to be in the best interests of the
Company; provided, however, that no such amendment shall, without stockholder
approval either before or after Board action (i) effectuate any change
inconsistent with the qualification of awards as performance-based under Code
Section 162(m) (unless the Committee determines that awards affected by such
changes are not intended to qualify for the performance-based exception to
Section 162(m) of the Code) or (ii) effectuate any other change for which
stockholder approval is required in order for the Plan to continue to qualify
for the award of Incentive Stock Options under Section 422 of the Code and to
continue to qualify under Rule 16b-3 promulgated under Section 16 of the
Exchange Act. Unless the Plan shall theretofore have been terminated by the
Board of Directors, no awards may be granted under the Plan after April 30,
1999 and provided, further, that in connection with or following a Change of
Control the Board of Directors may not suspend or terminate the Plan or amend
the Plan in any manner adverse to the holder of an Option, SAR or Performance
Unit hereunder without the written consent of such holder. Awards granted
prior to that time may extend beyond that date according to Plan provisions and
award terms. No Option, SAR or Performance Unit may be granted during any
suspension or after termination of the Plan. No amendment, suspension or
termination of the Plan shall, without the Optionee's consent, adversely affect
the rights or obligations under any Option theretofore granted to him or her
under the Plan. Except as provided above in Paragraph 14 and this Paragraph
15, any rights or obligations with respect to SARs or to Performance Units may
be suspended or terminated, and rights or obligations with respect to SARs may
be altered, without the consent of the holder.
16. DEFINITIONS AND OTHER GENERAL PROVISIONS
A. Board of Directors. The term "Board of Directors" or "Board" means
the Board of Directors of State Street Boston Corporation.
B. Exchange Act. The term "Exchange Act" shall mean the Securities
Exchange Act of 1934, as amended, and the rules and regulations promulgated
thereunder.
C. Fair Market Value. For all periods other than during the 60-day
period from and after a Change of Control, the term "Fair Market Value", when
used in connection with Options and related SARs, means the value of a share of
Common Stock equal to the average of the high and low prices on the date of the
grant or the date of the exercise (whichever date is applicable), and when used
in connection with Performance Units, means the value of a share of Common
Stock equal to the average of the high and low prices on the ten trading days
preceding the commencement of the Performance Period or the Maturity Date of
the Performance Unit, or the value as determined by any other valuation method
the Committee may establish. During the 60-day period from or after a Change
of Control, "Fair Market Value" shall have the meaning specified in Paragraph
14.
D. Option. The term "Option" means the right to purchase a share of the
Company's Common Stock under the Plan.
E. Person. "Person" shall mean any individual, group, corporation,
partnership, company or other entity.
F. Spread. For all periods other than during the 60-day period from and
after a Change of Control, the term "Spread" means the excess of the Fair
Market Value of a share of the Company's Common Stock over the option exercise
price specified in the related Option. During the 60-day period from or after
a Change of Control, "Spread" shall have the meaning specified in Paragraph 14.
G. Subsidiary. The term "Subsidiary" shall mean any corporation,
domestic or foreign other than the Company, of which 50% or more of the total
combined voting power of all classes of stock is held by the Company or a
subsidiary or subsidiaries thereof.
H. Shares to be Delivered. The Common Stock issued under the Plan may
consist either in whole or in part of shares of the Company's authorized but
unissued Common Stock or shares of the Company's authorized and issued Common
Stock reacquired by the Company and held in its treasury. No fractional shares
of Common Stock shall be issued, and the Committee shall determine whether cash
shall be given in lieu of such fractional shares or whether and how such
fractional shares shall be eliminated.
I. Employment. Options granted under the Plan shall not be affected by
any change of employment so long as the holder continues to be an eligible
employee of the Company. The Option agreements may contain such provisions as
the Committee shall approve with reference to the effect of approved leaves of
absence. Nothing in the Plan or in any grant pursuant to the Plan shall confer
on any individual any right to continue in the employ of the Company or
interfere in any way with the right of the Company to terminate the holder's
employment at any time.
J. Grants. Nothing contained in the Plan or in any resolution adopted by
the Board of Directors, the Committee, or any other committee of the Board, or
the holders of Common Stock of the Company or any action, except the specific
granting of Options, SARs or Performance Units, shall constitute the granting
of any award under the Plan. The granting of an award pursuant to the Plan
shall take place as recommended by the Committee and approved by the
non-Officer Directors of the Board with respect to Officers who are directors
and by the Committee with respect to other Officers. Awards will be evidenced
by written instruments. Such instruments may be in the form of agreements to
be executed by both the Officer and the Company, or certificates, letters or
similar instruments, which need not be executed by the Officer but acceptance
of which will evidence agreement to the terms thereof.
K. Rights as a Stockholder. The holder of an Option or a SAR or a person
granted Performance Units shall have none of the rights of a stockholder with
respect to the related stock until such stock has been issued to the holder.
L. Withholding. The Company will withhold from any cash payment made
pursuant to an award an amount sufficient to satisfy all federal, state and
local withholding tax requirements. In the case of an award pursuant to which
Common Stock may be delivered, the Committee will have the right to require
that the Officer or other appropriate person remit to the Company an amount
sufficient to satisfy the withholding requirements, or make other arrangements
satisfactory to the Committee with regard to such requirements, prior to the
delivery of any Common Stock. If and to the extent that such withholding is
required, the Committee may permit the Officer or such other person to elect at
such time and in such manner as the Committee provides to have the Company hold
back from the shares to be delivered, or to deliver to the Company, Common
Stock having a value, taken at Fair Market Value, calculated to satisfy the
withholding requirement.
If at any time an Incentive Stock Option is exercised the Committee
determines that the Company could be liable for withholding requirements with
respect to a disposition of the Common Stock received upon exercise, the
Committee may require as a condition of exercise that the person exercising the
Incentive Stock Option agree (i) to inform the Company promptly of any
disposition (within the meaning of Section 424(c) of the Code) of Common Stock
received upon exercise, and (ii) to give such security as the Committee deems
adequate to meet the potential liability of the Company for the withholding
requirements and to augment such security from time to time in any amount
reasonably deemed necessary by the Committee to preserve the adequacy of such
security.
M. Other Plans. The adoption of the Plan shall not preclude the adoption
by appropriate means of any other stock option or other incentive plan for
employees.
17. EMPLOYEES ABROAD
Options granted hereunder to Officers of the Company, or a Subsidiary, who
reside outside the United States shall, at the discretion of the Committee, be
subject to such additional terms and conditions as may be necessary or
appropriate to qualify as an approved share option under the applicable laws
and regulations of the country of residence.
18. EFFECTIVENESS OF THE PLAN
The effective date of the Plan is December 16, 1993, the date of its
adoption by the full Board subject to stockholder approval within 12 months
after approval by the Board. Options, SARs and Performance Units may be
granted prior to stockholder approval of the Plan but subject to such approval.
If stockholder approval of the Plan is not obtained within said period the
Plan shall terminate and any Options, SARs and Performance Units granted shall
be null and void.
EXHIBIT 11.1
<TABLE>
STATE STREET BOSTON CORPORATION
COMPUTATION OF EARNINGS PER SHARE
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------------------------
1993 1992 1991
---- ---- ----
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Primary:
Average shares outstanding .............. 75,443,604 74,761,232 73,649,678
Common stock equivalents ................ 749,560 1,474,069 1,319,808
----------- ---------- ----------
Primary shares outstanding .......... 76,193,164 76,235,301 74,969,486
----------- ---------- ----------
----------- ---------- ----------
Net income .............................. $179,829 $160,443 $139,270
------- ------- -------
------- ------- -------
Earnings Per Share - primary ............ $ 2.36 $ 2.10 $ 1.86
------- ------- -------
------- ------- -------
Fully diluted:
Average shares outstanding .............. 75,443,604 74,761,232 73,649,678
Common stock equivalents ................ 749,560 1,738,055 1,798,392
Assumed conversion of 5% convertible
notes ................................. 41,259 41,323 41,323
Assumed conversion of 734% convertible
subordinated debentures ............... 942,079 1,157,163 1,626,582
----------- ---------- ----------
Fully diluted average shares
outstanding ....................... 77,176,502 77,697,773 77,115,975
----------- ---------- ----------
----------- ---------- ----------
Net income .............................. $179,829 $160,443 $139,270
Elimination of interest on 5% convertible
notes and 734% convertible subordinated
debentures less related income tax
benefit ............................... 214 296 399
------- ------- -------
Fully diluted net income ............ $180,043 $160,739 $139,669
------- ------- -------
------- ------- -------
Earnings Per Share - fully diluted ...... $ 2.33 $ 2.07 $ 1.81
------- ------- -------
------- ------- -------
</TABLE>
EXHIBIT 12.1
<TABLE>
RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN THOUSANDS)
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------
1993 1992 1991 1990 1989
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
(A) Excluding interest on
deposits:
Earnings:
Income before income taxes $278,887 $256,903 $225,125 $183,460 $163,480
Fixed charges .......... 182,061 186,877 181,160 236,176 224,488
------- ------- ------- ------- -------
Earnings as adjusted ..... $460,948 $443,780 $406,285 $419,636 $387,968
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Income before income taxes:
Pretax income from
continuing operations as
reported ............... $277,455 $256,561 $225,088 $183,460 $163,195
Share of pretax income
(loss) of 50% owned
subsidiary not included
in above ............... 1,432 342 37 -- 285
------- ------- ------- ------- -------
Net income as
adjusted .......... $278,887 $256,903 $225,125 $183,460 $163,480
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Fixed charges:
Interest on other
borrowings ............. $168,423 $169,905 $164,244 $222,553 $210,751
Interest on long-term debt
including amortization
of debt issue costs .... 10,022 13,324 13,238 9,918 10,008
Portion of rents
representative of the
interest factor in long
term lease ............. 3,616 3,648 3,678 3,705 3,729
------- ------- ------- ------- -------
Fixed charges ...... $182,061 $186,877 $181,160 $236,176 $224,488
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Ratio of earnings to fixed
charges .................. 2.53x 2.37x 2.24x 1.78x 1.73x
(B) Including interest on deposits:
Adjusted earnings from (A)
above .................... $460,948 $443,780 $406,285 $419,636 $387,968
Add interest on deposits ... 202,810 248,851 286,751 314,190 210,590
------- ------- ------- ------- -------
Earnings as adjusted ....... $663,758 $692,631 $693,036 $733,826 $598,558
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Fixed charges:
Fixed charges from (A)
above .................. $182,061 $186,877 $181,160 $236,176 $224,488
Interest on deposits ..... 202,810 248,851 286,751 314,190 210,590
------- ------- ------- ------- -------
Adjusted fixed charges ..... $384,871 $435,728 $467,911 $550,366 $435,078
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Adjusted earnings to
adjusted fixed charges ... 1.72x 1.59x 1.48x 1.33x 1.38x
</TABLE>
EXHIBIT 13.1
FIVE YEAR SELECTED FINANCIAL DATA
<TABLE>
S E L E C T E D F I N A N C I A L D A T A
State Street Boston Corporation
<CAPTION>
Compound
(Dollars in millions, Growth Rate
except per share data) 1993 1992 1991 1990 1989 1988 88-93
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS (1)<F1>
Fee revenue ...................... $ 833.4 $ 702.9 $ 563.9 $ 502.9 $ 443.6 $ 397.5 16%
Gain on sale of credit card loan
portfolio (1)<F1> ............... 56.2
Interest revenue - taxable
equivalent....................... 719.2 728.0 756.5 838.3 663.8 515.4 7
Interest expense ................. 381.3 432.1 464.2 546.7 431.3 299.7 5
Net interest revenue - taxable
equivalent....................... 337.9 295.9 292.3 291.6 232.5 215.7 9
Provision for loan losses ........ 11.3 12.2 60.0 45.7 19.4 15.6 (6)
Total revenue ................... 1,160.0 986.6 852.4 748.8 656.7 597.6 14
Operating expenses ............... 862.3 716.4 608.5 544.6 478.0 437.0 15
Income before income taxes on
a taxable equivalent basis .. 297.7 270.2 243.9 204.2 178.7 160.6 13
Income taxes ................ 97.6 96.1 85.8 66.1 59.2 52.2
Taxable equivalent adjustment .... 20.3 13.7 18.8 20.8 15.5 16.1
Net Income ...................... $ 179.8 $ 160.4 $ 139.3 $ 117.3 $104.0 $ 92.3 14
PER SHARE (2)<F2>
Earnings (1):<F1>
Primary ......................... $ 2.36 $ 2.10 $ 1.86 $ 1.59 $ 1.42 $ 1.25 14
Fully diluted ................... 2.33 2.07 1.81 1.55 1.38 1.20 14
Cash dividends declared .......... .520 .445 .385 .340 .300 .260 15
Book value at year end ........... 14.56 12.70 10.97 9.51 8.29 7.22 15
Closing price .................... 37.50 43.75 32.13 17.44 19.63 13.25 23
ANNUAL AVERAGES
Interest-earning assets .......... $ 16,222 $13,854 $10,131 $ 8,947 $6,953 $6,144 21
Total assets ..................... 18,169 15,502 11,574 10,233 8,089 7,246 20
Noninterest-bearing deposits ..... 3,623 2,952 2,460 2,301 2,218 2,101 12
Long-term debt ................... 122 146 146 114 117 124 --
Stockholders' equity ............. 1,033 887 773 647 555 494 l6
RATIOS
Return on equity ................. 17.4% 18.1% 18.0% 18.1% 18.7% 18.7%
Return on assets ................. .99 1.03 1.20 1.15 1.29 1.27
Total risk-based capital ......... 12.7 14.6 16.4 15.1 15.3 15.7
Internal capital generation rate . 13.6 14.3 14.3 14.3 14.9 14.9
Leverage ......................... 5.3 5.9 6.2 6.2 6.7 6.7
Employees at year end ............ 10,117 9,338 8,321 8,129 7,624 7,298 7
<FN>
- -------------
<F1>(1) Results for 1991 include a non-recurring gain on sale of the credit card loan portfolio, which
increased net income $32.6 million, equal to $.44 primary and $.43 fully diluted per share.
<F2>(2) Per share amounts for 1988 to 1991 have been restated to reflect a two-for-one stock split
distributed in 1992.
</TABLE>
EXHIBIT 13.2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS FOR THE 3 YEARS ENDED DECEMBER 31, 1993
F I N A N C I A L R E V I E W
State Street Boston Corporation
This section provides a discussion and analysis of State Street Boston
Corporation's consolidated results of operation for the three years ended
December 31, 1993, its financial condition at year-end 1993, and its approach
to risk management. It should be read in conjunction with the Financial
Statements and Supplemental Financial Data.
RESULTS OF OPERATIONS
SUMMARY
In 1993, earnings per share were $2.33 on a fully diluted basis, up $.26, or
13%, from $2.07 in 1992. Net income was $179.8 million, up from $160.4 million a
year ago. Return on stockholders' equity was 17.4%, compared with 18.1% in 1992.
In 1993, State Street continued to grow rapidly while increasing the level of
strategic spending.
The growth rate of total revenue was 18%, which was higher than the growth
rate in the last several years. Assets of current customers grew from
additional funding and market appreciation. State Street also attracted new
customers and provided additional services to existing customers. A high
customer retention rate and a broad, integrated product line serve as a base
for future revenue growth. The principal markets State Street serves are dynamic
and growing. In 1993, State Street benefitted particularly from the continued,
rapid growth of the mutual fund industry and from increased cross-border
investing by customers.
Total revenue grew $173.4 million to $1.2 billion, driven primarily by a $130.5
million, or 19%, increase in fee revenue. Total revenue is defined as fee
revenue plus taxable equivalent net interest revenue, less the provision for
loan losses.In 1993, fee revenue accounted for an increasing proportion of total
revenue, reaching 72%, among the highest percentages of major banking companies.
Fiduciary compensation, the largest component of fee revenue, was $627.8
million, up $82.4 million, or 15 %, and foreign exchange trading revenue was
$82.7 million, up $24.8 million, or 43%.
Taxable equivalent net interest revenue was $337.9 million, up $42.0 million,
or 14%, over 1992. Net interest revenue reflected the benefit of growth in the
balance sheet and a wider spread between interest rates earned and
paid, which were partially offset by the effect of lower asset yields.
Operating expenses were $862.3 million and grew $145.9 million, or 20%,
supporting growth and a higher level of strategic investment spending in
information technology, product and market development, and the core
processing infrastructure. Strategic investment spending equaled 10% of
revenue. In 1993, State Street increased its rate of spending on strategic
investments to strengthen its leadership position in the markets in which
it participates and to position it for future growth.
The increase in the U.S. corporate income tax rate for 1993 lowered reported
earnings per share for the year by $.03.
FEE REVENUE
In 1993, fee revenue was $833.4 million, up $130.5 million, or 19%, over 1992,
primarily from growth in fiduciary compensation.
The following table shows the categories of fee revenue:
<TABLE>
- ----------------------------------------------------------------------------------------------------------------
<CAPTION>
FEE REVENUE Compound
Growth
Change Rate
(Dollars in millions) 1993 1992 1991 1990 1989 1988 92-93 88-93
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fiduciary compensation........... $627.8 $545.4 $442.5 $381.3 $336.3 $292.8 15% 16%
Foreign exchange trading ........ 82.7 57.9 39.3 33.0 28.9 23.4 43 29
Processing service fees ......... 46.1 30.4 19.8 20.2 26.3 23.2 52 15
Service fees .................... 40.0 31.3 23.3 18.1 16.2 15.1 28 22
Securities gains (losses), net .. 15.4 12.3 3.3 .2 (3.9) 1.0 25 73
Bank card fees .................. 4.3 4.9 13.3 26.5 26.5 24.6 (12) (29)
Other............................ 17.1 20.7 22.4 23.6 13.3 17.4 (17) --
Total fee revenue......... $833.4 $702.9 $563.9 $502.9 $443.6 $397.5 19 16
</TABLE>
<PAGE>
FINANCIAL REVIEW
State Street Boston Corporation
FIDUCIARY COMPENSATION. The largest component of fee revenue, fiduciary
compensation, increased $82.4 million, or 15%, to $627.8 million in 1993.
Growth in fiduciary compensation in 1993 came from the growth of current
customers and their use of additional and more complex services. The
installation of new customers also added to revenue and serves as a base for
future growth. In 1993, pricing pressure on the basic custody and accounting
services for large pools of assets partially subsided. While State Street's
custody capabilities attract customers, less than 30% of fiduciary revenue is
derived from mutual funds for whom State Street provides only basic custody,
and custody and portfolio accounting for customers other than mutual funds.
Fiduciary compensation is derived from accounting, custody, information,
investment management and trusteeship services. The fee charged is negotiated
and is usually based on the volume of assets under custody or management, the
number of securities held, portfolio transactions, income collected and other
value-added services such as securities lending and pricing. Asset-based fees
are usually on a sliding scale; as the assets in a portfolio under management or
custody grow, due to market value changes or cash inflows, State Street's fee
may be a smaller percentage of those assets. Thus, changes in portfolio size do
not always have a corresponding impact on State Street's revenue.
State Street's revenue is becoming less sensitive to changes in prices of
securities because of the broadening range of services used by customers. A
decreasing percentage of total revenue is derived from asset-based fees.
If equity values worldwide were to increase or decrease 10%, State Street
estimates that this, by itself, would cause less than a 1% change
in total revenue. Similarly, if bond values were to change by 10%, less than a
1% change in total revenue is anticipated.
In addition to fiduciary revenue, certain financial asset services customers
generate other types of fee revenue, particularly foreign exchange trading
revenue, and net interest revenue. Noninterest-bearing deposits from these
customers comprise about 85% of total noninterest-bearing deposits available
for investment. These customers also invest substantial short-term funds with
State Street in the form of foreign deposits and other liabilities, particularly
repurchase agreements. Revenue from investing these deposits and funds is
reported as interest revenue.
MUTUAL FUNDS. State Street is the largest custodian of mutual funds in the
United States, servicing 37% of registered funds, and provides services to
offshore funds and in-country funds outside the United States. In 1993, over 40%
of the increase in fiduciary compensation came from servicing the explosive
growth in the mutual fund/collective investment fund industry worldwide.
Mutual fund assets serviced increased 22% to $683 billion, reflecting growth in
all types of funds except money market funds, as well as an increase in the
number of funds serviced. The total number of funds serviced increased 18%, from
1,818 at year-end 1992 to 2,140 in 1993. New funds, primarily from existing
customers, totaled 481, and were partially offset by transfers, mergers and
consolidations, and liquidations. The number of trades processed for mutual fund
portfolios increased 20%.
State Street's capabilities and offshore locations also enabled it to benefit
from increasingly complex global custody and accounting requirements.
International assets of U.S.-registered mutual funds more than doubled, the
number of mutual funds offering multiple classes of shares nearly doubled,
offshore funds serviced increased 60% to 192 and assets of offshore funds
increased 111% to $15.8 billion.
MASTER TRUST/MASTER CUSTODY/GLOBAL CUSTODY. State Street provides custody,
portfolio accounting, information and other related services for retirement and
other financial assets of corporations, public funds, endowments, foundations
and nuclear decommissioning trusts. In 1993, the growth in fiduciary
compensation from these services worldwide came primarily from custody and
portfolio accounting fees, particularly from global custody.
State Street is ranked as the largest servicer of tax-exempt assets for
corporations and public funds in the United States. In 1993, revenue growth came
from major new public fund customers and growth of corporate
pension funds currently serviced. Revenue grew rapidly from services
facilitating the investment of short-term cash of public funds.
Customers using financial asset services may elect to have State Street lend
their securities to generate revenue to improve total return. In 1993, total
securities on loan in this program increased substantially and the program was
expanded to include securities denominated in 16 currencies, but revenue from
securities lending declined due primarily to lower interest rate spreads.
State Street attracted substantial new custody and portfolio accounting
customers outside the United States. Current customers increased their assets,
and revenue increased from their use of additional services, including
securities lending, and performance measurement and analytics. These positive
factors were slightly offset by the redemption of U.S.-issued mortgage-backed
securities by Japanese investment trusts.
<PAGE>
FINANCIAL REVIEW
State Street Boston Corporation
INSTITUTIONAL ASSET MANAGEMENT. Revenue growth from the management of
institutional assets improved as 1993 progressed, with growth across the product
line and around the world. Total institutional assets managed increased to $136
billion, up $30 billion, or 28%, in 1993. In the United States, new customers
and additional allocations to State Street Global Advisors by existing customers
increased assets managed, utilizing both active and passive strategies.
The continued strong performance of a domestic, active strategy, Matrix Equity,
was an important factor in attracting new business. The significant turnaround
in 1993 of the performance of non-U.S. equity markets attracted funds to State
Street's international passive products. Money market products grew as well.
Revenue from non-U.S. offices increased substantially, due in part to investors
seeking to increase their investments in the United States. State Street Banque
in Paris won an award for having the best-performing family of SICAVs
(the equivalent of a mutual fund) in France, which attracted additional funds.
CORPORATE TRUST. Corporate trust revenue was up substantially from a year ago,
due primarily to new trusteeships from existing customers issuing asset-backed
securities, a security in which State Street specializes; corporate securities;
and municipal securities. Lower interest rates and the resulting large volume of
mortgage refinancings resulted in substantial issuance of mortgage-backed debt.
The municipal bond market was active with refinancings. Bonds under trusteeship
increased to $201 billion, up from $136 billion at year-end 1992. This reflected
$49 billion of bonds from a municipal trust and agency unit acquired in the
second quarter and $35 billion in new trusteeships closed, partially offset by
an exceptionally high volume of pre-payments, calls and paydowns.
Included in assets under custody in the table below is $104 billion of corporate
trust-related assets - the collateral of structured bond issues. It is
anticipated that one customer will begin servicing its own collateral in the
first half of 1994, lowering State Street's assets under custody by $47 billion.
OTHER FIDUCIARY SERVICES. Personal trust revenue increased primarily due to new
business. Revenue from servicing defined contribution plans, such as 401(k)
plans, also grew, reflecting new business. The number of participant accounts
serviced increased 17% to 816,000. Fiduciary compensation from servicing
insurance company assets grew rapidly from new customers and an increase in
existing customers' assets and activity.
ASSETS UNDER CUSTODY, TRUSTEESHIP AND MANAGEMENT. Assets under custody,
trusteeship and management serve to indicate the relative size of various types
of customers and, in the context of market value changes, as proxies for
business growth. There is not always a direct correlation between assets and
revenue. This is due to the increasing number of services used by many of State
Street's customers and the declining percentage of revenue coming from asset-
based basic custody fees from some customers, combined with the broad range of
basis-point fees charged depending upon the specific service provided.
<TABLE>
<CAPTION>
ASSETS UNDER CUSTODY, TRUSTEESHIP AND MANAGEMENT Compound
DECEMBER 31, Growth
Change Rate
(Dollars in billions) 1993 1992 1991 1990 1989 1988 92-93 88-93
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets Under Custody:
Mutual funds/collective
investment funds $ 683.1 $ 560.3 $ 498.4 $429.3 $404.0 $346.0 22% 15%
Customers in:
North America:
Master trust/master
custody/global custody 574.1 465.9 335.2 250.3 242.0 161.8 23 29
Corporate trust 104.0 93.2 66.9 47.0 35.3 34.8 12 24
Insurance 60.4 46.8 37.9 23.1 21.3 19.1 29 26
Other 83.7 83.9 71.3 66.0 61.1 45.4 -- 13
Europe 20.0 13.2 13.2 9.5 11.2 9.4 52 16
Asia/Pacific 46.1 30.7 31.9 16.1 12.1 8.6 50 40
Total assets under
custody $1,571.4 $1,294.0 $1,054.8 $841.3 $787.0 $625.1 21 20
Bonds Under Trusteeship:
Corporate trust $ 201.0 $ 136.0 $ 132.0 $108.4 $ 60.7 $ 52.2 48 31
Assets Under Management:
Institutional:
Equities and bonds $ 64.9 $ 50.3 $ 44.4 $ 34.4 $ 31.9 $ 24.7 29 21
Money market 51.7 37.1 21.9 14.0 10.8 7.0 39 49
Employer securities 19.7 18.8 17.8 13.8 10.6 3.7 5 40
Personal 5.8 5.2 4.8 3.4 3.5 3.0 12 14
Total assets under
management $ 142.1 $ 111.4 $ 88.9 $ 65.6 $ 56.8 $ 38.4 28 30
</TABLE>
<PAGE>
FINANCIAL REVIEW
State Street Boston Corporation
Equity market values improved worldwide in 1993. From year-end 1992 to year-end
1993, the U.S. equity market, as measured by the S&P 500 index, increased 7%,
compared with an increase of 4% in the previous year. International equity
markets, as measured in dollars by the EAFE index,increased 30%, which compares
with a 14% decline in 1992. As measured by theLehman Brothers Government/
Corporate Bond index, total return in the U.S. bond market was 11% and values
increased 4%. U.S. equity markets were substantially more active in 1993 than
in 1992.
In 1993, total assets under custody increased 21% to $1.6 trillion, although
U.S. market values grew moderately. At year-end, approximately 40% of assets
under custody were fixed income instruments, 30% were equities and 30% were
short-term instruments. Non-U.S. securities comprised 11% of total assets under
custody, up from 7% in 1992. Total bonds under trusteeship increased $65
billion, of which $49 billion was due to an acquisition. Total assets under
management increased 28% to $142.1 billion, due to growth in all types of
assets.
OTHER FEE REVENUE. In 1993, foreign exchange trading revenue was $82.7 million,
up 43% from $57.9 million in 1992. The number of foreign exchange trades grew
rapidly due to more cross-border investing and associated currency risk
management transactions by customers. Additional currencies were traded as
active investors entered emerging markets. New customers were added at an
accelerated pace, most of which were customers who use State Street for other
financial asset services, and their investment managers. The increase in revenue
also reflected volatility in currency markets throughout 1993.
Processing service fees were $46.1 million, up $15.7 million, or 52%. The
increase was due primarily to the full-year impact of the October 1, 1992
acquisition of Wendover Funding, Inc., a mortgage subservicer.
Service fees were $40.0 million, up $8.7 million, or 28%, from 1992. The
increase was due to securities brokerage volume and additional fees from
investment banking, international trade finance services, cash management and
bank service fees. Corporate banking customers chose to pay more in fees rather
than in compensating demand deposit balances, due in part to lower interest
rates.
Securities gains were $15.4 million, compared with $12.3 million in 1992, as
State Street actively managed the available-for-sale portfolio for total return.
The $3.6 million decrease in other fee revenue was due to additional writedowns
of investments in tax-advantaged financings, which lowered fee revenue but had
more than offsetting tax benefits; to currency translation losses on the
foreign bond investment portfolio; and to less revenue from the disposition of
leasing residuals. These reductions were partially offset by increased trading
account profits and additional earnings from Boston Financial Data Services, an
affiliate engaged in mutual fund shareholder accounting.
NET INTEREST REVENUE
Net interest revenue is the difference between interest revenue earned on money
market assets, investment securities and loans and the interest paid on
interest-bearing deposits, money market liabilities and other borrowed funds.
State Street manages its balance sheet to support the growth of its financial
asset services business. As a result, net interest revenue growth is being
driven by increasing amounts of customer funds on the balance sheet.
<TABLE>
NET INTEREST REVENUE - TAXABLE EQUIVALENT
<CAPTION>
Compound
Growth
Change Rate
(Dollars in millions) 1993 1992 1991 1990 1989 1988 92-93 88-93
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest revenue $698.9 $714.3 $737.7 $817.5 $648.3 $499.3
Taxable equivalent adjustment 20.3 13.7 18.8 20.8 15.5 16.1
719.2 728.0 756.5 838.3 663.8 515.4
Interest expense 381.3 432.1 464.2 546.7 431.3 299.7
Net interest revenue $337.9 $295.9 $292.3 $291.6 $232.5 $215.7 14% 9%
</TABLE>
<PAGE>
FINANCIAL REVIEW
State Street Boston Corporation
In this analysis, net interest revenue is expressed on a fully taxable
equivalent basis to adjust for the tax-exempt status of revenue earned on
certain investment securities and loans. Taxable equivalent net interest revenue
in 1993 was $337.9 million, up $42.0 million, or 14%, over 1992.
The improvement in net interest revenue was primarily due to growth in funding.
State Street accommodated the transaction and short-term investment needs of its
financial asset services customers in the form of noninterest-bearing deposits,
repurchase agreements and foreign deposits. This helped to fund a 17% increase
in interest-earning assets. Also contributing to the increase in net interest
revenue was a wider spread between interest rates earned and paid, which
increased from 141 basis points, or 1.41%, in 1992 to 150 basis points in 1993,
an increase of 9 basis points. See the balance sheet review on page 29.
These two positive factors were partially offset by the effect of the level of
market interest rates. Market interest rates continued to decline in 1993, and
the Treasury yield curve flattened significantly. Overnight rates decreased by
approximately 50 basis points, and the two-year Treasury rate fell 72 basis
points. The prime rate also fell by 25 basis points. State Street's net interest
revenue is sensitive to the level of market interest rates, particularly U.S.
interest rates, due to its large volume of noninterest-bearing deposits.
Generally, low interest rates result in lower net interest revenue caused by the
investment of noninterest-bearing sources of funds at lower rates, all other
variables being the same. Net interest revenue tends to be higher when interest
rates are high. However, because State Street is liability sensitive, a
temporary negative impact is anticipated if short-term interest rates were to
rise. See the interest rate sensitivity management discussion on page 31.
NET INTEREST MARGIN. Net interest margin is defined as taxable equivalent net
interest revenue expressed as a percentage of average interest-earning assets.
The margin declined 6 basis points to 2.08% in 1993 from 2.14% in 1992. The
contribution to the margin from noninterest-bearing sources was 15 basis points
below 1992 as a result of investment of these funds at lower rates. Further
declining market interest rates outweighed the benefits of asset growth and a
wider spread between interest rates earned and paid.
<TABLE>
<CAPTION>
NET INTEREST MARGIN 1993 1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C> <C>
Yield on interest-earning assets 4.43% 5.26% 7.47% 9.37% 9.55% 8.39%
Rate on interest-bearing liabilities 2.93 3.85 5.87 7.91 8.73 7.10
Excess of rate earned over rate paid 1.50 1.41 1.60 1.46 0.82 1.29
Contribution of noninterest-bearing sources 0.58 0.73 1.29 1.80 2.52 2.22
Net interest margin 2.08% 2.14% 2.89% 3.26% 3.34% 3.51%
</TABLE>
PROVISION FOR LOAN LOSSES. The provision for loan losses is the amount charged
to income during the current period to maintain the allowance for loan losses at
a level which management considers appropriate, relative to the level of risk in
the loan portfolio and other extensions of credit. The provision for loan losses
was $11.3 million in 1993, which compares with $12.2 million in 1992. Net
charge-offs were $16.3 million in 1993, compared with $20.1 million in 1992.
Additional discussion of the allowance for loan losses, asset quality, and loan
charge-offs and recoveries is presented in the credit risk section on page 34.
OPERATING EXPENSES
In 1993, operating expenses were $862.3 million, up $145.9 million, or 20%, due
to growth, strategic investment spending and acquisitions. Excluding
acquisitions, operating expenses were up 17%.
The expense increase was primarily in salaries and employee benefits, equipment,
and subcustodian fees. Most of the increase was required to support the rapid
growth of the business. In addition, in 1993 State Street increased its level of
investment spending to strengthen market leadership and to position it for
future growth. Strategic investment spending equaled 10% of total revenue and
is expected to remain at this level through 1994.
Investment spending was for information technology, core processing
infrastructure, and product and market development.
Systems development is the largest category of investment spending. In 1993, one
of the strategic initiatives receiving substantial investment spending was
Global Horizon Interchange, an architecture that provides and integrates data at
the point of use. State Street believes Global Horizon Interchange will position
it to be a leader in information delivery. Applications were also developed to
support the reengineering of core cash and securities processing workflows,
resulting in improved quality and lower unit costs.
Major investments were made in core processing infrastructure in 1993 - going
from three major processing computers to five, and from one data center to two.
Most of this was needed to support current growth, but a portion was designed
to improve 24-hour, on-line reliability and to provide more processing back-up.
State Street invested in geographic and product expansion, increasing the number
of services offered in non-U.S. offices and developing products in the United
States.
<PAGE>
FINANCIAL REVIEW
State Street Boston Corporation
<TABLE>
<CAPTION>
OPERATING EXPENSES Compound
Growth
Change Rate
(Dollars in millions) 1993 1992 1991 1990 1989 1988 92-93 88-93
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Salaries and employee benefits $479.2 $409.9 $336.8 $300.0 $264.8 $245.1 17% 14%
Occupancy, net 60.6 53.3 45.7 41.7 38.8 35.6 14 11
Equipment 100.3 67.0 48.4 45.3 40.8 38.6 50 21
Contract services 64.1 45.4 47.3 40.7 32.6 23.1 41 23
Professional services 35.4 30.1 24.7 19.2 14.0 11.8 17 25
Telecommunications 21.3 18.1 14.7 13.6 13.0 12.7 18 11
Advertising and sales promotion 18.7 15.1 11.1 10.6 9.7 9.1 24 15
Postage, forms and supplies 17.9 16.8 16.5 16.3 16.4 13.4 7 6
FDIC and other insurance 17.3 16.9 12.4 7.4 7.8 7.5 2 18
Operating and processing losses 4.7 7.0 17.7 15.0 17.4 19.8 (33) (25)
Other 42.8 36.8 33.2 34.8 22.7 20.3 16 16
Total operating expenses $862.3 $716.4 $608.5 $544.6 $478.0 $437.0 20 15
</TABLE>
Salaries and employee benefits, the largest component of expense, were $479.2
million, up $69.3 million, or 17%, from 1992, due to an 11% increase in full-
time equivalent staff, higher salaries and rate increases in various benefits.
The first year of recording costs associated with providing postretirement
health care benefits to employees also contributed to the increase in benefit
costs.
Occupancy expense increased $7.3 million, or 14%, due to a second data center,
the expenses of acquired businesses, additional space and expansion of non-U.S.
offices.
Equipment expense of $100.3 million was up 50%, or $33.3 million, due to
additional computers and related information technology equipment needed to
support business growth and a broader product line. The increase included the
expense associated with equipping the second data center with two large
computers.
Contract services expense includes the cost of subcustodian services in over 60
countries used in delivering global custody services, as well as other outside
services including pricing and processing services. In 1993, contract services
expense increased $18.7 million, or 41%, primarily due to subcustodian services
supporting additional cross-border investing. Also contributing to the growth
were increased transaction volumes and the full-year impact of an acquisition.
Professional services expense was $35.4 million, up 17%, or $5.3 million, due to
the development and enhancement of new application systems and products.
Telecommunications expense was $21.3 million, up 18%, due to the full year of
expenses of an acquisition and a second data center, as well as growth.
Advertising and sales promotion was $18.7 million, up 24%, due to increased
expenses related to additional defined contribution plan business, product
development for defined contribution plans and an expanded sales effort.
State Street incurs costs from errors in securities processing and settlement,
valuations, corporate actions and the usual banking losses. In 1993, the $2.3
million decrease in operating and processing losses was due to further reduction
in securities processing losses.
The $6.0 million increase in ``other'' expense is due to increased costs
associated with operations outside the United States, a non-recurring credit in
1992, and increased charitable contributions. These were partially offset by
lower expenses associated with other real estate owned and lower depository
costs.
INCOME TAXES
Income tax expense charged to earnings was $97.6 million in 1993 and $96.1
million in 1992. The respective effective tax rates were 35.2% and 37.5%. The
negative effect of the 1993 increase in the U.S. corporate income tax rate was
more than offset by a higher level of tax credits from tax-advantaged financings
and more tax-exempt revenue. The increase in the U.S. corporate income tax rate
for 1993 lowered reported earnings per share for the year by $.03.
State Street adopted a new accounting standard for income taxes in 1993. The
impact of the adoption was not material.
COMPARISON OF 1992 VERSUS 1991
In 1992, fully diluted earnings per share were $2.07, up 14% from $1.81 in 1991.
The 1991 results were affected by a $56.2 million gain on the sale of the credit
card loan portfolio, which increased earnings per share by $.43, and a
cyclically high provision for loan losses due to the recession.
<PAGE>
FINANCIAL REVIEW
State Street Boston Corporation
In 1992, total revenue was $986.6 million, up 16%, or $134.2 million, from 1991.
Fee revenue increased $139.0 million, or 25%, to $702.9 million. This
increase resulted primarily from continued growth in fiduciary compensation,
up $102.9 million, or 23%. More than half of the year-over-year increase in
fiduciary compensation came from the mutual fund and master trust/master
custody services. Total assets under custody were $1.3 trillion, up 23%. Total
assets under management were $111.4 million, up 25%.
In 1992, net charge-offs declined $25.0 million, or 55%, and the outlook for
credit quality improved, resulting in a $47.8 million reduction in the
provision for loan losses.
In 1992, operating expenses were $716.4 million, up $107.9 million, or 18%,
due to growth and development expense. Salaries and employee benefits, the
largest category of expense, were $409.9 million, up 22%, due primarily to
an increase in full-time staff and merit increases.
LINES OF BUSINESS
The estimated results for State Street's two lines of business are derived from
internal accounting systems, which are continually refined to reflect
organizational performance. These systems allocate to each business revenue and
expenses related to the business, as well as certain corporate overhead,
operations and systems development expenses. They also incorporate processes
for allocating assets and liabilities to each business, including the interest
rates appropriate to each allocation. Capital is allocated using the Federal
regulatory guidelines as a basis, coupled with management's judgment regarding
the operational risks inherent in the businesses. The capital allocations may
not be representative of the capital levels that would be required if these
two lines of business were independent business units.
This section of financial review presents the performance results of State
Street's two lines of business: financial asset services and commercial
lending. The following line-of-business information is based on management
accounting practices that conform to and support the strategic objectives and
management structure of State Street and are not necessarily comparable with
similar information for any other banking company:
<TABLE>
<CAPTION>
LINES OF BUSINESS Financial Commercial
(Taxable equivalent basis, Asset Services Lending Corporate
dollars in millions) 1993 1992 1991 1993 1992 1991 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fee revenue $ 803.6 $ 670.7 $531.5 $ 36.5 $ 34.8 $32.4 $ (6.7) $ (2.6) $ (.1)
Gain on sale of credit
card portfolio 56.2
Net interest revenue 260.1 224.4 204.6 86.1 78.0 90.1 (8.3) (6.4) (2.3)
Provision for loan losses .5 (.2) 10.8 12.2 60.2
Total revenue 1,063.2 895.1 736.3 111.8 100.6 62.3 (15.0) (9.0) 53.8
Operating expenses 769.0 630.7 517.1 64.5 63.6 69.5 28.8 22.1 21.9
Income before income
taxes 294.2 264.4 219.2 47.3 37.0 (7.2) (43.8) (31.1) 31.9
Income taxes 129.0 113.6 95.2 20.1 15.7 (3.0) (31.2) (19.5) 12.4
Net Income $ 165.2 $ 150.8 $124.0 $ 27.2 $ 21.3 $(4.2) $(12.6) $(11.6) $19.5
Percentage contribution 92% 94% 89% 15% 13% (3)% (7)% (7)% 14%
Average assets $15,918 $13,525 $9,476 $2,251 $1,977 $2,098
</TABLE>
FINANCIAL ASSET SERVICES. Financial asset services, which contributed 92% of
State Street's net income in 1993, is comprised of the business components that
service and manage financial assets worldwide. These include services for mutual
funds and pension plans, both defined benefit and defined contribution;
corporate trusteeship; and management of institutional financial assets and
personal trust. A broad array of banking services is provided, including
accounting, custody of securities, information services and recordkeeping;
taking short-term customer funds onto State Street's balance sheet; investment
management; foreign exchange trading; and cash management. Revenue for these
services is reflected in fee revenue and net interest revenue.
In 1993, net income of $165.2 million increased $14.4 million, or 10%, from
1992. Total revenue growth of $168.1 million, or 19%, was offset by a $138.3
million, or 22%, increase in operating expenses.
The $168.1 million increase in total revenue was driven by a $132.9 million, or
20%, increase in fee revenue. This was primarily due to an $82.4 million, or
15%, increase in fiduciary compensation from accounting, custody of securities,
information services, recordkeeping, trusteeships and investment management.
Growth occurred across all product lines, with services for mutual funds
contributing substantially to the year-over-year increase. Additional cross-
border investing by customers contributed to a substantial increase in foreign
exchange trading revenue. Growth in taxable equivalent net interest revenue
of $35.7 million, or 16%, reflected an increase in short-term customer funds
on the balance sheet, particularly noninterest-bearing demand deposits,
interest-bearing foreign deposits and repurchase agreements. As interest rates
declined, financial asset services benefitted from a wider spread between
interest rates earned and paid, which was offset by the negative effect of a
lower yield on interest-earning assets.
<PAGE>
FINANCIAL REVIEW
State Street Boston Corporation
Operating expenses were $769.0 million and grew 22% over 1992, primarily in
support of growth. In 1993, expenses also reflected an increase in strategic
investments and the operating expenses resulting from acquisitions. Nearly all
categories of expenses increased, with salaries and employee benefits,
equipment, and subcustodian fees contributing substantially to the year-over-
year increase.
COMMERCIAL LENDING. In 1993, commercial lending contributed 15% of net income.
Net income increased $5.9 million, or 28%, due to higher net interest revenue
and a $1.4 million lower provision for loan losses. Loan growth and wider loan
spreads increased taxable equivalent net interest revenue $8.1 million, or 10%.
Commercial and financial loans increased, due in part to additional secured
overnight loans to securities brokers. Foreign loans grew from the expansion of
trade finance, and lease financing loans increased.
CORPORATE. Corporate includes the impact of long-term debt; investment of
corporate cash; tax credits from tax-advantaged financings, including writedowns
of these investments in fee revenue; a gain on the sale of the credit card
portfolio in 1991; operating expenses; and other corporate items. In 1993,
these corporate items reduced net income by 7%.
COMPARISON OF 1992 VERSUS 1991. In 1992, net income from financial asset
services increased $26.8 million, or 22%, due to a $158.8 million increase in
revenue, partially offset by a $113.6 increase in expenses. Revenue growth was
driven by a $139.2 million increase in fee revenue. Net income from commercial
lending was $21.3 million in 1992, up from a loss of $4.2 million in 1991 due
to a $60.2 million provision for loan losses in 1991. In 1992, corporate net
income declined $31.1 million due to the sale of the credit card loan portfolio
in 1991, which contributed $32.6 million to net income.
BALANCE SHEET REVIEW
State Street manages its balance sheet to support the needs of the financial
asset services business. In 1993, deposits and liabilities increased from
additional customers' funds, and short-term loans increased. While the balance
sheet was expanded to meet customer needs, State Street continued to place high
priority on maintaining its high credit and deposit ratings. The Corporation's
unusual business mix results in a balance sheet with low credit risk. The
business mix also affects State Street's approach to managing interest
rate sensitivity, liquidity and risk.
LIABILITIES
State Street's balance sheet is liability driven. Growth in interest-earning
assets is determined by growth in interest-bearing liabilities, stockholders'
equity and other noninterest-bearing sources. State Street accommodates
customers' transaction processing needs, which increases demand deposits, and
their short-term investment needs through foreign deposits and repurchase
agreements.
<TABLE>
<CAPTION>
SOURCES OF FUNDS Average Volume Average Rate
(Dollars in millions) 1993 1992 1991 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
Interest-bearing deposits:
Savings $ 2,167 $ 2,154 $ 1,819 2.41% 3.16% 5.22%
Time 157 162 307 2.88 3.86 6.00
Foreign 4,954 3,955 2,648 2.95 4.42 6.55
Total interest-bearing deposits 7,278 6,271 4,774 2.79 3.97 6.01
Federal funds purchased 741 919 837 2.84 3.35 5.48
Securities sold under repurchase agreements 4,134 3,290 1,766 2.89 3.42 5.08
Other short-term borrowings 216 194 156 3.78 4.27 5.29
Notes payable 511 389 234 3.90 4.74 8.69
Long-term debt 122 146 146 8.19 9.10 9.04
Total interest-bearing liabilities 13,002 11,209 7,913 2.93 3.85 5.87
Other noninterest-bearing sources 2,187 1,758 1,445
Stockholders' equity 1,033 887 773
Total sources $16,222 $13,854 $10,131
</TABLE>
Interest-bearing liabilities increased $1.8 billion, or 16%, in 1993. Most of
the growth was in interest-bearing deposits, which increased $1.0 billion, or
16%, over 1992. This increase was due to a higher balance of foreign deposits,
up $1.0 billion, or 25%, reflecting additional deposits from investment managers
of global portfolios. Savings deposits, primarily insured money market accounts
held by corporate customers, remained stable, even in the declining interest
rate environment.
Securities sold under repurchase agreements increased $844 million, or 26%, due
to additional demand by customers, particularly mutual fund managers.
<PAGE>
FINANCIAL REVIEW
State Street Boston Corporation
Notes payable increased $122 million. Bank notes were issued during the year
under a program through which State Street Bank may issue up to $750 million of
uninsured notes having maturities of 14 days to five years.
In September, State Street issued $100 million of 5.95% senior notes with a
10-year maturity. These notes were rated A1 by Moody's and AA- by Standard &
Poor's. Proceeds from this issuance were used in part to retire $75 million of
8.50% senior notes. As a result of this and another refinancing, the average
rate on long-term debt declined 91 basis points from 1992.
Growth in noninterest-bearing sources of funds contributed importantly to net
interest revenue in 1993. Non-interest-bearing deposits increased $671 million,
or 23%. The increase was due in part to two acquisitions, a mortgage
subservicer and a municipal trust and agency unit, and to activity of mutual
fund customers. Stockholders' equity increased $146 million, or 16%, over 1992.
ASSETS
These additional funds and deposits enabled State Street to increase interest-
earning assets. In 1993, average interest-earning assets increased $2.4 billion,
or 17%. Growth was mainly in investment securities, securities purchased under
resale agreements and loans. Money market assets and investment securities
constitute the major elements of State Street's assets. These assets, in
comparison to loans, have less credit risk and are more marketable.
<TABLE>
<CAPTION>
INTEREST-EARNING ASSETS Average Volume Average Rate
(Dollars in millions) 1993 1992 1991 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
Interest-bearing deposits with banks $ 5,022 $ 5,102 $ 3,646 4.01% 5.05% 7.19%
Securities purchased under resale agreements 3,255 2,603 913 3.14 3.75 5.63
Federal funds sold 413 330 305 3.06 3.51 5.83
Trading account assets 369 226 152 4.21 4.45 7.80
Investment securities:
U.S. Treasury and Federal agencies 2,077 1,703 1,417 5.75 6.80 8.16
State and political subdivisions 683 376 378 5.54 7.72 9.09
Other investments 1,827 1,444 1,212 5.33 6.09 8.32
Total investment securities 4,587 3,523 3,007 5.55 6.60 8.34
Loans:
Commercial and financial 1,865 1,556 1,583 4.81 5.64 7.88
Real estate 97 114 144 6.97 7.11 8.47
Consumer 53 66 90 6.81 7.65 10.39
Foreign 282 117 87 5.82 6.08 7.43
Lease financing 279 217 204 5.61 4.84 4.84
Total loans 2,576 2,070 2,108 5.14 5.72 7.72
Total interest-earning assets $16,222 $13,854 $10,131 4.43 5.26 7.47
</TABLE>
Interest-bearing deposits with banks are short-term instruments, primarily
Eurocurrency placements, invested with foreign banks in Western Europe and the
Asia/Pacific region. As of December 31, 1993, the average maturity of the
Eurocurrency placements was 49 days.
In 1993, securities purchased under resale agreements increased $652 million as
a result of satisfying customer demand for securities sold under repurchase
agreement. These assets are fully collateralized by U.S. Treasury and
Federal agency securities, and at year-end had an average maturity of 22 days.
The investment securities portfolio continued to expand during 1993 to $4.6
billion, or 25% of assets. State Street classifies its investment securities
into two categories, held-for-investment and available-for-sale. The held-for-
investment portfolio is used to invest depositors' funds, provide asset
diversity and stabilize revenue. The available-for-sale portfolio is managed
for total return.
The held-for-investment portfolio, which is carried at cost, is composed of
investment-quality, asset-backed securities, U.S. Treasury and Federal agency
securities, and bonds and notes of state and political subdivisions.
Based upon the expected principal payments, as of December 31, 1993, the
weighted average life of the asset-backed securities portfolio was 1.3 years.
Securities in this portfolio are highly rated; 96% were AAA as of December
31, 1993. U.S. Treasury and Federal agency securities had a weighted average
life of 1.5 years. Bonds of state and political subdivisions were also of
high quality, with a rating of A or better on 87% of the portfolio. The
majority of the rest of the portfolio consisted of small, unrated issues of
communities with ratings of A or better on their rated issues. The total
portfolio of held-for-investment securities had net unrealized appreciation
of $23.1 million at December 31, 1993.
The available-for-sale portfolio is composed of securities acquired with the
intent to hold for an indefinite period of time, not necessarily until final
maturity. At December 31, 1993, this portfolio had a balance of $1.2
billion and was comprised of U.S. Treasury and foreign government bonds.
Available-for-sale securities are carried at the lower of cost or market. At
December 31, 1993, the market value of these securities was $4.8 million
higher than cost.
<PAGE>
FINANCIAL REVIEW
State Street Boston Corporation
At year-end 1993, loans comprised 14% of State Street's assets, compared with
over 55% for other banking companies of comparable size. One-third of the loan
portfolio supports the short-term needs of financial asset services customers
and securities brokers in conjunction with their trading and settlement
activity. These are generally short-term, usually overnight, and are
structured to have relatively low credit exposure.
In 1993, loans increased by $506 million, or 24%, with most of the growth in
relatively low-risk loans to customers of the financial asset services business
and to securities brokers. Foreign loans increased $165 million due to expanding
trade finance activities, including a second-quarter acquisition of an
Australian merchant bank, which added $68 million in loans, and an increase
in transaction loans associated with cross-border investing. Lease financing
increased $62 million.
INTEREST RATE SENSITIVITY MANAGEMENT
The objective of interest rate sensitivity management is to provide sustainable
and stable net interest revenue under various economic environments and to
protect asset values from adverse effects of changes in interest rates. State
Street manages the structure of interest-earning assets and interest-bearing
liabilities to meet revenue goals by adjusting the mix, yields and maturity or
repricing characteristics based on changing market conditions. Interest-rate
risk arises from differences in the timing of repricing assets and liabilities.
Depending on the degree of difference, changes in interest rates and yield
curves can result in an increase or decrease in net interest revenue and
affect the valuation of assets and liabilities. Under policy guidelines approved
by the Board of Directors, State Street seeks to limit interest-rate risk while
using timing differences to manage net interest revenue.
One measure of interest-rate risk, as shown below, is the difference in asset
and liability repricing on a cumulative basis within a specified time frame.
State Street monitors the three-month, six-month and one-year cumulative net
interest-earning assets, or gaps.
<TABLE>
<CAPTION>
INTEREST SENSITIVITY POSITION AT DECEMBER 31, 1993 Interest Sensitivity Period
in Months
(Dollars in millions) Balance 0-3 4-6 7-12 over 12
<S> <C> <C> <C> <C> <C>
Interest-Earning Assets:
Interest-bearing deposits with banks $ 5,148 $ 4,113 $ 999 $ 36 $
Other money market assets (1)<F1> 1,624 1,618 6
Investment securities:
Held for investment 4,484 1,070 629 987 1,798
Available for sale 1,217 1,217
Loans 2,202 1,597 42 50 513
Total interest-earning assets 14,675 9,615 1,670 1,073 2,317
Interest-Bearing Liabilities:
Domestic deposits 2,141 1,969 9 12 151
Foreign deposits (2)<F2> 5,427 5,276 150 1
Federal funds purchased and repurchase agreements 3,242 3,236 6
Other interest-bearing liabilities (2)<F2> 748 394 150 204
Total interest-bearing liabilities 11,558 10,875 315 13 355
Interest rate sensitivity position (1,260) 1,355 1,060 1,962
Cumulative interest rate sensitivity position (1,260) 95 1,155 3,117
Cumulative gap percentage (3)<F3> (9)% 1% 8% 21%
<FN>
- ------------
<F1>(1) Includes adjustment to normalize the one-day position.
<F2>(2) Includes financial futures and interest-rate swaps.
<F3>(3) Cumulative interest rate sensitivity position as a percent of earning assets.
</TABLE>
The table shows State Street's year-end interest rate sensitivity position,
measured by the earlier of repricing date or maturity, for various assets and
liabilities. Non-maturity items, such as asset-backed securities and deposits,
are reported in time periods based on management's evaluations of prepayments
and repricing. Available-for-sale investment securities are reported in 0-3
months. The analysis indicates that the Corporation was liability sensitive in
the short term - that interest-bearing liabilities are repricing faster than
interest-earning assets - and that net interest revenue would improve when
interest rates are falling and decrease when interest rates are rising. The
level of rates is also an important determinant of net interest revenue.
<PAGE>
F I N A N C I A L R E V I E W
State Street Boston Corporation
State Street uses simulation models in managing interest-rate risk. The
Corporation also uses duration and market valuation analyses to estimate and
manage the changes in the value of equity due to changes in interest
rates. These models and analyses indicate that the Corporation has low exposure
to changes in interest rates.
State Street maintains flexibility in its balance sheet to adjust interest
sensitivity. Since interest-bearing sources of funds are predominantly
short-term, State Street maintains a generally short-term structure for
interest-earning assets, including money market assets, investments and loans.
Off-balance sheet financial instruments are used as part of overall asset and
liability management. Financial futures and interest-rate swaps were used
modestly during the year to maintain the Corporation's interest-rate exposure
within policy limits. At December 31, 1993, $150 million of financial futures
and $75 million of interest-rate swaps reduced short-term liability sensitivity.
LIQUIDITY
The primary objective of State Street's liquidity management is to ensure that
the Corporation has sufficient funds to replace maturing liabilities,
accommodate the transaction and cash management requirements of its customers,
meet loan commitments and accommodate other corporate needs. Liquidity is
provided from the ability to access global market sources of funding and gather
additional deposits, and from maturing short-term assets, sale of
available-for-sale securities and payment of loans.
State Street manages its assets and liabilities to maintain a high level of
liquidity. The Corporation has an extensive and diverse funding base inside and
outside the United States. A significant percentage of funding comes from
customers who have other relationships with State Street, particularly those
using financial asset services world-wide. Deposits are accessed through
domestic as well as international treasury centers, providing a cost-effective
geographically diverse source of funding. Significant funding is also provided
from institutional customers' demand for repurchase agreements for their
short-term investment needs. State Street maintains other funding alternatives,
ensuring access to additional sources of funds if needed. Relationships are
maintained with a variety of investors for a range of financial instruments,
in various markets and time zones.
State Street maintains a large portfolio of liquid assets. At December 31, 1993,
the portfolio included $5.1 billion of interest-bearing deposits with banks and
$2.3 billion of securities purchased under resale agreements. Of the total $7.4
billion, $2.2 billion matures within one week, and nearly all matures within
six months. Although not relied on for daily liquidity needs, the $1.2 billion
available-for-sale portfolio of marketable securities provides a significant
secondary source of liquidity.
State Street maintains strong liquidity ratios. When liquidity is measured by
the ratio of liquid assets to total assets, State Street ranks among the
highest of U.S. banking companies. Liquid assets consist of cash and due from
banks, interest-bearing deposits with banks, Federal funds sold, securities
purchased under resale agreements trading account assets and investment
securities. At December 31, 1993, the Corporation's liquid assets were
80% of total assets.
State Street's high ratings as a corporation and depository enhance its
liquidity. The Corporation's senior debt is rated AA- by Standard & Poor's,
A1 by Moody's Investor Services and AA by IBCA, Inc. Depending upon the
rating service, five or fewer of the largest 100 bank holding companies in
the United States have higher ratings. State Street Bank's long-term
certificate of deposit ratings are AA by Standard & Poor's, Aa2 by Moody's
Investor Services and AA+ by IBCA, Inc. These ratings, as well as strong
capital ratios, enhance State Street's liquidity by making its liabilities
attractive to a large number of investors worldwide.
In August, 1993, a shelf registration became effective that allows the
Corporation to issue up to $250 million of debt securities with maturities
not to exceed 10 years. Proceeds from the first tranche of $100 million
were used to redeem existing debt and will be used for general corporate
purposes.
In 1994, State Street plans to begin issuing up to $200 million of commercial
paper. This will be a source of additional funding for the Corporation and
State Street Bank. The Consolidated Statements of Cash Flows on page 38
provide additional information.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The short maturity structure of State Street's assets and liabilities results
in the fair value of its financial instruments equating to or closely
approximating book value, with the exception of investment securities, which
had appreciation of $28 million as of December 31, 1993. See Note S, page 50,
for a further discussion.
<PAGE>
FINANCIAL REVIEW
State Street Boston Corporation
CAPITAL
State Street maintains strong capital levels to support current operations and
continued growth. State Street continues to generate capital internally at a
high rate. In 1993, and in each of the preceding six years, capital was
generated internally through the retention of earnings at a rate of 14% or
higher. On December 31, 1988, stockholders' equity was $506 million. By December
31, 1993, it had increased to $1.1 billion, a 14% annual growth rate. In 1993,
stockholders' equity increased $152 million, $140 million from retention of
earnings and $12 million related to exercise of stock options and the
conversions of debentures.
The Federal Reserve Board, State Street's principal regulator, has established
risk-based capital guidelines that require minimum ratios of capital to
risk-weighted assets and certain off-balance sheet exposures. The Board also
maintains a leverage ratio that is a measure of capital to total average balance
sheet assets.
The following table shows State Street's regulatory capital ratios as they
compare to the minimum guidelines:
REGULATORY CAPITAL Minimum
December 31, Regulatory
(Dollars in millions) 1993 1992 Guidelines
Risk-based ratios:
Tier 1 capital 12.1% 13.2% 4%
Total capital 12.7 14.6 8
Leverage ratio 5.3 5.9 3
Tier 1 capital $1,070 $ 938
Total capital 1,122 1,043
Risk-adjusted assets 8,842 7,131
State Street has developed internal capital adequacy policies that focus on risk
exposure rather than on asset levels. These policies place primary importance on
the risk-based guidelines, particularly the Tier 1 risk-based capital ratio.
This emphasis is appropriate to State Street's unusual balance sheet, which has
a high degree of liquidity and low credit risk exposure. At year-end 1993, State
Street's Tier 1 capital ratio of 12.1% significantly exceeded the regulatory
guidelines and was among the strongest for large U.S. banking companies.
The significant increase in balance sheet assets during 1993 caused State
Street's leverage ratio to decline to 5.3% from 5.9% in 1992. Because most
balance sheet growth was in low-risk assets, which are assigned risk weights of
0% and 20%, the impact of this growth to the risk-based ratios was less.
Moderate growth in off-balance sheet activity, which is included in the risk-
based calculations, contributed to the decline in the risk-based ratios.
During 1992, bank regulators adopted five capital categories that are based on
capital ratios and other factors and are applicable to banks for certain
regulatory supervisory purposes. These categories range from ``well
capitalized'' to ``critically undercapitalized.'' The ``well capitalized''
category requires that a bank maintain a minimum Tier 1 risk-based ratio of 6%,
a minimum total risk-based capital ratio of 10% and a minimum leverage ratio
of 5%. State Street manages and monitors its capital ratios to assure that
they exceed the minimum standards for ``well capitalized.'' At December 31,
1993, State Street Bank had a Tier 1 risk-based capital ratio of 11.8%, a
total risk-based capital ratio of 12.2% and a leverage ratio of 5.1%.
DIVIDENDS AND COMMON STOCK
State Street increased the quarterly dividend to stockholders twice during
1993, continuing the pattern of dividend increases that began in 1978. At
year-end 1993, the dividend rate was 17% higher than at year-end 1992. Since
1988, dividends per share have increased at an annual rate of 15%. State
Street's policy is to increase dividends at a rate that is consistent with
long-term earnings growth and that will permit levels of internal capital
generation sufficient to allow for the full development of strategic business
opportunities. The dividend payout ratio was 22% for 1993.
<PAGE>
FINANCIAL REVIEW
State Street Boston Corporation
There were 5,926 stockholders of record at year-end 1993.
The following table shows the quarterly dividends and market value per share for
1992 and 1993:
<TABLE>
DIVIDENDS AND COMMON STOCK
<CAPTION>
MARKET PRICE Market Price
DIVIDENDS END OF Dividends End of
DECLARED LOW HIGH PERIOD Declared Low High Period
1993 1992
<S> <C> <C> <C> <C> <S> <C> <C> <C> <C>
First $.120 $41 $49 1/8 $44 1/2 First $.105 $29 1/4 $33 1/8 $32 1/8
Second .130 29 1/4 45 3/4 33 1/8 Second .110 30 1/4 38 3/4 35 3/4
Third .130 31 3/4 35 3/4 35 5/8 Third .110 33 5/8 39 36 7/8
Fourth .140 35 3/8 39 3/4 37 1/2 Fourth .120 35 3/8 44 7/8 43 3/4
</TABLE>
RISK MANAGEMENT
In providing financial asset services globally, there are certain inherent risks
which must be managed and controlled. These include counterparty credit risk,
operations and settlement risk, and market risk. Risk management is an integral
part of the Corporation's business activities. The credit and risk management
function is centrally organized with close ties to the business units in order
to identify and manage risks effectively. This structure allows for corporate
risk management across the business areas while individual line areas remain
responsible for risk management in their units. Continuing a trend of recent
years, risk management resources are increasingly devoted to financial asset
services.
Emphasis in risk management is placed on experienced staff and on establishing
specific authorization levels and limits. Counterparties are subject to a
rigorous credit approval process which covers the traditional lending services
and global financial asset services for foreign exchange, credit facilities,
placements, credit enhancement services, securities lending and securities
clearing facilities. Concentration is managed in terms of business risk
concentration, including specific industry lending concentrations and country
limits, as well as limits on individual counterparties. Operating risk
management cuts across most of the securities-related business areas of the
Corporation and focuses on payment system risk management, overdraft
monitoring and control, and global securities clearing and settlement.
In addition to specific authorization levels and limits, operating risk
is also controlled through extensive automation, operating procedures and
insurance. Market risk arises from price changes in various markets. Market
risk from foreign exchange and trading activities is monitored and controlled
through established limits on positions and aggregate limits based on
estimates of potential loss of earnings under assumptions about changes
in market conditions.
CREDIT RISK
Credit risk results from the possibility that a loss may occur if a counterparty
becomes unable to meet the terms of a contract. State Street has policies and
procedures to monitor and manage carefully all aspects of credit risk. These
include a comprehensive credit review and approval process which involves the
assignment of risk ratings to all loans and off-balance sheet credit exposures.
The allowance for loan losses is available to cover potential losses from
current credit exposure in the loan portfolio and certain off-balance sheet
commitments.
At December 31, 1993, total non-performing assets were $37.9 million, a $14.9
million decrease from year-end 1992. Non-performing assets include $26.8 million
of non-accrual loans, which was 1% of total volume, and $11.1 million of other
real estate owned. It is State Street's policy to place a loan on non-accrual
when either principal or interest becomes 60 days past due. In 1993, loans
placed on non-accrual status were more than offset by charge-offs, payments, and
the return to accrual status of several loans. Loans are returned to accrual
status only when interest and principal payments are brought current and future
payments are assured. The decline in other real estate owned resulted from
property sales.
At December 31, 1993, non-accrual loans were being carried at 41% of their
original value. Fully diluted earnings per share would have been $.xx higher had
non-accrual loans performed according to their original terms.
In 1993, net charge-offs declined to $16.4 from $20.1 million in 1992. Net
charge-offs as a percentage of average loans were .63% as compared to .97% for
1992.
The allowance for loan losses is increased by the provision for loan losses,
which is a charge to current income. The appropriate level of the allowance is
determined based on a thorough analysis of credit risk. At December 31, 1993,
the allowance for loan losses was $54.3 million, or 2.03% of loans. This
compares to an allowance of $57.9 million, or 2.89% of loans a year ago.
This decline reflects improvement in measures of credit quality, discussed
above, and improvement in the outlook for general economic conditions and
its effect on borrowers. The decline in the allowance for loan losses as a
percentage of loans is also attributable to the growth in low-risk loan
exposures to financial asset services customers.
<PAGE>
FINANCIAL REVIEW
State Street Boston Corporation
The following table details the provision for loan losses and credit experience
by type of loan:
<TABLE>
<CAPTION>
CREDIT EXPERIENCE
(Dollars in millions) 1993 1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C> <C>
Provision for loan losses $11.3 $12.2 $60.0 $45.7 $19.4 $15.6
Charge-offs 18.5 23.5 47.8 48.1 23.7 14.3
Recoveries 2.2 3.4 2.7 3.1 4.6 4.4
Net loan charge-offs 16.3 20.1 45.1 45.0 19.1 9.9
Allowance of subsidiary purchased 1.4
Allowance for loan losses, year-end 54.3 57.9 65.9 51.0 50.3 50.0
Net loan charge-offs by loan type:
Commercial and financial $14.0 $ 8.4 $32.2 $12.0 $ 5.2 $ (.2)
Real estate 1.3 9.8 10.9 9.3 1.5 3.2
Consumer .9 .9 1.6 22.4 9.9 7.3
Foreign .1 1.0 .4 1.3 2.5 (.4)
Total net charge-offs $16.3 $20.1 $45.1 $45.0 $19.1 $ 9.9
Non-performing loans:
Commercial and financial $25.0 $37.2 $30.6 $31.5 $ 5.5 $ 2.4
Real estate .5 .9 7.9 22.7 13.5 7.3
Other 1.3 2.2 2.4 2.3 2.8
Total non-performing loans $26.8 $40.3 $40.9 $56.5 $21.8 $ 9.7
Other real estate owned $11.1 $12.5 $15.4 $15.5
Ratios:
Allowance to ending loans 2.03% 2.89% 3.46% 2.42% 2.04% 2.30%
Net charge-offs to average loans .63 .97 2.14 1.72 .77 .46
Non-performing loans to total loans 1.00 2.01 2.15 2.68 .88 .44
</TABLE>
OFF-BALANCE SHEET RISK
A description of State Street's management of the market and credit risk
associated with off-balance sheet financial instruments such as foreign
exchange contracts, indemnified securities lent, loan commitments and
standby letters of credit is presented in Note P, page 49.
COUNTRY RISK
Country risk arises from borrowers' possible inability to repay because of the
inconvertibility of their assets into dollars. At December 31, 1993, assets and
commitments with country risk were $5.6 billion and included $4.8 billion of
Eurocurrency placements with the balance consisting of loans, letters of credit,
and foreign government bonds.
NEW ACCOUNTING DEVELOPMENTS
Statement of Financial Accounting Standards No. 115, ``Accounting for Certain
Investments in Debt and Equity Securities'' is effective for fiscal years
beginning after December 15, 1993. This statement requires that available-for-
sale securities be reported at fair value, with any unrealized gains and
losses, net of taxes, reflected as a separate component of stockholders' equity.
Through December 31, 1993, State Street reported available-for-sale securities
at the lower of amortized cost or market with any valuation adjustments
reflected in fee revenue. At December 31, 1993, the fair value of the available-
for-sale portfolio exceeded its aggregate amortized cost by $4.8 million. State
Street will adopt this new statement in 1994. This could create variability in
stockholders' equity.
Statement of Financial Accounting Standards No. 114, ``Accounting by Creditors
for Impairment of a Loan,'' is effective for fiscal years beginning after
December 15, 1994. This statement addresses how creditors should establish
allowances for credit losses on individual loans determined to be impaired.
State Street plans to adopt this new statement in 1995, and it is not expected
to have a material impact.
<PAGE>
APPENDIX TO EXHIBIT 13.2
Narrative description of graphic and image material appearing in paper
format version of Form 10-K.
Pages 22, 23, 26 and 33 contain line graphs (bar charts) of Earnings Per
Share, (Page 22); Fee Revenue Compared to Fiduciary Compensation, (Page 23);
Net Interest Revenue -- Taxable Equivalent, (Page 26); Stockholders' Equity at
Year-End and Dividends Per Share, (Page 33).
The Data points comprising these graphs appear below in tabular format.
Page 22:
Earnings Per Share
(Fully Diluted)
(Dollars)
Earnings
Year Per Share
1988 ......................................... $1.20
1989 ......................................... 1.38
1990 ......................................... 1.55
1991 ......................................... 1.81
1992 ......................................... 2.07
1993 ......................................... 2.33
Page 23:
Fee Revenue Compared to Fiduciary Compensation
(Millions of Dollars)
Fiduciary Fee
Year Compensation Revenue
1988 ........................ $292.8 $397.5
1989 ........................ 336.3 443.6
1990 ........................ 381.3 502.9
1991 ........................ 442.5 563.9
1992 ........................ 545.4 702.9
1993 ........................ 627.8 833.4
Page 26:
Net Interest Revenue -- Taxable Equivalent
(Millions of Dollars)
Net Interest Revenue
Year Taxable Equivalent
1988 .................................... $215.7
1989 .................................... 232.5
1990 .................................... 291.6
1991 .................................... 292.3
1992 .................................... 295.9
1993 .................................... 337.9
Page 33:
Stockholders' Equity at Year-End
(Millions of Dollars)
Stockholders' Equity
Year at Year-End
1988 .................................... $505.6
1989 .................................... 597.2
1990 .................................... 695.1
1991 .................................... 816.6
1992 .................................... 953.1
1993 .................................... 1,105.0
Dividends Per Share
(Dollars)
Dividends
Year Per Share
1988 .................................... $.260
1989 .................................... .300
1990 .................................... .340
1991 .................................... .385
1992 .................................... .445
1993 .................................... .520
EXHIBIT 13.3
TO OUR
Stockholders:
For State Street, 1993 was a successful year of growth, evolution and
investment in our future. Revenue grew 18%. Earnings per share were up 13%.
Return on stockholders' equity was 17.4%. Financial assets in our custody
grew 21% to $1.6 trillion, and assets under management reached $142 billion,
up 28% over last year. At year-end, the dividend rate was 17% higher than
a year ago. We have increased our dividend every six months for the past
15 years. These results are strong evidence that our strategy of leveraging
information technology to develop a broad, integrated product line for
servicing financial assets is working well.
We surpassed $1 billion of revenue for the first time in 1993. We added
important new customers worldwide in all our businesses, strengthened
relationships with existing customers, and introduced new and innovative
services. We transferred capabilities we had established in the
United States to markets around the world and adapted them for local
requirements. We are seeing the benefits of focusing on cross-selling
products across our customer base. More and more, our customers are buying
multiple services from us. We are making increased use of our balance sheet
to accommodate customers' short-term cash needs in the form of repurchase
agreements and multicurrency deposits. Over one-third of the loan portfolio
supports the short-term borrowing requirements of our financial asset
services customers and securities brokers.
We are increasing efforts to continue our growth for the long term. We made a
strategic decision to increase investment spending to approximately 10% of
revenue for 1993 and 1994. We are investing in information technology, product
development and geographic expansion. This higher level of investment
spending will strengthen our leadership in the markets we serve and position us
for long-term growth.
Over the past years, we have chosen to look to the future, to take the long
view -- and this has been the foundation of State Street's success.
In the late 1970s, we transformed ourselves from a regional bank to
the leading U.S. securities custodian. Building on our strengths as the largest
mutual fund custodian in the United States, we became the largest U.S.
master trustee/master custodian. In the 1980s, we reexamined the marketplace
and decided to expand globally to support our customers' need for a
global custodian and to penetrate non-U.S. markets.
Achieving sustained growth depends on our continued transformation as a
provider of a full range of integrated financial asset services.
We are leveraging our strengths - customer focus, advanced information
technology and a highly professional global work force - to meet the demands of
an increasingly competitive marketplace.
Underpinning our customer focus is an obsession with quality service. Time
after time, we win in the marketplace on the basis of references from
satisfied customers, as well as the strength of our multi-currency
accounting system; the capacity to support investment management with
on-line systems; and an ability to deliver multiple products and services,
not just traditional custody and accounting, quickly and effectively.
We are making significant investments in our business. Two areas in which we
are concentrating investment are new technology and reengineering.
We are developing Global Horizon Interchanger to meet our customers'
sophisticated information needs. Interchange is an open architecture
that will enable customers and their investment managers to integrate the
transaction processing and accounting data we maintain for them with the
information they receive from their own systems, as well as from other
information providers. Interchange's underlying technology adapts to our
customers' systems, allowing them to download information from State Street
into their software applications, share data on their local area networks and
choose the speed at which information is delivered. In addition to its powerful
integration capabilities and increased speed of information delivery, the
importance of Global Horizon Interchange is its ability to enhance
productivity - for us and for our customers.
As part of our reengineering effort, we are conducting an end-to-end review of
core cash and securities processing workflows. The objectives are better
product delivery, higher service quality, and a significant reduction in the
unit costs of fundamental custody and accounting services. We expect to benefit
significantly from this effort to improve our operating processes.
We are taking action to stay ahead of the competition, and we will continue to
capitalize on opportunities that arise as investors implement increasingly
complex global investment strategies. As you will see in the following pages,
we are aligned with large and growing markets around the world. Combining
our advanced information technology with banking, trust, investment and
securities processing capabilities, we continue to win new business and expand
existing customer relationships.
Our financial objective remains sustainable real growth in earnings per share.
We believe this will create value for our stockholders over the long term.
It is also our goal to achieve superior long-term financial performance, which
we translate into a return on equity of 18%. We are pleased that, given the
increased level of investment spending, we achieved a 17.4% return on equity
for 1993. Given our current assessment of our company and the markets we serve,
our expectation is for continued double-digit earnings per share growth for
the next few years. We are committed to continuing our transformation as we
aim to be the leading global servicer of financial assets.
Our success in 1993 was the result of the hard work of the 10,000 State Street
employees around the world. We would like to take this opportunity to
acknowledge and thank them for their contributions. Their creativity and
dedication have driven our past success and will pave the way for our success
in the future.
Signature
Marshall N. Carter
Chairman and Chief Executive Officer
Signature
David A. Spina
Vice Chairman
EXHIBIT 13.4
STATE STREET BOSTON CORPORATION CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
<TABLE>
CONSOLIDATED STATEMENT OF INCOME
State Street Boston Corporation
<CAPTION>
(Dollars in thousands, except per share data) 1993 1992 1991
<S> <C> <C> <C>
INTEREST REVENUE
Deposits with banks $201,455 $257,615 $261,992
Investment securities:
U.S. Treasury and Federal agencies 119,495 115,745 115,599
State and political subdivisions (exempt from Federal tax) 25,185 19,345 22,923
Other investments 96,905 87,094 99,211
Loans 127,651 116,516 159,217
Securities purchased under resale agreements and Federal funds sold 114,979 109,149 69,201
Trading account assets 13,198 8,932 9,645
Total interest revenue 698,868 714,396 737,788
INTEREST EXPENSE
Deposits 202,810 248,851 286,751
Other borrowings 168,423 169,905 164,244
Long-term debt 10,022 13,324 13,238
Total interest expense 381,255 432,080 464,233
Net interest revenue 317,613 282,316 273,555
Provision for loan losses - Note C 11,320 12,201 60,012
Net interest revenue after provision for loan losses 306,293 270,115 213,543
FEE REVENUE
Fiduciary compensation 627,769 545,377 442,489
Other - Note K 205,646 157,503 121,394
Total fee revenue 833,415 702,880 563,883
Gain on sale of credit card loan portfolio - Note J 56,200
REVENUE BEFORE OPERATING EXPENSES 1,139,708 972,995 833,626
OPERATING EXPENSES
Salaries and employee benefits - Note N 479,168 409,888 336,764
Occupancy, net 60,643 53,259 45,747
Equipment 100,295 66,965 48,427
Other - Note L 222,147 186,322 177,600
Total operating expenses 862,253 716,434 608,538
Income before income taxes 277,455 256,561 225,088
Income taxes - Note O 97,626 96,118 85,818
NET INCOME $179,829 $160,443 $139,270
EARNINGS PER SHARE
Primary $2.36 $2.10 $1.86
Fully diluted 2.33 2.07 1.81
AVERAGE SHARES OUTSTANDING (in thousands)
Primary 76,193 76,235 74,969
Fully diluted 77,177 77,698 77,116
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENT OF CONDITION
State Street Boston Corporation
<CAPTION>
(Dollars in thousands) December 31, 1993 1992
<S> <C> <C>
ASSETS
Cash and due from banks - Note R $ 1,469,395 $ 1,284,467
Interest-bearing deposits with banks 5,148,249 4,803,246
Securities purchased under resale agreements - Note E 2,267,546 3,037,220
Federal funds sold 188,000 218,500
Trading account assets 159,446 164,566
Investment securities - Notes B and E:
Held for investment (market value $4,507,248
and $3,173,592) 4,484,104 3,151,774
Available for sale (market value $1,221,921
and $973,118) 1,217,095 940,563
Total investment securities 5,701,199 4,092,337
Loans - Note C 2,680,174 2,003,713
Allowance for loan losses (54,316) (57,931)
Net loans 2,625,858 1,945,782
Premises and equipment - Notes D and G 445,109 412,800
Customers' acceptance liability 65,643 35,011
Accrued income receivable 280,976 216,362
Other assets 368,702 279,537
TOTAL ASSETS $18,720,123 $16,489,828
LIABILITIES
Deposits:
Noninterest-bearing $ 5,450,183 $ 4,373,491
Interest-bearing:
Domestic 2,140,457 2,269,002
Foreign 5,427,231 4,417,574
Total deposits 13,017,871 11,060,067
Federal funds purchased 269,083 623,670
Securities sold under repurchase
agreements - Note E 2,972,928 2,751,416
Other short-term borrowings 469,265 135,047
Notes payable - Note F 149,990 336,381
Acceptances outstanding 65,928 35,420
Accrued taxes and other expenses - Note O 373,152 309,933
Other liabilities 167,993 138,960
Long-term debt - Note G 128,939 145,799
TOTAL LIABILITIES 17,615,149 15,536,693
Commitments and contingent liabilities - Notes P and Q
STOCKHOLDERS' EQUITY -- NOTES G, H, I AND R
Preferred stock, no par: authorized 3,500,000;
issued none Common stock, $1 par: authorized
112,000,000; issued 75,874,000 and 75,061,000 75,874 75,061
Surplus 19,253 8,001
Retained earnings 1,009,847 870,073
TOTAL STOCKHOLDERS' EQUITY 1,104,974 953,135
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $18,720,123 $16,489,828
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
CONSOLIDATED STATEMENT OF CASH FLOWS
State Street Boston Corporation
<CAPTION>
(Dollars in thousands) 1993 1992 1991
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 179,829 $ 160,443 $ 139,270
Noncash charges for depreciation, amortization,
provision for loan losses and foreclosed
properties, and deferred income taxes 163,858 117,924 117,029
Net income adjusted for noncash charges 343,687 278,367 256,299
Adjustments to reconcile to net cash provided
(used) by operating activities:
Securities (gains) losses, net (15,375) (12,274) (3,340)
Net change in:
Accrued income receivable (64,614) (9,947) (2,145)
Accrued taxes and other expenses 21,286 12,187 35,823
Trading account assets 5,120 89,415 (138,605)
Other, net (62,193) (16,032) (45,642)
NET CASH PROVIDED BY OPERATING ACTIVITIES 227,911 341,716 102,390
INVESTING ACTIVITIES
Payments for purchases of:
Held-for-investment securities (3,673,561) (3,337,307) (2,028,684)
Available-for-sale securities (1,364,457)
Lease financing assets (426,313) (194,897) (135,779)
Premises and equipment (116,379) (152,070) (109,255)
Proceeds from:
Maturities of held-for-investment securities 2,318,776 1,966,823 1,381,244
Maturities of available-for-sale securities 167,399
Sales of investment securities 522,012 37,884
Sales of available-for-sale securities 935,816
Sale of credit card loan portfolio 436,340
Principal collected from lease financing 45,536 48,440 59,332
Net (payments for) proceeds from:
Interest-bearing deposits with banks (345,003) (972,443) (886,364)
Federal funds sold and securities
purchased under resale agreements 800,174 772,084 (2,809,364)
Loans (617,280) (84,044) 160,420
NET CASH USED BY INVESTING ACTIVITIES (2,275,292) (1,431,402) (3,694,226)
FINANCING ACTIVITIES
Proceeds from issuance of:
Long-term debt 99,025
Notes payable 149,868
Nonrecourse debt for lease financing 347,042 146,424 107,742
Common and treasury stock 6,035 5,810 3,261
Payments for:
Maturity of notes payable (100,000) (100,000)
Nonrecourse debt for lease financing (38,695) (39,572) (42,902)
Long-term debt (114,213) (650) (591)
Cash dividends (39,297) (33,293) (28,415)
Net proceeds from (payments for):
Deposits 1,957,804 2,328,706 1,073,724
Short-term borrowings 14,608 (1,099,901) 2,192,726
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,232,309 1,357,392 3,205,545
NET INCREASE (DECREASE) 184,928 267,706 (386,291)
Cash and due from banks at beginning of period 1,284,467 1,016,761 1,403,052
CASH AND DUE FROM BANKS AT END OF PERIOD $1,469,395 $1,284,467 $1,016,761
SUPPLEMENTAL DISCLOSURE
Interest paid $ 382,310 $ 440,335 $ 462,268
Income taxes paid 56,370 63,497 58,415
The accompanying notes are an integral part of these financial statements.
<PAGE>
</TABLE>
<TABLE>
CONSOLIDATED STATEMENT OF CHANGES
IN STOCKHOLDERS' EQUITY
State Street Boston Corporation
<CAPTION>
COMMON RETAINED TREASURY
(Dollars in thousands) STOCK SURPLUS EARNINGS STOCK TOTAL
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1990 $36,824 $29,956 $634,896 $(6,622) $ 695,054
Net income 139,270 139,270
Cash dividends declared - $.385 per share (28,415) (28,415)
Issuance of common and treasury stock -
671,066 net shares 396 3,911 6,622 10,929
Foreign currency translation (269) (269)
BALANCE AT DECEMBER 31, 1991 37,220 33,867 745,482 -- 816,569
Net income 160,443 160,443
Cash dividends declared - $.445 per share (33,293) (33,293)
Stock dividend, two-for-one split 37,318 (37,318)
Issuance of common stock - 523,346 net shares 523 11,452 11,975
Foreign currency translation (2,559) (2,559)
BALANCE AT DECEMBER 31, 1992 75,061 8,001 870,073 -- 953,135
Net income 179,829 179,829
Cash dividends declared - $.520 per share (39,297) (39,297)
Issuance of common stock - 812,902 net shares 813 11,252 12,065
Foreign currency translation (758) (758)
BALANCE AT DECEMBER 31, 1993 $75,874 $19,253 $1,009,847 $ -- $1,104,974
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
State Street Boston Corporation
NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of State Street Boston Corporation
(``State Street'') and its subsidiaries conform to generally accepted
accounting principles. The significant policies are summarized below.
BASIS OF PRESENTATION: The consolidated financial statements include the
accounts of State Street Boston Corporation and its subsidiaries, including
its principal subsidiary, State Street Bank and Trust Company (``State Street
Bank''). All significant intercompany balances and transactions have been
eliminated upon consolidation. The results of operations of businesses purchased
are included from the date of acquisition. State Street's investment in its
50%-owned affiliate, Boston Financial Data Services, Inc., is accounted for by
the equity method. Certain previously reported amounts have been reclassified
to conform to the current method of presentation. Where appropriate, number of
shares and per share amounts have been restated to reflect a stock split in
1992 (see Note H). For the Consolidated Statement of Cash Flows, State Street
has defined cash equivalents as those amounts included in the Statement of
Condition caption, ``Cash and due from banks.''
SECURITIES: Debt securities are held in both the investment and trading account
portfolios. In 1992, State Street modified its accounting policy for debt
securities, classifying a portion of its investment portfolio as available for
sale.
Debt securities for which there exist the ability and intent to hold to maturity
are classified as held for investment and are stated at cost, adjusted for
amortization of premiums and accretion of discounts. Securities classified as
available for sale are intended to be held for indefinite periods of time, but
not necessarily to maturity. Available-for-sale securities are carried at the
lower of amortized cost or market, with any valuation adjustments reflected in
fee revenue. Securities classified as available for sale are purchased in
connection with State Street's interest-rate risk management and may
be sold in response to changes in interest rates and other factors. Gains or
losses on securities sold are computed based on identified costs and included
in fee revenue. Trading account assets are held in anticipation of short-term
market movements and for resale to customers. Trading account assets are
carried at market value, and the resulting adjustment is reflected in fee
revenue.
In 1993, Statement of Financial Accounting Standards No. 115, ``Accounting for
Certain Investments in Debt and Equity Securities,'' was issued. This statement
requires that available-for-sale securities be reported at fair value, with
unrealized gains and losses, net of taxes, reported in a separate component of
stockholders' equity. State Street will adopt this new statement in 1994.
LOANS AND LEASE FINANCING: Loans are placed on a non-accrual basis when they
become 60 days past due as to either principal or interest, or when in the
opinion of management, full collection of principal or interest is unlikely.
When the loan is placed on non-accrual, the accrual of interest is discontinued,
and previously recorded but unpaid interest is reversed and charged against
current earnings.
Subsidiaries of State Street provide asset-based financing to customers through
a variety of lease arrangements. Direct financing leases are carried at the
aggregate of lease payments receivable plus estimated residual value less
unearned revenue. Revenue on direct financing leases is recognized on a basis
calculated to achieve a constant rate of return on the outstanding net
receivable balance. Leveraged leases are carried net of nonrecourse debt.
Revenue on leveraged leases is recognized on a basis calculated to achieve a
constant rate of return on the outstanding investment in the leases, net of
related deferred tax liabilities, in the years in which the net investment is
positive. Gains and losses on residual values of leased equipment sold are
included in fee revenue.
ALLOWANCE FOR LOAN LOSSES: The adequacy of the allowance for loan losses is
evaluated on a regular basis by management. Factors considered in evaluating
the adequacy of the allowance include previous loss experience, current
economic conditions and their effect on borrowers, and the performance of
individual credits in relation to contract terms. The provision for loan
losses charged to earnings is based upon management's judgment of the amount
necessary to maintain the allowance at a level adequate to absorb probable
losses.
In 1993, Statement of Financial Accounting Standards No. 114, ``Accounting by
Creditors for Impairment of a Loan,'' was issued. This statement addresses how
creditors should establish allowances for credit losses on individual loans
determined to be impaired. State Street plans to adopt this new statement
in 1995, and it is not expected to have a material impact.
PREMISES AND EQUIPMENT: Premises, equipment and leasehold improvements are
carried at cost less accumulated depreciation and amortization. Depreciation and
amortization charged to operating expenses are computed using the straight-line
method over the estimated useful life of the related asset or the remaining term
of the lease.
OTHER REAL ESTATE OWNED (OREO): OREO includes properties acquired in
satisfaction of debt and loans considered to be in-substance foreclosures. The
properties are carried at the lower of cost or fair market value and are
included in other assets. Reductions in carrying value are recognized through
charges to other operating expenses. The costs of maintaining and operating
foreclosed properties are expensed as incurred.
FOREIGN CURRENCY TRANSLATION: The assets and liabilities of foreign operations
are translated at month-end exchange rates, and revenue and expenses are
translated at average monthly exchange rates. Gains or losses from the
translation of the net assets of certain foreign subsidiaries, net of foreign
currency hedges and related taxes, are credited or charged to retained earnings.
Gains or losses from other translations are included in fee revenue.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
State Street Boston Corporation
NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FOREIGN EXCHANGE TRADING: Foreign exchange trading positions are valued daily,
at prevailing exchange rates, and the resulting gain or loss is included in fee
revenue.
INTEREST-RATE CONTRACTS: State Street uses interest-rate contracts as part of
its overall interest-rate risk management. Gains and losses on interest-rate
futures and option contracts that are designated as hedges and effective as such
are deferred and amortized over the remaining life of the hedged assets or
liabilities as an adjustment to interest revenue or expense. Interest-rate swap
contracts that are entered into as a part of interest-rate management are
accounted for using the accrual method as an adjustment to interest expense.
Interest-rate contracts related to trading activities are adjusted to market
value with the resulting gains or losses included in fee revenue.
INCOME TAXES: The provision for income taxes includes deferred income taxes
arising as a result of reporting some items of revenue and expense in different
years for tax and financial reporting purposes. In 1993, State Street adopted
Statement of Financial Accounting Standards No. 109, ``Accounting for Income
Taxes,'' which prescribes the liability method of accounting for income taxes.
Prior years, which were accounted for under the deferral method, were not
restated, and the impact of the adoption in 1993 was not material.
EARNINGS PER SHARE: The computation of primary earnings per share is based on
the weighted average number of shares of common stock and common stock
equivalents outstanding during each period. Stock option grants are
included only in periods when the results are dilutive. The computation of fully
diluted earnings per share additionally includes the assumption that the
convertible debt had been converted as of the beginning of each period, with the
elimination of related interest expense less the income tax benefit.
<TABLE>
NOTE B INVESTMENT SECURITIES
Investment securities consisted of the following at December 31:
<CAPTION>
1993 1992
BOOK UNREALIZED Market Book Unrealized Market
(Dollars in thousands) VALUE GAINS LOSSES Value Value Gains Losses Value
<S> <C> <C> <C> <C> <C> <C> <C> <C>
HELD FOR INVESTMENT
U.S. Treasury and
Federal agencies $1,272,370 $11,522 $ 1,673 $1,282,219 $996,294 $13,980 $2,092 $1,008,182
State and political
subdivisions 1,083,879 7,006 494 1,090,391 450,980 5,432 83 456,329
Asset-backed securities 2,028,099 9,800 4,345 2,033,554 1,617,730 9,798 5,058 1,622,470
Other investments 99,756 1,398 70 101,084 86,770 200 359 86,611
Total 4,484,104 29,726 6,582 4,507,248 3,151,774 29,410 7,592 3,173,592
AVAILABLE FOR SALE
U.S. Treasuries 1,121,605 9,000 4,597 1,126,008 940,563 32,898 343 973,118
Other investments 95,490 423 95,913
Total 1,217,095 9,423 4,597 1,221,921 940,563 32,898 343 973,118
Total investment
securities $5,701,199 $39,149 $11,179 $5,729,169 $4,092,337 $62,308 $7,935 $4,146,710
</TABLE>
The book and market value of investment securities by maturity at December 31,
1993, were as follows:
WITHIN AFTER ONE AFTER FIVE AFTER
ONE YEAR BUT WITHIN BUT WITHIN TEN
(Dollars in thousands) OR LESS FIVE YEARS TEN YEARS YEARS
HELD FOR INVESTMENT
Book value $2,550,772 $1,693,413 $196,563 $43,356
Market value 2,558,234 1,705,662 $198,251 $45,101
AVAILABLE FOR SALE
Book value 388,570 828,525
Market value 396,394 825,527
The maturity of asset-backed securities is based upon the expected principal
payments. Securities carried at $2,656,300,000 and $2,770,800,000 at December
31, 1993 and 1992, respectively, were designated as security for public and
trust deposits, borrowed funds and for other purposes as provided by law.
During 1993, gains of $15,426,000 and losses of $51,000 were realized on sales
of available-for-sale securities of $935,816,000. During 1992, gains of
$14,201,000 and losses of $1,927,000 were realized on sales of investment
securities of $522,012,000.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
State Street Boston Corporation
NOTE C LOANS
The loan portfolio consisted of the following at December 31:
(Dollars in thousands) 1993 1992
Commercial and financial $1,889,143 $1,519,037
Real estate 94,073 105,156
Consumer 46,315 64,841
Foreign 325,142 62,918
Lease financing 325,501 251,761
Total loans $2,680,174 $2,003,713
Non-accrual loans $ 26,804 $ 40,277
Interest revenue under original terms 2,796 4,470
Interest revenue recognized 812 1,449
Changes in the allowance for loan losses for the years ended December 31 were as
follows:
(Dollars in thousands) 1993 1992 1991
Balance at beginning of year $57,931 $65,888 $50,975
Provision for loan losses 11,320 12,201 60,012
Loan charge-offs (18,545) (23,514) (47,770)
Recoveries 2,205 3,356 2,671
Allowance of subsidiary purchased 1,405
Balance at end of year $54,316 $57,931 $65,888
Loans totaling $12,914,000 were restructured in 1993, are performing in
accordance with their new terms and are accruing at a market rate. During 1993
and 1992, loans totaling $1,387,000 and $3,473,000 were transferred to other
real estate owned.
NOTE D PREMISES AND EQUIPMENT
Premises and equipment consisted of the following at December 31:
(Dollars in thousands) 1993 1992
Buildings and land $248,584 $237,554
Leasehold improvements 97,983 75,970
Equipment and furniture 395,895 319,084
742,462 632,608
Accumulated depreciation and amortization (297,353) (219,808)
Total premises and equipment, net $445,109 $412,800
State Street has entered into noncancelable operating leases for premises and
equipment. At December 31, 1993, future minimum payments under noncancelable
operating leases with initial or remaining terms of one year or more totaled
$486,693,000. This consisted of $28,371,000, $26,832,000, $31,416,000,
$30,054,000 and $26,715,000 for the years 1994 to 1998, respectively, and
$343,305,000 thereafter. The minimum rental commitments have been reduced by
sublease rental commitments of $10,581,000. Substantially all leases include
renewal options.
Total rental expense amounted to $25,641,000, $23,194,000 and $21,535,000 in
1993, 1992 and 1991, respectively. Rental expense has been reduced by sublease
revenue of $2,149,000, $3,515,000 and $879,000 in 1993, 1992 and 1991,
respectively.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
State Street Boston Corporation
NOTE E REPURCHASE AND RESALE AGREEMENTS
State Street enters into sales of U.S. Treasury and Federal agency securities
(``U.S. Government securities'') under repurchase agreements, which are treated
as financings, and the obligations to repurchase such securities sold are
reflected as a liability in the Consolidated Statement of Condition. The dollar
amount of U.S. Government securities underlying the repurchase agreements
remains in investment securities.
State Street enters into purchases of U.S. Government securities under
agreements to resell the securities, which are recorded as securities purchased
under resale agreements in the Consolidated Statement of Condition. These
securities can be used as collateral for repurchase agreements. It is State
Street's policy to take possession or control of the security underlying the
resale agreement. The securities are revalued daily to determine if additional
collateral is necessary.
NOTE F NOTES PAYABLE
At December 31, 1993, State Street Bank had outstanding $100 million of 5.65%
Bank Notes with a two-year maturity and due April, 1994, and $50 million of
5.30% Bank Notes with a two-year maturity and due June, 1994. The Bank Notes,
which are not subject to redemption, represent unsecured debt obligations of
State Street Bank. The Bank Notes are neither obligations of or guaranteed by
State Street and are recorded net of original issue discount.
NOTE G LONG-TERM DEBT
Long-term debt, less unamortized original issue discount, consisted of the
following at December 31:
(Dollars in thousands)
1993 1992
5.95% Notes due 2003 $ 99,634 $
8.50% Notes due 1996 74,856
7.75% Convertible subordinated debentures due 2008 3,922 6,343
9.50% Mortgage note due 2009 25,304 26,018
10.13% Mortgage note due 1993 38,500
Other 79 82
Total long-term debt $128,939 $145,799
The 5.95% and the 8.50% notes are unsecured obligations of State Street. The
8.50% notes were redeemed in November, 1993, at par.
The 7.75% debentures are convertible to common stock at a price of $5.75 per
share, subject to adjustment for certain events. The debentures are redeemable,
at the option of State Street, at a price of approximately 102.5%, declining
annually to par by 1998. During 1993 and 1992, $2,422,000 and $602,000 of
debentures were converted into 422,716 and 104,677 shares of common stock,
respectively. At December 31, 1993, 682,000 shares of authorized common stock
have been reserved for issuance upon conversion.
The 9.5% mortgage note was fully collaterized by property at December 31, 1993.
The aggregate maturities of this mortgage note for the years 1994 through 1998
are $785,000, $863,000, $948,000, $1,042,000 and $1,146,000, respectively. The
10.13% mortgage note was assumed with the purchase of property and matured in
February, 1993.
In August, 1993, a shelf registration statement became effective that allows
State Street to issue up to $250 million of unsecured debt securities. In
September, 1993, State Street issued $100 million of 5.95% Notes due 2003, and
the remaining balance of $150 million at December 31, 1993, is available for
issuance.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
State Street Boston Corporation
NOTE H STOCKHOLDERS' EQUITY
In 1992, State Street distributed a two-for-one stock split in the form of a
100% stock dividend to stockholders. The par value of these additional shares
was capitalized by a transfer from surplus to common stock.
In 1993, the Board of Directors authorized the repurchase of up to two million
shares of State Street's common stock. Shares purchased under the authorization,
if any, would be used for employee benefit plans. No purchases were made
through December 31, 1993.
State Street has long-term incentive plans from which stock options, stock
appreciation rights (SARs) and performance shares can be awarded. The exercise
price of non-qualified and incentive stock options may not be less than fair
value of such shares at date of grant and expire no longer than ten years from
date of grant. Performance shares have been granted to officers at the policy-
making level. Performance shares are earned over a performance period based on
achievement of goals. Payment for performance shares is made in cash equal to
the fair market value of the common stock after the conclusion of each
performance period. Compensation expense related to performance shares was
$2,126,000, $8,124,000 and $4,159,000 for 1993, 1992 and 1991, respectively.
Under the 1989 Stock Option Plan, options and SARs covering 2,800,000 shares of
common stock may be issued. Under the 1990 Stock Option and Performance Shares
Plan, options and SARs covering 2,000,000 shares of common stock and 2,000,000
performance shares may be issued. State Street has stock options and performance
shares outstanding from previous plans under which no further grants can be
made.
Option activity during 1993 and 1992 was as follows:
(In thousands, except per share amounts) Option Price
Shares Per Share Total
Outstanding, December 31, 1991 3,016 $ 3.52-26.94 $48,862
Granted 192 32.25-40.69 6,324
Exercised (526) 3.95-20.38 (6,138)
Canceled (22) 12.03-20.72 (355)
Outstanding, December 31, 1992 2,660 3.52-40.69 48,693
Granted 160 32.38-45.31 7,057
Exercised (393) 3.52-20.38 (6,273)
Canceled (31) 11.23-45.31 (701)
Outstanding, December 31, 1993 2,396 3.95-45.31 $48,776
At December 31, 1993, 1,004,428 shares under options were exercisable and
2,903,000 shares under options and SARs were available for future grants. During
1991, 884,000 options were exercised at per share prices of $1.46 to $16.38.
NOTE I SHAREHOLDERS' RIGHTS PLAN
In 1988, State Street declared a dividend of one preferred share purchase right
for each outstanding share of common stock. In 1992, State Street's common stock
was split two-for-one in the form of a 100% stock dividend to shareholders.
After giving effect to the split, under certain conditions, a right may be
exercised to purchase one two-hundredths share of a series of participating
preferred stock at an exercise price of $75, subject to adjustment. The rights
become exercisable if a party acquires or obtains the right to acquire 20% or
more of State Street's common stock or after commencement or public announcement
of an offer for 20% or more of State Street's common stock. When exercisable,
under certain conditions, each right also entitles the holder thereof to
purchase shares of common stock, of either State Street or of the acquiror,
having a market value of two times the then current exercise price of that
right.
The rights expire in 1998 and may be redeemed at a price of $.005 per right at
any time prior to expiration or the acquisition of 20% of State Street's common
stock. Also, under certain circumstances, the rights may be redeemed after they
become exercisable and may be subject to automatic redemption.
NOTE J SALE OF CREDIT CARD LOAN PORTFOLIO
In January, 1991, State Street sold its $431,000,000 credit card loan portfolio
resulting in a pre-tax gain of $56,200,000, which increased net income by
$32,600,000, equal to $.44 primary and $.43 fully diluted per share.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
State Street Boston Corporation
NOTE K FEE REVENUE - OTHER
The Other category of fee revenue consisted of the following for the years ended
December 31:
(Dollars in thousands) 1993 1992 1991
Foreign exchange trading $ 82,705 $ 57,904 $ 39,255
Processing service fees 46,083 30,414 19,765
Service fees 40,038 31,281 23,330
Securities gains, net 15,375 12,274 3,340
Bank card fees 4,254 4,930 13,278
Trading account profits 3,740 2,714 4,330
Other 13,451 17,986 18,096
Total fee revenue - other $205,646 $157,503 $121,394
NOTE L OPERATING EXPENSES - OTHER
The Other category of operating expenses consisted of the following for the
years ended December 31:
(Dollars in thousands) 1993 1992 1991
Contract services $ 64,080 $ 45,364 $ 47,344
Professional services 35,358 30,120 24,703
Telecommunications 21,326 18,119 14,673
Advertising and sales promotion 18,672 15,079 11,098
Postage, forms and supplies 17,927 16,847 16,448
FDIC and other insurance 17,263 16,906 12,438
Operating and processing losses 4,745 6,965 17,702
Other 42,776 36,922 33,194
Total operating expenses - other $222,147 $186,322 $177,600
<TABLE>
NOTE M QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a tabulation of the unaudited quarterly results of operations:
<CAPTION>
(In thousands, except 1993 QUARTERS 1992 Quarters
per share data) FOURTH THIRD SECOND FIRST Fourth Third Second First
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest revenue $186,832 $176,820 $171,831 $163,385 $169,429 $179,363 $183,606 $181,998
Interest expense 103,959 93,823 96,336 87,137 94,614 107,801 115,123 114,542
Net interest revenue 82,873 82,997 75,495 76,248 74,815 71,562 68,483 67,456
Provision for loan losses 2,880 2,880 2,880 2,680 2,495 1,897 1,906 5,903
Net interest revenue
after provision for
loan losses 79,993 80,117 72,615 73,568 72,320 69,665 66,577 61,553
Fee revenue 222,670 211,432 205,306 194,007 183,758 182,036 169,587 167,499
Total revenue 302,663 291,549 277,921 267,575 256,078 251,701 236,164 229,052
Operating expenses 229,100 218,425 211,609 203,119 188,787 183,728 175,138 168,781
Income before income
taxes 73,563 73,124 66,312 64,456 67,291 67,973 61,026 60,271
Income taxes 25,879 26,851 23,095 21,801 23,653 26,101 22,325 24,039
Net Income $ 47,684 $ 46,273 $ 43,217 $ 42,655 43,638 $ 41,872 $ 38,701 $ 36,232
Earnings Per Share:
Primary $.62 $.61 $.57 $.56 $.57 $.55 $.51 $.48
Fully diluted .62 .60 .56 .55 .56 .54 .50 .47
Average Shares Outstanding:
Primary 76,399 76,167 76,046 76,749 76,470 76,315 76,137 75,985
Fully diluted 77,224 77,141 77,120 77,851 77,745 77,514 77,409 77,256
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
State Street Boston Corporation
NOTE N EMPLOYEE BENEFIT PLANS
State Street and its U.S. subsidiaries participate in a noncontributory cash
balance defined benefit plan covering employees based on age and service. The
plan provides individual account accumulations that are increased annually based
on salary, service and interest credits. State Street uses the projected unit
credit method as its actuarial valuation method. It is State Street's funding
policy to contribute annually the maximum amount that can be deducted for
Federal income tax purposes. Employees in non-U.S. offices participate in local
plans, and the cost of these plans is not material.
The following table sets forth the primary plan's funded status, actuarial
assumptions and amounts recognized in the consolidated financial statements as
of and for the years ended December 31:
<TABLE>
<CAPTION>
(Dollars in thousands) 1993 1992 1991
<S> <C> <C> <C>
Accumulated benefit obligation:
Vested $ 91,186 $ 77,331 $ 68,110
Nonvested 10,527 9,075 5,127
Additional benefits based on estimated future salary levels 12,465 10,738 10,233
Projected benefit obligation 114,178 97,144 83,470
Plan assets at fair value, primarily listed stocks and fixed income securities 162,690 148,102 147,033
Excess of plan assets over projected benefit obligation 48,512 50,958 63,563
Unrecognized net asset at transition being amortized over 17.2 years (19,771) (21,699) (23,627)
Unrecognized net gain (3,152) (4,291) (16,719)
Unrecognized prior service cost (3,770) (4,042) (4,313)
Total prepaid pension expense included in other assets $ 21,819 $ 20,926 $ 18,904
Pension expense (income) included the following components:
Service cost-benefits earned during period $ 10,030 $ 9,423 $ 7,672
Interest cost on projected benefit obligation 6,142 6,812 5,991
Actual return on plan assets (22,874) (8,306) (28,637)
Net amortization and deferral 5,809 (9,951) 9,625
Total pension income $ (893) $ (2,022) $ 5,349)
Actuarial assumptions:
Discount rate used to determine benefit obligation 7.50% 8.50% 9.00%
Rate of increase in future compensation level 5.00% 5.00% 6.00%
Expected long-term rate of return on plan assets 10.25% 10.25% 11.00%
</TABLE>
State Street has an unfunded, non-qualified supplemental retirement plan that
provides certain officers with defined pension benefits in excess of limits
imposed by Federal tax law. At December 31, 1993, 1992 and 1991, the projected
benefit obligation of this plan was $2,790,000, $2,174,000 and $1,986,000, and
the related pension expense was $400,000, $430,000 and $95,000, respectively.
Total pension expense (income) for all plans was $2,050,000, $424,000 and
$(3,631,000) for 1993, 1992 and 1991, respectively.
Employees of State Street Bank and certain subsidiaries with one or more years
of service are eligible to contribute a portion of their pre-tax salary to a
401(k) Salary Savings Plan. State Street matches a portion of these
contributions, and the related expenses were $5,942,000, $4,796,000 and
$4,153,000 for 1993, 1992 and 1991, respectively.
State Street Bank and certain subsidiaries provide health care and life
insurance benefits for retired employees. In 1993, Statement of Financial
Accounting Standards No. 106, ``Employers' Accounting for Postretirement
Benefits Other than Pension,'' was adopted. This statement requires that the
costs associated with providing postretirement benefits be accrued during the
active service periods of the employee, rather than expensing these costs as
paid. State Street has elected to amortize the accumulated postretirement
benefit obligation (APBO), which at the date of adoption was $22,100,000, over a
20-year period. State Street continues to fund medical and life insurance
benefit costs on a pay-as-you go basis. In previous years, the cost of these
benefits was expensed as claims were paid and was not material.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
State Street Boston Corporation
NOTE N EMPLOYEE BENEFIT PLANS (CONTINUED)
The following table sets forth the financial status of the plan and amounts
recognized in the consolidated financial statements as of and for the year ended
December 31, 1993:
(Dollars in thousands) 1993
Accumulated postretirement benefit obligation:
Retirees $ 5,553
Fully eligible active employees 5,333
Other active employees 16,383
APBO 27,269
Unrecognized transition obligation (20,968)
Unrecognized net loss (2,969)
Accrued postretirement benefit cost $ 3,332
Postretirement expense included the following components:
Service cost-benefits earned during the period $ 1,491
Interest cost on APBO 1,835
Net amortization and deferral 1,104
Total postretirement expense $ 4,430
The discount rate used in determining the APBO was 7.5% and the assumed health
care cost trend rate used in measuring the APBO was 14% in 1994, declining to
6% by 2005, and remaining at 6% thereafter. If the health care trend rate
assumptions were increased by 1%, the APBO, as of December 31, 1993,
would have increased by 8%, and the aggregate of service and interest cost
for 1993 would have increased by 8%.
NOTE O INCOME TAXES
The provision for income taxes includes deferred income taxes arising as a
result of reporting certain items of revenue and expense in different years for
tax and financial reporting purposes. In 1993, State Street adopted Statement of
Financial Accounting Standards No. 109, ``Accounting for Income Taxes,'' which
prescribes the liability method of accounting for income taxes. The impact of
the adoption in 1993 was not material.
The provision for income taxes included in the Consolidated Statement of Income
consisted of the following:
(Dollars in thousands) 1993 1992 1991
Current:
Federal $22,572 $30,643 $39,060
State 16,665 19,799 26,444
Foreign 16,456 10,893 8,131
Total current 55,693 61,335 73,635
Deferred:
Federal 27,002 24,420 9,481
State 14,931 10,363 2,702
Total deferred 41,933 34,783 12,183
Total income taxes $97,626 $96,118 $85,818
Current and deferred taxes for 1991 and 1992 have been reclassified to reflect
the tax returns as actually filed. Income tax benefits of $3,603,000, $5,570,000
and $4,397,000 in 1993, 1992 and 1991, respectively, related to certain employee
stock option exercises were recorded directly to stockholders' equity and are
not included in the table above. Income taxes related to net securities gains
were $6,634,000, $5,118,000 and $1,412,000 for 1993, 1992 and 1991,
respectively.
Pre-tax income attributable to operations located outside the United States was
$51,823,000, $34,723,000 and $20,785,000 in 1993, 1992 and 1991, respectively.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
State Street Boston Corporation
NOTE O INCOME TAXES (CONTINUED)
Significant components of the deferred tax liabilities and assets were as
follows:
(Dollars in thousands) 1993
Deferred tax liabilities:
Lease financing transactions $217,713
Depreciation 11,647
Investment securities 8,777
Prepaid pension expense 8,155
Other 7,693
Total deferred tax liabilities 253,985
Deferred tax assets:
Operating expenses 26,682
Allowance for loan losses 22,516
Alternative minimum tax credit 11,589
Other 10,317
Total deferred tax assets 71,104
Valuation allowance for deferred tax assets (3,228)
Net deferred tax assets 67,876
Net deferred tax liabilities $186,109
At December 31, 1993, State Street had non-U.S. carryforward tax losses of
$10,659,000 and U.S. tax credit carryforwards of $11,589,000. If not utilized,
$6,413,000 of the losses will expire in the years 1995-2000. The credits
and the remaining losses carry over indefinitely.
The provision for deferred income taxes for the years ended December 31, 1992
and December 31, 1991 consisted of the following:
(Dollars in thousands) 1992 1991
Lease financing transactions $30,771 $16,413
Provision for loan losses 3,363 (6,305)
Other, net 649 2,075
Total deferred $34,783 $12,183
A reconciliation of the differences between the U.S. statutory income tax rate
and the effective tax rates based on income before taxes is as follows:
1993 1992 1991
U.S. Federal income tax rate 35.0% 34.0% 34.0%
Changes from statutory rate resulting from:
State taxes, net of Federal benefit 7.1 7.8 8.5
Tax exempt interest revenue,
net of disallowed interest (3.6) (3.1) (4.4)
Tax credits (3.6) (1.6) (.4)
Other, net .3 .4 .4
Effective tax rate 35.2% 37.5% 38.1%
<PAGE>
NOTES TO FINANCIAL STATEMENTS
State Street Boston Corporation
NOTE P OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
State Street uses various off-balance sheet financial instruments to satisfy the
financing needs of customers, manage interest-rate and currency risk and conduct
trading activities. These instruments generate fee, interest or trading revenue.
Associated with these instruments are market and credit risks that could expose
State Street to potential losses.
Market risk relates to the possibility that financial instruments may change in
value due to future fluctuations in market prices. Credit risk relates to the
possibility that a loss may occur from the failure of another party to perform
according to the terms of a contract. The credit risk associated with off-
balance sheet financial instruments is managed in conjunction with State
Street's balance sheet activities. Historically, the credit losses experienced
with respect to these instruments have been immaterial.
The following is a summary of the contractual or notional amount of State
Street's off-balance sheet financial instruments:
(Dollars in millions) 1993 1992
Financial instruments whose contractual amounts represent
credit risk:
Loan commitments $ 2,356 $ 1,595
Standby letters of credit 799 471
Letters of credit 140 115
Indemnified securities lent 12,432 9,582
Financial instruments whose contractual or notional amount
exceeds the amount of credit risk:
Foreign exchange commitments 36,179 16,737
Interest-rate contracts:
Futures 691 72
Swap agreements 158 265
In conjunction with its lending activities, State Street enters into various
commitments to extend credit and issues letters of credit. Loan commitments
(unfunded loans and unused lines of credit), standby letters of credit and
letters of credit are issued to accommodate the financing needs of State
Street's customers. Loan commitments are essentially agreements by State Street
to lend monies at a future date, so long as there are no violations of any
conditions established in the agreement. Standby letters of credit and letters
of credit commit State Street to make payments on behalf of customers when
certain specified events occur.
These loan and letter-of-credit commitments are subject to the same credit
policies and reviews as loans on the balance sheet. Collateral, both the amount
and nature, is obtained based upon management's assessment of the credit risk.
Approximately 70% of the loan commitments expire in one year or less from the
date of issue. Since many of the extensions of credit are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements.
On behalf of its customers, State Street lends their securities to creditworthy
brokers and other institutions. In certain circumstances, State Street
indemnifies its customers for the fair market value of those securities against
a failure of the borrower to return such securities. State Street requires the
borrowers to provide collateral in an amount equal to or in excess of 102% of
the fair market value of the securities borrowed. The borrowed securities are
revalued daily to determine if additional collateral is necessary. State Street
held as collateral, cash and U.S. Government securities totaling $12.8 billion
and $9.8 billion for indemnified securities at December 31, 1993 and 1992,
respectively.
State Street enters into a variety of foreign exchange and interest-rate
contracts with counterparties that may expose it to currency and interest-rate
risk on behalf of its customers, in managing its own exposure and through
trading activities. Foreign exchange and interest-rate futures contracts are
commitments to buy or sell at a future date a currency or financial instrument
at a contracted price, and may be settled in cash or through delivery of the
contracted instrument. Interest-rate swap agreements involve the exchange of
interest payments, either at a fixed or variable rate, based on a notional
amount without the exchange of the underlying principal amount.
State Street's exposure from these foreign exchange and interest-rate contracts
results from the possibility that one party may default on its contractual
obligation or from movements in exchange or interest rates. The exposure to
credit loss can be estimated by calculating the cost, on a present value basis,
to replace at current market rates all profitable contracts outstanding at year-
end. State Street minimizes its credit risk in this area by performing credit
reviews of its counterparties and by conducting its activities through organized
exchanges. There may be considerable day-to-day variation in exposure because of
changing expectations of future currency values or interest rates. State Street
actively manages its market risk exposure.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
State Street Boston Corporation
NOTE Q CONTINGENT LIABILITIES
State Street provides custody, accounting and information services to mutual
fund, master trust/master custody/global custody, corporate trust and defined
contribution plan customers; and investment management services to institutions
and individuals. Assets under custody and management, held by State Street in a
fiduciary or custody capacity, are not included in the Consolidated Statement
of Condition since such items are not assets of State Street. Management
conducts regular reviews of its responsibilities for these services and
considers the results in preparing its financial statements. In the opinion of
management, there are no contingent liabilities at December 31, 1993 that would
have a material adverse effect on State Street's financial position or results
of operations.
State Street is subject to pending and threatened legal actions that arise in
the normal course of business. In the opinion of management, after discussion
with counsel, these can be successfully defended or resolved without a material
adverse effect on State Street's financial position or results of operations.
NOTE R CASH, DIVIDEND AND LOAN RESTRICTIONS
During 1993, subsidiary banks of State Street were required by the Federal
Reserve Bank to maintain average reserve balances of $221,941,000.
State Street's principal source of funds for the payment of cash dividends to
stockholders is from dividends paid by State Street Bank. Federal and state
banking regulations place certain restrictions on dividends paid by subsidiary
banks to State Street. At December 31, 1993, State Street Bank had $366,454,000
of retained earnings available for distribution to State Street in the form of
dividends.
The Federal Reserve Act requires that extensions of credit by State Street Bank
to certain affiliates, including State Street, be secured by specific
collateral, that the extension of credit to any one affiliate be limited to
10% of capital and surplus (as defined), and that extensions of credit to all
such affiliates be limited to 20% of capital and surplus.
At December 31, 1993, consolidated retained earnings included $4,847,000 of
undistributed earnings of Boston Financial Data Services, Inc., a 50%-owned
affiliate.
NOTE S FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial Accounting Standards No. 107 requires the calculation and disclosure
of the fair value of financial instruments.
The short maturity of State Street's assets and liabilities results in having a
significant number of financial instruments whose fair value equals or closely
approximates reported book value. The following methods were used to estimate
the fair value of financial instruments.
For financial instruments that have quoted market prices, those quotes were used
to determine fair value. Financial instruments that have no defined maturity,
have a remaining maturity of 180 days or less, or reprice frequently to a market
rate, are assumed to have a fair value that approximates reported book value,
after taking into consideration any applicable credit risk. If no market quotes
were available, financial instruments were valued by discounting the expected
cash flow(s) using an estimated current market interest rate for the financial
instrument.
Fair value approximates reported book value for the following balance sheet
captions: Cash and due from banks; Interest-bearing deposits with banks;
Securities purchased under resale agreements; Federal funds sold; Deposits;
Federal funds purchased; Securities sold under repurchase agreements; and Other
short-term borrowings.
The reported book value and fair value for other balance sheet captions are as
follows:
1993 1992
BOOK FAIR Book Fair
(Dollars in millions) VALUE VALUE Value Value
Investment securities $5,701 $5,729 $4,092 $4,147
Net loans (excluding leases) 2,300 2,301 1,696 1,697
Notes payable 150 150 336 339
Long-term debt 129 133 146 152
The fair value of off-balance sheet financial instruments is measured by
determining the cost to close out the contract. The cost for interest-rate
swap agreements is $1 million for 1993 and $4 million for 1992. There is no
cost for loan commitments.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
State Street Boston Corporation
NOTE T FOREIGN ACTIVITIES
Foreign activities, as defined by the Securities and Exchange Commission, are
considered to be those revenue-producing assets and transactions that arise
from customers domiciled outside the United States.
Due to the nature of the Corporation's business, it is not possible to segregate
precisely domestic and foreign activities. The determination of earnings
attributable to foreign activities requires internal allocations for resources
common to foreign and domestic activities. Subjective judgments have been used
to arrive at these operating results for foreign activities. Interest expense
allocations are based on the average cost of short-term domestic borrowed
funds. Allocations for operating expenses and certain administrative costs are
based on services provided and received.
The following data relates to foreign activities, based on the domicile location
of customers, for the years ended and as of December 31:
(Dollars in thousands) 1993 1992 1991
Condensed Statement of Income:
Interest revenue $ 226,213 $ 264,589 $ 277,426
Interest expense 158,392 209,094 231,646
Net interest revenue 67,821 55,495 45,780
Provision for loan losses 1,073 467 23
Fee revenue 129,942 107,350 79,769
Total revenue 196,690 162,378 125,526
Operating expenses 140,492 117,887 82,859
Net income before taxes 56,198 44,491 42,667
Income taxes 22,171 20,380 20,604
Net Income $ 34,027 $ 24,111 $ 22,063
Assets:
Interest-bearing deposits with banks $5,148,201 $4,803,196 $3,830,803
Loans and other assets 645,579 253,896 175,515
Total Assets $5,793,780 $5,057,092 $4,006,318
NOTE U FINANCIAL STATEMENTS OF STATE STREET BOSTON CORPORATION (PARENT ONLY)
Statement of Condition
(Dollars in thousands) December 31, 1993 1992
Assets
Cash and due from banks $ 454 $ 80
Securities purchased under resale agreements 65,068 28,578
Investment securities - available for sale 35,030 35,161
Investment in consolidated subsidiaries:
Bank 1,067,080 931,669
Nonbank 39,940 37,290
Investment in unconsolidated affiliate 11,364 9,698
Capital notes of bank subsidiary 18,211 18,211
Notes receivable from nonbank subsidiaries 7,687 5,286
Other assets 2,383 1,996
Total Assets $1,247,217 $1,067,969
Liabilities
Accrued taxes and other expenses $27,985 $24,546
Other liabilities 10,624 9,007
Long-term debt 103,634 81,281
Total Liabilities 142,243 114,834
Stockholders' Equity 1,104,974 953,135
Total Liabilities and Stockholders' Equity $1,247,217 $1,067,969
<PAGE>
NOTES TO FINANCIAL STATEMENTS
State Street Boston Corporation
NOTE U FINANCIAL STATEMENTS OF STATE STREET BOSTON CORPORATION (PARENT ONLY)
(CONTINUED)
<TABLE>
Statement of Income
<CAPTION>
(Dollars in thousands) 1993 1992 1991
<S> <C> <C> <C>
Dividends from bank subsidiary $ 46,400 $ 28,500 $ 32,000
Dividends and interest revenue 4,228 5,208 6,329
Fee revenue 201
Gain on sale of credit card loan portfolio - Note J 9,993
Total revenue 50,628 33,909 48,322
Interest on long-term debt 7,276 6,926 7,106
Other expenses 1,678 1,543 1,265
Total expenses 8,954 8,469 8,371
Income tax expense (benefit) (1,873) (1,544) 2,958
Income before equity in undistributed income of subsidiaries 43,547 26,984 36,993
Equity in undistributed income of subsidiaries and affiliate:
Consolidated bank 132,688 132,464 101,303
Consolidated nonbank 1,528 791 916
Unconsolidated affiliate 2,066 204 58
136,282 133,459 102,277
Net Income $179,829 $160,443 $139,270
</TABLE>
<TABLE>
Statement of Cash Flows
<CAPTION>
(Dollars in thousands) 1993 1992 1991
<S> <C> <C> <C>
Operating Activities
Net income $179,829 $160,443 $139,270
Equity in undistributed income of subsidiaries and affiliate (136,282) (133,459) (102,277)
Other, net 5,403 8,273 15,452
Net Cash Provided by Operating Activities 48,950 35,257 52,445
Investing Activities
Net (payments for) proceeds from:
Investment in bank subsidiary (40,500)
Investment in nonbank subsidiary (1,000)
Securities purchased under resale agreement (36,491) 37,774 2,192
Investment securities (5,135) (20,444)
Notes receivable from nonbank subsidiaries (2,248) 500 500
Other, net 400 (548) (9,490)
Net Cash Used by Investing Activities (39,339) (7,909) (27,242)
Financing Activities
Proceeds from issuance of long-term debt 99,025
Payment of long-term debt (75,000)
Proceeds from issuance of common and treasury stock 6,035 5,810 3,261
Payments for cash dividends (39,297) (33,293) (28,415)
Net Cash Used by Financing Activities (9,237) (27,483) (25,154)
Net Increase (Decrease) 374 (135) 49
Cash and due from banks at beginning of period 80 215 166
Cash and Due from Banks at End of Period $ 454 $ 80 $ 215
</TABLE>
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Stockholders and Board of Directors
State Street Boston Corporation
We have audited the accompanying consolidated statements of condition of State
Street Boston Corporation as of December 31, 1993 and 1992, and the related
consolidated statements of income, cash flows and changes in stockholders'
equity for each of the three years in the period ended December 31, 1993. These
financial statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of State Street
Boston Corporation at December 31, 1993 and 1992, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1993, in conformity with generally accepted accounting
principles.
/s/Ernst & Young
Boston, Massachusetts
January 13, 1994
<PAGE>
<TABLE>
SUPPLEMENTAL FINANCIAL DATA
State Street Boston Corporation
<CAPTION>
CONDENSED AVERAGE STATEMENT OF CONDITION WITH NET INTEREST REVENUE ANALYSIS
(TAXABLE EQUIVALENT BASIS) 1993
AVERAGE AVERAGE
(Dollars in millions) BALANCE INTEREST RATE
<S> <C> <C> <C>
ASSETS
Interest-bearing deposits with banks $ 5,022 $201.6 4.01%
Securities purchased under resale agreements 3,255 102.4 3.14
Federal funds sold 413 12.6 3.06
Trading account assets 369 15.6 4.21
Investment securities:
U.S. Treasury and Federal agencies 2,077 119.5 5.75
State and political subdivisions 683 37.8 5.54
Other investments 1,827 97.4 5.33
Total investment securities 4,587 254.7 5.55
Loans:
Commercial and financial 1,865 89.8 4.81
Real estate 97 6.8 6.97
Consumer 53 3.6 6.81
Foreign 282 16.4 5.82
Lease financing 279 15.7 5.61
Total loans 2,576 132.3 5.14
TOTAL INTEREST-EARNING ASSETS 16,222 719.2 4.43
Cash and due from banks 911
Allowance for loan losses (58)
Premises and equipment 435
Customers' acceptance liability 33
Other assets 626
TOTAL ASSETS $18,169
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing deposits:
Savings $ 2,167 52.2 2.41
Time 157 4.5 2.88
Foreign 4,954 146.1 2.95
Total interest-bearing deposits 7,278 202.8 2.79
Federal funds purchased 741 21.0 2.84
Securities sold under repurchase agreements 4,134 119.4 2.89
Other short-term borrowings 216 8.2 3.78
Notes payable 511 19.9 3.90
Long-term debt 122 10.0 8.19
TOTAL INTEREST-BEARING LIABILITIES 13,002 381.3 2.93
Noninterest-bearing deposits 3,623
Acceptances outstanding 34
Other liabilities 477
Stockholders' equity 1,033
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $18,169
Net interest revenue $337.9
Excess of rate earned over rate paid 1.50%
NET INTEREST MARGIN*<F1> 2.08%
<FN>
<F1>*Net interest margin is taxable equivalent net interest revenue divided by average
interest-earning assets.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
1992 1991 1990 1989
Average Average Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate Balance Interest Rate
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 5,102 $257.7 5.05% $ 3,646 $262.1 7.19% $ 2,733 $252.7 9.25% $ 1,389 $137.2 9.88%
2,603 97.6 3.75 913 51.4 5.63 246 20.0 8.12 149 13.1 8.98
330 11.6 3.51 305 17.8 5.83 470 38.2 8.14 484 45.0 9.24
226 10.1 4.45 152 11.9 7.80 129 12.5 9.60 110 9.9 9.03
1,703 115.7 6.80 1,417 115.6 8.16 1,634 138.4 8.47 1,706 137.4 8.06
376 29.0 7.72 378 34.4 9.09 338 32.1 9.51 227 20.5 9.06
1,444 87.9 6.09 1,212 100.8 8.32 776 70.8 9.13 421 38.8 9.21
3,523 232.6 6.60 3,007 250.8 8.34 2,748 241.3 8.78 2,354 196.7 8.36
1,556 87.7 5.64 1,583 124.7 7.88 1,590 152.0 9.56 1,498 149.6 9.99
114 8.1 7.11 144 12.2 8.47 216 20.2 9.35 245 27.0 11.02
66 5.0 7.65 90 9.3 10.39 521 82.5 15.85 463 68.2 14.74
117 7.1 6.08 87 6.5 7.43 100 8.6 8.58 88 7.0 8.00
217 10.5 4.84 204 9.9 4.84 194 10.3 5.31 173 10.1 5.83
2,070 118.4 5.72 2,108 162.6 7.72 2,621 273.6 10.44 2,467 261.9 10.61
13,854 728.0 5.26 10,131 756.6 7.47 8,947 838.3 9.37 6,953 663.8 9.55
819 775 743 599
(67) (64) (56) (52)
359 269 198 170
52 61 33 70
485 402 368 349
$15,502 $11,574 $10,233 $ 8,089
$ 2,154 68.0 3.16 $ 1,819 94.9 5.22 $ 1,370 96.8 7.05 $ 951 74.3 7.81
162 6.3 3.86 307 18.5 6.00 347 28.1 8.10 356 31.8 8.94
3,955 174.6 4.42 2,648 173.4 6.55 2,223 189.3 8.52 1,096 104.5 9.53
6,271 248.9 3.97 4,774 286.8 6.01 3,940 314.2 7.97 2,403 210.6 8.76
919 30.8 3.35 837 45.9 5.48 828 65.6 7.93 377 33.9 8.99
3,290 112.4 3.42 1,766 89.8 5.08 1,703 128.4 7.54 1,733 147.9 8.53
194 8.3 4.27 156 8.3 5.29 125 9.1 7.28 135 11.8 8.76
389 18.4 4.74 234 20.3 8.69 200 19.4 9.72 178 17.1 9.62
146 13.3 9.10 146 13.2 9.04 114 10.0 8.70 117 10.0 8.59
11,209 432.1 3.85 7,913 464.3 5.87 6,910 546.7 7.91 4,943 431.3 8.73
2,952 2,460 2,301 2,218
52 61 33 71
402 367 342 302
887 773 647 555
$15,502 $11,574 $10,233 $ 8,089
$295.9 $292.3 $291.6 $232.5
1.41% 1.60% 1.46% .82%
2.14% 2.89% 3.26% 3.34%
</TABLE>
EXHIBIT 21.1
SUBSIDIARIES OF STATE STREET BOSTON CORPORATION
The following table sets forth the name of each subsidiary and the state
or other jurisdiction of its organization. Certain subsidiaries of State
Street have been omitted in accordance with SEC rules because, when considered
in the aggregate, they did not constitute a "significant subsidiary" of State
Street at December 31, 1993.
<TABLE>
<CAPTION>
STATE OR JURISDICTION
NAME OF ORGANIZATION
- ---- ---------------------
<S> <C>
State Street Bank and Trust Company Massachusetts
State Street Bank and Trust Company, N.A. National Banking Act
State Street Bank and Trust Company of California, N.A. National Banking Act
State Street Bank and Trust Company of Connecticut, N.A. National Banking Act
State Street Bank and Trust Company of Maryland, N.A. National Banking Act
State Street Bank and Trust Company of New Hampshire, N.A. National Banking Act
State Street Boston Capital Corporation Massachusetts
State Street Boston Leasing Company, Inc. Massachusetts
State Street California, Inc. Massachusetts
SPLS, Inc. Massachusetts
State Street Brokerage Services, Inc. Massachusetts
State Street Massachusetts Securities Corporation Massachusetts
State Street Bank International Federal Reserve Act
State Street GmbH Germany
State Street International Holdings Federal Reserve Act
State Street Australia Limited New South Wales
State Street Finance Limited New South Wales
State Street New Zealand Limited New Zealand
State Street Bank Luxembourg, S.A. Luxembourg
State Street Banque S.A. France
State Street Canada, Inc. Canada
State Street Cayman Trust Company, Limited British West Indies
State Street Curacao Trust Company N.V. Netherlands Antilles
State Street Trust and Banking Company Limited Japan
State Street London Limited United Kingdom
Wendover Funding, Inc. North Carolina
State Street Boston Credit Company, Inc. Massachusetts
State Street South Corporation Massachusetts
SSB Investments, Inc. Massachusetts
SSB Realty, Inc. Massachusetts
Two Heritage Drive Realty Associates Massachusetts
Three Heritage Drive Associates Massachusetts
State Street Florida, Inc. Florida
State Street Global Advisors, Inc. Delaware
State Street Global Advisors, United Kingdom, Limited United Kingdom
State Street Global Advisors, Australia, Limited New South Wales
Boston Financial Data Services, Inc. (50% owned) Massachusetts
</TABLE>
All of the above wholly-owned subsidiaries are included in the
consolidated financial statements for State Street, which are reported on by
Ernst & Young, independent auditors, and filed with this Form 10-K.
EXHIBIT 23.1
CONSENTS OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form
10-K) of State Street Boston Corporation of our report dated January 13, 1994
included in the 1993 Annual Report to Shareholders of State Street Boston
Corporation.
We also consent to the incorporation by reference in Registration
Statements (Forms S-8 Nos. 33-38672, 33-38671, 33-2882, 2-93157, 2-88641 and
2-68698) and in Post-Effective Amendment No. 2 to Registration Statement (Form
S-8 No. 2-68696) pertaining to various stock option and performance share
plans, and in the Registration Statement (Form S-3 No. 33-49885) pertaining to
the registration of debt securities of State Street Boston Corporation of our
report dated January 13, 1994, with respect to the consolidated financial
statements of State Street Boston Corporation incorporated herein by reference
in this Annual Report (Form 10-K) for the year ended December 31, 1993.
ERNST & YOUNG
Boston, Massachusetts
